<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1998
REGISTRATION NO. 333-43417
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 7
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
OMEGA WORLDWIDE, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
MARYLAND 6512 38-3382537
(State or Other Jurisdiction
of
Incorporation or (Primary Standard Industrial (IRS Employer
Organization) Classification Code Number) Identification No.)
SUSAN A. KOVACH
905 WEST EISENHOWER CIRCLE VICE PRESIDENT AND SECRETARY
SUITE 101 905 WEST EISENHOWER CIRCLE
ANN ARBOR, MICHIGAN 48103 SUITE 101
TELEPHONE: (734) 747-9791 ANN ARBOR, MICHIGAN 48103
(ADDRESS AND TELEPHONE NUMBER OF TELEPHONE: (734) 747-9791
REGISTRANT'S (NAME, ADDRESS AND TELEPHONE NUMBER
PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
</TABLE>
-------------------------
Copies to:
RICHARD W. SHEPRO, ESQ.
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 782-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after the effective date of this registration statement and the
contribution of the assets to Registrant as described herein.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT PRICE REGISTRATION FEE(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.10 par value per
per share......................... 11,250,000 $7.50 $45,375,000 $13,386
=====================================================================================================================
</TABLE>
(1) Includes 5,200,000 being distributed to shareholders of Omega Healthcare
Investors, Inc., a Maryland corporation, for no consideration.
(2) Previously paid.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
OMEGA WORLDWIDE, INC.
Of the 2,800,000 shares of common stock, par value $.10 per share (the
"Omega Worldwide Common Stock"), of Omega Worldwide, Inc., a Maryland
corporation (the "Company"), offered hereby, 500,000 shares are being offered by
the Company (the "Primary Offering") and 2,300,000 shares (the "Secondary
Offering") are being sold by Omega Healthcare Investors, Inc., a Maryland
corporation and a shareholder of the Company ("Omega"). The Company will not
receive any of the proceeds from the sale of the Omega Worldwide Common Stock in
the Secondary Offering. See "Use of Proceeds." The Omega Worldwide Common Stock
is being offered on a best efforts basis in the Primary Offering and Secondary
Offering through April 10, 1998, unless extended. There are no minimum purchase
requirements and, therefore, funds will not be placed in an escrow account.
Investors who purchase Omega Worldwide Common Stock will receive their shares
upon receipt of payment in full for the shares. This Prospectus is also being
furnished in connection with the distribution by the Company of rights (the
"Rights") to subscribe for and purchase Omega Worldwide Common Stock at $7.50
per share (the "Subscription Price") and the 2,250,000 shares of Omega Worldwide
Common Stock that are issuable by the Company upon exercise of the Rights (the
"Rights Offering"). Prior to the Primary Offering, the Secondary Offering and
the Rights Offering (the "Offerings"), there has not been a public market for
the Omega Worldwide Common Stock. It is presently estimated that the initial
public offering price will be approximately $7.50 per share. To the extent
shares of Omega Worldwide Common Stock trade in excess of $8.625 per share
during the first 30 days after the Trading Date (as defined below), the Company
will issue to Omega a specified number of shares of preferred stock. See "The
Distribution -- Background of and Reasons for Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS RELEVANT TO THE OWNERSHIP OF OMEGA WORLDWIDE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Secondary Offering will be accompanied by a distribution (the
"Distribution") by Omega of 5,200,000 shares of Omega Worldwide Common Stock to
the shareholders of Omega. It is expected that the Distribution will be made on
April 2, 1998 (the "Distribution Date"). The Distribution will be made on the
basis of one share of Omega Worldwide Common Stock for every 3.77 common shares,
$.10 par value, of Omega (the "Omega Common Shares") held on February 1, 1998
(the "Record Date"). No certificates representing fractional shares of Omega
will be issued in connection with the Distribution. In lieu of fractional
shares, the Distribution Agent (as hereinafter defined) will pay to any holder
who would be entitled to a fractional share of Omega Worldwide Common Stock an
amount of cash (without interest) equal to his pro rata share of the sales
proceeds obtained by the Distribution Agent from aggregating and selling the
fractional shares.
The Rights will be distributed by the Company on the basis of one Right for
every 4.00 shares of Omega Worldwide Common Stock held on April 3, 1998 (the
"Rights Record Date"). Each Right entitles the holder thereof to purchase one
share of Omega Worldwide Common Stock at the price of $7.50 per share. The
Subscription Price is based on a valuation of the Company and will be equal to
the price at which shares of Omega Worldwide Common Stock are sold pursuant to
the Primary Offering and Secondary Offering. Rights will be evidenced by
nontransferable Rights certificates and will expire at 5:00 p.m., Eastern
Standard Time, on April 23, 1998, or such later date as the Company may
determine in its sole discretion (the "Expiration Date"). EXCEPT AS DESCRIBED
UNDER "THE RIGHTS OFFERING -- LATE DELIVERY OF PAYMENT AND RIGHTS CERTIFICATES,"
TO BE ACCEPTED, THE PROPERLY COMPLETED AND DULY EXECUTED RIGHTS CERTIFICATE AND
THE PAYMENT MUST BE RECEIVED BY THE SUBSCRIPTION AGENT (AS HEREINAFTER DEFINED)
PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE. RIGHTS
CERTIFICATES RECEIVED AFTER SUCH TIME WILL NOT BE HONORED. A holder of shares of
Omega Worldwide Common Stock on the Rights Record Date who validly exercises all
of such shareholder's Rights may also oversubscribe (the "Oversubscription
Privilege"), at the Subscription Price, for additional shares of Omega Worldwide
Common Stock covered by this Prospectus that have not been purchased through the
exercise of Rights ("Unsubscribed Shares"). Only holders of Omega Worldwide
Common Stock on the Rights Record Date will be entitled to the Oversubscription
Privilege.
Certain directors and officers of Omega and their affiliates (the "Rights
Investors") will agree to purchase all of the Unsubscribed Shares at the
Subscription Price and the Company has authorized an additional 1,000,000 shares
of Omega Worldwide Common Stock (the "Additional Shares") to ensure that the
Rights Investors will have the right to purchase an aggregate of 1,000,000
Unsubscribed Shares. Shareholders of the Company who do not exercise all of
their Rights will own a smaller relative equity ownership and voting interest in
the Company after the Rights Offering and the Distribution. There is no minimum
number of shares of Omega Worldwide Common Stock required to be sold as a
condition to the consummation of the Rights Offering.
The Company is a newly-formed subsidiary of Omega that will provide
investment advisory services and hold equity and debt interests in companies
engaged in providing sale/leaseback and other capital financing to healthcare
service providers throughout the world. The Company will seek to leverage its
management expertise in financing healthcare providers globally by providing
seed equity and debt capital and investment advisory services to newly-formed or
existing finance companies principally in countries other than the United
States. In addition, the Company will maintain an ongoing relationship with
Omega and anticipates conducting certain activities in the United States to the
extent Omega is unable to do so because of certain real estate investment trust
("REIT") tax provisions or for other reasons.
No payment need be made by, or will be accepted from, Omega shareholders for
the Omega Worldwide Common Stock to be received by them in the Distribution.
Omega shareholders will not be required to surrender or exchange Omega Common
Shares (as hereinafter defined) in order to receive Omega Worldwide Common
Stock. Each share of Omega Worldwide Common Stock sold in the Secondary Offering
or issued in the Distribution or pursuant to an exercise of the Rights will be
accompanied by one preferred share purchase right (a "Preferred Share Purchase
Right").
There is currently no public market for Omega Worldwide Common Stock. Shares
of Omega Worldwide Common Stock have not been approved for listing on any
national securities exchange although application has been made to report the
Omega Worldwide Common Stock on the NASDAQ National Market System ("NASDAQ")
under the symbol "OWWI". Listing will not occur nor will there be any trading in
Omega Worldwide Common Stock prior to the consummation of the Distribution, the
Primary Offering, the Secondary Offering and the purchase of 1,000,000 shares of
Omega Worldwide Common Stock by the Rights Investors which is currently
anticipated to be April 6, 1998 (the "Trading Date").
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
The date of this Prospectus is April 2, 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to Omega Worldwide Common Stock, Rights and Preferred Share
Purchase Rights described herein. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information, reference is made hereby to the
Registration Statement, exhibits and schedules thereto. Statements contained
herein concerning any documents are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as exhibits to
the Registration Statement. Each such statement is qualified by such reference.
Copies of these documents may be inspected without charge at the principal
office of the Commission at 450 5th Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission at 7 World Trade Center, Suite 1300, New
York, New York 10048, at Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661, and at 5670 Wilshire Boulevard, Suite 1100, Los
Angeles, California 90036, and copies of all or any part thereof may be obtained
from the Commission upon payment of the charges prescribed by the Commission.
Copies of such material may also be obtained from the Commission's Web Site
(http://www.sec.gov).
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and will file annual, quarterly and other reports with the
Commission. The Company will also be subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, will furnish audited
financial statements to its stockholders in connection with its annual meetings
of stockholders. The Company will also file with NASDAQ copies of such reports,
proxy statements and other information which subsequently can be inspected at
the offices of NASDAQ.
2
<PAGE> 4
SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Prospectus, which should be read in its entirety, including
the discussion of certain factors set forth under "Risk Factors." Unless the
context requires otherwise, each reference to "Omega" and "the Company" herein
includes its direct and indirect subsidiaries.
OVERVIEW
The Company is a newly-formed corporation that was incorporated in Maryland
on November 13, 1997 as a wholly-owned subsidiary of Omega. Omega created the
Company to engage in the investment advisory and management services currently
being provided by Omega in order to distinguish between the lines of business
Omega conducts. The Distribution allows the current holders of Omega Common
Shares to continue to participate in the business operations being conducted by
the Company (through ownership of Omega Worldwide Common Stock) as well as the
real estate operations being conducted by Omega (through ownership of Omega
Common Shares). The sale of shares of Omega Worldwide Common Stock pursuant to
the Secondary Offering allows Omega to replenish its capital base following the
contribution of the Assets (as defined below) to the Company. The Rights
Offering and Primary Offering allow the Company to raise capital to pursue
further business opportunities. After the consummation of the Distribution and
the Offerings, Omega will continue to own 1,000,000 shares of Omega Worldwide
Common Stock (approximately 9% of the issued and outstanding shares of Omega
Worldwide Common Stock assuming no Additional Shares are issued).
THE COMPANY
The Company................... The Company will provide investment advisory
and management services and hold equity and
debt interests in companies engaged in
providing sale/leaseback and other capital
financing to healthcare service providers
throughout the world. The Company will seek to
leverage its management expertise in financing
healthcare providers by providing seed equity
and debt capital and investment advisory
services to newly-formed or existing real
estate and finance companies principally in
countries other than the United States. Private
healthcare and its finance, particularly for
the aging population in developed countries,
represents a growing priority in which capital
is a major consideration. Based upon
management's experience in establishing
Principal Healthcare Finance Limited, a private
company incorporated with limited liability in
the Isle of Jersey ("Principal"), the Company
will seek to extend its investments in
healthcare finance on a global basis. The
Company may also consider investment in other
actively managed real estate opportunities
which it develops. Principal was formed on June
28, 1995 and was a wholly-owned subsidiary of
Omega until October 1996. Principal provides
capital and medium-term financing to the
private-sector healthcare industry in the
United Kingdom by acquiring and leasing back to
experienced operators, existing and newly-built
nursing homes or residential care facilities.
At December 31, 1997, Principal owned and
leased to eight operators a total of 154
facilities (approximately 7,200 beds) in the
United Kingdom.
The Company will use its and Omega's extensive
resources to identify, develop and structure
attractive opportunities to invest in
healthcare real estate ownership and finance on
a global basis.
3
<PAGE> 5
The Company intends to invest its capital in
two principal ways: first, to increase its
existing investment in Principal, as needed to
establish its dominant position in private
healthcare finance in the United Kingdom; and
second, to establish similar relationships with
existing or newly-formed entities in other
suitable developed countries. The Company also
will coordinate and integrate its investment
activity with Omega so as to take advantage of
investment opportunities which would not be
suitable for Omega due to its REIT status. The
Company does not intend to operate property or
businesses in the healthcare or any other
industry but may perform advisory services and
invest in less than majority positions in
healthcare operating firms, healthcare services
or otherwise.
The Company anticipates that a substantial
portion of the firms it will develop and to
which it will provide seed capital will consist
of companies which have the potential for
public trading in the markets in which they
operate.
In connection with the formation and
capitalization of the Company, Omega will
contribute to the Company prior to the
consummation of the Offerings and the
Distribution, the following significant assets
(collectively, the "Assets") pursuant to a
Contribution Agreement with the Company (the
"Contribution Agreement"):
-- 3,337,500 Class A voting ordinary shares of
Principal. The Company will also receive
warrants to purchase 10,000,000 ordinary
shares of Principal expiring June 30, 2001
at an exercise price of L1.50 (approximately
$2.40) per share and 554,583 ordinary shares
of Principal expiring December 31, 2000 at
an exercise price of L1.00 (approximately
$1.60) per share. The Company's investment
now represents 33.375% of the outstanding
shares prior to exercising any warrants. The
exercise of all issued and outstanding
warrants, absent the issuance of additional
shares by Principal, would increase the
Company's ownership interest in Principal to
approximately 54%.
-- The Company will replace Omega as holder
with respect to L15,000,000 (approximately
$24,000,000) of escalating fixed rate
subordinated debt provided by Omega to
Principal and maturing on December 31, 2000.
Omega will also transfer to the Company the
benefit of a ten-year British pound currency
swap contract under which the Company will
have the right to exchange L20,000,000
(approximately $32,000,000) for $31,740,000
on October 15, 2007. Pursuant to this
contract, the risk to the Company of
exchange rate changes during the term of the
swap agreement will be mitigated. These
assets are collectively referred to herein
as the "Principal Assets."
-- Amended and Restated Advisory Agreement with
Principal (the "Management Agreement")
pursuant to which the Company will provide
the following services for Principal:
marketing of its services; identification
and evaluation of potential investments;
administration of the business and
day-to-day
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<PAGE> 6
affairs of Principal; monitoring and
evaluating the financial and operational
performance of the healthcare operating
organizations financed by Principal; and
developing new products and services. The
Company will also provide advice upon and
facilitate capital markets transactions and
arrangements of credit facilities and
permanent financing for Principal. Pursuant
to the Management Agreement, the Company
will receive an annual fee equal to 0.9% of
Principal's assets (as defined in the
Management Agreement) and may earn an
additional incentive fee. See "Business --
The Principal Assets."
In exchange for the contribution of the Assets,
Omega will receive 8,499,000 shares of Omega
Worldwide Common Stock and up to 5,000,000
shares of Series B Preferred Stock, par value
$1.00 per share, of the Company (the "Series B
Preferred"). Pursuant to the Contribution
Agreement, the Company will automatically issue
65,000 shares of Series B Preferred to Omega
for each $0.0625 above $8.625 per share of
Omega Worldwide Common Stock that more than
12,000 shares of Omega Worldwide Common Stock
are traded on any single date prior to 30 days
after the Trading Date. The Series B Preferred
will receive a cumulative 8% per annum dividend
which is payable annually based on a
liquidation value of $10.00 per share. The
Series B Preferred has no voting rights. Each
share of Series B Preferred will convert into
one share of Omega Worldwide Common Stock
immediately after Omega distributes the Series
B Preferred to its shareholders or otherwise
transfers the Series B Preferred to any
unaffiliated third party.
Prior to the consummation of the Offerings and
the Distribution, the Company will enter into
an agreement with Omega (the "Opportunity
Agreement"), pursuant to which the Company and
Omega will agree to provide each other with
rights to participate in certain transactions
and to make certain investments individually or
jointly. The Company and Omega will also enter
into a Services Agreement pursuant to which
Omega will provide management and other
employees, office space and administrative
services to the Company. See "Business -- The
Opportunity Agreement" and "Certain
Transactions."
Business Strategy............. The Company intends to perform the Management
Agreement with Principal, to enter into
additional contracts to provide advisory
services and to pursue additional opportunities
for global investments in healthcare real
estate and finance. The Company believes that
it has, or will have access to, sufficient
liquidity and management expertise to invest in
and manage the healthcare real estate assets
successfully.
The Company's investment and operating
strategies reflect the experience of its
management in the establishment of Principal as
a means of extending, principally outside the
United States, real estate based healthcare
financing like that which Omega now conducts in
the United States. The Company intends to
expand its investments in real estate and
healthcare finance and to enter into agreements
similar to the Management Agreement with other
entities engaged in activities similar to
Principal and Omega,
5
<PAGE> 7
including entities established by the Company.
The Company will also invest in other entities
like Principal conducting financing activities
in the healthcare industry in other areas of
the world. To pursue additional opportunities,
the Company plans to capitalize on its
relationship with Omega and Omega's ability to
structure transactions creatively and to take
advantage of investment opportunities presented
to Omega in which it cannot or chooses not to
invest.
Management.................... Essel W. Bailey, Jr., Susan A. Kovach and David
A. Stover are President and Chief Executive
Officer, Vice President, General Counsel and
Secretary, and Vice President and Chief
Financial Officer, respectively, of the
Company. Each currently serves in the same
capacity at Omega. F. Scott Kellman is Chief
Operating Officer of Omega and a Vice President
of the Company. James P. Flaherty is Chief
Operating Officer of the Company and Vice
President-International of Omega. Todd P.
Robinson is Vice President of the Company, but
serves in a non-executive capacity, as
Assistant Vice President, of Omega. See
"Management."
Preferred Share Purchase
Rights........................ The Company expects to authorize Preferred
Share Purchase Rights prior to the consummation
of the Offerings and the Distribution. If so
adopted, shares of Omega Worldwide Common Stock
sold pursuant to the Primary Offering and
Secondary Offering and issued in the
Distribution and upon exercise of the Rights
will also initially represent an equivalent
number of associated Preferred Share Purchase
Rights of the Company. See "Certain
Antitakeover Provisions -- Rights Agreement."
Certain Antitakeover
Provisions.................... Certain provisions of the Company's charter
(the "Charter") and Bylaws (the "Bylaws"), as
each will be in effect as of the consummation
of the Offerings and the Distribution, and of
the Maryland General Corporation Law (the
"MGCL"), may make more difficult an acquisition
of control of the Company in a transaction not
approved by the Omega Worldwide Board of
Directors (the "Omega Worldwide Board"). See
"Description of Omega Worldwide Capital Stock"
and "Certain Antitakeover Provisions." The
Rights Plan will also make more difficult an
acquisition of control of the Company in a
transaction not approved by the Omega Worldwide
Board. The Rights Plan and certain provisions
of the Charter will not apply to Omega and its
affiliates. See "Certain Antitakeover
Provisions -- Rights Plan."
Post-Distribution Dividend
Policy........................ The primary objective of the Company is to
achieve long-term growth. The Company intends
to use its available funds to pursue business
opportunities and, so long as such
opportunities exist, does not anticipate the
payment of any cash dividends on Omega
Worldwide Common Stock in the foreseeable
future. The authorization of dividends will be
subject to the discretion of the Omega
Worldwide Board. See "Dividend Policy."
Interests of Executive
Officers...................... Essel W. Bailey, Jr., Susan A. Kovach and David
A. Stover are President and Chief Executive
Officer, Vice President, General Counsel and
Secretary, and Vice President and Chief
Financial Officer, respectively, of Omega and
serve in similar executive
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<PAGE> 8
officer capacities for the Company. Mr. Bailey
is also a director of the Company and Omega. F.
Scott Kellman is Chief Operating Officer of
Omega and Vice President of the Company. James
P. Flaherty is Vice President-International of
Omega and Chief Operating Officer of the
Company. Todd P. Robinson serves in a
non-executive capacity, as Assistant Vice
President, of Omega, but serves in an executive
capacity as Vice President of the Company.
These officers have a significant interest in
Omega and as such will receive shares of the
Company. They will also receive options to
acquire shares of the Company and they intend
to purchase shares of the Company. See "Risk
Factors -- Potential Conflicts of Interest" and
"Certain Transactions."
Transfer Agent and
Registrar..................... First Chicago Trust Company of New York will be
the Transfer Agent and Registrar for the
Company after the Distribution and the
Offerings.
THE PRIMARY OFFERING
Securities Offered............ 500,000 shares of Omega Worldwide Common Stock.
Omega Worldwide Common Stock
outstanding after Primary
Offering.................... 11,250,000 shares (assuming consummation of the
Secondary Offering, Rights Offering and
Distribution and that no Additional Shares are
issued).
Use of Proceeds............... The Primary Offering is intended to provide
funds to the Company for working capital and
acquisitions and investments. See "Use of
Proceeds."
THE SECONDARY OFFERING
Securities Offered............ 2,300,000 shares of Omega Worldwide Common
Stock.
Omega Worldwide Common Stock
outstanding after Secondary
Offering.................... 11,250,000 shares (assuming consummation of the
Primary Offering, Rights Offering and
Distribution and that no Additional Shares are
issued).
Trading Market................ There is currently no public market for Omega
Worldwide Common Stock. The Omega Worldwide
Common Stock has not been approved for listing
on any national securities exchange, although
application has been made to report the Omega
Worldwide Common Stock on NASDAQ under the
symbol "OWWI". Listing will not occur nor will
there be any trading in Omega Worldwide Common
Stock prior to the Trading Date. See "Risk
Factors -- Absence of a Public Market for Omega
Worldwide Common Stock" and "The Distribution
-- Listing and Trading of Omega Worldwide
Common Stock."
Use of Proceeds............... The Company will not receive any of the
proceeds from the sale of the Omega Worldwide
Common Stock in the Secondary Offering.
Rights Offering Obligation.... Shareholders of Omega as of the Record Date who
purchase shares of Omega Worldwide Common Stock
pursuant to the Secondary
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<PAGE> 9
Offering will agree to exercise all Rights they
may receive pursuant to the Rights Offering.
THE RIGHTS OFFERING
Securities Offered............ 2,250,000 Rights, exercisable for an aggregate
of 2,250,000 shares of Omega Worldwide Common
Stock, with 1,000,000 Additional Shares
authorized for issuance to ensure that the
Rights Investors will have the right to
purchase an aggregate of 1,000,000 Unsubscribed
Shares.
Rights Record Date............ April 3, 1998.
Subscription Right............ One Right, per every 4.0 shares of Omega
Worldwide Common Stock, issued by the Company
to each holder of Omega Worldwide Common Stock
on the Rights Record Date. Each Right entitles
the holder to purchase one share of Omega
Worldwide Common Stock at the Subscription
Price. See "The Rights Offering."
Oversubscription Privilege.... A holder of Omega Worldwide Common Stock on the
Rights Record Date who validly exercises all of
such shareholder's Rights may also
oversubscribe, at the Subscription Price, for
additional shares of Omega Worldwide Common
Stock. Only holders of Omega Worldwide Common
Stock on the Rights Record Date will be
entitled to the Oversubscription Privilege. See
"The Rights Offering -- Oversubscription
Privilege."
Unsubscribed Shares........... Certain directors and officers of Omega and
their affiliates will agree to acquire the
Unsubscribed Shares at the Subscription Price
and will be guaranteed the right to purchase an
aggregate of 1,000,000 Unsubscribed Shares by
the issuance of Additional Shares. See "The
Rights Offering -- Unsubscribed Shares."
Expiration Date............... April 23, 1998 at 5:00 p.m., Eastern Standard
Time, or such later date as the Company may
determine in its sole discretion. After such
time, the Rights will become void and have no
value.
Subscription Price............ $7.50 per share.
Method of Exercising
Rights and Oversubscription
Privilege................... Holders of Omega Worldwide Common Stock must
properly complete the Rights Certificate
accompanying this Prospectus indicating the
number of Rights being exercised and whether
the Oversubscription Privilege is being
exercised. Prior to the Expiration Date, the
subscriber must mail or deliver the Rights
Certificate and the full Subscription Price for
the shares subscribed for pursuant to the
exercise of the Rights and the Oversubscription
Privilege to the Subscription Agent. See "The
Rights Offering -- Method of Exercising Rights"
and "The Rights Offering -- Oversubscription
Privilege."
Transferability of Rights..... The Rights are not transferable.
Subscription Agent............ First Chicago Trust Company of New York
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<PAGE> 10
Use of Proceeds............... The Rights Offering is intended to provide
funds to the Company for working capital and
acquisitions and investments. See "Use of
Proceeds."
Federal Income Tax
Consequences................ A shareholder of the Company generally should
not recognize any gain or loss upon the receipt
of a Right, the exercise of a Right or the
lapse of a Right. See "The Rights Offering --
Federal Income Tax Consequences of the Rights
Offering."
Risk Factors.................. Shareholders should consider certain factors
discussed under "Risk Factors," including risks
associated with the assets that the Company
will acquire and own, the Company's lack of
operating history, potential conflicts of
interest and the Company's dependence on Omega.
THE DISTRIBUTION
Distributing Company.......... Omega Healthcare Investors, Inc.
Shares to be Distributed...... Approximately 5,200,000 shares of Omega
Worldwide Common Stock, all of which are held
by Omega.
Distribution Ratio............ One share of Omega Worldwide Common Stock for
every 3.77 Omega Common Shares. No certificates
representing fractional shares of the Company
will be issued in connection with the
Distribution. In lieu of fractional shares, the
Distribution Agent (as defined below) will
aggregate and sell the fractional shares and
distribute the cash proceeds on a pro rata
basis to those holders otherwise entitled to a
fractional interest. No payment need be made
by, or will be accepted from, Omega
shareholders for Omega Worldwide Common Stock
to be received by them in the Distribution, nor
will Omega shareholders be required to
surrender or exchange Omega Common Shares, in
order to receive Omega Worldwide Common Stock.
See "The Distribution -- Manner of Effecting
the Distribution."
Background of and Reasons
for the Distribution........ The Company will provide investment advisory
and management services and hold equity and
debt interests in companies engaged in
providing sale/leaseback and other capital
financing to healthcare service providers
throughout the world.
In connection with its management and other
activities, the Company will operate under the
Opportunity Agreement pursuant to which the
Company and Omega will agree to provide each
other with rights to participate in certain
transactions and to make certain investments
individually or jointly. In particular, the
Company will have the right to pursue certain
opportunities that Omega may determine it is
unable to pursue (whether due to its status as
a REIT or for other reasons) or does not elect
to pursue. See "Business -- The Opportunity
Agreement."
The Distribution of Omega Worldwide Common
Stock will provide Omega shareholders as of the
Record Date with the ability to
9
<PAGE> 11
benefit from both the real estate operations of
Omega and the business operations of the
Company.
Federal Income Tax
Consequences................ An Omega shareholder will be treated as
receiving a distribution from Omega in an
amount equal to the fair market value of the
Omega Worldwide Common Stock received by such
shareholder plus any cash received in lieu of
fractional shares. Depending on an Omega
shareholder's adjusted tax basis and the amount
of Omega's current and accumulated earnings and
profits, the Distribution will result in
ordinary income, a tax-free return of capital,
capital gain or a combination thereof.
Management anticipates that for a typical Omega
shareholder the Distribution likely will result
in an increase in the shareholder's tax-free
return of capital and capital gain, but this
result cannot be assured. See "The Distribution
-- Federal Income Tax Consequences of the
Distribution."
Distribution Agent............ First Chicago Trust Company of New York
Record Date................... February 1, 1998 (the "Record Date").
Distribution Date............. April 2, 1998 (the "Distribution Date").
Commencing on or after the Distribution Date,
the Distribution Agent will begin mailing
account statements reflecting ownership of
Omega Worldwide Common Stock to holders of
Omega Common Shares on the Record Date. Omega
shareholders will not be required to make any
payment or to take any other action to receive
the Omega Worldwide Common Stock to which they
are entitled in the Distribution. See "The
Distribution -- Manner of Effecting the
Distribution."
Trading Market................ There is currently no public market for Omega
Worldwide Common Stock. The Omega Worldwide
Common Stock has not been approved for listing
on any national securities exchange although
application has been made to report the Omega
Worldwide Common Stock on NASDAQ under the
symbol "OWWI". Listing will not occur nor will
there be any trading in Omega Worldwide Common
Stock prior to the Trading Date. See "Risk
Factors -- Absence of a Public Market for Omega
Worldwide Common Stock" and "The Distribution
-- Listing and Trading of Omega Worldwide
Common Stock."
10
<PAGE> 12
BENEFITS OF THE OFFERINGS TO SELLING SHAREHOLDER
As a result of the sale of 2,300,000 shares of the Company by Omega in the
Secondary Offering, Omega will receive gross proceeds of $17,250,000 (based on
an initial public offering price of $7.50 per share). The Company will not
receive any proceeds from the sale of shares by Omega. Omega will, after the
Offerings, own 1,000,000 shares of the Company valued at $7,500,000 (based on
the initial public offering price of $7.50 per share). Omega may at any time
after the Offerings sell or distribute to its shareholders its remaining equity
interests in the Company.
11
<PAGE> 13
SUMMARY PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited summary financial
information for the Company on a combined pro forma basis. This summary
information is qualified by, and should be read in conjunction with, the
financial statements and notes thereto included elsewhere in this Prospectus.
The pro forma information for the year ended November 30, 1997, assumes
completion, in each case as of December 1, 1996 in determining operating data,
and, in each case as of November 30, 1997, in determining balance sheet data, of
the formation and capitalization of the Company, the related contribution of the
Assets by Omega, and receipt of the proceeds of the Rights Offering.
The pro forma financial information is not necessarily indicative of what
the Company's financial position or results of operations would have been
assuming the above events actually occurred as of the dates indicated, nor do
they purport to project the Company's financial position or results of
operations at any future date or for any future period.
OMEGA WORLDWIDE, INC.
CONDENSED PRO FORMA BALANCE SHEET
NOVEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
HISTORICAL ADJUSTMENTS(A) FOR PROCEEDS(B) PRO FORMA
---------- -------------- --------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash.................................... $1,000 $ $16,125,000 $16,126,000
Investment in Principal Healthcare
Finance Limited......................
Subordinated loan.................. 23,805,000 23,805,000
Common stock....................... 5,296,612 5,296,612
Omega (UK) Limited and other assets..... 150,000 150,000
------ ----------- ----------- -----------
TOTAL ASSETS.............................. $1,000 $29,251,612 $16,125,000 $45,377,612
====== =========== =========== ===========
SHAREHOLDER'S EQUITY
Common stock............................ $ 100 $ 849,900 $ 225,000 $ 1,075,000
Paid-in Capital......................... 900 28,401,712 15,900,000 44,302,612
------ ----------- ----------- -----------
TOTAL LIABILITIES & EQUITY................ $1,000 $29,251,612 $16,125,000 $45,377,612
====== =========== =========== ===========
</TABLE>
- -------------------------
(A) Contribution by Omega of investment in Principal, recorded at Omega's
carrying value, in exchange for 8,499,000 fully paid shares of Omega
Worldwide Common Stock. The Subordinated Loan earns interest at the rate of
11.83% with annual increases of 3%, and is due in December 2000. The common
stock investment represents 33.375% of the outstanding voting stock of
Principal. These investments are stated at Omega's original cost basis in
pounds sterling as adjusted for translation to dollars. Omega has not
previously recognized any writedowns or other adjustments to these
investments. Based on circumstances at the date of the respective
transactions, no values were ascribed to the warrants issued by Principal
(See Note 7 to Principal's financial statements concerning valuation of
warrants). The currency swap arrangement was entered into in order to hedge
the currency risk associated with the Company's investment in Principal.
The carrying value of the investment in Principal is based on the rate
established in the forward exchange contract, and therefore no amount is
assigned to the swap arrangement. Foreign exchange rate contracts mitigate
the effect of currency movements because any gain or loss on the contract
offsets any losses or gains, respectively, on the investment in Principal.
(B) Proceeds of issuance of 2,250,000 shares of the company to its shareholders
pursuant to the Rights Offering at $7.50 per share (less estimated offering
and registration costs of $750,000). The Rights Investors will agree to
purchase all of the Unsubscribed Shares at the Subscription Price. The
Rights Investors will purchase 1,000,000 shares of Omega Worldwide Common
Stock on the day after the Rights Record Date. The Subscription Agent will
send each Rights Investor a written confirmation of the number of shares of
Omega Worldwide Common Stock allocated to such Rights Investor on or
promptly after the business day after the Expiration Date in the event the
number of Unsubscribed Shares exceed 1,000,000. The Rights Investors must
deliver payment for the remaining shares of Omega Worldwide Common Stock
allocated to them, if any, on or prior to the fourth business day after the
Expiration Date. The Company believes that all the Rights Investors are
accredited investors and have the financial ability to fulfill their
obligations to deliver such payments.
(C) The carrying value of the investment in Common Stock of Principal exceeds
the Company's proportionate share of Principal's equity by approximately
$960,000 at August 31, 1997. The Company will amortize this amount over a
period of 10 years.
12
<PAGE> 14
OMEGA WORLDWIDE, INC.
CONDENSED PRO FORMA STATEMENT OF INCOME
YEAR ENDED NOVEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Revenue
Advisory fees............................................. $ $ 1,764,000(A)
Interest -- Subordinated Loan at the contractual yield
(See Note 5 to Principal's financial statements)....... 2,843,000
-----------
Total Revenues......................................... 0 4,607,000
Expenses
Costs of Services Provided................................ 1,174,000(B)
General and Administrative................................ 507,000(C)
-- -----------
Total Expenses......................................... 0 1,681,000
-- -----------
0 2,926,000
Equity in loss of Principal................................. (331,000)(D)
-- -----------
Income before income taxes.................................. 0 2,595,000
Provision for federal income taxes.......................... 0 (882,000)(E)
-- -----------
Net income.................................................. $0 $ 1,713,000(F)
== ===========
Shares Outstanding.......................................... 11,250,000
Net income per share........................................ $0.15
</TABLE>
- -------------------------
(A) Fees pursuant to management agreement at 0.9% of the Aggregate Book Value of
Invested Assets. Invested assets for purposes of determining the reported
fee amount are as follows (in $1,000); December $113,681; January $113,681;
February $116,508; March $119,333; April $122,137; May $122,137; June
$200,440; July $276,029; August $277,659; September $283,139; October
$283,139; November $324,432, resulting in average net assets for the period
ended November 30, 1997 of approximately $196 million. Management believes
that the assignment of the existing management contract by Omega to the
Company will not materially affect the revenue-producing activity or cost
structure for services provided to Principal.
(B) Actual historical costs of services provided by Omega (UK) Limited for the
year ended November 30, 1997, Omega (UK) Limited, is the primary service
provider for activities related to Principal. The reported amount represents
direct costs incurred in the delivery of the services for which fee income
has been recognized.
(C) Comprises allocated share of costs of Omega pursuant to the provisions of
the Services Agreement. Indirect costs incurred by Omega for the year ended
November 30, 1997, which are allocated based on the relationship of assets
under the Company's management to the combined total of those assets and
Omega's assets. "Assets under the Company's management" refers to gross real
estate investment. The net assets used for purposes of the allocation of
these costs are as follows (in $1,000):
<TABLE>
<CAPTION>
OMEGA COMPANY COMBINED
----- ------- --------
<S> <C> <C> <C>
Quarter ended March 31, 1997.................. $670,965 $116,404 $ 787,369
Quarter ended June 30, 1997................... 682,316 272,716 955,032
Quarter ended September 30, 1997.............. 688,350 279,363 967,713
Quarter ended December 31, 1997*.............. 850,000 292,250 1,142,250
Average for 1997............................ 75.55% 24.45% 100.00%
</TABLE>
- -------------------------
* Data as of November 30, 1997
13
<PAGE> 15
The Company's direct administrative costs, including the cost the Company
expects it will incur on its own behalf for state taxes, investor
relations, legal and accounting and similar items, are estimated to be
approximately $650,000 to $700,000, are not factually supportable and
therefore have been omitted.
(D) Represents the Company's share (33.375%) of loss of Principal for the fiscal
year ended August 31, 1997, plus amortization of $96,000 related to the
excess of the carrying value of its investment over its proportionate share
of Principal's underlying equity. Omega's ownership interest in Principal
has been through an affiliate in which Omega owns only nonvoting stock.
Accordingly, Omega stated its investment on the basis of its cost. On or
about April 1, 1998, the affiliate will be liquidated, resulting in a
pro-rata distribution of its investment in the voting shares of Principal to
its shareholders including Omega. As a result of the liquidation of the
affiliate, coupled with the recapitalization of Principal which occurred on
January 15, 1998, Omega's nonvoting ownership interest will be converted to
voting interest in Principal. Accordingly, of the shares of Principal
received by Omega from the liquidation of the affiliate, 3,337,500 voting
shares will be contributed to the Company. The Company's share of annual
earnings which result from Principal's real estate acquisitions after August
31, 1997 is estimated to approximate $30,040 representing its share
(33.375%) of the following pro-forma earning (in $1,000).
<TABLE>
<S> <C> <C> <C>
Rent Income......................................... $ 6,745
-------
Costs and Expenses:
Interest.......................................... $(4,697)
Advisory fee...................................... (562)
Depreciation...................................... (1,026)
-------
Total Expenses...................................... (6,321)
-------
Earnings before income taxes........................ 424
Provision for income taxes.......................... (335)
-------
Net earnings........................................ $ 89
=======
</TABLE>
The Company's share is deemed immaterial and has been omitted from the
equity in loss of Principal. The Company will account for its investment in
Principal using the equity method of accounting, and at no time does the
Company expect its ownership will be more than 50%. Management has not
selected the Company's year end. Should November 30 be the selected date,
the equity in net earnings of Principal would be recognized on a three
month lag basis. For the period of three months ended November 30, 1997,
Principal reported net earnings before the extraordinary charge for
prepayment of debt of $438,000 and a net loss after extraordinary charge of
$1,123,000. The Company's share of net earnings before the extraordinary
charge for the period is $146,000 ($.01 per share) and its share of net
loss after the extraordinary charge for the period is $375,000 ($.03 per
share).
(E) There are no corporate income taxes in the State of Michigan.
(F) The Company may issue up to 5,000,000 shares of Series B Preferred to Omega
in the event the Company's Common Stock trades above $8.625 during the
30-day period following the Trading Date. Dividends related to such stock
(8% per annum) would be recorded as a reduction in net earnings available to
common shareholders and Income Applicable to Common Stock (net of preferred
stock dividends) would be presented on the face of the income statement.
Should more than 12,000 shares of Omega Worldwide Common Stock trade at the
level of $13.4375 per share on a given date during the 30-day period
following the Trading Date, all of the authorized shares of Preferred Stock
would be issued to Omega. The Company's annual preferred dividends for this
issue would be $4,000,000 (the equivalent of $.36 per common share) which
amount would be reported as a reduction of earnings available to the
Company's common shareholders.
14
<PAGE> 16
RISK FACTORS
Shareholders should carefully consider and evaluate all of the information
set forth in this Prospectus, including the risk factors listed below. The
Company also cautions readers that, in addition to the historical information
included herein, this Prospectus includes certain forward-looking statements and
information that are based on management's beliefs as well as on assumptions
made by and information currently available to management. When used in this
Prospectus, the words "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate" and similar expressions are intended to identify such
forward-looking statements. Such statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions, including
but not limited to the following factors, which could cause the Company's future
results and stockholder values to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Many of such
factors are beyond the Company's ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking statements. The Company
disclaims any intent or obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
NO HISTORY OF OPERATIONS
The Company is newly formed and has no operating history except as part of
Omega. The financial information relating to the Principal Assets that is
presented elsewhere in this Prospectus is not necessarily indicative of future
operations of the Company.
HEALTHCARE INDUSTRY
The Company will invest in entities which will own healthcare facilities
principally outside of the United States. Accordingly, the Company will not
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 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 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 is attempting to develop and market a method of financing for
healthcare properties which is not, at present, widely accepted in the United
Kingdom 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 or 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 or 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 and mortgagors of
Principal or 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
15
<PAGE> 17
healthcare facilities. Likewise, such advances and changes may make obsolete the
healthcare properties owned or financed by Principal or similar companies in
which the Company invests.
Although Principal plans to increase rapidly the number of healthcare
operators it finances, currently all of Principal's income is derived from rent
payments received from eight operators and over 50% of its revenues come from
two operators, Tamaris plc and Ashbourne Healthcare plc. Thus, the results of
operations and financial condition of Principal will be principally dependent
upon the ability of Tamaris plc and Ashbourne Healthcare plc to meet their
obligations under their agreements with Principal and, thus, upon the operating
results of the facilities financed by Principal.
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 has 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.
COMPETITION
The Company and Principal will be competing for additional healthcare
facility investments with other healthcare investors, including commercial banks
and other financial institutions. Many of the Company's and Principal's
competitors have been established for a longer period of time and have financial
resources far in excess of the Company.
INTERNATIONAL OPERATIONS AND EXCHANGE RATE FLUCTUATIONS
The Company anticipates that international financing will account for a
significant portion of its business. As a result, the Company will be subject to
risks associated with international operations, including trade restrictions,
overlapping or differing tax structures and legal systems, governmental fiscal
policies and difficulties in staffing and managing international operations.
The Company will experience foreign currency exchange gains and losses due
to exchange rate fluctuations among a variety of currencies. Significant
portions of the Company's revenues and expenses will be denominated in
currencies other than the U.S. dollar, including the British pound, as Principal
records its transactions and prepares its financial statements in pounds.
Fluctuations in the values of foreign currencies may cause reported amounts to
change from period to period, and may produce significant changes in the
Company's financial condition and results of operations that do not necessarily
reflect the Company's operating activities. While the Company plans to engage in
foreign currency hedging transactions from time to time to moderate the overall
effect of these currency movements, the Company expects that such fluctuations
will occur, and there can be no assurance that exchange rate fluctuations will
not have a material adverse effect on the Company's financial condition or
results of operations, or cause significant fluctuations in quarterly results of
operations.
LEVERAGE
The Company intends to implement its international investment strategy by
investing in entities utilizing a high degree of borrowing to fund its
investments. For example, Principal was organized with a capital plan
contemplating 60-70% senior debt, 10-20% subordinated unsecured debt and 10-20%
equity.
16
<PAGE> 18
RESTRICTIONS ON OMEGA WORLDWIDE'S OPPORTUNITIES
Under the Opportunity Agreement, the Company has agreed that it will not
acquire or make investments in United States 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, nor will it acquire
or make any investment which, if made by a REIT, would not result in the
termination of the REIT's status as a REIT, unless it has notified Omega of the
acquisition or investment opportunity, and Omega has determined not to pursue
such acquisition or investment.
Because of the provisions of the Opportunity Agreement, the nature of the
Company's business and the opportunities it may pursue are restricted.
GROWTH THROUGH NEW OPPORTUNITIES
There is no assurance that any opportunities that Omega or the Company
identifies will be within the Company's financial, operational or management
parameters. In addition, there is no assurance that the Company will have
sufficient capital resources or capabilities to pursue additional opportunities,
or that opportunities it pursues will be integrated, perform as expected or
contribute significant revenues or profits to the Company.
POTENTIAL CONFLICTS OF INTEREST
Essel W. Bailey, Jr. is President and Chief Executive Officer of Omega and
the Company; James P. Flaherty is Vice President -- International of Omega and
Chief Operating Officer the Company; F. Scott Kellman is Chief Operating Officer
of Omega and Vice President of the Company; Susan A. Kovach is Vice President,
General Counsel and Secretary of Omega and the Company; David A. Stover is Vice
President and Chief Financial Officer of Omega and the Company; and Todd P.
Robinson is Assistant Vice President of Omega and Vice President of the Company.
Although each of them is committed to the success of the Company, they are also
committed to the success of Omega. None of Mr. Bailey, Mr. Flaherty, Mr.
Kellman, Ms. Kovach or Mr. Stover is committed to spending a particular amount
of time on the Company's affairs, nor will any of them devote his or her full
time to the Company. It is anticipated that, except for Mr. Flaherty and Mr.
Robinson, who will spend a substantial majority of their time on the Company's
affairs, the officers will spend the majority of their time on Omega. The major
factors affecting the time split between the two entities will be the pace of
acquisition opportunities for the Company and the methods of financing. All of
the members of the Omega Worldwide Board will initially be members of the Omega
Board. In addition, the Omega Worldwide Board will be expanded after the
consummation of the transactions set forth herein to include at least one member
who is unaffiliated with Omega. Management and directors as a group presently
own 1.8% of the outstanding Omega Common Shares but intend to acquire a greater
percentage of shares of Omega Worldwide Common Stock and certain of them have
committed to purchase all of the Unsubscribed Shares and have the right to
acquire the Additional Shares.
There is a risk that the common membership of management and members of the
Boards of the Company and Omega will lead to conflicts of interest in connection
with transactions between the two companies and opportunities presented to each
of the companies. Opportunities undertaken by the Company with Omega pursuant to
the Opportunity Agreement and services provided pursuant to the Services
Agreement will not be on an arm's length basis due to the common membership of
management and the Board and may not be on as favorable terms to the Company as
they would be with unaffiliated third parties. Although each of Omega and the
Company intends to appoint at least one director on its Board of Directors who
is independent of the other company within 90 days of the Distribution Date, no
assurance can be made that this structure will continue in the future.
FUTURE CAPITAL REQUIREMENTS
The Company has not received any commitment with respect to any additional
borrowing. There is no assurance that the Company will have sufficient working
capital to finance future investments. The Company expects to be able to access
capital markets or to seek other financing, including financing from Omega or
with
17
<PAGE> 19
Omega's assistance, but there is no assurance that it will be able to do so at
all or in amounts or on terms acceptable to the Company. Omega currently is not
obligated to provide any funds to the Company or to assist it in obtaining
financing.
ABSENCE OF A PUBLIC MARKET FOR OMEGA WORLDWIDE COMMON STOCK
There is currently no public market for Omega Worldwide Common Stock.
Although the Company has applied to report the Omega Worldwide Common Stock on
NASDAQ, it has not yet been approved and there can be no assurance as to the
prices at which trading in Omega Worldwide Common Stock will occur after the
Distribution. Listing will not occur nor will there be any trading in Omega
Worldwide Common Stock prior to the Trading Date. Until the Omega Worldwide
Common Stock is fully distributed and an orderly trading market develops, the
prices at which trading in such stock occurs may fluctuate significantly. There
can be no assurance that an active trading market in Omega Worldwide Common
Stock will develop or be sustained in the future or as to the price at which the
Omega Worldwide Common Stock may trade. Volatility in the market and other
factors may materially adversely affect the market price of Omega Worldwide
Common Stock.
POSSIBLE DILUTION OF OMEGA WORLDWIDE COMMON STOCK
Pursuant to the Contribution Agreement, the Company automatically will
issue 65,000 shares of Series B Preferred to Omega for each $0.0625 above $8.625
per share of Omega Worldwide Common Stock that more than 12,000 shares of Omega
Worldwide Common Stock are traded on any single day during the 30-day period
after the Trading Date. Each share of Series B Preferred will convert into one
share of Omega Worldwide Common Stock immediately after Omega distributes the
Series B Preferred to its shareholders or otherwise transfers the Series B
Preferred to any unaffiliated third party. If shares of Series B Preferred are
issued to Omega and Omega subsequently distributes or transfers the shares of
Series B Preferred, the conversion of those shares into Omega Worldwide Common
Stock will have a dilutive effect on certain holders of Omega Worldwide Common
Stock. To the extent shareholders of the Company own a proportionate amount of
Omega Common Shares, the dilutive effect will be offset by either the shares of
Omega Worldwide Common Stock received in the distribution or the value received
by Omega for the transfer of the Series B Preferred.
CERTAIN ANTITAKEOVER PROVISIONS
The MGCL, the Charter and Bylaws and the Rights Agreement contain several
provisions that may make more difficult the acquisition of control of the
Company without the approval of the Omega Worldwide Board or may make more
difficult a change of control of the Company or other transaction that may
involve a premium price for the Omega Worldwide Common Stock. Subtitle 6 of
Title 3 of the MGCL (the "Business Combination Statute") restricts business
combinations between the Company and any holder of 10% or more of the Omega
Worldwide Common Stock, and Subtitle 7 of Title 3 of the MGCL (the "Control
Shares Acquisition Statute") imposes certain restrictions on the voting rights
of control shares acquired in a control share acquisition. Certain provisions of
the Charter and the Bylaws, among other things: (i) classify the Omega Worldwide
Board into three classes of directors who serve for staggered three-year terms;
(ii) provide that a director of the Company may be removed by the stockholders
only for cause; (iii) provide that only the Chairman, the President, the Omega
Worldwide Board or holders of 50% of the Omega Worldwide Common Stock may call
special meetings of the stockholders; (iv) provide that the stockholders may
take action only at a meeting of the Company stockholders, not by written
consent; (v) provide that stockholders must comply with certain advance notice
procedures in order to nominate candidates for election to the Omega Worldwide
Board or to place stockholders' proposals on the agenda for consideration at
meetings of the stockholders; (vi) provide that, under certain circumstances,
the affirmative vote of the holders of 80% of the outstanding shares of stock of
the Company entitled to vote generally in the election of directors is required
to approve any merger or similar business combination involving the Company (the
"business combination provision"); and (vii) provide that the stockholders may
amend or repeal any of the provisions of the Charter set forth above only by a
vote of 80% of the stock entitled to vote generally in the election of
directors. The Rights Plan would cause substantial dilution to a person or group
that attempts to acquire the Company on terms not approved in
18
<PAGE> 20
advance by the Omega Worldwide Board. The Charter provides that the business
combination provision, the Rights Plan, the Business Combination Statute and the
Control Shares Acquisition Statute do not apply to Omega and its affiliates.
Accordingly, Omega and its affiliates will be in a position to effect a business
combination or other transaction with the Company in situations where others
would be restricted from effecting a similar transaction. See "Description of
Omega Worldwide Capital Stock" and "Certain Antitakeover Provisions."
BROAD DISCRETION IN USE OF PROCEEDS
The Company currently has no specific plans for the use of the proceeds to
be obtained from the Offerings but intends to use such proceeds for general
corporate purposes consistent with the business strategy described under
"Business -- Business Strategy." See "Use of Proceeds."
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THE COMPANY
The Company was incorporated in Maryland in November 1997. The Company will
own the Assets contributed by Omega and will receive cash from the Rights
Offering and Primary Offering. Prior to the contribution of the Assets, the
Company has had no operations. See "Business."
The Company's executive offices are located at 905 West Eisenhower Circle,
Suite 101, Ann Arbor, Michigan 48103 and its telephone number is (734) 747-9791.
The Company will also have an office at 145 Cannon Street, London, England EC
4N5 BP, telephone number (171) 929-3444.
THE RIGHTS OFFERING
RIGHTS
The Company is distributing, at no cost, to each holder of Omega Worldwide
Common Stock of record as of the close of business on the Rights Record Date,
one Right for every 4.0 shares of Omega Worldwide Common Stock held by such
holder on such Rights Record Date. Each Right entitles the holder thereof to
purchase one share of Omega Worldwide Common Stock at the Subscription Price.
The Rights are evidenced by nontransferable Rights certificates, which
shareholders will receive with the delivery of this Prospectus. A holder of
Rights may (i) subscribe for shares of Omega Worldwide Common Stock through the
exercise of all of his or her Rights, thereby preserving approximately the same
percentage ownership in the Company as he or she currently enjoys relative to
the other shareholders of the Company, or (ii) allow part or all of his or her
Rights to expire unexercised. In the latter case, after the Rights Offering and
the Distribution the shareholder would own a smaller relative equity ownership
and voting interest in the Company as he or she currently enjoys relative to the
other shareholders of the Company. All shareholders of Omega as of the Record
Date who purchase shares of Omega Worldwide Common Stock pursuant to the
Secondary Offering will agree to exercise all Rights they may receive pursuant
to the Rights Offering.
SUBSCRIPTION PRICE
The Subscription Price for one share of Omega Worldwide Common Stock, which
may be purchased upon the exercise of one Right, is $7.50.
EXPIRATION DATE
The Rights will expire and become void at 5:00 p.m., Eastern Standard Time,
on April 23, 1998 or such later date as the Company may determine in its sole
discretion. The Rights will thereafter have no value. Notice will be given to
shareholders of record on the Rights Record Date, by mail or by publication in a
newspaper of national circulation, of a new Expiration Date in the event the
Company extends the period for the exercise of the Rights.
OVERSUBSCRIPTION PRIVILEGE
A holder of Omega Worldwide Common Stock on the Rights Record Date who
validly exercises all of the Rights initially issued to such holder to the
extent possible will have the further right to exercise the Oversubscription
Privilege for Unsubscribed Shares at the Subscription Price. Only holders of
Omega Worldwide Common Stock on the Rights Record Date will be entitled to the
Oversubscription Privilege. Holders of Omega Worldwide Common Stock so entitled
to exercise the Oversubscription Privilege may oversubscribe for as many
additional shares of Omega Worldwide Common Stock as desired (subject to the
maximum number of shares of Omega Worldwide Common Stock offered in the Rights
Offering (not including the Additional Shares) and certain other restrictions).
If the demand for shares of Omega Worldwide Common Stock pursuant to the
Oversubscription Privilege exceeds the number of shares of Omega Worldwide
Common Stock available (not including the Additional Shares), holders of Omega
Worldwide Common Stock on the Rights Record Date shall participate in the
Oversubscription Privilege (up to, but not exceeding, the number of shares of
Omega Worldwide Common Stock oversubscribed for by each such holder) pro rata
based upon the number of Rights exercised by each such person (without regard to
the
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<PAGE> 22
number of shares of Omega Worldwide Common Stock oversubscribed for by each such
person pursuant to the Oversubscription Privilege), with fractional shares of
Omega Worldwide Common Stock adjusted in any manner the Company deems
appropriate. As soon as practicable after the Expiration Date, the Subscription
Agent will send each subscriber exercising the Oversubscription Privilege a
written confirmation (the "Oversubscription Notice") of the number of shares of
Omega Worldwide Common Stock allocated to such subscriber under the
Oversubscription Privilege. Any amounts overpaid by subscribers will be held in
a segregated account at the Subscription Agent and will be refunded promptly
after the Expiration Date without interest.
UNSUBSCRIBED SHARES AND THIRD PARTY SALES
The Rights Investors have committed to purchase any Unsubscribed Shares and
the Company has authorized the Additional Shares to ensure that the Rights
Investors will have the right to purchase an aggregate of 1,000,000 Unsubscribed
Shares. The Rights Investors will purchase 1,000,000 shares of Omega Worldwide
Common Stock on the day after the Rights Record Date. On or promptly after April
24, 1998, the business day after the Expiration Date, the Subscription Agent
will send each Rights Investor a written confirmation of the number of shares of
Omega Worldwide Common Stock allocated to such Rights Investor in the event the
number of Unsubscribed Shares exceed 1,000,000. On or prior to April 29, 1998,
the fourth business day after the Expiration Date, the Rights Investors must
deliver payment for the remaining shares of Omega Worldwide Common Stock
allocated to them, if any, to the Subscription Agent by wire transfer of
immediately available funds.
SUBSCRIPTION AGENT
The Subscription Agent for the Rights Offering is First Chicago Trust
Company of New York (the "Subscription Agent"). The address to which Rights
Certificates, Notices of Guaranteed Delivery and payments should be mailed or
delivered is:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By Mail:
First Chicago Trust Company
of New York
Attention: Tenders & Exchanges
P.O. Box 2565, Suite 4660
Jersey City, NJ 07303-2565
By Facsimile Transmission:
(201) 222-4720
or
(201) 222-4721
By Hand:
First Chicago Trust Company
of New York
Attention: Tenders & Exchanges
c/o THE DEPOSITORY
TRUST COMPANY
55 Water Street, DTC TAD
Vietnam Veterans Memorial Plaza
New York, NY 10041
By Overnight Courier:
First Chicago Trust Company
of New York
Attention: Tenders & Exchanges
Suite 4680-OWI
14 Wall Street, 8th Floor
New York, NY 10005
Confirm By Telephone:
(201) 222-4707
Delivery of Rights Certificates, Notices of Guaranteed Delivery and
payments (other than wire transfers) other than as set forth above will not
constitute a valid delivery.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE METHOD OF
SUBSCRIBING FOR SHARES OF OMEGA WORLDWIDE COMMON STOCK OR FOR ADDITIONAL COPIES
OF THIS PROSPECTUS SHOULD BE DIRECTED TO TENDERS & EXCHANGES AT 1-800-250-4215.
FRACTIONAL SHARES
No fractional shares of Omega Worldwide Common Stock will be issued and the
Company may adjust for fractional shares of Omega Worldwide Common Stock
resulting from the exercise of the Oversubscription Privilege in any manner it
deems appropriate. Rights Certificates may not be divided in such a manner as to
create fractional Rights or permit holders to subscribe for a greater number of
shares of Omega Worldwide
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<PAGE> 23
Common Stock. Banks, trust companies, securities dealers and brokers that hold
shares of Omega Worldwide Common Stock as nominees for more than one beneficial
owner may have a Rights Certificate divided by the Subscription Agent (see "--
Method of Transferring Rights"), or may, upon proper showing to the Subscription
Agent, exercise their Rights Certificates on the same basis as if the beneficial
owners were record holders on the Rights Record Date. The Company reserves the
right to deny any division of Rights Certificates if in its opinion the result
would be inconsistent with the intent of this privilege.
METHOD OF EXERCISING RIGHTS
Shares of Omega Worldwide Common Stock may be subscribed for pursuant to
the exercise of the Rights by properly completing and duly executing the Rights
Certificate accompanying this Prospectus and mailing or delivering the Rights
Certificate, together with payment of the full Subscription Price for each share
of Omega Worldwide Common Stock subscribed for pursuant to the exercise of
Rights and the Oversubscription Privilege to the Subscription Agent at the
appropriate address set forth above. Banks, trust companies, securities dealers
and brokers that hold shares of Omega Worldwide Common Stock as nominee for more
than one beneficial owner may, upon proper showing to the Subscription Agent,
exercise their Rights and the Oversubscription Privilege on the same basis as if
the beneficial owners were record holders on the Rights Record Date. Payments
must be made in United States currency by personal check, cashier's check, wire
transfer, bank draft or money order payable to the order of "Omega Worldwide
Rights Offering". In the case of holders of Rights that are held of record
through The Depository Trust Company ("DTC"), such Rights may be exercised by
instructing DTC to transfer Rights from such holder's DTC account to the
Subscription Agent's DTC account, together with payment of the full Subscription
Price. EXCEPT AS DESCRIBED UNDER "-- LATE DELIVERY OF PAYMENT AND RIGHTS
CERTIFICATES", TO BE ACCEPTED, THE PROPERLY COMPLETED AND DULY EXECUTED RIGHTS
CERTIFICATE AND THE PAYMENT MUST BE RECEIVED BY THE SUBSCRIPTION AGENT PRIOR TO
5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE. RIGHTS CERTIFICATES
RECEIVED AFTER SUCH TIME WILL NOT BE HONORED.
A holder of Rights who exercises fewer than all of the Rights represented
by his or her Rights Certificate will receive from the Subscription Agent a new
Rights Certificate representing such unexercised Rights. No new Rights
Certificates will be issued after April 16, 1998. Neither the Company nor the
Subscription Agent shall incur any liability if a Rights Certificate, furnished
by the Subscription Agent or otherwise, is not received in time to be exercised,
transferred or sold.
The instruction letter accompanying the Rights Certificate should be read
carefully and strictly followed. DO NOT SEND RIGHTS CERTIFICATES OR PAYMENTS TO
THE COMPANY. Except as described under the captions "-- Unsubscribed Shares and
Third Party Sales" and "-- Late Delivery of Payments and Rights Certificates,"
no subscription will be deemed to have been received until the Subscription
Agent has received delivery of a properly completed and duly executed Rights
Certificate and payment of the full Subscription Price. The risk of delivery of
all documents and payments is on subscribers, not the Company or the
Subscription Agent. If the mail is used, it is recommended that insured,
registered mail, return receipt requested, be used and that a sufficient number
of days be allowed to ensure delivery to the Subscription Agent before the
Expiration Date.
LATE DELIVERY OF PAYMENTS AND RIGHTS CERTIFICATES
If, prior to 5:00 p.m., Eastern Standard Time, on the Expiration Date, the
Subscription Agent has received a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form accompanying this Prospectus
(either by hand, mail, telegram or facsimile transmission) specifying the name
of the holder of Rights and the number of shares of Omega Worldwide Common Stock
subscribed for (stating separately the number of shares of Omega Worldwide
Common Stock subscribed for pursuant to the exercise of the Rights and the
Oversubscription Privilege) and guaranteeing that the properly completed and
duly executed Rights Certificate and payment of the full Subscription Price for
all shares of Omega Worldwide Common Stock subscribed and oversubscribed for
will be delivered to the Subscription Agent within three business days after the
Expiration Date, such subscription may be accepted, subject to the Subscription
Agent's withholding the certificates for the shares of Omega Worldwide Common
Stock until receipt of the
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<PAGE> 24
properly completed and duly executed Rights Certificate and payment of such
amount within such time period. In the case of holders of Rights that are held
of record through DTC, such Rights may be exercised by instructing DTC to
transfer Rights from such holder's DTC account to the Subscription Agent's DTC
account, together with payment of the full Subscription Price. The Notice of
Guaranteed Delivery must be guaranteed by a commercial bank, trust company or
credit union having an office, branch or agency in the United States or by a
member of a Stock Transfer Association approved medallion program such as STAMP,
SEMP or MSP. Notices of Guaranteed Delivery and Payments should be mailed or
delivered to the appropriate addresses set forth under "-- Subscription Agent".
VALIDITY OF SUBSCRIPTIONS
All questions with respect to the validity and form of the exercise of any
Rights or the Oversubscription Privilege, or third-party subscriptions for
Unsubscribed Shares (including time of receipt and eligibility to participate in
the Rights Offering) will be determined solely by the Company, which
determination shall be final and binding. Once made, subscriptions and
directions are irrevocable, and no alternative, conditional or contingent
subscriptions or directions will be accepted. The Company reserves the absolute
right to reject any subscriptions or directions not properly submitted or the
acceptance of which, in the opinion of the Company's counsel, would be unlawful.
Any irregularities in connection with subscriptions must be cured prior to the
Expiration Date unless waived by the Company in its sole discretion. Neither the
Company nor the Subscription Agent shall be under any duty to give notification
of defects in such subscriptions or incur any liability for failure to give such
notification. A subscription will be deemed to have been accepted (subject to
the Company's right to withdraw or terminate the Rights Offering) only when a
properly completed and duly executed Rights Certificate, any other required
documents and payment of the full Subscription Price with respect to such
subscription have been received by the Subscription Agent. The Company's
interpretations of the terms and conditions of the Rights Offering shall be
final and binding.
RIGHTS OF SUBSCRIBERS
Subscribers will have no rights as shareholders of the Company with respect
to shares of Omega Worldwide Common Stock subscribed for until certificates
representing such shares of Omega Worldwide Common Stock are issued to them.
Subscribers will have no right to revoke their subscriptions after delivery to
the Subscription Agent of a completed Rights Certificate and any other required
documents.
DELIVERY OF SHARES
Certificates for shares of Omega Worldwide Common Stock purchased pursuant
to the exercise of Rights or third-party subscriptions will be mailed as soon as
practicable after the receipt of all required documents and payment in full of
the Subscription Price due for such shares of Omega Worldwide Common Stock.
Certificates for shares of Omega Worldwide Common Stock purchased pursuant to
the Oversubscription Privilege for Unsubscribed Shares will be mailed as soon as
practicable after the Expiration Date and the receipt of all required documents
and payment in full of the Subscription Price due for such shares of Omega
Worldwide Common Stock. In the case of shareholders whose shares of Omega
Worldwide Common Stock are held through DTC and Rights Investors who arrange for
delivery and payment through DTC, the appropriate participant account will be
credited.
FEDERAL INCOME TAX CONSEQUENCES OF THE RIGHTS OFFERING
The following is a summary of the material U.S. federal income tax
consequences of the Rights Offering. To the extent this summary discusses
matters of law, it is based on the opinion of Mayer, Brown & Platt. This summary
is based upon the current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), its legislative history, Treasury regulations,
administrative pronouncements and judicial decisions, all of which are subject
to change, possibly with retroactive effect. This summary does not purport to be
a complete discussion of all U.S. federal income tax consequences relating to
the Rights Offering. This summary does not address the tax consequences of the
Rights Offering under state, local or non-U.S. tax laws. In addition, this
summary may not apply, in whole or in part, to particular categories of
shareholders of the
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<PAGE> 25
Company, such as financial institutions, broker-dealers, life insurance
companies, tax-exempt organizations, investment companies, foreign taxpayers,
individuals who acquired Rights pursuant to stock options, restricted stock
programs or in other compensatory transactions, and other special status
taxpayers. Finally, a tax ruling from the Internal Revenue Service has not been
requested. THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL
SHAREHOLDERS OF THE COMPANY ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE
THE SPECIFIC TAX CONSEQUENCES OF THE RIGHTS OFFERING, INCLUDING ANY STATE, LOCAL
AND NON-U.S. TAX CONSEQUENCES.
The Rights Offering should be treated for U.S. federal income tax purposes
as a distribution, subsequent to the Distribution and the Secondary Offering, of
the Rights by the Company to its shareholders. As such, the U.S. federal income
tax consequences of the Rights Offering should be as follows.
Taxation of Shareholder of the Company upon Receipt of Right. A Company
shareholder will not recognize any gain or loss upon receipt of a Right.
Taxation of Shareholder of the Company upon Exercise of Right. A
shareholder of the Company generally will not recognize any gain or loss upon
the purchase of a share of Omega Worldwide Common Stock pursuant to the exercise
of a Right. The tax basis of shares of Omega Worldwide Common Stock purchased
pursuant to the exercise of Rights will be equal to the sum of (a) the
shareholder's tax basis in the Rights exercised and (b) the Subscription Price
paid for such Omega Worldwide Common Stock. If a shareholder exercises a Right,
the tax basis of such Right in the hands of the shareholder will be determined
by allocating the shareholder's existing tax basis in his or her Omega Worldwide
Common Stock with respect to which the Right was distributed ("Old Shares")
between his or her Old Shares and the Right, in proportion to their relative
fair market values on the date of distribution of the Rights. If, however, the
fair market value of the Rights distributed to the shareholder (on the date of
distribution) is less than 15% of the fair market value of his or her Old
Shares, the tax basis of each Right will be deemed to be zero unless the
shareholder affirmatively elects, by attaching an election statement to his or
her federal income tax return for the year in which he or she receives his or
her Rights, to compute the tax basis of his or her Rights in accordance with the
preceding sentence. Once made, such an election is irrevocable. The Company
expects that the fair market value of the Rights distributed to each shareholder
will be less than 15% of the fair market value of his or her Old Shares. The
holding period of the shares of Omega Worldwide Common Stock purchased pursuant
to the exercise of Rights will commence on the date of exercise.
Taxation of Shareholder of the Company upon Lapse of Right. A shareholder
of the Company will not recognize any gain or loss upon the expiration of his or
her Right since a Right will not be treated as having any tax basis if it
lapses.
Taxation of the Company on the Rights Offering. The Company will generally
not recognize any gain or loss upon the issuance of Rights, the receipt of cash
for Omega Worldwide Common Stock pursuant to the exercise of Rights or the lapse
of Rights.
Other Possible Characterizations. Although the Rights Offering should be
treated for U.S. federal income tax purposes as a distribution (and both Omega
and the Company intend to report the transaction on this basis), subsequent to
the Distribution and the Secondary Offering, of the Rights by the Company to its
shareholders, alternative characterizations of the Rights Offering are possible.
For example, Omega could be treated as receiving Rights (as well as Omega
Worldwide Common Stock) in exchange for the Assets, as distributing Rights (as
well as Omega Worldwide Common Stock) to its shareholders in the Distribution,
and as selling Rights (as well as Omega Worldwide Common Stock) to the
purchasers in the Secondary Offering. Recipients of Rights are urged to consult
their tax advisors with regard to possible alternative characterizations and the
U.S. federal income tax consequences thereof.
LISTING AND TRADING OF OMEGA WORLDWIDE COMMON STOCK
There is currently no public market for Omega Worldwide Common Stock.
Although the Company has applied to report the Omega Worldwide Common Stock on
NASDAQ, it has not yet been approved for listing, and there can be no assurance
as to the prices at which trading in Omega Worldwide Common Stock will occur
after the Distribution. Listing will not occur nor will there be any trading in
Omega Worldwide
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<PAGE> 26
Common Stock prior to the Trading Date. Until Omega Worldwide Common Stock is
fully distributed and an orderly trading market develops, the prices at which
trading in such stock occurs may fluctuate significantly. There can be no
assurance that an active trading market in Omega Worldwide Common Stock will
develop or be sustained in the future.
The prices at which Omega Worldwide Common Stock trades will be determined
by the marketplace and may be influenced by many factors, including, among
others, the Company's performance and prospects, the depth and liquidity of the
market for Omega Worldwide Common Stock, investor perception of the Company and
of the industries in which the Company operates and economic conditions in
general, the Company's dividend policy, and general financial and other market
conditions. In addition, financial markets have experienced extreme price and
volume fluctuations that have affected the market price of many stocks and that,
at times, could be viewed as unrelated or disproportionate to the operating
performance of such companies. Such fluctuations have also affected the share
prices of many newly public issuers. Such volatility and other factors may
materially adversely affect the market price of Omega Worldwide Common Stock.
The Company will have approximately 3,000 stockholders of record and
approximately 30,000 beneficial shareholders, based on the number of record
holders of Omega Common Shares on the Record Date. The Transfer Agent and
Registrar for the Omega Worldwide Common Stock will be First Chicago Trust
Company of New York. For certain information regarding options and other
equity-based employee benefit awards involving Omega Worldwide Common Stock that
may become outstanding after the Distribution, see "Management."
THE DISTRIBUTION
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
The Company will provide investment advisory and management services and
hold equity and debt interests in companies engaged in providing sale/leaseback
and other capital financing to healthcare service providers throughout the
world. The Company will seek to leverage its management expertise in financing
healthcare providers globally by providing seed equity and debt capital and
investment advisory services to newly-formed or existing real estate and finance
companies principally in countries other than the United States. Under the
Opportunity Agreement, the Company and Omega will agree to provide each other
with rights to participate in certain transactions and to make certain
investments. In particular, the Company will have the right to pursue certain
opportunities that Omega may determine it is unable to pursue (whether due to
its status as a REIT for federal income tax purposes or for other reasons) or
that Omega may elect not to pursue. See "Business -- The Opportunity Agreement."
In addition, the Company intends to pursue additional opportunities with others
in the future. The Distribution of Omega Worldwide Common Stock will provide
Omega shareholders as of the Record Date with the opportunity to benefit from
activities Omega elects not to pursue due to its REIT status or for other
reasons. Concurrent with the effectiveness of the Company's Registration
Statement of which this Prospectus is a part, Omega will contribute the Assets
in exchange for 8,499,000 shares of Omega Worldwide Common Stock, of which
2,300,000 shares are being sold in the Secondary Offering and 5,200,000 shares
are being distributed by Omega to its shareholders in connection with the
Distribution. Omega will retain 1,000,000 shares of Omega Worldwide Common
Stock.
In connection with the Distribution, and to allow Omega to properly realize
the value of its net contribution to the Company, the Company has agreed to
issue up to 5,000,000 shares of Series B Preferred in connection with the
contribution of the Assets. Pursuant to the Contribution Agreement, the Company
will automatically issue 65,000 shares of Series B Preferred to Omega for each
$0.0625 above $8.625 per share of Omega Worldwide Common Stock that more than
12,000 shares of Omega Worldwide Common Stock are traded on any single date
during the 30-day period following the Trading Date. The Series B Preferred will
receive a cumulative 8% per annum dividend which is payable annually based on a
liquidation value of $10.00 per share. The Series B Preferred has no voting
rights. Each share of Series B Preferred will convert into one share of Omega
Worldwide Common Stock immediately after Omega ever distributes the Series B
Preferred to its shareholders or otherwise transfers the Series B Preferred to
any unaffiliated third party.
Omega has engaged Morgan Stanley & Co., Incorporated to provide certain
financial advice with respect to the Distribution.
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MANNER OF EFFECTING THE DISTRIBUTION
It is expected that the Distribution Date will be April 2, 1998. At the
time of the Distribution, share certificates for Omega Worldwide Common Stock
will be delivered to the Distribution Agent. Commencing on or after the date of
the Distribution, the Distribution Agent will begin mailing account statements
reflecting ownership of Omega Worldwide Common Stock to holders of Omega Common
Shares as of the close of business on the Record Date. The Distribution will be
made on the basis of one share of Omega Worldwide Common Stock for every 3.77
Omega Common Shares held on the Record Date. No certificates representing
fractional shares of Omega will be issued in connection with the Distribution.
In lieu of fractional shares, the Distribution Agent will aggregate and sell the
fractional shares and distribute the cash proceeds to those holders otherwise
entitled to a fractional interest in the amount of their pro rata share of the
total sale proceeds. Proceeds from sales of fractional shares will be paid by
the Distribution Agent based upon the average gross selling price per share of
the Omega Worldwide Common Stock of all such sales. Omega will bear the cost of
commissions incurred in connection with such sales. Such sales are expected to
be made as soon as practicable after the Distribution Date. None of Omega, the
Company or the Distribution Agent will guarantee any minimum sale price for the
fractional shares of the Omega Worldwide Common Stock and no interest will be
paid on the proceeds of such sales. All shares of Omega Worldwide Common Stock
will be fully paid and nonassessable. See "Description of Omega Worldwide
Capital Stock."
Inquiries relating to the Distribution should be directed to the
Distribution Agent by telephone at (201) 324-1225; Monday through Friday, 8:30
a.m. to 7:00 p.m. (Eastern time).
NO HOLDER OF OMEGA COMMON SHARES WILL BE REQUIRED TO MAKE ANY PAYMENT FOR
THE SHARES OF OMEGA WORLDWIDE COMMON STOCK TO BE RECEIVED IN THE DISTRIBUTION OR
TO SURRENDER OR EXCHANGE OMEGA COMMON SHARES OR TO TAKE ANY OTHER ACTION IN
ORDER TO RECEIVE OMEGA WORLDWIDE COMMON STOCK TO WHICH THE HOLDER IS ENTITLED IN
THE DISTRIBUTION.
EFFECT ON OMEGA
The Board of Directors of Omega intends not to reduce the Omega dividend or
alter Omega's dividend policy as a consequence of the Distribution of shares of
Omega Worldwide Common Stock or the contribution of Assets of Omega to the
Company.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following is a summary of the material U.S. federal income tax
consequences of the Distribution. To the extent this summary discusses matters
of law, it is based upon the opinion of Mayer, Brown & Platt. This summary is
based upon the current provisions of the Code, its legislative history, Treasury
regulations, administrative pronouncements and judicial decisions, all of which
are subject to change, possibly with retroactive effect. This summary does not
purport to be a complete discussion of all U.S. federal income tax consequences
relating to the Distribution. This summary does not address the tax consequences
of the Distribution under state, local or non-U.S. tax laws. In addition, this
summary may not apply, in whole or in part, to particular categories of Omega
shareholders, such as financial institutions, broker-dealers, life insurance
companies, tax-exempt organizations, investment companies, foreign taxpayers,
individuals who received Omega Worldwide Common Stock pursuant to stock options,
restricted stock programs or in other compensatory transactions, and other
special status taxpayers. Finally, a tax ruling from the Internal Revenue
Service has not been requested. THIS SUMMARY IS INCLUDED FOR GENERAL INFORMATION
ONLY. ALL OMEGA SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE DISTRIBUTION, INCLUDING ANY
STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES.
Taxation of Omega on the Distribution. Omega will recognize gain on the
Distribution to the extent the fair market value of the Omega Worldwide Common
Stock distributed to the Omega shareholders exceeds Omega's adjusted tax basis
in the Omega Worldwide Common Stock, which basis will depend on Omega's adjusted
tax basis in the Assets. Furthermore, Omega will recognize gain on the sale of
the Omega Worldwide Common Stock to the purchasers in the Secondary Offering to
the extent the fair market value of the Omega Worldwide Common Stock sold to the
purchasers in the Secondary Offering exceeds Omega's adjusted tax
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basis in the Omega Worldwide Common Stock, which basis will depend on Omega's
adjusted tax basis in the Assets. Such gains will increase Omega's current
earnings and profits.
Taxation of Omega Shareholders on the Distribution. As a result of the
Distribution, an Omega shareholder will be treated as receiving a distribution
from Omega in an amount equal to the fair market value of the Omega Worldwide
Common Stock received by such shareholder plus any cash received in lieu of
fractional shares. Omega's distributions (including the Distribution) will be
ordinary income to the extent of Omega's current and accumulated earnings and
profits (unless designated as capital gain dividends), which will be increased
by the amount of gain recognized by Omega as described above. Distributions of
net capital gain designated by Omega as capital gain dividends will be taxed to
such shareholders as long-term capital gain (to the extent they do not exceed
Omega's actual net capital gain for the fiscal year) without regard to the
period for which the shareholder has held its shares of Omega. However,
corporate shareholders may be required to treat up to 20% of capital gain
dividends as ordinary income. (If an Omega shareholder receives a capital gain
dividend and holds his or her Omega Common Share for six months or less, any
loss on the sale or exchange of such shareholder's Omega Common Share will be
treated as a long-term capital loss.) To the extent that distributions
(including the Distribution) will be in excess of current and accumulated
earnings and profits, such distributions will be treated as a tax-free return of
capital, reducing the tax basis in the shareholder's Omega Common Shares by the
amount of the distribution (but not below zero). To the extent that
distributions (including the Distribution) will be in excess of a shareholder's
adjusted tax basis in Omega, such distributions will be capital gain (if the
Omega Common Shares are held as a capital asset). An Omega shareholder will have
a tax basis in the Omega Worldwide Common Stock equal to the fair market value
of the Omega Worldwide Common Stock received on the Distribution Date. An Omega
shareholder's holding period for the Omega Worldwide Common Stock received in
the Distribution will begin on the Distribution Date.
Based upon the above, management anticipates that, for a typical Omega
shareholder, the Distribution likely will result in an increase in the
shareholder's tax-free return of capital and capital gain, but this result
cannot be assured.
The following example illustrates the application of the above rules to a
hypothetical Omega shareholder. (All of the facts in this paragraph are
hypothetical and are assumed for purposes of illustration.) An Omega shareholder
has a $20 adjusted tax basis in an Omega Common Share. Omega will make a
distribution equal to or in excess of its 1998 earnings and profits from
operations. In addition to Omega's earnings and profits from operations, the
consummation of the transaction contemplated herein generates additional
earnings and profits equal to $1.50 for each outstanding Omega Common Share. The
fair market value of a share of Omega Worldwide Common Stock at the Distribution
Date is $7.50 (the equivalent of $1.99 per Omega Common Share) which will be the
tax basis of the share of Omega Worldwide Common Stock to the shareholder. Omega
will designate the Distribution as a capital gain dividend. Based upon the above
hypothetical facts, such shareholder would be treated as receiving a capital
gain dividend equal to $1.42 and would have a tax-free return of capital equal
to $0.57, which would reduce such shareholder's adjusted tax basis in its Omega
Common Share from $20 to $19.43.
Taxation of Non-U.S. Omega Shareholders on the Distribution. For purposes
of this discussion a "non-U.S. holder" means any Omega shareholder who, for
United States income tax purposes, is a foreign corporation, a nonresident
alien, a nonresident alien fiduciary of a foreign estate or trust, or a foreign
partnership which has at least one member that is, for United States federal
income tax purposes, a foreign corporation, a nonresident alien individual or a
nonresident alien fiduciary of a foreign estate or trust. Non-U.S. holders will
be subject to U.S. withholding tax at a rate of 30%, or if applicable, a lower
treaty rate, on the portion of the Distribution not attributable to capital
gains unless the Distribution is effectively connected with the conduct of a
trade or business in the United States by such non-U.S. holder. In addition,
under the Foreign Investment in Real Property Tax Act, any distribution made by
Omega to a non-U.S. holder, to the extent attributable to USRPI Capital Gains,
will be considered effectively connected with a U.S. trade or business of the
non-U.S. holder and subject to U.S. income tax at the rates applicable to U.S.
individuals or corporations. Omega will be required to withhold tax equal to 35%
of the amount of the Distribution applicable to a non-U.S. holder to the extent
it constitutes USRPI Capital Gains, without regard to the
27
<PAGE> 29
portion of the Distribution which Omega designates as a capital gain dividend.
The portion of the Distribution which constitutes USRPI Capital Gains may also
be subject to the 30% branch profits tax (unless reduced by treaty) in the case
of a non-U.S. holder that is a foreign corporation.
Any portion of the Distribution that exceeds both current and accumulated
earnings and profits of Omega will not be taxed as either an ordinary dividend
or a capital gain dividend. However, because Omega will not be able to determine
at the time the Distribution is made whether or not the Distribution will be in
excess of Omega's current and accumulated earnings and profits, the Distribution
will be subject to full withholding. The non-U.S. holder may seek a refund of
over-withholding from the Internal Revenue Service if it is subsequently
determined that the Distribution was, in fact, in excess of Omega's current and
accumulated earnings and profits. Under current Treasury Regulations,
distributions paid to an address in a foreign country are presumed to be paid to
a resident of that country (unless the payor has knowledge to the contrary) for
foreign withholding purposes and, under the current interpretation of the
Treasury Regulations, for purposes of determining the applicability of a tax
treaty rate. In any case where a distribution is payable in any medium other
than money, the withholding agent cannot release the property so distributed
until the property has been converted into funds sufficient to enable the
withholding agent to pay over in money the tax required to be withheld. For a
discussion of the manner in which this withholding obligation will be satisfied
by Omega in connection with the Distribution, see "Foreign Shareholders."
Backup Withholding. Under the backup withholding rules of the Code (which
generally impose a 31% withholding tax on certain persons who fail to furnish
the information required under the U.S. federal tax reporting requirements), an
Omega shareholder may be subject to backup withholding with respect to the
receipt of Omega Worldwide Common Stock unless such shareholder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (ii) provides a correct taxpayer identification number
and certifies under penalties of perjury that the taxpayer identification number
is correct and that the holder is not currently subject to backup withholding
because of a failure to report all dividend and interest income. The taxpayer
identification number of an individual is his or her Social Security number. Any
amount withheld under these rules will be credited against the shareholder's
U.S. federal income tax liability.
Information Reporting. Omega is required to report to its shareholders the
value of the Omega Worldwide Common Stock issued in the Distribution on Form
1099-DIV for 1998.
SHARES AVAILABLE FOR FUTURE SALE
Omega Worldwide Common Stock distributed in the Distribution and acquired
pursuant to the Offerings (approximately 10,250,000 shares) will be freely
transferable, except for securities received by persons who may be deemed to be
"affiliates" of the Company under the Securities Act. Persons who may be deemed
to be affiliates of the Company after the Distribution and the Offerings
generally include individuals or entities that control, are controlled by, or
are under common control with, the Company and may include certain officers and
directors of the Company as well as principal stockholders of the Company, if
any. Persons who are affiliates of the Company will be permitted to sell their
shares of Omega Worldwide Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(2) of the Securities Act (relating to private sales) or by Rule 144
under the Securities Act. Neither Omega nor the Company is able to predict
whether substantial amounts of Omega Worldwide Common Stock will be sold in the
open market following the Distribution and the Offerings. Sales of substantial
amounts of Omega Worldwide Common Stock in the public market, or the perception
that such sales might occur, could adversely affect the market price of Omega
Worldwide Common Stock.
FOREIGN SHAREHOLDERS
In the Distribution, shares of Omega Worldwide Common Stock will not be
mailed immediately to Foreign Shareholders but instead will be held by the
Distribution Agent for such shareholders' accounts. As described under the
heading "-- Federal Income Tax Consequences of the Distribution -- Taxation of
28
<PAGE> 30
Non-U.S. Omega Shareholders on the Distribution," Omega is subject to a United
States federal tax withholding obligation with respect to the shares of Omega
Worldwide Common Stock to be distributed to Foreign Shareholders. The
Distribution Agent will mail a notice to each Foreign Shareholder announcing the
Distribution as well as seeking instructions from the Foreign Shareholder
electing between the following options: (i) providing a check to the
Distribution Agent in the amount to be withheld and receiving the full amount of
shares of Omega Worldwide Common Stock or (ii) having the Distribution Agent
sell the number of shares of Omega Worldwide Common Stock necessary to satisfy
the withholding obligations and receiving his or her remaining shares of Omega
Worldwide Common Stock. The notice will also set forth the amount of the
withholding obligation. A Foreign Shareholder must deliver to the Distribution
Agent his or her instructions and, if option (i) is elected, a check in the
proper amount of the withholding must be received by the Distribution Agent
within 20 business days of the date the notice is sent by the Distribution
Agent. If no instructions are received from a Foreign Shareholder by the end of
such period, the Distribution Agent will take the actions specified in option
(ii) in satisfying the withholding obligations with respect to such shareholder.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,750,000 shares of
Omega Worldwide Common Stock pursuant to the Rights Offering and Primary
Offering (assuming no Additional Shares are issued) will be $19,875,000, after
deducting the expenses. The Company intends to use the net proceeds for general
corporate purposes, including additional investments in Principal, working
capital requirements and possible acquisitions. Pending the above uses, the
Company intends to invest the net proceeds to the Company in short-term,
investment grade, interest bearing securities. The Company will not receive any
proceeds from the Secondary Offering or the Distribution.
29
<PAGE> 31
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
November 30, 1997 on a historical basis, as adjusted for the contribution of the
Assets by Omega, and assumed completion as of November 30, 1997 of the formation
and capitalization of the Company.
<TABLE>
<CAPTION>
NOVEMBER 30, 1997
-----------------------------------------
AS
HISTORICAL ADJUSTED(A) PRO FORMA(B)
---------- ----------- ------------
<S> <C> <C> <C>
Shareholders' Equity
Preferred stock, $1.00 par value per share; 10,000,000
shares authorized.................................. 0 0 0
Common stock, $0.10 par value per share; 50,000,000
shares authorized; 1,000 issued and outstanding
(historical); 8,500,000 issued and outstanding (as
adjusted); 11,250,000 issued and outstanding (pro
forma)............................................. $ 100 $ 850,000 $ 1,125,000
Additional paid-in capital............................ 900 28,402,612 48,002,612
--------- ----------- -----------
Total shareholders' equity......................... 1,000 29,252,612 49,127,612
--------- ----------- -----------
Total capitalization............................... $ 1,000 $29,252,612 $49,127,612
========= =========== ===========
</TABLE>
- -------------------------
(a) Reflects contribution by Omega Healthcare Investors, Inc of the net carrying
amount of its investment in Principal, the issuance of 8,499,000 shares of
the Company's common stock in exchange for the Assets contributed, resulting
in a total of 8,500,000 shares issued to Omega following the contribution.
(b) Reflects net proceeds of issuance of 2,250,000 shares and 500,000 shares of
the Company to its shareholders pursuant to this Rights Offering and Primary
Offering, respectively, at $7.50 per share (less estimated offering and
registration costs of $750,000). If no shares of Omega Worldwide Common
Stock are sold in the Primary Offering, the equity shown would be reduced by
$3,750,000.
DIVIDEND POLICY
The primary objective of the Company is to achieve long-term growth. The
Company intends to use its available funds to pursue investment and business
opportunities and, so long as such opportunities exist, does not anticipate the
payment of any cash dividends on Omega Worldwide Common Stock in the foreseeable
future. Payment of dividends on Omega Worldwide Common Stock also may be subject
to limitations under the proposed credit facility from a financial institution
and will also be subject to such limitations as may be imposed by any other
credit facilities that the Company may obtain from time to time. The
authorization of dividends will be subject to the discretion of the Omega
Worldwide Board.
30
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Omega Worldwide's Assets may not be readily marketable and their values may
be affected by general market conditions in the United States and the United
Kingdom. Nevertheless, the Company believes that its capital and revenues will
be sufficient to fund the Company's anticipated investments and proposed
operations.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the transactions contemplated hereby, the Company will
receive approximately $19,875,000 of net proceeds which will be sufficient to
fund operations and investments as the Company currently has no obligations to
fund additional investments. The Company may, in its discretion, make additional
investments in Principal. The Company's decisions with respect to whether to
invest will be based on the capital resources available to the Company at the
time. To the extent funds are not available from retained earnings to fund
operations of the Company, the Company from time to time intends to raise
additional capital from the public markets.
Pursuant to a ten-year British pound currency swap agreement, the Company
will have the right to exchange L20,000,000 (approximately $32,000,000) for
$31,740,000 on October 15, 2007. The swap contract is solely to reduce the
effect on the Company of fluctuations in currency exchange rates and the Company
may enter into additional hedge transactions with respect to revenues from
operations received in pounds Sterling. Foreign exchange rate contracts mitigate
the effect of currency movements because any gain or loss on the contract
offsets the losses or gains respectively on the foreign currency asset.
Management believes that given the long-term stability of the pound (See
"Business -- Exchange Rate History"), fluctuations in exchange rates will not
materially affect results of operations or liquidity.
RESULTS OF OPERATIONS
Principal is highly leveraged and has incurred losses since its inception.
Notwithstanding these losses, revenues from operations totaled $10,370,000 for
the fiscal quarter ended November 30, 1997. Principal actively seeks new
investments in healthcare properties, primarily long-term care facilities, with
the objective of profitable growth and diversification of its investment
portfolio. Principal's revenues have increased in the 1997 three month period
and for the year ended August 31, 1997. This stems primarily from additional
real estate investments related to its acquisitions during the twelve month
period then ended. Acquisitions for the year ended August 31, 1997 include $117
million for the June 30, 1997 purchase of nursing home facilities of Quality
Care Homes Plc (See Note 6 to Principal's consolidated financial statements on
page F-15). Acquisitions for the three month period ended November 30, 1997
include $61 million for the purchase of 30 facilities in Northern Ireland, as of
November 1, 1997. The revenues from these investments less costs incurred for
interest, depreciation and advisory fees, is the primary factor contributing to
the increase in earnings before income tax for the three month period ended
November 30, 1997. Permanent financing of Principal's investments is expected to
be provided through a combination of private and public placements of debt and
equity securities (See Note 10 to Principal's consolidated financial statements
on page F-18). The following summarizes the cash flows for Principal for the
three-month periods ended November 30, 1997 and 1996 and the years ended August
31, 1997 and 1996. (For additional information, see page F-8.)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30 YEAR ENDED AUGUST 31
------------------ ---------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash provided by operating activities.............. $ 3,624 $ 1,729 $ 2,845 $ 748
Cash used in investing activities.................. (71,459) (6,344) (120,767) (100,922)
Cash provided by financing activities.............. 65,681 6,325 123,513 100,771
-------- ------- --------- ---------
(Decrease) Increase in cash and cash equivalent.... $ (2,154) $ 1,710 $ 5,591 $ 597
======== ======= ========= =========
</TABLE>
31
<PAGE> 33
In November 1997 Principal purchased 30 nursing home facilities and
acquired an 80% ownership interest in Baneberry Healthcare Limited as more fully
described in Note 10 to Principal's consolidated financial statements on page
F-18. Principal's Board of Directors has initiated a plan of disposition for 31%
of Baneberry, which sale is expected to occur on or about April 1, 1998.
Following the sale, Principal will account for its investment in Baneberry using
the equity method. Baneberry's operations and cash flows for the month of
November had no material effect on Principal's consolidated results of
operations or cash flows for the three-month period ended November 30, 1997.
Following is condensed segment information concerning Principal's real estate
and nursing home operations for the three month period ending November 30, 1997:
<TABLE>
<CAPTION>
INTER-
REAL NURSING SEGMENT
ESTATE HOME ELIMINATIONS CONSOLIDATED
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rental income..................................... $10,256 $(554) $ 9,702
Mortgage interest income..........................
Nursing home revenues............................. 2,550 2,550
Other investment income........................... 114 114
------- ------ ----- -------
10,370 2,550 (554) 12,366
Expenses
Nursing home expenses............................. 2,448 (554) 1,894
Depreciation and amortization..................... 8,370 1,721
Interest.......................................... 6,649
General and Administrative........................ 882 102 984
------- ------ ----- -------
9,252 2,550 (554) 11,248
------- ------ ----- -------
Net income (loss) before income taxes and
extraordinary charge from prepayment of debt...... $ 1,118 $ 0 $ 0 $ 1,118
======= ====== ===== =======
</TABLE>
For further information concerning the Pro-forma effect of the Baneberry
nursing home purchase refer to Note D to the Pro Forma Statement of Income on
page 13.
Principal historically has been reliant on Omega as a source of temporary
financing. However, as a result of Principal's line of credit (as described more
fully on page F-18), Principal is no longer reliant on Omega as a source of
financing.
Principal's investments are concentrated in two operators -- Tamaris Plc
(approximately 35%) and Exceler Healthcare Services Limited (approximately 24%).
See Note 4 to Principal's Consolidated Financial Statements on Page F-12.
Principal has never experienced or declared a payment default from any of its
tenants.
The Company will account for its investment in Principal at its equity in
the underlying net assets of Principal and will recognize in its statement of
income its pro rata share of the net results of operations of Principal.
The Company has no external sources of financing except as described above
in "Liquidity and Capital Resources." The Company is not aware of any known
trends or uncertainties which have had or which may reasonably be expected to
have a material impact, favorable or unfavorable, on revenues or income from the
acquisition of the Assets and operations of its business, other than those
referred to in this Prospectus.
CAPITAL RESOURCES -- LONG-TERM CASH GENERATION
As of the date of this Prospectus, the Company has no commitments to
purchase any assets but may, in its discretion, make additional investments to
maintain its current ownership interest in Principal. The purchase of additional
assets will be contingent upon securing adequate funding on terms acceptable to
the Company. The Company is not aware of any material unfavorable trends in
either capital resources or the outlook for long-term cash generation, nor does
it expect any material changes in the availability and relative cost of such
capital resources.
32
<PAGE> 34
BUSINESS
OVERVIEW
The Company will provide investment advisory services to and hold equity
and debt interests in companies engaged in providing sale/leaseback and other
capital financing to healthcare service providers throughout the world. The
Company will seek to leverage its management expertise in financing healthcare
providers by providing seed equity and debt capital and investment advisory
services to newly-formed or existing real estate and finance companies
principally in countries other than the United States. Private healthcare and
its finance, particularly for the aging population in developed countries,
represents a growing priority in which capital is a major consideration. Based
upon management's experience in establishing Principal, the Company will seek to
extend its investments in healthcare finance on a global basis. The Company may
also consider investment in other actively managed real estate opportunities.
The Company will use its and Omega's extensive resources to identify, develop
and structure attractive opportunities to invest in healthcare real estate
ownership and finance. The Company intends to invest its capital in two
principal ways: first, to increase its existing investment in Principal, as
needed to establish its dominant position in private healthcare finance in the
United Kingdom; and second, to establish similar relationships with existing or
newly-formed entities in other suitable developed countries. The Company also
will coordinate and integrate its investment activity with Omega so as to take
advantage of investment opportunities which would not be suitable for Omega due
to its REIT status. The Company does not intend to operate property or
businesses in the healthcare or any other industry but may perform advisory
services and invest in less than majority positions in healthcare operating
firms, healthcare services or otherwise.
A substantial portion of the firms the Company develops and to which it
provides seed capital will ultimately consist of companies which have the
potential for public trading in the markets in which they operate. The Company
will own the Assets contributed by Omega and will receive cash from the Rights
Offering and the Primary Offering. Prior to the contribution of Assets by Omega,
the Company will have had no operations. The Company will enter into the
Opportunity Agreement with Omega, pursuant to which the Company and Omega have
agreed to provide each other with rights to participate in certain transactions
and to make certain investments.
The Company has assessed its current computer software for proper
functionality with respect to dates in the Year 2000 and thereafter. The Year
2000 and related costs are not expected to have a material impact on the
Company's operations.
BUSINESS STRATEGY
The Company intends to provide investment advisory services to Principal
pursuant to the Management Agreement and to develop additional opportunities in
healthcare finance. The Company believes that it has, or will have access to,
sufficient management expertise to identify investment opportunities, evaluate
risks and possible returns, fund investments and thus manage the Assets
successfully. The Company intends to enter into agreements similar to the
Management Agreement with other entities engaged in activities similar to
Principal. The Company will also establish and invest in other entities like
Principal conducting real estate investment and financing activities for the
healthcare industry in European and Pacific Rim countries. Furthermore, to
pursue additional opportunities, the Company plans to capitalize on its
relationship with Omega and Omega's ability to structure investment transactions
creatively.
The Distribution of Omega Worldwide Common Stock and the Rights Offering
will provide Omega shareholders as of the Record Date with the opportunity to
benefit from activities Omega elects not to pursue due to its REIT status, or
for other reasons.
The Company intends to invest primarily in entities that are organized
outside the United States and that acquire or establish portfolios of
income-producing healthcare facilities or participating mortgages, with a
primary focus on nursing home facilities or other facilities that provide
institutional services to the elderly. The Company is actively engaged in
identifying investment opportunities with respect to nursing home and long-term
care facilities throughout the world. The Company will also enter into
management agreements with those entities. In deciding in which entities and
countries to invest, the Company will consider such factors as the demand and
opportunity to provide private sector financing to healthcare facilities for the
elderly; the
33
<PAGE> 35
healthcare reimbursement/payment system; the ability to have enforceable legal
rights; and the ability to repatriate earnings. The Company does not intend to
invest in countries where it would be materially and adversely affected by
governmental, economic, fiscal, monetary or other similar factors in the region.
In advising and making recommendations concerning potential investments by such
entities, the Company will consider such factors as: the quality and experience
of management and the creditworthiness of the operator of the facility; the
facility's historical, current and forecast cash flow and its adequacy to meet
operational needs, capital expenditures and lease or debt service obligations,
while providing a competitive return on investment to the Company; the
construction quality, condition and design of the facility; the geographic area
and type of facility; the growth and regulatory environment of the community in
which the facility is located; the occupancy and demand for similar healthcare
facilities in the same or nearby communities; and the mix of private and
publicly-funded patients.
In pursuing investments, the Company intends to focus on established and
creditworthy healthcare operators who meet the Company's standards for quality
and experience of management. Each of the entities in which the Company invests
will seek to diversify its investments in terms of geographic location and
operators. Additionally, one of their fundamental investment strategies will be
to obtain contractual rent escalations under long-term, non-cancelable net
leases or to obtain revenue participations through participating mortgage loans.
Each of the entities in which the Company invests will seek to require that
a healthcare operator enter into a master lease or a series of
cross-collateralized, cross-defaulted, cross-guaranteed leases covering
properties leased by the Company to that operator, with careful attention to
financial and operational covenants from the operator. Each of the entities in
which the Company invests will seek to develop and use effective security
devices to protect its position which, depending on local law and business
custom, may include cash deposits, corporate guarantees, letters of credit,
financial performance covenants and security interests in accounts receivable
and property.
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 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. See "Risk Factors -- Potential
Conflicts of Interest." Each of the Company and Omega, in 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
34
<PAGE> 36
Omega. Each of Omega and the Company will agree, pursuant to the Opportunity
Agreement, that it will appoint, within ninety (90) days after the Distribution
Date, and at all times thereafter during the term of the Opportunity Agrement
will seek to maintain, at least one (1) independent director. A director will be
considered independent if he or she is not an associate, direct or indirect
beneficial stockholder, director, officer, employee or affiliate of the other
company. In addition, Omega and the Company each agree 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.
EXCHANGE RATE HISTORY
As Principal's revenues are denominated in pounds sterling, the following
table sets forth the average exchange rate of dollars to pounds sterling by
calendar quarter for the five most recent years.
<TABLE>
<CAPTION>
AVERAGE EXCHANGE RATE ($/POUND STERLING)
THREE MONTHS ENDING THREE MONTHS ENDING THREE MONTHS ENDING THREE MONTHS ENDING
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
1993................. $1.4774 $1.5344 $1.5045 $1.4925
1994................. $1.4886 $1.5049 $1.5513 $1.5836
1995................. $1.5830 $1.5962 $1.5734 $1.5606
1996................. $1.5318 $1.5314 $1.5544 $1.6369
1997................. $1.6327 $1.6355 $1.6262 $1.6597
</TABLE>
THE PRINCIPAL ASSETS AS OF JANUARY 31, 1998
Principal's shareholders recently approved a recapitalization to convert
the outstanding Class B ordinary shares which are currently non-voting into
Class A ordinary shares which are voting shares. As a consequence of the
recapitalization, the Company will own 3,337,500 Class A voting ordinary shares
of Principal (representing 33.375% of the outstanding shares) and warrants with
respect to a total of 10,554,583 Class A voting ordinary shares.
Principal was established in 1995 to provide capital and medium-term
finance on a stable, continuing basis to the private-sector healthcare industry
in the United Kingdom. Principal does not build or operate nursing homes or
other long-term care facilities itself; instead, the role of Principal is to
acquire and lease back to experienced operators or to finance through
medium-term or long-term participating mortgage loans existing and newly-built
nursing homes or residential care facilities for the elderly, disabled, elderly
mentally infirm and subacute medical patients. Principal currently owns and
leases 155 facilities (7,200 beds) in the United Kingdom. Principal has grown
rapidly since inception, with gross real estate assets increasing from
approximately L40,000,000 at August 31, 1995 to L70,000,000 at August 31, 1996,
L173,000,000 at August 31, 1997 and L215,000,000 at November 30, 1997.
Pursuant to the existing Management Agreement, the Company (in such
capacity, the "Manager") will provide various services to Principal and will
receive an annual fee equal to 0.9% of the book value of Principal's invested
assets (as defined therein). The Manager will be entitled to earn an additional
incentive fee if it achieves at least a 20% earnings growth from one year to the
next. The term of the Management Agreement expires December 31, 2001, but
automatically extends for 1 year periods unless terminated. The Management
Agreement may be terminated by Principal in the event of a change of control of
Manager.
The long-term healthcare industry in the United Kingdom encompasses a broad
range of nursing and residential care home services provided to elderly people
and to other client groups, including younger, physically-handicapped people,
those with a chronic mental illness and people with learning disabilities, who
do not need the level of medical supervision provided in an acute care hospital.
Both nursing homes and residential homes provide 24-hour support, and the
majority of residents are over 80 years of age in each type of home. The main
difference between the two types of care homes is that nursing homes provide
nursing care, with qualified nurses on site at all times, whereas residential
homes offer personal care only, i.e., help with
35
<PAGE> 37
dressing, eating, hygiene and mobility. Residential homes do not need to employ
qualified nurses. Nursing homes are typically larger than residential homes,
their residents are typically more dependent and their revenue per bed is
greater. Most major providers who have invested in the long-term healthcare
sector in the United Kingdom have concentrated their investment in nursing
homes.
The long-term healthcare industry in the United Kingdom is undergoing
significant change at present. The Company believes that demand for private
sector long-term care facilities will increase substantially during the next
decade. Demographies will continue to be the principal driving force for the
dominant elderly client group. The other major factor, which applies to all
client groups, is the substantial cost advantage of private care homes over
public sector provision, whether by local authorities or the National Health
Service ("NHS"). This cost advantage is likely to ensure that the decline in
public sector provision over the last 20 years will not be reversed, though it
may slow under the new Labor government.
In the United States, where the private nursing home industry has expanded
dramatically over the past 20 years, there is a recognition among investment
managers and advisors that the nursing home industry is primarily a service
business. The break with the concept of nursing homes as residential property
investments occurred 20 years ago; today, the growing focus on operations and,
in particular, operating revenues and profits, has led the financial markets to
dissociate the "bricks and mortar" element from the operating activity.
Accordingly, management believes that approximately 50% of all nursing homes in
the United States are not owned by the entity which holds the licence and
operates them. This has attracted to the nursing home industry significant
capital and has enabled the United States nursing home industry to grow and
prosper by focusing on an expanded range of care and medical activities, with a
corresponding growth in revenues and profits, rather than focusing on the
necessity to raise equity capital for investment in bricks and mortar.
This same trend has now become evident in the United Kingdom nursing home
industry where several companies, some of which are subsidiaries of or
affiliated with North American public companies, have focused on new
purpose-built facilities to replace the existing stock of converted properties
and have begun to offer an expanded range of care services. The opportunity
afforded to operators with access to capital will be to consolidate small
operators who do not have the capital to sustain the overhead associated with
increasingly complex medical conditions and who do not have the management
skills and abilities to take advantage of the economies of scale offered by such
growth and concentration. As United Kingdom healthcare operators grow and
consolidate, economies of scale will be derived from reduced overheads, allowing
profitability to be increased in line with operating margins.
Principal is committed to acquiring a diversified group of investment
assets, subject to long-term master leases. Because of its recent formation, it
currently has a relatively high concentration of investments which are managed
by Ashbourne plc (25%), Tamaris plc (38%), and Baneberry Healthcare Ltd. (18%).
Ashbourne is a wholly owned subsidiary of Sun Healthcare Group, Inc., a NYSE
listed, US healthcare firm with annualized revenues of approximately $3 billion
and a market capitalization in excess of $1 billion. Tamaris is a publicly
quoted company on the London Stock Exchange with a market capitalization of L25
million. Tamaris operates 86 homes containing 4,633 registered beds in 86
communities across England, Scotland and Northern Ireland. Its revenues for its
most recent fiscal year ending March 31, 1997, were L19.124 million and its
profits before tax were L2.652 million. Baneberry is a private company, whose
management had previously been employed at Ashbourne. Baneberry operates 40
nursing homes in Northern Ireland and one in Wales. On an interim basis,
Principal has taken a majority stock interest in Baneberry.
Principal's leases are typically thirty-year, non-cancelable operating
leases that permit breaks by tenants at the tenth and twentieth years. The
leases generally include security interests in accounts and personal property,
and require liquidity deposits and cross-default and cross-collateralization of
assets operated by a single operating firm. Its assets are located in England
(75%), Northern Ireland (20%) and Scotland (5%).
Acting on behalf of Principal, Omega arranged an initial fixed five-year
syndicated senior debt facility of L40,000,000 with one of the leading providers
of debt financing to the healthcare industry in the United Kingdom. As of this
date, the outstanding principal under this facility is L5,000,000. All advances
are repayable on August 25, 2000. The financial institution holds a first
mortgage on certain real property of Principal and a fixed and/or floating
charge over certain other assets of Principal.
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In addition to this senior debt, Omega has provided L15,000,000 and an
institutional investor in the United Kingdom has provided L5,000,000 of
subordinated debt due December 31, 2000. The Company will assume the rights and
obligations of Omega with respect to the subordinated debt. In consideration for
providing the subordinated debt, Principal issued to Omega warrants to purchase
10,000,000 Class B ordinary shares of Principal (or Class A voting shares if the
warrant is exercised by an entity other than Omega) at L1.50 per share and to
the financial institutional investor warrants to purchase 3,333,333 Class A
ordinary shares at L1.50 per share. Omega will transfer the warrants to purchase
10,000,000 Class B ordinary shares to the Company in connection with the
transfer of the subordinated debt. The Company will be allowed Class A shares
upon exercise of the warrant. The warrants will expire on June 30, 2001.
On December 12, 1997, Principal completed a securitization of a significant
portion of its assets through the issuance of L150,000,000 of first mortgage
bonds which are listed for trading on the Luxembourg Stock Exchange. This
transaction enabled Principal to fix its cost of these borrowings for a 28-year
period at a coupon interest rate of approximately 7.52%. Principal may use
securitization, mortgage debt and unsecured debt along with other similar
techniques in the financing of its long term care facilities. In connection with
the securitization, Omega (UK) executed an Asset Management Agreement pursuant
to which, for a fee of L105,000 annually, Omega (UK) will monitor and administer
the assets committed to the transaction for the benefit of the bondholders and a
subsidiary of Principal as residual owner.
In connection with the securitization, a financial institution has agreed
to provide Principal with a three-year revolving credit facility of up to
L150,000,000 (the "Credit Facility") to permit the accumulation of investments
with the objective of repaying sums borrowed under the line pursuant to
subsequent securitization transactions. The Credit Facility matures October 2,
2000 and bears interest at 2.0% per annum above LIBOR for 1 month advances. The
financial institution will receive a first mortgage on the real property of
Principal financed by the Credit Facility.
OPERATIONS
Omega has established detailed and comprehensive underwriting standards as
well as monitoring procedures for reviewing on a monthly basis the performance
of nursing home and long-term care facility operators to which Principal leases
properties or for which Principal provides participating mortgage lending.
Pursuant to the existing Management Agreement, Omega provides the following
services to Principal: marketing of its services; identification and evaluation
of potential investments; administration of the business and day-to-day affairs
of Principal; monitoring and evaluation of the financial and operational
performance of the healthcare operating organizations financed by Principal; and
developing new products and services. Omega also provided advice upon and
arranged credit facilities for Principal. These services were provided in part
by Omega (UK) Limited, a United Kingdom corporation ("Omega (UK)"), with a staff
of eight skilled healthcare employees in the United Kingdom. Omega (UK) is
currently a wholly-owned subsidiary of Omega but the shares of Omega (UK) will
be transferred to the Company prior to the consummation of the Offerings and the
Distribution. In consideration for the services to be provided under the
Management Agreement, Principal currently pays the Manager an annual fee equal
to 0.9% of the book value of Principal's assets (as defined therein).
Additionally in connection with the securitization, Principal and the Trustee
for the bondholders agreed to pay Omega (UK) L105,000 annually to monitor and
administer the properties that are subject to the securitization.
PROPERTY
The Company maintains its corporate office in Ann Arbor, Michigan, which it
occupies jointly with Omega pursuant to the Services Agreement. The Services
Agreement extends for 2 years and the Company reimburses Omega quarterly for a
portion of Omega's overhead expenses based on a formula determined by dividing
the value of the assets managed by the Company by the sum of the value of the
assets of Omega and assets managed by the Company measured at the end of each
fiscal quarter. The space consists of approximately 5,823 square feet of office
space. Omega (UK) occupies 3,000 square feet at 145 Canon Street, London,
England. The Company believes that its facilities are adequate to meet its
expected requirements for the coming year.
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EMPLOYEES
By the Distribution Date, the Company will have 8 employees in the United
Kingdom who are all former employees of Omega (UK). The Company has executed a
Services Agreement with Omega pursuant to which Omega will provide management
and other employees and administrative services to the Company on a shared cost
basis.
LEGAL PROCEEDINGS
There are currently no legal proceedings involving the Assets or the
Company.
TAXATION OF THE COMPANY AND ITS SHAREHOLDERS
The following is a summary of the material U.S. federal income tax
consequences of owning Omega Worldwide Common Stock. To the extent this summary
discusses matters of law, it is based upon the opinion of Mayer, Brown & Platt.
This summary is based upon the current provisions of the Code, its legislative
history, Treasury regulations, administrative pronouncements and judicial
decisions, all of which are subject to change, possibly with retroactive effect.
This summary does not purport to be a complete discussion of all U.S. federal
income tax consequences relating to owning Omega Worldwide Common Stock. This
summary does not address the tax consequences of owning Omega Worldwide Common
Stock under state, local or non-U.S. tax laws. In addition, this summary may not
apply, in whole or in part, to particular categories of Company shareholders,
such as financial institutions, broker-dealers, life insurance companies,
tax-exempt organizations, investment companies, individuals who receive Omega
Worldwide Common Stock pursuant to stock options, restricted stock programs or
in other compensatory transactions, and other special status taxpayers. Finally,
a tax ruling from the Internal Revenue Service has not been requested. THIS
SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. ALL COMPANY SHAREHOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES
OF OWNING OMEGA WORLDWIDE COMMON STOCK, INCLUDING ANY STATE, LOCAL AND NON-U.S.
TAX CONSEQUENCES.
TAXATION OF THE COMPANY
The Company is a Subchapter C corporation subject to applicable federal and
state tax on its taxable income at regular corporate rates. As a result, it is
under no obligation to make any distributions to shareholders. If distributions
are made by the Company, shareholders will recognize ordinary income to the
extent of current and accumulated earnings and profits of the Company and any
amounts distributed in excess of current and accumulated earnings and profits
will be considered a tax-free return of capital, reducing the tax basis in the
shareholder's Omega Worldwide Common Stock by the amount of such distribution
(but not below zero), with distributions in excess of the shareholder's tax
basis taxable as capital gains (if the Omega Worldwide Common Stock is held as a
capital asset). In general, any gain or loss upon a sale or other disposition of
Omega Worldwide Common Stock by a shareholder will be considered short-term,
mid-term (i.e., more than 12 months but not more than 18 months) or long-term
capital gain depending upon the period of time the Omega Worldwide Common Stock
was held by the shareholder.
UNITED STATES TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF OMEGA WORLDWIDE COMMON
STOCK
For purposes of this discussion, a "U.S. person" means a citizen or
resident of the United States, a corporation or partnership created or organized
in the United States or under the laws of the United States or of any State or
political subdivision of the foregoing, any estate whose income is includible in
gross income for U.S. federal income tax purposes regardless of its source, or a
"United States Trust". A United States Trust is any trust if, and only if, (i) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more U.S. persons have the authority
to control all substantial decisions of the trust.
U.S. Income and Estate Tax Consequences. Dividends paid to a beneficial
owner of Omega Worldwide Common Stock that is not a U.S. person (a "non-U.S.
holder") are subject to U.S. withholding tax at a 30% rate, or if applicable, a
lower treaty rate, unless the dividend is effectively connected with the conduct
of a
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trade or business in the United States by a non-U.S. holder (and, if certain tax
treaties apply, is attributable to a United States permanent establishment
maintained by such non-U.S. holder). A dividend that is effectively connected
with the conduct of a trade or business in the United States by a non-U.S.
holder (and, if certain tax treaties apply, is attributable to a United States
permanent establishment maintained by such non-U.S. holder) will be exempt from
the withholding tax described above and subject instead (i) to the U.S. federal
income tax on net income that applies to U.S. persons and (ii) with respect to
corporate holders under certain circumstances, a 30% (or, if applicable, lower
treaty rate) branch profits tax that in general is imposed on its "effectively
connected earnings and profits" (within the meaning of the Code) for the taxable
year, as adjusted for certain items.
Under Treasury Regulations currently in effect, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and for purposes of determining the applicability of
a tax treaty rate. Under recently enacted withholding tax regulations (the
"Final Regulations") which will be effective for payments made after 1998,
however, a non-U.S. holder of Omega Worldwide Common Stock who wishes to claim
the benefit of an applicable treaty rate would be required to satisfy applicable
certification and other requirements. Such certification generally will be made
on Internal Revenue Service Form W-8, although non-U.S. holders who own Omega
Worldwide Common Stock in an offshore account may provide alternate forms of
certification. In the case of a foreign partnership, the certification
requirement would generally be applied to the partners of the partnership unless
the foreign partnership is a qualified intermediary. A non-U.S. holder that is
eligible for a reduced rate of U.S. withholding tax pursuant to an income tax
treaty may obtain a refund of any excess amount withheld by filing an
appropriate claim for refund with the IRS.
A non-U.S. holder generally will not be subject to U.S. federal income tax
on any gain recognized on a sale or other disposition of a share of Omega
Worldwide Common Stock unless (i) the Company is or has been during the
five-year period ending on the date of disposition a "United States real
property holding corporation" for U.S. federal income tax purposes (which the
Company does not believe that it has been or is currently and does not
anticipate becoming), (ii) the gain is effectively connected with the conduct of
a trade or business within the United States of the non-U.S. holder (and, if
certain tax treaties apply, is attributable to a United States permanent
establishment maintained by the nonU.S. holder), (iii) the gain is not described
in clause (ii) above, the non-U.S. holder is an individual who holds the share
as a capital asset, is present in the United States for 183 days or more in the
taxable year of the disposition and either (a) such individual has a "tax home"
(as defined for U.S. federal income tax purposes) in the United States or (b)
the gain is attributable to an office or other fixed place of business
maintained in the United States by such individual, or (iv) the non-U.S. holder
is subject to tax pursuant to the Code provisions applicable to certain U.S.
expatriates. In the case of a non-U.S. holder that is described under clause
(ii) above, its gain will be subject to the U.S. federal income tax on net
income that applies to U.S. persons and, in addition, if such non-U.S. holder is
a foreign corporation, it may be subject to the branch profits tax as described
in the second preceding paragraph. An individual non-U.S. holder that is
described under clause (iii) above will be subject to a flat 30% tax on the gain
derived from the sale, which may be offset by U.S. capital losses
(notwithstanding the fact that he or she is not considered a resident of the
United States). Thus, individual non-U.S. holders who have spent 183 days or
more in the United States in the taxable year in which they contemplate a sale
of the Omega Worldwide Common Stock are urged to consult their tax advisers as
to the tax consequences of such sale.
Omega Worldwide Common Stock owned or treated as owned by an individual who
is not a citizen or resident (as specially defined for United States federal
estate tax purposes) of the United States at the date of death, or Omega
Worldwide Common Stock subject to certain lifetime transfers made by such an
individual, will be included in such individual's estate for United States
federal estate tax, unless an applicable estate tax treaty provides otherwise.
Backup Withholding and Information Reporting -- Dividends. Except as
provided below, the Company must report annually to the IRS and to each non-U.S.
holder the amount of dividends paid to and the tax withheld with respect to such
holder. These information reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these information returns may also be available under the provisions of a
specific treaty or agreement with the tax authorities in the country in
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which the non-U.S. holder resides. In general, backup withholding at a rate of
31% and additional information reporting will apply to dividends paid on shares
of Omega Worldwide Common Stock to holders that are not "exempt recipients" and
that fail to provide in the manner required certain identifying information
(such as the holder's name, address and taxpayer identification number).
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities generally are exempt recipients. However, dividends that
are subject to U.S. withholding tax at the 30% statutory rate or at a reduced
tax treaty rate are exempt from backup withholding of U.S. federal income tax
and such additional information reporting.
Backup Withholding and Information Reporting -- Broker Sales. If a non-U.S.
holder sells shares of Omega Worldwide Common Stock through a U.S. office of a
U.S. or foreign broker, the broker is required to file an information return and
is required to withhold 31% of the sale proceeds unless the non-U.S. holder is
an exempt recipient or has provided the broker with the information and
statements, under penalties of perjury, necessary to establish an exemption from
backup withholding. If payment of the proceeds of the sale of a share by a
non-U.S. holder is made to or through the foreign office of a broker, that
broker will not be required to backup withhold or, except as provided in the
next sentence, to file information returns. In the case of proceeds from a sale
of a share by a non-U.S. holder paid to or through the foreign office of a U.S.
broker or a foreign office of a foreign broker that is (i) a controlled foreign
corporation for U.S. tax purposes or (ii) a person 50% or more of whose gross
income for the three-year period ending with the close of the taxable year
preceding the year of payment (or for the part of that period that the broker
has been in existence) is effectively connected with the conduct of a trade or
business within the United States (a "Foreign U.S. Connected Broker"),
information reporting is required unless the broker has documentary evidence in
its files that the payee is not a U.S. person and certain other conditions are
met, or the payee otherwise establishes an exemption. Under the Final
Regulations, certification on IRS Form W-8 or other certification in the case of
Omega Worldwide Common Stock held in an offshore account will be required if (i)
the sale occurs within the United States or (ii) the sale is made through a
Foreign U.S. Connected Broker.
Backup Withholding and Information Reporting -- Refunds. Any amounts
withheld under the backup withholding rules from a payment to a non-U.S. holder
may be refunded or credited against the non-U.S. holder's U.S. federal income
tax liability, provided that the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Omega Worldwide Common Stock is being offered by the Company pursuant
to the Primary Offering on a best efforts basis to institutional investors and
accredited investors who are currently shareholders of Omega. The Omega
Worldwide Common Stock is being offered by Omega pursuant to the Secondary
Offering on a best efforts basis to institutional investors and accredited
investors who are currently shareholders of Omega. No person has committed to
underwrite the sale of the Omega Worldwide Common Stock (whether with respect to
the Primary or Secondary Offering) to third parties. The Rights Investors will
be obligated to purchase any Unsubscribed Shares in connection with the Rights
Offering. The Company will not pay any person any commission or fee in
connection with the offer or sale of the Omega Worldwide Common Stock pursuant
to the Primary Offering or Right Offering, except that the Company has agreed to
issue the Additional Shares to ensure that the Rights Investors will have the
right to purchase an aggregate of 1,000,000 Unsubscribed Shares. Omega will not
pay any person any commission or fee in connection with the offer or sale of the
Omega Worldwide Common Stock pursuant to the Secondary Offering. It is
anticipated that the Primary Offering and Secondary Offering will close on April
3, 1998.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF OMEGA WORLDWIDE
As of November 13, 1997, Essel W. Bailey, Jr. was the sole director of the
Company and served as its President and Chief Executive Officer. David A. Stover
has served as Vice President and Chief Financial Officer; F. Scott Kellman has
served as a Vice President; James P. Flaherty has served as Vice President --
International since November 13, 1997 and Chief Operating Officer since March
1998; Susan A. Kovach has served as Vice President, General Counsel and
Secretary since December 1, 1997; and Todd P. Robinson has served as Vice
President since March 1998. The following table sets forth certain information
concerning these employees as well as those persons who have agreed to serve as
directors of the Company commencing upon effectiveness of the Registration
Statement of which this Prospectus is a part and prior to the consummation of
the Offerings and the Distribution.
<TABLE>
<CAPTION>
TERM
NAME EXPIRES AGE POSITION
---- ------- --- --------
<S> <C> <C> <C>
Essel W. Bailey, Jr....................... 1999 53 Director, President and Chief Executive
Officer
James E. Eden............................. 2000 60 Director
James P. Flaherty......................... 50 Chief Operating Officer
Thomas F. Franke.......................... 2001 68 Director
F. Scott Kellman.......................... 41 Vice President
Harold J. Kloosterman..................... 1999 55 Director
Bernard J. Korman......................... 2000 66 Director
Susan A. Kovach........................... 38 Vice President, General Counsel and
Secretary
Edward Lowenthal.......................... 2001 53 Director
Robert L. Parker.......................... 1999 64 Chairman of the Board of Directors
Todd P. Robinson.......................... 32 Vice President
David A. Stover........................... 52 Vice President and Chief Financial Officer
</TABLE>
After the consummation of the Offerings and the Distribution, the Company
will add 2 independent directors and designate the expiration date of each
director's term.
Mr. Bailey has been President and Chief Executive Officer of Omega, as well
as a Director, since its formation in 1992 and Chairman of the Board since July
1995. It is anticipated that Mr. Bailey will spend a majority of his time on the
affairs of Omega. Prior to that he was a Managing Director of Omega Capital, a
healthcare investment partnership, from 1986 to 1992. Mr. Bailey is formerly a
Director of Evergreen Healthcare, Inc., which was a NYSE listed company engaged
in the operation of long-term healthcare facilities, and is currently a Managing
Director of Principal and a Director of Vitalink Pharmacy Services, Inc., a NYSE
listed company and the fourth largest institutional pharmacy serving the
long-term care industry in the United States.
Mr. Eden 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, ultimately as Executive Vice
President of Marriott Corporation 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 Managing Director of Omega (UK) Limited in
January 1997. Mr. Flaherty was appointed Chief Operating Officer of the Company
in March 1998. Mr. Flaherty expects to spend the substantial majority of his
time on the Company's business matters. Before he joined Omega, he was Chairman
of Black Rock Capital
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Corporation, a leasing and merchant banking firm he founded in 1994. From April
1991 until December of 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 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. Since its formation in 1992, Mr. Franke has been a
Director of Omega and, since its formation in 1995, Mr. Franke has been a
Director of Principal.
Mr. Kellman 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. It is anticipated that Mr. Kellman
will spend a majority of his time on the affairs of Omega. 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 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 was a managing director of Omega Capital from 1986 to 1992
and has been a Director of Omega since its formation in 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 formed Cambridge Partners, Inc. in 1985 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 the Chicago area.
Mr. Korman is Chairman of the Board of Directors of Graduate Health System,
Inc., 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), InnoServe Technologies, Inc. (medical equipment
support services), Kapson Senior Quarters Corp. (assisted living services) and
Kranzco Realty Trust (real estate investment trust).
Ms. Kovach joined Omega in December 1997 as Vice President, General Counsel
and Secretary. Ms. Kovach expects to spend a majority of her time on work
relating to Omega. 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 is President and Chief Executive Officer of Wellsford Real
Properties, Inc. (AMEX: WRP), a real estate merchant bank, and 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, a Director of Corporate Renaissance Group, Inc., a mutual fund, and
as a Director of Equity Residential Properties Trust and Great Lakes REIT, Inc.,
which are REITs.
Mr. Parker is a consultant, formerly 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, licensed in California and
Oklahoma. He has been a Director of Omega since 1992 and also served as a
Director of GranCare, Inc., a public company engaged in the operation of
long-term care facilities from 1995 to 1997, and of Vitalink Pharmacy Services
Inc., a publicly-traded institutional pharmacy during 1997, of Principal from
1995, and of First National Bank of Bethany, Oklahoma.
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Mr. Robinson, Assistant Vice President and Director of Acquisitions for
Omega, is a Certified Public Accountant who joined Omega in June 1995 after five
years with the real estate group at Interstate/Johnson Lane, where he was
responsible for the healthcare portfolio. Prior to joining Interstate, Mr.
Robinson was a tax consultant with Arthur Andersen & Company, LLP. Mr. Robinson
expects to spend the majority of his time on work relating to the Company.
Mr. Stover has been Vice President and Chief Financial Officer of Omega
since September 1994. Mr. Stover anticipates spending most of his time on
Omega's business affairs. 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Omega Worldwide Board has standing Audit, Compensation and Nominating
Committees. The Audit Committee consists of Messrs. Kloosterman and Korman and
an additional member to be designated, the Compensation Committee consists of
Messrs. Lowenthal and Franke and an additional member to be designated and the
Nominating Committee consists of Messrs. Parker, Eden and Bailey. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, approves the compensation to be paid to such accountants and
reports to the Board concerning the scope of audit procedures. The Compensation
Committee is responsible for establishing salaries, bonuses and other
compensation for the Company's officers and administering the Company's stock
option plans. The Nominating Committee reviews suggestions of candidates for
director made by directors, shareholders, management and others, and makes
recommendations to the Board of Directors regarding composition of the Board of
Directors and nomination of individual candidates for election to the Board of
Directors.
COMPENSATION OF DIRECTORS
Each director other than employees of the Company will receive from the
Company an annual fee of $10,000, 1,000 shares of Omega Worldwide Common Stock
and a meeting fee of $500 for each Omega Worldwide Board or Committee meeting
attended and reimbursement of expenses incurred in attending meetings. The
Chairman of the Board and of the Compensation and Audit Committees will receive
an additional retainer of $1,000 per year. The directors are also eligible to
receive Omega Worldwide Common Stock as set forth in the Stock Option and
Restricted Stock Plan. Certain directors intend to invest in the ownership of
the Company. See "Management -- Omega Worldwide Stock Option and Restricted
Stock Plan."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Executive officers and directors of the Company will receive shares of
Omega Worldwide Common Stock in the Distribution in respect of Omega Common
Shares held by them on the Record Date. Omega Worldwide Common Stock issued with
respect to outstanding but not yet vested shares of Restricted Stock of Omega
issued under the Omega Stock Option and Restricted Stock Plan of 1993, as
amended, will be released at the same time as the Omega Restricted Stock is
released; however, Rights issued with respect to unvested Omega Restricted Stock
shall be immediately exercisable in accordance with their terms and any Omega
Worldwide shares issued pursuant to such exercise shall be free of any vesting
requirement. See "Principal and Selling Shareholders" for further description of
the shares owned by management.
EXECUTIVE COMPENSATION
The Company was recently formed. None of the Company's executive officers
has received compensation from or on behalf of the Company since its formation.
None of the executive officers other than James P. Flaherty will be direct
employees of the Company. The executive officers will provide services for the
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<PAGE> 45
Company pursuant to a Services Agreement that will be executed between the
Company and Omega. The Services Agreement extends for 2 years and the Company
reimburses Omega quarterly for a portion of Omega's overhead expenses based on a
formula determined by dividing the value of the assets managed by the Company by
the sum of the value of the assets of Omega and assets managed by the Company
measured at the end of each fiscal quarter.
The Company has not granted any options to the Company's named executive
officers and the Stock Plan does not allow for the grant of SARs.
OMEGA WORLDWIDE STOCK OPTION AND RESTRICTED STOCK PLAN
Omega Worldwide's Stock Option and Restricted Stock Plan (the "Stock Plan")
was adopted by the Company and approved by Omega, its sole shareholder, prior to
the consummation of the Offerings and the Distribution. Under the Stock 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 Stock Plan. The following summary of the Stock
Plan is qualified by the full text of the Stock Plan, a copy of which is an
Exhibit to the Registration Statement of which this Prospectus is a part.
The Stock Plan is administered by the Compensation Committee. The
Compensation Committee may grant Restricted Stock and/or Stock Options to
non-employee directors, employee directors and non-director employees at such
times and in such amounts and on such terms and conditions as it deems advisable
and specifies in the respective grants except as set forth below for
non-employee directors. The exercise price of Stock Options shall be determined
by the Compensation Committee at the date of the grant, except that the exercise
price of any Stock Option which is designated as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, shall be 100% of the fair market value of the common stock on the date
of the grant. Each non-employee director will be awarded options with respect to
10,000 shares, and each non-employee director is to be granted an additional
option grant with respect to 1,000 shares on or after each anniversary of the
initial grant. All option grants to non-employee directors have been and are to
be at an exercise price equal to 100% of the fair market value of the Company's
common stock on the date of the grant. At the discretion of the Committee, each
non-employee director also is annually awarded shares of Restricted Stock.
Subject to compliance with the terms, conditions and restrictions set forth
in the Stock Plan, the Compensation Committee has the exclusive right, in its
sole and absolute discretion, to establish the terms and conditions of all Stock
Options and Restricted Stock granted under the Stock Plan and to prescribe and
amend the terms, provisions and form of each instrument and agreement setting
forth the terms and conditions of Stock Options and Restricted Stock granted
thereunder. The Compensation Committee has the authority to construe and
interpret the Stock Plan, to define the terms used therein, to prescribe, amend,
and rescind rules and regulations relating to the administration of the Stock
Plan, and to make all other determinations necessary or advisable for
administration of the Stock Plan. Determinations of the Compensation Committee
on matters referred to above are final and conclusive so long as the same are
not inconsistent with the terms of the Stock Plan.
Under the Stock Plan, in the event of a Change of Control (as defined
therein), all shares of the Company's Restricted Stock shall immediately vest
(but not prior to six months after the date of grant) and all outstanding Stock
Options shall be immediately exercisable in full (but not prior to one year
after the date of grant with respect to incentive stock options and not prior to
six months after the date of grant with respect to nonqualified options).
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
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<PAGE> 46
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (i) any present or
former director or officer or (ii) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise from and against any
claim or liability to which such person may become subject or which such person
may incur by reason of his status as a present or former director or officer of
the Company. The Bylaws of the Company obligate it, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (i) any present or
former director or officer who is made a party to the proceeding by reason of
his service in that capacity or (ii) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (a) was
committed in bad faith or (b) was the result of active and deliberate
dishonesty, (ii) the director or officer actually received an improper personal
benefit in money, property or services or (iii) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (i) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (ii) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The Charter also specifically authorizes the Company, or a subsidiary or an
affiliate of the Company, to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company, or
who, while a director, officer, employee or agent of the Company, is or was
serving at the request of the Company as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, real estate
investment trust, partnership, joint venture, trust, other enterprise or
employee benefit plan against any liability asserted against and incurred by
such person in any such capacity or arising out of such person's position,
whether or not the Company would have the power to indemnify against such
liability under the provisions of Section 2-418 of the MGCL.
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<PAGE> 47
The Company has entered into indemnification agreements with each of it
officers and directors. The indemnification agreements require, among other
things, that the Company indemnify its officers and directors to the fullest
extent permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that the
indemnification is not permitted. The Company also must indemnify and advance
expenses incurred by officers and directors seeking to enforce their rights
under the indemnification agreements and cover officers and directors under the
Company's directors' and officers' liability insurance. Although the
indemnification agreements offer substantially the same scope of coverage
afforded by provisions in the Charter and Bylaws, they provide greater assurance
to directors and executive officers that indemnification will be available,
because, as contracts, they cannot be modified unilaterally in the future by the
Board of Directors or by the stockholders to alter, limit or eliminate the
rights they provide.
The Charter provides that no future amendment to the Charter shall affect
any right of any person under these provisions based on any event, omission or
proceeding prior to such amendment.
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<PAGE> 48
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the number of shares of Omega Worldwide
Common Stock owned by Omega, as the selling shareholder, and by each person
agreeing to serve as an executive officer and director of the Company, all such
executive officers and directors of the Company as a group, and persons or
entities owning 5% or more of the outstanding shares of Omega Worldwide Common
Stock.
BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
NUMBER OF
SHARES AFTER
DISTRIBUTION PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER AND OFFERINGS(1) SHARES
------------------------------------ ---------------- ----------
<S> <C> <C>
Selling Shareholder
Omega Healthcare Investors, Inc. ................... 1,000,000 8.9%
========= ====
Executive Officers
Essel W. Bailey, Jr. ............................... 731,773 6.5%
James P. Flaherty................................... 33,946 *
F. Scott Kellman.................................... 20,503 *
Susan A. Kovach..................................... 4,068 *
Todd P. Robinson.................................... 69,701 *
David A. Stover..................................... 40,369 *
--------- ----
900,360 8.0%
Directors
James E. Eden....................................... 36,755 *
Thomas F. Franke.................................... 271,416 2.4%
Harold Kloosterman.................................. 74,910 *
Bernard J. Korman................................... 253,422 2.3%
Edward Lowenthal.................................... 35,640 *
Robert L. Parker.................................... 91,978 *
--------- ----
Directors and executive officers as a group (11)
persons.......................................... 1,666,481 14.8%
========= ====
</TABLE>
- -------------------------
(1) Assumes full exercise of the Rights by the executive officers and directors
and that all shares offered in the Secondary Offering are sold by, and that
no Rights are exercised by, Omega Healthcare Investors, Inc. Also assumes no
shares are acquired by the officers and directors in the Primary Offering or
Secondary Offering and assumes an aggregate of 1,000,000 Unsubscribed Shares
were purchased by the officers and directors who are Rights Investors.
* Less than 1%.
The business address of all the above persons is 905 W. Eisenhower Circle,
Suite 101, Ann Arbor, Michigan 48103.
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CERTAIN TRANSACTIONS
In connection with the formation and capitalization of the Company, Omega
will contribute the Assets in exchange for 8,499,000 of the outstanding shares
of Omega Worldwide Common Stock and the right to receive up to 5,000,000 shares
of Series B Preferred.
Pursuant to the Management Agreement, Principal pays Omega an annual fee
equal to 0.9% of Principal's assets (as defined in the Management Agreement)
and, if earned, an additional incentive fee. Upon transfer of the Management
Agreement from Omega to the Company, Principal will pay these fees to the
Company.
The Opportunity Agreement sets forth the basis on which the Company and
Omega will refer opportunities to one another. Opportunities undertaken by the
Company with Omega pursuant to the Opportunity Agreement will not be on an arm's
length basis due to the common membership of management and the Board and may
not be on as favorable terms to the Company as they would be with unaffiliated
third parties. See "Business -- The Opportunity Agreement."
Omega and the Company will enter into a Services Agreement in connection
with the Distribution pursuant to which Omega will provide management and other
employees, office space and administrative services to the Company. The Company
will reimburse 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. Had the Services Agreement been in effect on
November 30, 1997, the Company would have reimbursed Omega $507,000. Due to the
common membership of management and the Board, the terms of the Services
Agreement are not on an arm's length basis and may not be on as favorable terms
to the Company as they would be with unaffiliated third parties.
Three of the nominee directors of the Company, Messrs. Parker, Franke and
Kloosterman, were shareholders in Bayside International, Inc., the affiliate of
Omega which held the shares of Principal prior to its liquidation on or about
April 2, 1998. Upon liquidation of this entity, these directors will receive
their pro rata share of the shares of Principal (approximately 100,000 shares
valued at approximately $160,000 to each director). There are no conditions
remaining for the liquidation of Bayside International, Inc.
Messrs. Bailey, Franke, Kloosterman, Korman and Parker own collectively a
14% interest in Principal although none owns more than 10% individually.
In connection with the Rights Offering, certain officers and directors of
Omega and their affiliates have agreed to acquire the Unsubscribed Shares at the
Subscription Price and the Company has authorized the issuance of Additional
Shares to ensure these Rights Investors will have the right to purchase an
aggregate of 1,000,000 Unsubscribed Shares.
DESCRIPTION OF OMEGA WORLDWIDE STOCK
The following summary of certain provisions of the Charter and Bylaws does
not purport to be complete and is subject to and qualified by reference to the
Charter and Bylaws, copies of which are exhibits to the Registration Statement
of which this Prospectus is a part. See "Available Information."
AUTHORIZED STOCK
The Company's authorized stock consists of 10,000,000 shares of preferred
stock, par value $1.00 per share (the "Preferred Stock"), and 50,000,000 shares
of Omega Worldwide Common Stock. Immediately following the Primary Offering, the
Secondary Offering, the Distribution and the Rights Offering, approximately
11,250,000 shares of Omega Worldwide Common Stock will be outstanding (assuming
no Additional Shares are issued). All of the shares of Omega Worldwide Common
Stock that will be outstanding immediately following the Primary Offering, the
Secondary Offering, the Distribution and the Rights Offering will be validly
issued, fully paid and nonassessable. Certain provisions of the MGCL and of
Omega
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<PAGE> 50
Worldwide's Charter and Bylaws may make more difficult an acquisition of control
of the Company in a transaction not approved by the Board. See "Certain
Antitakeover Provisions."
The Charter provides that, to the extent permitted by Maryland law from
time to time, the Omega Worldwide Board, without any action by the stockholders
of the Company, may amend the Charter from time to time to increase or decrease
the aggregate number of shares of stock or the number of shares of stock of any
class or series that the Company has authority to issue. House Bill 360, which
has been introduced in the House of Delegates of the General Assembly of
Maryland and, if enacted, will become effective on October 1, 1998, will permit
the board of directors of a Maryland corporation, such as the Company, to
include in its charter a provision permitting the board of directors, without
stockholder action, to amend the corporation's charter to increase or decrease
the aggregate number of shares of stock or the number of shares of stock of any
class that the corporation has authority to issue.
COMMON STOCK
The holders of Omega Worldwide Common Stock will be entitled to one vote
for each share on all matters voted on by stockholders, including elections of
directors, and, except as provided with respect to any series of Preferred
Stock, the holders of such shares will possess all voting power. The Charter
does not provide for cumulative voting in the election of directors. Subject to
any preferential rights of any outstanding series of Preferred Stock created by
the Omega Worldwide Board from time to time, the holders of Omega Worldwide
Common Stock will be entitled to such dividends as may be authorized from time
to time by the Omega Worldwide Board from funds available therefor, and upon
liquidation will be entitled to receive pro rata all assets of the Company
available for distribution to such holders.
PREFERRED STOCK
The Charter authorizes the Omega Worldwide Board to establish one or more
series of Preferred Stock and to determine, with respect to any series of
Preferred Stock, the terms and rights of such series, including the right to (i)
designate that class or series to distinguish it from all other classes and
series of stock; (ii) specify the number of shares to be included in the class
or series; (iii) set or change the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions
qualifications and terms and conditions of redemption; and (iv) cause the
Company to file articles supplementary with the State Department of Assessments
and Taxation of Maryland.
The Company believes that the ability of the Omega Worldwide Board to issue
one or more classes or series of Preferred Stock will provide it with
flexibility in structuring possible future financings and acquisitions and in
meeting other corporate needs which might arise. The authorized shares of
Preferred Stock, as well as shares of Omega Worldwide Common Stock, will be
available for issuance without further action by the Company's stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. If the approval of the Company's stockholders is not required
for the issuance of shares of Preferred Stock or Omega Worldwide Common Stock,
the Omega Worldwide Board may determine not to seek stockholder approval.
Although the Omega Worldwide Board has no intention at the present time of
doing so, it could issue a class or series of Preferred Stock having terms that
could delay, defer or prevent a change in control of the Company or other
transaction that some, or a majority, of the Company's stockholders might
believe to be in their best interests or in which such stockholders might
receive a premium for their stock over the then-current market price of such
stock. The Omega Worldwide Board will make any determination to issue such
shares based on its judgment as to the best interests of the Company.
The Company has authorized the Series B Preferred (as described below in
"-- Series B Preferred") and expects to reserve Junior Preferred Shares (as
described in "Certain Antitakeover Provisions -- Rights Plan") for issuance upon
exercise of the Preferred Share Purchase Rights.
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<PAGE> 51
SERIES B PREFERRED
Ranking. The Series B Preferred will rank on parity with all other series
of the Company's preferred stock (whether with or without par value) as to the
payment of dividends and the distribution of assets, unless the terms of any
such series provide otherwise.
Dividends. Subject to the prior and superior rights of the holders of any
shares of any class or series of preferred shares of the Company ranking prior
and superior to the Series B Preferred with respect to dividends, the holders of
Series B Preferred will be entitled to receive, when, as and if authorized by
the Board of Directors out of funds legally available for the purpose, annual
dividends payable in cash to holders of record on the last business day of
February in each year (each such date being referred to herein as a "Dividend
Payment Date"), commencing on the first Dividend Payment Date after the first
issuance of a share of Series B Preferred in an amount per share (rounded to the
nearest cent) equal to 8.0% per annum of the Series B Liquidation Value (as
defined below). The dividend will be calculated on the basis of a year of 360
days consisting of twelve 30-day months. Such dividends will accrue whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Company legally available for the payment of the dividends.
The Company will authorize a dividend or distribution on the Series B
Preferred at the time it authorizes a dividend or distribution on the Omega
Worldwide Common Stock (other than a dividend payable in Omega Worldwide Common
Stock). No dividend or distribution (other than a dividend or distribution
payable in Omega Worldwide Common Stock) will be paid or payable to the holders
of Omega Worldwide Common Stock unless, prior thereto, all accrued but unpaid
dividends to the date of that dividend or distribution have been paid to the
holders of Series B Preferred.
Dividends will begin to accrue and be cumulative on outstanding Series B
Preferred shares from the Dividend Payment Date next preceding the date of
issuance of such Series B Preferred shares, unless the date of issuance of such
shares is prior to the record date for the first Dividend Payment Date, in which
case dividends on such shares will begin to accrue and be cumulative from the
date of issuance of such shares, or unless the date of issuance is a Dividend
Payment Date or is a date after the record date for the determination of holders
of Series B Preferred entitled to receive an annual dividend and before such
Dividend Payment Date, in either of which events such dividends will begin to
accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid
dividends will not bear interest. Dividends paid on the Series B Preferred in an
amount less than the total amount of such dividends at the time accrued and
payable on such shares will be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding.
Whenever any annual dividends or other dividends or distributions payable
on the Series B Preferred are in arrears, then, thereafter and until all accrued
and unpaid dividends and distributions, whether or not declared, on shares of
Series B Preferred outstanding have been paid in full, the Company may not:
(i) authorize or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred, other than dividends paid or payable
in such junior shares;
(ii) authorize or pay dividends on or make any other distributions on
any shares ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred, except dividends
paid ratably on the Series B Preferred and all such parity shares on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled; or
(iii) redeem or purchase or otherwise acquire for consideration shares
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series B Preferred, provided that the
Company may at any time redeem, purchase or otherwise acquire any such
parity shares in exchange for shares of the Company ranking junior (either
as to dividends or upon dissolution, liquidation or winding up) to the
Series B Preferred.
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<PAGE> 52
Voting Rights. The holders of Series B Preferred shares will have no voting
rights except as indicated below.
The Charter may not be amended in any manner which would materially and
adversely alter or change the powers, preferences or special rights of the
Series B Preferred without the affirmative vote of the holders of a majority or
more of the outstanding Series B Preferred, voting separately as a class.
Redemption. The shares of Series B Preferred are not redeemable by the
Company. The Company, however, is not limited in its ability to purchase or
otherwise deal in the Series B Preferred shares to the extent permitted by law.
Liquidation Preference. Upon any voluntary liquidation, dissolution or
winding up of the Company, no distribution will be made to the holders of shares
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred unless, prior thereto, the holders of
Series B Preferred have received an amount in cash equal to the aggregate Series
B Liquidation Value of all shares held by such holders, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Accrued Dividend Amount"). Following the
payment of the full amount of the Series B Liquidation Value and the Accrued
Dividend Amount, no additional distributions will be made to the holders of
Series B Preferred. "Series B Liquidation Value" means $10.00 per share.
In the event that there are not sufficient assets available to permit
payment in full of the Series B Liquidation Value and the Accrued Dividend
Amount and the liquidation preferences of all other series of preferred shares,
if any, which rank on a parity with the Series B Preferred, then such remaining
assets will be distributed ratably to the holders of the Series B Preferred and
such parity shares in proportion to their respective liquidation preferences.
In determining whether a distribution (other than upon voluntary or
involuntary liquidation) by dividend, redemption or other acquisition of shares
of stock of the Company or otherwise, is permitted under the MGCL, amounts that
would be needed, if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of holders of
shares of Series B Preferred will not be added to the Company's total
liabilities.
Conversion. Each share of Series B Preferred sold, transferred, distributed
or otherwise disposed of by Omega, the initial holder of the Series B Preferred,
to any unaffiliated third party will automatically convert into one share of
Omega Worldwide Common Stock.
CERTAIN ANTITAKEOVER PROVISIONS
The MGCL, the Charter and Bylaws and the Rights Agreement contain certain
provisions that may have the effect of delaying, deferring or preventing a
change of control of the Company or other transaction that may involve a premium
price for the Omega Worldwide Common Stock. The following summary of these
provisions does not purport to be complete and is subject to and qualified by
reference to the MGCL, the Charter and Bylaws and the Rights Agreement.
STAGGERED BOARD OF DIRECTORS
The Charter and the Bylaws provide that the Omega Worldwide Board will be
divided into three classes of directors, each class constituting approximately
one-third of the total number of directors, with the classes serving staggered
three-year terms. The classification of the Omega Worldwide Board will have the
effect of making it more difficult for stockholders to change the composition of
the Omega Worldwide Board, because only a minority of the directors are up for
election, and the Omega Worldwide Board may not be replaced by vote of the
stockholders, at any one time. The Company believes, however, that the longer
terms associated with the classified Omega Worldwide Board will help to ensure
continuity and stability of the Company's management and policies.
The classification provisions also could have the effect of discouraging a
third party from accumulating a large block of Omega Worldwide Common Stock or
attempting to obtain control of the Company even though
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<PAGE> 53
such an attempt might be beneficial to the Company and some, or a majority, of
its stockholders. Accordingly, under certain circumstances stockholders could be
deprived of opportunities to sell their shares of Omega Worldwide Common Stock
at a higher price than might otherwise be available.
BUSINESS COMBINATION SUPERMAJORITY APPROVAL
The Charter requires the affirmative vote of the holders of not less than
80% of the outstanding shares of "voting stock" of the Company for the approval
or authorization of any "Business Combination" of the Company with any "Related
Person." However, such 80% voting requirement is not applicable if: (i) the
board of directors by unanimous vote or written consent expressly approves in
advance the acquisition of outstanding shares of voting stock of the Company
that cause the Related Person to become a Related Person or have approved the
Business Combination prior to the Related Person involved in the Business
Combination becoming a Related Person; or (ii) the Business Combination is
solely between the Company and another corporation, 100% of the voting stock of
which is owned directly or indirectly by the Company.
The term "Business Combination" means (i) any merger or consolidation of
the Company with or into a Related Person, (ii) any sale, lease, exchange,
transfer or other disposition, including without limitation a mortgage or any
other security device, of all or any "Substantial Part" of the assets of the
Company (including without limitation any voting securities of a subsidiary) to
a Related Person, (iii) any merger or consolidation of a Related Person with or
into the Company, (iv) any sale, lease, exchange, transfer or other disposition
of all or any Substantial Part of the assets of a Related Person to the Company,
(v) the issuance of any securities (other than by way of pro rata distribution
to all shareholders) of the Company to a Related Person, and (vi) any agreement,
contract or other arrangement providing for any of the transactions described in
this definition of Business Combination.
The term "Related Person" means and includes any individual, corporation,
partnership or other person or entity which, together with its "Affiliates" and
"Associates" (as defined in Rule 12b-2 under the Securities Exchange Act of
1934), "Beneficially Owns" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) in the aggregate 10% or more of the outstanding voting
stock of the Company, and any Affiliate or Associate of the Company.
The term "Substantial Part" means more than 10% of the book value of the
total assets of the Company or a Related Person, as the case may be, as of the
end of its most recent fiscal year ending prior to the time the determination is
being made.
The term "voting stock" means the outstanding shares of stock of the
Company entitled to vote generally in the election of Directors. In a vote
required by or provided for herein, each share of voting stock shall have the
number of votes to which it is entitled generally in the election of directors.
Without limitation, any shares of common stock of the Company that any
Related Person has the right to acquire pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise, shall be
deemed beneficially owned by the Related Person.
Under certain circumstances, the Charter makes it more difficult for a
person who would be a Related Person to effect various Business Combinations
with the Company. The Charter may encourage persons interested in acquiring the
Company to negotiate in advance with the Omega Worldwide Board, because the
stockholder approval requirement would be avoided if the directors then in
office unanimously approve either the Business Combination or the transaction
which results in any such person becoming a Related Person. It is possible that
such a provision could make it more difficult to accomplish transactions which
the Company's stockholders may otherwise deem to be in their best interests.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Charter provides that, subject to any rights of holders of Preferred
Stock to elect additional directors under specified circumstances ("Preferred
Holders' Rights"), the number of directors will be fixed by the Bylaws. The
Bylaws provide that, subject to any Preferred Holders' Rights, the number of
directors will be fixed by the Omega Worldwide Board, but must not be more than
ten nor less than the minimum number
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<PAGE> 54
required by the MGCL. In addition, the Bylaws provide that any vacancies (other
than vacancies created by an increase in the total number of directors) will be
filled by the affirmative vote of a majority of the remaining directors, though
less than a quorum, and any vacancies created by an increase in the total number
of directors may be filled by a majority of the entire Omega Worldwide Board.
Accordingly, the Omega Worldwide Board could temporarily prevent any stockholder
from enlarging the Omega Worldwide Board and then filling the new directorship
with such stockholder's own nominees.
The Charter provides that, subject to any Preferred Holders' Rights,
directors may be removed only for cause and only upon the affirmative vote of
holders of at least 80% of the votes entitled to be cast generally in the
election of directors, voting together as a single class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Bylaws provide that any action required or permitted to be taken by the
stockholders of the Company must be effected at a duly called annual or special
meeting of such holders and may not be effected by any consent in writing by
such holders. Except as otherwise required by law and subject to the rights of
the holders of any Preferred Stock, special meetings of stockholders of the
Company for any purpose or purposes may be called only by the Chairman,
President, the Omega Worldwide Board or holders of 50% of the outstanding shares
entitled to vote on the business proposed to be transacted at the meeting
pursuant to a resolution stating the purpose or purposes thereof. No business
other than that stated in the notice shall be transacted at any special meeting.
These provisions may have the effect of delaying consideration of a stockholder
proposal until the next annual meeting unless a special meeting is called by the
Chairman, President, the Omega Worldwide Board or holders of 50% of the
outstanding shares entitled to vote on the business proposed to be transacted at
the meeting.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for directors or bring other business before an annual
meeting of stockholders of the Company (the "Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that (a) with respect to an
annual meeting of stockholders, nominations of persons for election to the Board
of Directors and the proposal of business to be considered by stockholders may
be made only (i) pursuant to the Company's notice of the meeting, (ii) by or at
the direction of the Board of Directors or (iii) by a stockholder who is
entitled to vote at the meeting and has complied with the advance notice
procedures set forth in the Bylaws and (b) with respect to special meetings of
stockholders, only the business specified in the Company's notice of meeting may
be brought before the meeting of stockholders and nominations of persons for
election to the Board of Directors may be made only (i) pursuant to the
Company's notice of the meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by a stockholder who is entitled to
vote at the meeting and has complied with the advance notice procedures set
forth in the Bylaws.
The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Omega Worldwide Board a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Omega Worldwide Board, to inform stockholders and
make recommendations about such nominees or business, as well as to ensure an
orderly procedure for conducting meetings of stockholders. Although the Bylaws
do not give the Omega Worldwide Board power to block stockholder nominations for
the election of directors or proposal for action, they may have the effect of
discouraging a stockholder from proposing nominees or business, precluding a
contest for the election of directors or the consideration of stockholder
proposals if procedural requirements are not met, and deterring third parties
from soliciting proxies for a non-management slate of directors or proposal,
without regard to the merits of such slate or proposal.
53
<PAGE> 55
AMENDMENT
The Bylaws provide that the Omega Worldwide Board has the exclusive power
to adopt, alter or repeal any provision of the Bylaws and to make new bylaws.
The Charter provides that the provisions of the Charter relating to business
combinations, the number, election term and removal of the Company's directors,
the applicability of elective statutes and the applicability of the Rights
Agreement to Omega may be amended only by the affirmative vote of the holders of
at least 80% of the outstanding shares of voting stock of the Company, voting
together as a single class. In all cases, the MGCL requires that the Omega
Worldwide Board first determine that the proposed amendment to the Charter is
advisable.
RIGHTS AGREEMENT
The Omega Worldwide Board currently expects to authorize a rights plan on
or prior to the Distribution Date. Pursuant to the rights plan, the Omega
Worldwide Board will cause to be issued one Preferred Share Purchase Right for
each outstanding share of Omega Worldwide Common Stock. Each Preferred Share
Purchase Right will entitle the registered holder to purchase from the Company
one-hundredth of a share of a new series of junior preferred stock, par value
$.01 per share (the "Junior Preferred Shares"), of the Company at a price of
$40.00 (the "Purchase Price"), subject to adjustment. The description and terms
of the Preferred Share Purchase Rights will be set forth in a Rights Agreement
(the "Rights Agreement"), between the Company and the designated Rights Agent
(the "Rights Agent"). The description set forth below is intended as a summary
only and is qualified in its entirety by reference to the form of the Rights
Agreement, which will be filed as an exhibit to the Registration Statement. See
"Available Information."
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 10% or more of the outstanding
shares of Omega Worldwide Common Stock or (ii) 10 business days (or such later
date as may be determined by action of the Omega Worldwide Board prior to such
time as any person becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 10% or more of such outstanding shares of Omega Worldwide Common Stock
(the earlier of such dates being called the "Rights Distribution Date"), the
Preferred Share Purchase Rights will be represented by the certificates
representing the Omega Worldwide Common Stock.
The Rights Agreement will provide that, until the Rights Distribution Date
(or earlier redemption or expiration of the Preferred Share Purchase Rights),
the Preferred Share Purchase Rights will be transferred with and only with the
Omega Worldwide Common Stock. Until the Rights Distribution Date (or earlier
redemption or expiration of the Preferred Share Purchase Rights), the Omega
Worldwide Common Stock certificates will contain a notation incorporating the
Rights Agreement by reference. As soon as practicable following the Rights
Distribution Date, separate certificates evidencing the Preferred Share Purchase
Rights (the "Right Certificates") will be mailed to holders of record of the
Omega Worldwide Common Stock as of the close of business on the Rights
Distribution Date and such separate Right Certificates alone will represent the
Preferred Share Purchase Rights.
The Preferred Share Purchase Rights will not be exercisable until the
Rights Distribution Date. The Preferred Share Purchase Rights will expire on the
tenth anniversary of the date of issuance (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Preferred Share Purchase
Rights are earlier redeemed or exchanged by the Company in each case, as
summarized below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision shall be made so that each holder
of a Preferred Share Purchase Right, other than Preferred Share Purchase Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of shares of
Omega Worldwide Common Stock having a market value of two times the exercise
price of the Preferred Share Purchase Right. In the event that the Company is
acquired in a merger or other business combination transaction or 50% or more of
its consolidated assets or earning power are sold after a person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
will be made so that each holder of a Preferred Share
54
<PAGE> 56
Purchase Right will thereafter have the right to receive, upon the exercise
thereof at the then-current exercise price of the Preferred Share Purchase
Right, that number of shares of common stock of the acquiring company which at
the time of such transaction will have a market value of two times the exercise
price of the Preferred Share Purchase Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the outstanding
Omega Worldwide Common Stock and prior to the acquisition by such person or
group of 50% or more of the outstanding Omega Worldwide Common Stock, the Omega
Worldwide Board may exchange the Preferred Share Purchase Rights (other than
Preferred Share Purchase Rights owned by such person or group which have become
void), in whole or in part, at an exchange ratio of one share of Omega Worldwide
Common Stock, or one-hundredth of a Junior Preferred Share (or of a share of a
class or series of the Preferred Stock having equivalent rights, preference and
privileges) per Preferred Share Purchase Right (subject to adjustment).
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 10% or more of the outstanding
Omega Worldwide Common Stock, the Omega Worldwide Board may redeem the Preferred
Share Purchase Rights in whole, but not in part, at a price of $.01 per
Preferred Share Purchase Right (the "Redemption Price") so long as there are at
least two members of the Omega Worldwide Board who are Continuing Directors and
a majority of the Continuing Directors approve such redemption. The redemption
of the Preferred Share Purchase Rights may be made effective at such time on
such basis and with such conditions as the Omega Worldwide Board, in its sole
discretion, may establish. Immediately upon any redemption of the Preferred
Share Purchase Rights, the right to exercise the Preferred Share Purchase Rights
will terminate and the holders of the Preferred Share Purchase Rights then will
be eligible to receive only the Redemption Price. Continuing Director is defined
as a member of the Omega Worldwide Board who is not an Acquiring Person or an
Affiliate or Associate of an Acquiring Person or a representative or nominee of
an Acquiring Person or of any such Affiliate or Associate and who is not an
officer, employee or agent of the Company.
The terms of the Preferred Share Purchase Rights may be amended by the
Omega Worldwide Board without the consent of the holders of the Preferred Share
Purchase Rights; provided, however, that from and after such time as any person
or group of affiliated or associated persons becomes an Acquiring Person, no
such amendment may adversely affect the interests of the holders of the
Preferred Share Purchase Rights and there are at least two members of the Omega
Worldwide Board who are Continuing Directors and a majority of the Continuing
Directors approve such amendment. In addition, certain other actions may be
taken only with the approval of the Continuing Directors.
Until a Preferred Share Purchase Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of the Company including, without
limitation, the right to vote or to receive dividends.
The number of outstanding Preferred Share Purchase Rights and the number of
one-hundredths of a Junior Preferred Share issuable upon exercise of each
Preferred Share Purchase Right also will be subject to adjustment in the event
of a split of the Omega Worldwide Common Stock, or a stock dividend on the Omega
Worldwide Common Stock payable in Omega Worldwide Common Stock or subdivisions,
consolidations or combinations of the Omega Worldwide Common Stock occurring, in
any such case, prior to the Rights Distribution Date.
The Purchase Price payable, and the number of Junior Preferred Shares or
other securities or property issuable, upon exercise of the Preferred Share
Purchase Rights will be subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, the Junior Preferred Shares, (ii) upon the grant to
holders of the Junior Preferred Shares of certain rights or warrants to
subscribe for or purchase Junior Preferred Shares at a price, or securities
convertible into Junior Preferred Shares with a conversion price, less than the
then-current market price of the Junior Preferred Shares or (iii) upon the
distribution to holders of the Junior Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Junior Preferred Shares)
or of subscription rights or warrants (other than those referred to above).
55
<PAGE> 57
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional Junior Preferred Shares will be
issued (other than fractions which are integral multiples of one-hundredth of a
Junior Preferred Share, which may, at the election of the Company, be evidenced
by depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Junior Preferred Shares on the last trading day
prior to the date of exercise.
Junior Preferred Shares purchasable upon exercise of the Preferred Share
Purchase Rights will not be redeemable. Each Junior Preferred Share will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per share
but will be entitled to an aggregate dividend of 100 times the dividend declared
per share of Omega Worldwide Common Stock. In the event of liquidation, the
holders of the Junior Preferred Shares will be entitled to a minimum
preferential liquidation payment of $1.00 per share but will be entitled to an
aggregate payment of 100 times the payment made per share of Omega Worldwide
Common Stock. Each Junior Preferred Share will have 100 votes voting together
with the Omega Worldwide Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Omega Worldwide Common
Stock are exchanged, each Junior Preferred Share will be entitled to receive 100
times the amount received per share of Omega Worldwide Common Stock. These
rights are protected by customary antidilution provisions.
Due to the nature of the Junior Preferred Shares' dividend, liquidation and
voting rights, the value of the one-hundredth interest in a Junior Preferred
Share purchasable upon exercise of each Preferred Share Purchase Right should
approximate the value of one share of Omega Worldwide Common Stock.
The Preferred Share Purchase Rights have certain antitakeover effects. The
Preferred Share Purchase Rights will cause substantial dilution to a person or
group of persons that attempts to acquire the Company on terms not approved by
the Omega Worldwide Board. The Preferred Share Purchase Rights should not
interfere with any merger or other business combination approved by the Omega
Worldwide Board prior to the time that a person or group has acquired beneficial
ownership of 10% or more of the Omega Worldwide Common Stock since the Preferred
Share Purchase Rights may be redeemed by the Company at the Redemption Price
until such time.
The Preferred Share Purchase Rights and the Company's Charter contain
certain provisions that exclude Omega and its affiliates from the operative
provisions of the Rights Plan.
MARYLAND BUSINESS COMBINATION STATUTE
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the
then-outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of such corporation and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by holders
of outstanding shares of voting stock of the corporation and (ii) two-thirds of
the votes entitled to be cast by holders of voting stock of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
shares. These provisions of the MGCL do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder.
The Company's Charter specifies that the Business Combination Statute does
not apply to the Company unless the Board of Directors elects to be subject, in
whole or in part, specifically, generally or generally by
56
<PAGE> 58
types, as to specifically identified or unidentified stockholders, to the
provisions. If the Board of Directors elects to be subject to the Business
Combination Statute, the Business Combination Statute could have the effect of
discouraging mergers or similar transactions subject to statutory stockholder
vote and additional transactions involving transfers of assets or securities in
specified amounts. In addition, pursuant to the statute, the Company has
exempted any business combinations involving Omega and, consequently, the
five-year prohibition and the super-majority vote requirements will not apply to
business combinations between Omega and the Company. As a result, Omega may be
able to enter into business combinations with the Company that may not be in the
best interest of its stockholders without compliance by the Company with the
super-majority vote requirements and the other provisions of the statute.
MARYLAND CONTROL SHARES ACQUISITION STATUTE
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control Shares" are voting shares of stock
which, if aggregated with all other such shares of stock previously acquired by
the acquiror or in respect of which the acquiror is able to exercise or direct
the exercise of voting power (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (i) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (ii) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
The Charter specifies that the Control Shares Acquisition Statute does not
apply to the Company unless the Board of Directors elects to be subject, in
whole or in part, specifically, generally or generally by types, as to
specifically identified or unidentified stockholders, to the provisions. If the
Board of Directors elects to be subject to the Control Shares Acquisition
Statute, the Control Shares Acquisition Statute could have the effect of
discouraging offers to acquire the Company and of increasing the difficulty of
consummating any such offer and of delaying, deferring or preventing a change in
control of the Company or other transaction that may involve a premium price for
Omega Worldwide Common Stock or otherwise be in the best interests of the
Company's stockholders, by proxy contest, tender offer, openmarket purchases or
otherwise.
57
<PAGE> 59
EXPERTS
The balance sheet of Omega Worldwide, Inc. as of November 30, 1997
appearing in this Prospectus and Registration Statement has been audited by
Ernst & Young LLP, independent auditors, and the consolidated financial
statements of Principal Healthcare Finance Limited as of August 31, 1997 and for
the two years in the period ended August 31, 1997 appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such
firms as experts in accounting and auditing.
The financial statements of Tamaris Plc as of March 31, 1997 and for the
two years in the period ended March 31, 1997 appearing in this Prospectus and
Registration Statement have been audited by Grant Thornton, independent
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the issuance of the shares of Omega Worldwide Common Stock
to be sold pursuant to the Offerings will be passed upon for the Company by
Mayer, Brown & Platt.
58
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Omega Worldwide, Inc.
Report of Independent Auditors............................ F-2
Balance Sheet as of November 30, 1997..................... F-3
Principal Healthcare Finance Limited
Report of Independent Auditors............................ F-4
Consolidated Balance Sheets as of August 31, 1997 and 1996
and November 30, 1997 (unaudited)...................... F-5
Consolidated Statements of Operations for the years ended
August 31, 1997 and 1996 and three-month periods ended
November 30, 1997 and 1996 (unaudited)................. F-6
Consolidated Statements of Shareholders' Equity for the
years ended August 31, 1997 and 1996 and period of
three months ended November 30, 1997 (unaudited)....... F-7
Consolidated Statements of Cash Flows for the years ended
August 31, 1997 and 1996 and period of three months
ended November 30, 1997 and 1996 (unaudited)........... F-8
Notes to Consolidated Financial Statements................ F-9
Financial Statements of Tenants of Principal Healthcare
Finance Limited:
Tamaris Plc:
Report of Auditors........................................ F-19
Consolidated Profit and Loss Account for the years ended
March 31, 1997 and 1996 and Period of Six months ended
September 30, 1997 and 1996 (unaudited)................ F-20
Consolidated Balance Sheets as of March 31, 1997 and 1996
and September 30, 1997 (unaudited)..................... F-22
Company Balance Sheets as of March 31, 1997 and 1996...... F-23
Consolidated Cash Flow Statement for the years ended March
31, 1997 and 1996...................................... F-24
Notes to Financial Statements............................. F-25
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
Shareholder
Omega Worldwide, Inc.
We have audited the accompanying balance sheet of Omega Worldwide, Inc. as
of November 30, 1997. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Omega Worldwide, Inc. at November
30, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
December 18, 1997
Detroit, Michigan
F-2
<PAGE> 62
OMEGA WORLDWIDE, INC.
BALANCE SHEET
NOVEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $1,000
------
Total assets................................................ $1,000
======
SHAREHOLDERS' EQUITY:
Preferred stock $1.00 par value:
Authorized 10,000,000 shares, none issued
Common stock $.10 par value:
Authorized 50,000,000 shares
Issued and outstanding 1,000 shares.................... $ 100
Additional paid-in capital................................ 900
------
Total shareholders' equity.................................. $1,000
======
</TABLE>
1. ORGANIZATION
Omega Worldwide, Inc. (the "Company") was incorporated on November 13, 1997, in
the State of Maryland. All of the Company's common stock is owned by Omega
Healthcare Investors Inc. ("Omega"). Following the purchase of 1,000 shares of
common stock, Omega subscribed to the issuance of 2,100,000 shares at par value,
with the payment of the subscription price due upon the declaration of
effectiveness by the Securities and Exchange Commission of the Company's Form
S-1 Registration Statement. Subsequently, the Subscription agreement was
rescinded by mutual agreement, and the Company's balance sheet at November 30,
1997 has been adjusted to reflect this event. Prior to November 30, 1997 the
Company had no operations.
2. RELATED PARTY TRANSACTIONS
The Company intends to enter into an Opportunity Agreement and Services
Agreement with Omega prior to the effective date of the Registration Statement
filed with the Securities and Exchange Commission. Under the terms of the
Opportunity Agreement, the Company and Omega will agree to provide each other
with rights to participate in certain transactions and to make certain
investments in parallel or jointly. Pursuant to the Services Agreement, Omega
will provide the Company with management and other employees, administrative
services and office space. The Company will reimburse Omega quarterly for a
portion of Omega's overhead expenses based on a percentage determined by
dividing the carrying value of the assets managed by the Company at the end of a
fiscal quarter by the sum of the carrying value of the assets of Omega and
assets managed by the Company at the end of such fiscal quarter.
F-3
<PAGE> 63
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, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the years then ended. 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, 1997 and 1996, and the
consolidated results of their operations, and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young
December 2, 1997, except for
Note 10 as to which the date is January 15, 1998
Jersey, Channel Islands
F-4
<PAGE> 64
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31
NOVEMBER 30 ------------------------
1997 1997 1996
----------- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<S> <C> <C> <C>
ASSETS
Investments in real estate
Real estate properties................................... $357,834 $274,982 $ 92,795
Accumulated depreciation................................. 6,269 4,294 1,357
-------- -------- --------
351,565 270,688 91,438
Mortgage notes receivable.................................. -- 9,851
Other investments.......................................... 7,137 5,474
-------- -------- --------
358,702 276,162 101,289
Cash and short-term investments............................ 5,184 6,188 597
Accounts receivable........................................ 4,430 3,520 899
Assets held for sale....................................... 3,150 3,041
Cash on deposit as collateral -- restricted................ 17,898 18,056
Cost in excess of tangible assets acquired, net............ 13,802 14,190
Other assets............................................... 5,843 652 762
-------- -------- --------
Total assets............................................... $409,009 $321,809 $103,547
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and other liabilities................... $ 9,270 $ 5,456 $ 1,371
Loans from Omega Healthcare Investors, Inc............... 29,898 83,745 30,945
Deferred tax liability................................... 14,688 14,025 168
Long-term borrowings..................................... 342,853 205,581 70,367
-------- -------- --------
Total liabilities.......................................... 396,709 308,807 102,851
Shareholders' equity:
Class A common stock $.016 par value:
Authorized -- 43,000,000 shares
Issued and outstanding -- 4,000,000 shares in 1997 and
1,500,000 in 1996................................... 65 65 24
Class B common stock $.016 par value:
Authorized -- 17,000,000 shares
Issued and outstanding -- 6,000,000 shares in 1997 and
none in 1996........................................ 96 96
Additional paid-in capital............................... 14,472 14,472 1,489
Retained earnings deficit................................ (2,820) (1,697) (826)
Foreign currency translation adjustments................. 487 66 9
-------- -------- --------
Total shareholders' equity................................. 12,300 13,002 696
-------- -------- --------
Total liabilities and shareholders' equity................. $409,009 $321,809 $103,547
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 65
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30 YEAR ENDED AUGUST 31
------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Rental income, excluding intercompany rent of
$554,000......................................... $ 9,702 $3,246 $16,722 $8,248
Mortgage interest income............................ -- 104 103 86
Nursing home revenues............................... 2,550
Other investment income............................. 114 14 187 164
------- ------ ------- ------
12,366 3,364 17,012 8,498
Expenses:
Nursing home expenses, excluding intercompany rent
of $554,000...................................... 1,894
Depreciation and amortization....................... 1,721 617 2,959 1,357
Interest............................................ 6,649 2,552 12,403 7,421
General and administrative.......................... 984 281 1,652 378
------- ------ ------- ------
11,248 3,450 17,014 9,156
------- ------ ------- ------
Net income (loss) before income taxes and
extraordinary charge from prepayment of debt........ 1,118 (86) (2) (658)
Provision for income taxes:
Current............................................. 211 48 202
Deferred............................................ 469 80 509 168
------- ------ ------- ------
680 128 711 168
------- ------ ------- ------
Net income (loss) before extraordinary charge for
prepayment of debt.................................. 438 (214) (713) (826)
Extraordinary charge from prepayment of debt, less
deferred income taxes of $421....................... (1,561) -- -- --
------- ------ ------- ------
Net loss.............................................. $(1,123) $ (214) $ (713) $ (826)
======= ====== ======= ======
</TABLE>
See accompanying notes.
F-6
<PAGE> 66
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1997 AND 1996 AND THREE-MONTHS
ENDED NOVEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
CLASS A CLASS B ADDITIONAL RETAINED FROM FOREIGN
---------------- ---------------- PAID EARNINGS CURRENCY
SHARES AMOUNT SHARES AMOUNT IN CAPITAL (DEFICIT) TRANSLATION
------ ------ ------ ------ ---------- --------- ------------
(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...................... (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
adjustment................. 57
Net loss for year............. (713)
----- --- ----- ---- ------- ------- ----
Balance at August 31, 1997...... 4,000 $65 6,000 $ 96 $14,472 $(1,697) $ 66
Net loss (unaudited)............ (1,123)
Foreign currency translation
adjustment (unaudited)........ 421
----- --- ----- ---- ------- ------- ----
Balance at November 30, 1997
(unaudited)................... 4,000 $65 6,000 $ 96 $14,472 $(2,820) $487
===== === ===== ==== ======= ======= ====
</TABLE>
See accompanying notes.
F-7
<PAGE> 67
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30 YEAR ENDED AUGUST 31
---------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary
charge from early payment of debt (which
did not involve a cash outlay)............ $ 438 $ (214) $ (713) $ (826)
Adjustments to reconcile net income (loss)
to cash provided by operating activities
Depreciation and amortization............. 1,757 617 2,959 1,357
Deferred tax liability.................... 469 80 509 168
Change in operating assets and liabilities
Accounts receivable.................... (1,552) (103) (2,572) (888)
Accounts payable and accruals.......... 2,292 1,253 2,542 930
Foreign currency translation gain........... 220 96 120 7
-------- ------- --------- ---------
Cash provided by operating activities....... 3,624 1,729 2,845 748
INVESTING ACTIVITIES
Acquisition of real estate.................. (69,828) (6,344) (60,716) (91,071)
Quality Care Homes Plc acquisition.......... (54,728)
Other investments -- Net.................... (1,409) (6,566)
Increase in restricted cash on deposit...... 928 1,243
Issuance of mortgage notes.................. (9,851)
-------- ------- --------- ---------
Cash used in investing activities........... (70,309) (6,344) (120,767) (100,922)
FINANCING ACTIVITIES
Issuance of common stock.................... 13,311 13,472 2,317
Proceeds from borrowings.................... 186,949 59,958 92,670
Early extinguishment of debt................ (59,278)
Short term borrowings from (payments of
borrowings to) Omega Healthcare Investors,
Inc....................................... (56,372) (6,986) 50,875 7,398
Payments of other borrowings................ (2,642)
Dividends paid.............................. (158)
Cost of raising capital..................... (2,976) (634) (1,614)
-------- ------- --------- ---------
Cash provided by financing activities....... 65,681 6,325 123,513 100,771
-------- ------- --------- ---------
Increase (Decrease) in cash and cash
equivalents............................... (2,154) 1,710 5,591 597
Cash and cash equivalents at beginning
of period................................. 6,188 597 597
-------- ------- --------- ---------
Cash and cash equivalents at end of
period.................................... $ 5,184 $ 2,307 $ 6,188 $ 597
======== ======= ========= =========
</TABLE>
See accompanying notes.
F-8
<PAGE> 68
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND 1996
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").
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 Company is a subsidiary of Bayside International Inc., a company
incorporated in the Cayman Islands ("Bayside"). Omega together with certain
directors of Omega own Bayside.
The Company was incorporated in June, 1995. The results of operations from
the date of incorporation to August 31, 1995 were not significant.
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. Beginning November 1, 1997 the
consolidated financial statements also include Baneberry Healthcare Limited
("Baneberry"), in which the Company has an 80% ownership interest. Baneberry's
revenues and expenses are reported separately in the Consolidated Statements of
Operations. Baneberry's identifiable assets approximate 1% of total assets. For
the quarter ended November 30, 1997 all of the earnings before income taxes
relate to the real estate leasing segment (unaudited).
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 plus the deferred tax liability
recognized over the fair value of real estate and other assets acquired in
connection with the purchase of Quality Care Homes plc is amortized on a
straight-line basis over a 30-year period.
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.
F-9
<PAGE> 69
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Rental income is recognized on a straight-line basis over the initial 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 1996 and 1997.
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 payable. 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 116 long-term care
facilities at August 31, 1997, are leased under provisions of master leases with
initial terms of generally thirty years, however the lease 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
NOVEMBER 30 -------------------
1997 1997 1996
----------- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Buildings...................................... $304,159 $233,736 $78,830
Land........................................... 53,675 41,246 13,965
-------- -------- -------
357,834 274,982 92,795
Less accumulated depreciation.................. 6,269 4,294 1,357
-------- -------- -------
Total.......................................... $351,565 $270,688 $91,438
======== ======== =======
</TABLE>
F-10
<PAGE> 70
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. REAL ESTATE PROPERTIES (CONTINUED)
The following table summarizes the changes in real estate properties and
accumulated depreciation during 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 three-month period (unaudited):
Real estate acquisitions............................. 69,445
Provision charged to operations...................... 1,635
Other................................................ 13,407 340
-------- ------
Balance at November 30, 1997 (unaudited)............... $357,834 $6,269
======== ======
</TABLE>
The future minimum rentals expected to be received at August 31, 1997 for
the remainder of the initial terms of the leases are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
1998........................................................ $ 19,786
1999........................................................ 19,786
2000........................................................ 19,786
2001........................................................ 19,786
2002........................................................ 19,786
Thereafter.................................................. 75,649
--------
$174,579
========
</TABLE>
3. MORTGAGE NOTES RECEIVABLE
In August 1996, the Company made a loan of approximately $9,851,000,
secured by three properties. This temporary loan was made in anticipating a
purchase leaseback transaction to be consummated with the operator before
December 1996. The loan amount approximated the fair value of the property
acquired. In October, 1996 the Company converted the loan by taking title by
purchase of the property at the original amount of the loan. The lease agreement
with the operator has terms similar to all other leases with the operator. At
the date of conversion, the operator was current in its payments and there were
no events of default.
4. INVESTMENT CONCENTRATIONS
As of August 31, 1997, all of the Company's real estate investments related
to long-term care facilities. The Company's real estate investments are operated
by 8 companies, including Exceler Healthcare Services Limited (30% of amount
invested), and Tamaris Plc (46% of amount invested). The Company's facilities
are
F-11
<PAGE> 71
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT CONCENTRATIONS (CONTINUED)
located in England (92% of amount invested) and Scotland (8% of amount
invested). The following is a summary of the amounts originally invested and the
number of facilities owned at August 31:
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
NUMBER OF NUMBER OF
INVESTMENT FACILITIES INVESTMENT FACILITIES
COUNTY AMOUNT OWNED AMOUNT OWNED
------ ---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Berkshire................................ $ 3,648 2 $ -- --
Cambridgeshire........................... 1,282 1 -- --
Coventry................................. 2,865 1 -- --
Cumbria.................................. 2,865 1 -- --
Derbyshire............................... 3,457 2 3,338 2
Durham................................... 49,977 21 -- --
Essex.................................... 5,471 2 2,981 1
Greater London........................... 5,713 2 -- --
Greater Manchester....................... 3,898 2 1,956 1
Hertfordshire............................ 3,954 1 3,818 1
Kent..................................... 2,228 1 -- --
Leicestershire........................... 3,233 1 3,122 1
Lincolnshire............................. 6,431 3 3,586 2
Merseyside............................... 4,090 2 3,949 2
Norfolk.................................. 660 1 -- --
North Ayrshire........................... 6,778 1 6,546 1
North Humberside......................... 4,668 1 4,507 1
North Yorkshire.......................... 1,987 2 -- --
Northhamptionshire....................... 3,368 1 -- --
Northhumberland.......................... 5,165 2 -- --
Nottinghamshire.......................... 18,948 11 16,235 9
Oxfordshire.............................. 6,052 3 -- --
South Yorkshire.......................... 8,128 5 5,082 4
Staffordshire............................ 11,800 4 7,706 3
Suffolk.................................. 10,249 4 9,185 3
Tyne & Wear.............................. 41,193 18 8,144 4
Warwickshire............................. 1,436 1 -- --
West Midlands............................ 17,530 10 2,387 1
West Yorkshire........................... 18,258 5 10,253 2
-------- --- ------- --
Total England.......................... 255,332 111 92,795 38
Dundee City.............................. 10,652 3 -- --
East Lothian............................. 6,133 1 -- --
Glasgow.................................. 2,865 1 -- --
-------- --- ------- --
Total Scotland......................... 19,650 5 -- --
-------- --- ------- --
Total.................................. $274,982 116 $92,795 38
======== === ======= ==
</TABLE>
As of November 30, 1997, Exceler Healthcare Services Limited operated
facilities representing 24% of the total investments and Tamaris plc operated
facilities representing 35% of the total investments (unaudited).
F-12
<PAGE> 72
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT CONCENTRATIONS (CONTINUED)
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. Following is condensed consolidated
information derived from filings with the Securities and Exchange Commission by
Sun for the periods ended December 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Cash flows from:
Operating Activities........................................ $ 21,733 $ 26,812
Financing Activities........................................ 661,327 107,619
Investing Activities........................................ (680,121) (142,189)
Net Revenues................................................ 2,010,820 1,316,308
Net Earnings................................................ 34,801 21,536
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31
------------------------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Current Assets.............................................. $ 645,211 $ 363,148
Current Liabilities......................................... 325,692 151,566
Total Assets................................................ 2,579,236 1,229,426
Total Liabilities........................................... 1,945,898 654,592
Shareholders' Equity........................................ 617,053 572,137
</TABLE>
F-13
<PAGE> 73
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT CONCENTRATIONS (CONTINUED)
The following condensed information derived from audited financial
statements of Exceler prepared in accordance with accounting standards generally
accepted in the United States (except as set forth below) for the six month
period ended June 30, 1997 and year ended December 31, 1996.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash flows for the year ended December 31, 1996:
Operating Activities....................................................... $ 4,166
Financing Activities....................................................... --
Investing Activities....................................................... (4,298)
Net Revenues................................................ $12,107 23,046
Net Earnings................................................ 913 1,686
Balance Sheet data as of December 31, 1996:
Current Assets............................................................... $ 8,469
Current Liabilities.......................................................... 13,442
Total Assets................................................................. 11,608
Total Liabilities............................................................ 11,629
Shareholders' Equity......................................................... 1,813
</TABLE>
Exceler's financial information presented in accordance with US GAAP does
not reflect certain "push-down" adjustments associated with purchased business
combinations which occurred prior to December 31, 1996. Such adjustments, if
quantifiable, would increase reported assets and equity as of December 31, 1996,
and decrease reported earnings for the year then ended. However, the adjustment
would not affect reported cash flow from operating activities for 1996.
Exceler reports interim financial information to its parent as part of a
geographic unit, and does not prepare separate complete interim financial
statements. Therefore summarized balance sheet and cash flow data are not
readily available as of and for the period of six-months ended June 30, 1997.
Exceler's audited year-end financial statements as of December 31, 1997
currently are not available.
Exceler has given an unlimited guarantee in favor of its immediate parent,
Exceler Health Care Group Plc. Exceler's financial statements disclose that the
company believes no liability to its parent under this guarantee is expected to
arise in the foreseeable future.
5. BORROWING ARRANGEMENTS
The loans payable to Omega Healthcare Investors, Inc. at August 31, 1997
consists of a short-term loan of $59,537,000 which bears interest at 9.25%, and
a $24,208,500 subordinated loan which bears interest at 11.83% and matures in
December 31, 2000. In connection with the subordinated loan, the Company
provided warrants to acquire 10,000,000 shares of stock at L1.50 (approximately
$2.40) per share. These warrants expire June 30, 2001.
F-14
<PAGE> 74
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BORROWING ARRANGEMENTS (CONTINUED)
The following is a summary of long-term borrowings all of which are
sterling denominated:
<TABLE>
<CAPTION>
AUGUST 31
-------------------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Secured bank loan......................................... $ 64,556 $62,548
Commercial mortgages...................................... 34,588 --
Acquisition finance loan.................................. 55,245 --
Loan notes and guarantees................................. 18,087 --
Collateralized bank term loan............................. 18,181 --
Overdrafts................................................ 6,854 --
Subordinated loans........................................ 8,070 7,819
-------- -------
$205,581 $70,367
======== =======
</TABLE>
Substantially all of the real estate properties are collateralized by
commercial mortgages and bank loans.
The secured bank loan of $64,556,000 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, 1997 and
1996 was 8.98%. The loan is secured by a mortgage on substantially all of the
investment properties held by the Company. Subsequent to year-end, $56 million
of this loan was repaid with funds drawn down under a revolving credit facility
(Note 10).
Commercial mortgages are repayable in varying quarterly payments at dates
commencing between August 1996 through August 2002. Interest is payable at
varying rates ranging from 6.18% to 8.5%.
The acquisition finance loan is a bank borrowing due for repayment before
June 1998. A guarantee is provided by Omega. The interest rate on the facility
is 1% per annum over LIBOR.
The loan notes issued to former shareholders of a business which sold its
properties to the Company, totaling $18,087,000, bear interest at the rate of
6.5% per annum payable six months after the date of issue of any of the loan
notes and on repayment, which will be on April 16, 1998. Repayment of principal
and payment of interest is guaranteed by a financial institution. The guarantee
fee is 1% per annum of the amount of the loan notes outstanding.
The collateralized bank term loan 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 11.8% to
12.9%. In connection with the loans, the Company provided warrants to acquire
3,333,333 shares of stock at L1.50. These warrants expire June 30, 2001.
The principal payments for each of the five years following August 31, 1997
is set forth below:
<TABLE>
<S> <C>
1998........................................................ $ 87,104
1999........................................................ 6,918
2000........................................................ 79,544
2001........................................................ 25,099
2002........................................................ 6,916
--------
$205,581
========
</TABLE>
Interest paid during 1997 and 1996 was approximately $12,400,000 and
$7,421,000, respectively.
F-15
<PAGE> 75
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. BORROWING ARRANGEMENTS (CONTINUED)
The estimated fair values of the Company's long-term borrowings at August
31, 1997 and 1996 approximate their face amounts. 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
are being held for sale (started at the lower of carrying amount or fair value)
are as follows (in thousands):
<TABLE>
<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>
Subsequent to year end the above 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 as of June 30, 1997
follow (in thousands):
<TABLE>
<S> <C>
Investment properties....................................... $ 116,969
Accounts receivable and inventory........................... 3,194
Cost in excess of tangible assets acquired.................. 14,190
Cash (primarily restricted deposits)........................ 19,364
Bank borrowings............................................. (22,998)
Mortgages................................................... (34,884)
Deferred income tax liability............................... (13,331)
Accounts payable............................................ (8,179)
Other -- net................................................ (507)
---------
Net assets acquired......................................... $ 73,818
=========
</TABLE>
7. CAPITAL STOCK
A holder of Class B shares other than Omega shall have the right to convert
such shares into Class A shares at any time after:
i. the Board of Directors shall have given notice in writing to
members that the value of the share capital of the Company in issue and
paid up exceeds the aggregate sum of L40,000,000 (approximately
$64,000,000) or
ii. the Board of Directors shall have given notice in writing to the
members of an offer for the purchase of the shares of the Company, or
F-16
<PAGE> 76
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CAPITAL STOCK (CONTINUED)
iii. the Board of Directors shall have given notice in writing to
members of the listing of any class of shares of the Company.
The Class B ordinary shares do not carry a right to vote except that at
each general meeting holders of Class B ordinary shares other than Omega shall
be called upon to vote on continuation of the Advisory Agreement between the
Company and Omega.
Subsequent to August 31, 1997 the Board of Directors authorized a
shareholder vote pursuant to which, if approved, all of common stock would be
converted into voting common stock. (See Note 10).
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 ordinary shares............................. 666,666 L1.00 December 31, 2000
750,000 L1.10 December 31, 2000
3,333,333 L1.50 June 30, 2001
Class B ordinary shares............................. 1,000,000 L1.00 December 31, 2000
10,000,000 L1.50 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 L1.50, while the current value of the shares at that time
was approximately L1.00. 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 was as follows:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31
---------------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Current
UK income tax on net rental income........................ $266 $ --
UK corporation tax credit................................. (64) --
---- ----
202 --
Deferred.................................................. 509 168
---- ----
$711 $168
==== ====
</TABLE>
The 1997 and 1996 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.
F-17
<PAGE> 77
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The primary components of the Company's deferred tax liability are as
follows:
<TABLE>
<CAPTION>
AUGUST 31
------------------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liability
Accounts receivable....................................... $ 522 $168
Real estate............................................... 13,331
Other..................................................... 172 --
------- ----
$14,025 $168
======= ====
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company has an agreement with Omega under which Omega provides
investment advice, portfolio monitoring, administration and advisory services to
the Company. The Company pays an annual fee of 0.9% of the book value of the
Company's invested assets to Omega. The Company paid approximately $1,341,000
and $614,000 to Omega during 1997 and 1996, respectively.
10. SUBSEQUENT EVENTS
In October, 1997, the Company obtained through a wholly owned subsidiary a
secured revolving credit facility permitting borrowings of approximately
$250,000,000. On October 3, 1997 the Company drew approximately $62 million to
repay temporary loans payable to Omega. Additionally, in November, 1997 the
Company borrowed $56,000,000 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 of approximately $1,980,000 and
recorded such amount as an extraordinary charge from prepayment of debt.
On November 1, 1997, the Company acquired 30 facilities with 1,400 beds in
Northern Ireland for a total purchase price of approximately $61,000,000. Under
the terms of the lease for these facilities annual rent totals $6,588,000, and
the lessee is responsible for all maintenance, repairs, taxes and insurance on
the properties. The tenant is Baneberry Healthcare Limited, which is the
registered operator of the facilities. As part of the formation of Baneberry,
the Company acquired an 80% equity interest. The directors anticipate this level
of ownership will be temporary pending the completion of capitalization of
Baneberry in which it intends to secure an additional $8,000,000 of funding
payable to former owners of the real estate.
On December 12, 1997, the Company completed a $253,000,000 (L150,000,000)
mortgage bond placement with a coupon of 7.52% and a final maturity date of
2025. The proceeds were primarily used to repay certain outstanding borrowings
totalling $190,000,000 at the date of the offering. Following the refinancings
described above, the Company had the following debt amounts outstanding (in
thousands):
<TABLE>
<S> <C>
1998........................................................ $ 91,775
1999........................................................ 7,166
2000........................................................ 24,010
2001........................................................ 25,207
2002........................................................ 7,165
Thereafter.................................................. 252,660
--------
$407,983
========
</TABLE>
At a special meeting held January 15, 1998, the Shareholders approved a
recapitalization under which the Class B nonvoting stock was eliminated.
F-18
<PAGE> 78
REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS
AND SHAREHOLDERS OF TAMARIS PLC
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TAMARIS PLC
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 1997 and 1996 and the related consolidated
profit and loss accounts and consolidated cash flow statements for the two years
ended 31 March, 1997.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's Directors are responsible for the preparation of the
financial statements. It is our responsibility to form an independent opinion,
based on our audit, on those financial statements and to report our opinion to
you.
BASIS OF OPINION
We conducted our audit 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 1997 and 1996
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 of 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, 1997 and the determination of consolidated
shareholders' equity and consolidated financial position as at 31 March, 1997
and 1996 to the extent summarised in note 36 to the consolidated financial
statements.
Grant Thornton
Registered Auditors
Chartered Accountants
London
16 June 1997
(Except for Note 36
as to which the date
is 3 March 1998)
F-19
<PAGE> 79
TAMARIS PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
AUDITED
YEAR ENDED UNAUDITED
31 MARCH SIX MONTHS
---------------- ENDED
1997 1996 30 SEPTEMBER 1997
NOTES (pound)'000 (pound)'000 (pound)'000
----- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
TURNOVER............................................. 2
Continuing operations................................ 11,851 9,508 14,978
Acquisitions......................................... 7,273 -- 493
------- ------ ------
19,124 9,508 15,471
Staff costs.......................................... 5 (10,995) (5,278) (8,389)
Depreciation......................................... (332) (207) (203)
Other operating charges.............................. (6,474) (2,706) (5,881)
------- ------ ------
OPERATING PROFIT..................................... 3
Continuing operations................................ 945 1,317 928
Acquisitions......................................... 378 -- 70
------- ------ ------
1,323 1,317 998
Share of profits of associated undertaking........... 13 -- 3 --
Profit on sale of fixed assets....................... 4 1,622 295 --
------- ------ ------
2,945 1,615 998
Net interest......................................... 7 (293) (505) (77)
------- ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION........ 2 2,652 1,110 921
Taxation............................................. 8 (359) (142) (274)
------- ------ ------
PROFIT FOR THE FINANCIAL YEAR........................ 9 2,293 968 647
Dividends............................................ 10 (480) (353) (211)
------- ------ ------
PROFIT TRANSFERRED TO RESERVES....................... 22 1,813 615 436
======= ====== ======
EARNINGS PER ORDINARY SHARE.......................... 11 0.46P 0.23p 0.11P
======= ====== ======
</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.
F-20
<PAGE> 80
TAMARIS PLC
NOTE OF HISTORICAL COST PROFITS AND LOSSES
FOR THE YEAR 31 MARCH 1997
<TABLE>
<CAPTION>
AUDITED
YEAR ENDED
31 MARCH
----------------------------
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Profit on ordinary activities before taxation............... 2,652 1,110
Realisation of revaluation surplus.......................... 472 --
Difference between historical cost depreciation charge and
depreciation charge based on revalued amounts............. 8 10
----- -----
Historical cost profit on ordinary activities before
taxation.................................................. 3,132 1,120
===== =====
Historical cost profit transferred to reserves.............. 2,293 625
===== =====
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-21
<PAGE> 81
TAMARIS PLC
CONSOLIDATED BALANCE SHEET
AT 31 MARCH 1997
<TABLE>
<CAPTION>
AUDITED
YEAR ENDED
31 MARCH
-------------------------- UNAUDITED
1997 1996 30 SEPTEMBER 1997
NOTES (pound)'000 (pound)'000 (pound)'000
----- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets....................................... 12 7,995 13,416 18,241
Investments........................................... 13 427 112 736
------ ------ -------
Current Assets........................................ 8,422 13,528 18,977
Investments........................................... -- -- 325
Debtors: amounts falling due after more than one
year................................................ 15 852 1,979 852
Debtors............................................... 14 4,167 1,321 7,565
Cash at bank and on deposit........................... 4,701 333 3,581
------ ------ -------
9,720 3,633 12,323
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR........ 16 (4,915) (2,994) (6,534)
------ ------ -------
NET CURRENT ASSETS.................................... 4,805 639 5,789
------ ------ -------
TOTAL ASSETS LESS CURRENT LIABILITIES................. 13,227 14,167 24,766
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE
YEAR................................................ 17 (4,116) (7,571) (10,325)
------ ------ -------
NET ASSETS............................................ 9,111 6,596 14,441
====== ====== =======
CAPITAL AND RESERVES
Called up share capital............................... 21 1,333 1,170 1,933
Share premium account................................. 22 4,582 3,910 9,137
Revaluation reserve................................... 22 -- 480 --
Other reserve......................................... 22 715 848 454
Profit and loss account............................... 22 2,481 188 2,917
------ ------ -------
SHAREHOLDERS' FUNDS................................... 23 9,111 6,596 14,441
====== ====== =======
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-22
<PAGE> 82
TAMARIS PLC
COMPANY BALANCE SHEET
AT 31 MARCH 1997
<TABLE>
<CAPTION>
1997 1996
NOTES (pound)'000 (pound)'000
----- ----------- -----------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets............................................. 12 476 426
Investments................................................. 13 4,675 2,924
------ -----
5,151 3,350
------ -----
CURRENT ASSETS
Debtors: amounts falling due after more than one year....... 15 -- 1,600
Debtors..................................................... 14 2,506 1,886
Cash at bank and on deposit................................. 1,441 55
------ -----
3,947 3,541
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR.............. 16 (1,167) (657)
------ -----
NET CURRENT ASSETS.......................................... 2,780 2,884
------ -----
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 7,931 6,234
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR..... 17 (74) (98)
------ -----
NET ASSETS.................................................. 7,857 6,136
====== =====
CAPITAL AND RESERVES
Called up share capital..................................... 21 1,333 1,170
Share premium account....................................... 22 4,582 3,910
Merger reserve.............................................. 22 1,742 875
Profit and loss account..................................... 22 200 181
------ -----
SHAREHOLDERS' FUNDS......................................... 7,857 6,136
====== =====
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-23
<PAGE> 83
TAMARIS PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
1997 1996
NOTES (pound)'000 (pound)'000
----- ----------- -----------
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 25 1,782 925
------ ------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid............................................... (750) (642)
Interest element of hire purchase agreements................ (12) (4)
Interest received........................................... 469 141
------ ------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE................................................ (293) (505)
------ ------
TAXATION
Tax recovered/(paid)........................................ 52 (25)
------ ------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets................... (1,301) (8,524)
Loan to associated undertaking.............................. -- (1,600)
Purchase of investments..................................... (325) (21)
Receipts from sales of tangible fixed assets net of
expenses.................................................. 13,714 9,480
------ ------
NET CASH INFLOW/(OUTFLOW) FROM CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT...................................... 12,088 (665)
------ ------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertaking.......................... 28 (1,054) (286)
Net overdraft on purchase of subsidiary undertaking......... -- (2,391)
Purchase of care home businesses............................ (4,588) --
------ ------
NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS............ (5,642) (2,677)
------ ------
EQUITY DIVIDENDS PAID....................................... (374) (100)
------ ------
MANAGEMENT OF LIQUID RESOURCES
Deposits.................................................... 19e (2,830) --
------ ------
FINANCING
Capital element of hire purchase agreements................. (57) 119
Receipts from borrowing..................................... 1,000 97
Repayment of borrowing...................................... (4,480) --
Issued ordinary share capital............................... 801 2,200
Expenses of share issue..................................... (99) (453)
------ ------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING.................... (2,835) 1,963
------ ------
INCREASE/(DECREASE) IN CASH................................. 1,948 (1,084)
====== ======
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-24
<PAGE> 84
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1997
1. ACCOUNTING POLICIES
A) ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention,
except in respect of revalued assets sold during the year.
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 acquisitions of
Laudcare Limited, Maldcare Limited and Torrcare 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 the financial statements.
D) ASSOCIATED UNDERTAKINGS
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.
F-25
<PAGE> 85
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
G) DEPRECIATION
Depreciation is provided on 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) 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 consistent 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.
I) 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.
J) 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.
K) 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.
L) TURNOVER
Turnover represents the amount receivable for services provided.
M) INTERIM FINANCIAL INFORMATION
The Consolidated Financial Information for the six months ended 30
September 1997 is unaudited. In the opinion of management, all adjustments
necessary for a fair statement of the results of this interim period have been
included. All such interim adjustments are of a normal recurring nature. Results
for the six months ended 30 September 1997 are not necessarily indicative of
results for the entire year.
F-26
<PAGE> 86
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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.
The turnover arises solely from activities in the United Kingdom.
The amounts shown for continuing operations include the following in
respect of acquisitions:
<TABLE>
<CAPTION>
1997
(pound)'000
-----------
<S> <C>
Staff costs................................................. 4,048
Depreciation................................................ 75
Other operating charges..................................... 2,772
-----
6,895
=====
</TABLE>
3. OPERATING PROFIT IS STATED AFTER CHARGING
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Auditors' remuneration:
Audit services............................................ 50 20
Non audit services........................................ 152 30
Less capitalised amounts on acquisitions.................. (98) --
Operating lease rentals: land and buildings................. 3,056 801
Operating lease rentals: other.............................. 58 26
</TABLE>
4. EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Profit on sale of fixed assets in continuing operations --
see note 12............................................... 1,622 295
</TABLE>
Details of the properties sold are given at note 12.
F-27
<PAGE> 87
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. STAFF COSTS
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Employee costs including Directors' emoluments during the
year were:
Salaries and wages.......................................... 10,375 4,971
Social security costs....................................... 578 284
Pension costs............................................... 42 23
------ -----
10,995 5,278
====== =====
</TABLE>
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
The average numbers of staff employed during the year:
Management and administration............................... 72 24
Nursing and ancillary services.............................. 1,431 744
----- ---
1,503 768
===== ===
</TABLE>
6. DIRECTORS' EMOLUMENTS
The information given in this note also constitutes part of the Report of
the Remuneration Committee.
<TABLE>
<CAPTION>
SALARY PENSIONS
BENEFITS ANNUAL CONTRIBUTIONS
AND FEES BONUS TOTAL TOTAL -------------------------
1997 1997 1997 1996 1997 1996
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
------------ ------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Executive Directors
W. Fitch -- highest paid................. 108 175 283 190 -- --
B. A. Maxwell............................ 88 85 173 108 33 12
G. Willis................................ -- -- -- -- -- --
Non-Executive Directors -- fees
B. McFadzean............................. 25 -- 25 16 -- --
R. Pears................................. 25 -- 25 16 -- --
--- --- --- --- --- ---
246 260 506 330 33 12
=== === === === === ===
</TABLE>
The salary for Miss Maxwell includes benefits in kind valued at L8,000 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, include L20,000 from bonus allocation.
F-28
<PAGE> 88
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
6. DIRECTORS' EMOLUMENTS (CONTINUED)
Mr. Willis was appointed a director on 19 March 1997 and none of his
remuneration paid as an employee in the year is considered to be emoluments as a
Director.
<TABLE>
<CAPTION>
NUMBER OF DATE OF DATE OF EXERCISE
SHARE OPTIONS SHARES GRANT EXERCISE PRICE(P)
------------- --------- ------- -------- --------
<S> <C> <C> <C> <C>
William Fitch................................ 3,536,570 9/9/1993 10/9/1995 2
to 9/9/1998
CAP Investments Ltd.......................... 3,536,570 9/9/1993 10/9/1995 2
(a company controlled by Barry McFadzean) to 9/9/1998
Barbara-Ann Maxwell.......................... 3,536,570 9/9/1993 10/9/1996 2.25
to 9/9/2003
Graeme Willis (granted as an employee)....... 125,000 23/6/1995 26/4/98 2
to 23/6/2005
</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 3.0 pence per share and
the market price fluctuated from 2.25 pence per share to 3.25 pence per share
during the year.
A new bonus scheme was introduced with effect from 1 April 1996. The
remuneration committee initiated a bonus pool from which Crosshaven would
receive five parts and Miss 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 L300,000. In addition the
pool will receive L20,000 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% L20,000 will be
withdrawn from the bonus pool.
In respect of the Directors, no options were granted, exercised or lapsed
during the year nor were there any changes between the year end and 16 June
1997, except for the exercise by CAP Investments Limited of its option over
3,536,570 shares on 11 June 1997.
7. NET INTEREST
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Bank loans, overdrafts...................................... 587 480
Hire purchase interest...................................... 12 4
Other loan interest......................................... 163 162
---- ----
762 646
Interest receivable......................................... (469) (141)
---- ----
Net interest payable........................................ 293 505
==== ====
</TABLE>
F-29
<PAGE> 89
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
8. TAXATION ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
The tax charge is based on the profit for the year and
represents:
Corporation tax at 33% (1996 -- 33%)........................ 359 142
</TABLE>
The taxation charge for the year has been reduced by accelerated capital
allowances, loss relief and other timing differences.
9. PROFIT FOR THE FINANCIAL YEAR
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Dealt with in the accounts of the holding Company........... 499 1,066
Dealt with by subsidiary undertakings....................... 1,794 (101)
Dealt with by associated undertakings....................... -- 3
----- -----
2,293 968
===== =====
</TABLE>
10. DIVIDENDS
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Ordinary shares
Interim dividend of 0.024610p (1996: 0.021375p) per share
paid 12 February 1997..................................... 121 100
Proposed final dividend of 0.05663p (1996: 0.051482p) per
share..................................................... 359 253
--- ---
480 353
=== ===
</TABLE>
The proposed final dividend will be payable on the shares in issue on 4
July 1997.
11. EARNINGS PER ORDINARY SHARE
The calculation of the earnings per share is based on the profits after
taxation of L2,293,000 (1996 -- L968,000) and the weighted average of
501,068,052 ordinary shares (1996: -- 426,892,000 ordinary shares) in issue
during the year. The fully diluted earnings per share is not materially
different to the basic calculation.
F-30
<PAGE> 90
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
SHORT
FREEHOLD LAND LEASEHOLD PLANT FIXTURES
AND BUILDINGS INTERESTS AND FITTINGS MOTOR VEHICLES TOTAL
GROUP (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----- --------------- ----------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Cost or valuation
At 1 April 1996................... 11,969 624 1,164 123 13,880
Additions......................... 196 509 537 59 1,301
Acquisitions...................... 1,146 4,566 -- -- 5,712
Disposals......................... (12,125) -- (299) -- (12,424)
------- ----- ----- --- -------
Cost at 31 March 1997............... 1,186 5,699 1,402 182 8,469
------- ----- ----- --- -------
Depreciation
At 1 April 1996................... 119 13 299 33 464
Provided in year.................. 115 64 140 13 332
Disposals......................... (210) -- (112) -- (322)
------- ----- ----- --- -------
At 31 March 1997.................... 24 77 327 46 474
------- ----- ----- --- -------
Net book value at 31 March 1997..... 1,162 5,622 1,075 136 7,995
------- ----- ----- --- -------
Net book value at 31 March 1996..... 11,850 611 865 90 13,416
------- ----- ----- --- -------
</TABLE>
<TABLE>
<CAPTION>
PLANT FIXTURES
AND FITTINGS MOTOR VEHICLES TOTAL
COMPANY (pound)'000 (pound'000 (pound)'000
------- -------------- -------------- -----------
<S> <C> <C> <C>
Cost
At 1 April 1996........................................... 497 100 597
Additions................................................. 34 53 87
Disposals................................................. -- -- --
--- --- ---
At 31 March 1997............................................ 531 153 684
--- --- ---
Depreciation
At 1 April 1996........................................... 142 29 171
Provided in year.......................................... 28 9 37
--- --- ---
At 31 March 1997............................................ 170 38 208
--- --- ---
Net book value at 31 March 1997............................. 361 115 476
--- --- ---
Net book value at 31 March 1996............................. 355 71 426
--- --- ---
</TABLE>
Certain Group properties, including those revalued in 1994 and 1995, were
sold during the year under sale and leaseback arrangements. The profits realised
were as follows:
<TABLE>
<CAPTION>
TOTAL
(pound)'000
-----------
<S> <C>
Freehold properties held at revaluation, less
depreciation.............................................. 5,100
Freehold properties held at cost, less depreciation......... 6,815
------
11,915
Sale proceeds, net of expenses.............................. 13,540
------
Profit on sale -- see note 4................................ 1,625
======
</TABLE>
The revaluation of L480,000 has been released to profit and loss
account -- see note 22.
F-31
<PAGE> 91
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12. TANGIBLE FIXED ASSETS (CONTINUED)
The figures stated above include assets held under hire purchase contracts,
as follows:
<TABLE>
<CAPTION>
THE GROUP THE COMPANY
-------------------------- --------------------------
PLANT, FIXTURES MOTOR PLANT, FIXTURES MOTOR
AND FITTINGS VEHICLES AND FITTINGS VEHICLES
(pound)'000 (pound)'000 (pound)'000 (pound)'000
--------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Net book amount at 31 March 1997................... 160 69 112 57
--- -- --- --
Net book amount at 31 March 1996................... 125 29 125 12
--- -- --- --
Depreciation provided in the year.................. 15 13 13 8
=== == === ==
</TABLE>
13. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
COST COST
1996 ADDITIONS DISPOSALS 1997
(pound)'000 (pound)'000 (pound)'000 (pound)'000
GROUP ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Own shares held through Tamerise Limited.................... 104 (2) -- 102
Interest in associated undertakings......................... 8 749 (757) --
Other investment (unlisted)................................. -- 325 -- 325
--- ----- ---- ---
112 1,072 (757) 427
=== ===== ==== ===
</TABLE>
<TABLE>
<CAPTION>
COST COST
1996 ADDITIONS DISPOSALS 1997
(pound)'000 (pound)'000 (pound)'000 (pound)'000
COMPANY ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares in subsidiaries...................................... 2,815 1,433 -- 4,248
Shares in associates........................................ 5 749 (754) --
Other investment (unlisted)................................. -- 325 -- 325
Own shares held through Tamerise Limited.................... 104 (2) -- 102
----- ----- ---- -----
2,924 2,505 (754) 4,675
===== ===== ==== =====
</TABLE>
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>
YEAR ENDED (pound)
---------- ---------
<S> <C>
31 March 1991............................................... 1,500,000
31 March 1994............................................... 2,917,684
31 March 1996............................................... 883,536
---------
5,301,220
=========
</TABLE>
F-32
<PAGE> 92
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. FIXED ASSET INVESTMENTS (CONTINUED)
All acquisitions have been funded by non-interest bearing loans from
Tamaris plc. The total Tamerise holding of shares represents 0.93% of Tamaris'
current issued ordinary share capital. The market value of the shares held by
Tamerise at 31 March 1997 was L159,000, calculated at 3p per share. Options
granted to Group employees under Tamaris' Approved Share Option Scheme will be
satisfied by the transfer of shares held by Tamerise, pursuant to the employees'
trust. Details of the options granted to date are detailed in note 21(i).
The dividends payable to Tamerise were credited against the cost of
investment. Any costs involved in the administration of Tamerise are charged to
the general overheads of Tamaris.
INTERESTS IN ASSOCIATED UNDERTAKING
On 27 March 1997, Tamaris disposed of its 49.99% holding in Triasma Homes
Limited, a property company incorporated in England, at par value.
On 11 June 1996, Tamaris subscribed L449 for 49.9% of the shares in a newly
formed company, Continental Shelf 55 Limited, which on the same day acquired the
entire issued capital of Lodge Care PLC. Tamaris later increased its investment
in Continental Shelf 55 Limited to L748,500 to finalise the acquisition of Lodge
Care PLC. On 27 March 1997, Tamaris disposed of its 49.9% holding in Continental
Shelf 55 Limited at par value.
OTHER INVESTMENTS (UNLISTED)
Tamaris has advanced L325,000 for subscription to the ordinary share
capital of GIO Limited ("GIO"), a property investment company, registered in the
Isle of Man. The money has been utilised in placing a deposit on a property
portfolio but GIO has not yet commenced trading. GIO is seeking a NASDAQ
quotation at which time it is expected that the Company's interest will be less
than 10%. However the offer document has yet to be published.
F-33
<PAGE> 93
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
13. FIXED ASSET INVESTMENTS (CONTINUED)
INVESTMENT IN SUBSIDIARIES
The following were wholly owned subsidiary companies at 31 March 1997, 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. All were 100% owned by the Group.
<TABLE>
<CAPTION>
CLASS PRINCIPAL COUNTRY
NAME OF SUBSIDIARY OF SHARES OF OPERATION
------------------ --------- -----------------
<S> <C> <C>
NURSING HOME OPERATING COMPANIES
Belmont Nursing Home Limited, The................. Ordinary England
Bewick Waverley Limited........................... Ordinary England
Cedarhurst Lodge Limited.......................... Ordinary Northern Ireland
Chapelfield View Limited.......................... Ordinary England
Chestnut Lodge Limited............................ Ordinary Northern Ireland
Doulton Court Limited............................. Ordinary England
Duncare Limited*#................................. Ordinary and preference Scotland
Edgewater Lodge Limited........................... Ordinary Northern Ireland
Guthrie Court Limited............................. Ordinary Scotland
Keslaw Limited.................................... Ordinary England
Laudcare Limited.................................. Ordinary England
Leeland Limited................................... Ordinary England
Lisnisky Limited (formerly Tamaris (Ulster)
Limited)........................................ Ordinary Northern Ireland
Lodge Care Services Limited....................... Ordinary England
Lunan House Limited............................... Ordinary Scotland
Maldcare Limited.................................. Ordinary England
Osborne Limited................................... Ordinary Northern Ireland
Rosevale Lodge Limited............................ Ordinary Northern Ireland
Saintfield Limited................................ Ordinary Northern Ireland
Tamaris (England) Limited (formerly Ross Pear
Limited)........................................ Ordinary England
Tamaris (Scotland) Limited#....................... Ordinary and convertible Scotland
preference
Tamaris (South East) Limited...................... Ordinary England
Tamaris (Ulster) Limited+......................... Ordinary Northern Ireland
Torrcare Limited.................................. Ordinary England
Westview Lodge Limited............................ Ordinary England
INVESTMENT AND INTERMEDIATE HOLDING COMPANY
Lifecare International Plc........................ Ordinary and preference England
TRUSTEE FOR ESST
Tamerise Limited.................................. Ordinary England
</TABLE>
All companies were incorporated in England and Wales except where
indicated: # registered in Scotland, + registered in Northern Ireland
F-34
<PAGE> 94
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
14. DEBTORS
<TABLE>
<CAPTION>
1997 1996
----------------------- -------------------------
GROUP COMPANY GROUP COMPANY
(pound)'000 (pound)'000 (pound)'000 (pound)'000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Trade debtors.................................. 1,433 36 565 43
Other debtors.................................. 1,660 549 151 94
Amount owed by Group undertakings.............. -- 1,488 -- 1,537
Prepayments and accrued income................. 1,074 433 605 212
----- ----- ----- -----
4,167 2,506 1,321 1,886
===== ===== ===== =====
</TABLE>
Group and Company prepayments include costs of L279,000 (1996: L132,000)
incurred on anticipated future care home acquisitions.
15. DEBTORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
------------------------ --------------------------
GROUP COMPANY GROUP COMPANY
(pound)'000 (pound)'000 (pound)'000 (pound)'000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Other debtors.................................. 852 -- 1,979 1,600
</TABLE>
A loan of L1.6m was made to Triasma Homes Limited, an associated
undertaking, during the previous year. It was originally not expected to be
recovered within the next eight years. However, this loan was repaid on the sale
of the investment in Triasma Homes Limited.
The remaining debts relate to rent deposits which are not expected to be
recovered within a period of twenty years.
16. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
GROUP COMPANY GROUP COMPANY
(pound)'000 (pound)'000 (pound)'000 (pound)'000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Bank loans and overdrafts...................... 1,032 -- 1,442 --
Trade creditors................................ 443 100 204 59
Amount owed to Group undertakings.............. -- -- -- 56
Corporation tax................................ 679 202 230 73
Other taxes and social security costs.......... 217 14 170 --
Proposed dividends............................. 359 359 253 253
Hire purchase agreements....................... 49 43 28 28
Accruals and deferred income................... 2,136 449 667 188
----- ----- ----- ---
4,915 1,167 2,994 657
===== ===== ===== ===
</TABLE>
Details of the security provided for bank loans and overdrafts are given in
note 19.
Further details of the repayment periods of borrowings are given in note
18.
F-35
<PAGE> 95
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
17. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
------------------------- --------------------------
GROUP COMPANY GROUP COMPANY
(pound)'000 (pound)'000 (pound)'000 (pound)'000
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Hire purchase agreements.................................... 123 74 98 98
Bank loans.................................................. 954 -- 4,434 --
Unsecured loan notes........................................ 3,000 -- 3,000 --
Unsecured loan.............................................. 39 -- 39 --
----- -- ----- --
4,116 74 7,571 98
===== == ===== ==
</TABLE>
Details of the security provided for bank loans and overdrafts are given in
note 19.
Further details of the repayment periods of borrowings are given in note
18.
18. BORROWINGS
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
GROUP COMPANY GROUP COMPANY
(pound)'000 (pound)'000 (pound)'000 (pound)'000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Within one year
Hire purchase agreements.................................... 49 43 28 28
Bank loans and overdrafts................................... 1,032 -- 1,442 --
After one and within two years
Hire purchase agreements.................................... 49 44 31 31
Bank loans.................................................. 52 -- 239 --
After two years and within five years
Hire purchase agreements.................................... 74 30 67 67
Bank loans.................................................. 175 -- 756 --
Unsecured loan notes........................................ 3,000 -- 3,000 --
Unsecured loan.............................................. 39 -- 39 --
After five years
Bank loans.................................................. 727 -- 3,439 --
----- --- ----- ---
5,197 117 9,041 126
===== === ===== ===
</TABLE>
19. SECURED CREDITORS
A) LLOYDS BANK PLC
The loan secured by a first fixed and floating charge over the assets and
business of the subsidiary company, the Belmont Nursing Home Limited, was repaid
during the year.
B) MIDLAND BANK PLC
The loan secured by a fixed and floating charge over the assets and
business of Tamaris (South East) Limited was repaid during the year.
F-36
<PAGE> 96
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
19. SECURED CREDITORS (CONTINUED)
c) ULSTER BANK LIMITED
Ulster Bank Limited has, as security for overdraft facilities of L223,000
for Edgewater Lodge Limited and L156,000 for Rosevale Lodge Limited, limited
guarantees from Tamaris plc. The guarantees at the year end were L188,000 in
respect of Edgewater Lodge and L116,000 for Rosevale Lodge and were increased to
L223,000 and L156,000 respectively on 29 April 1997.
d) 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 L1,200,000. The period remaining for the repayment of the loan
is 15 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 L1,000,000
ii) Laudcare Limited has an overdraft facility of L250,000 from
Barclays Bank that is guaranteed by Tamaris plc. Barclays also has a
floating charge over Laudcare's undertakings, property and assets.
iii) Westview Lodge Limited has an overdraft facility of L120,000 from
Barclays Bank that is guaranteed by Tamaris plc. Barclays also has a
floating charge over Westview Lodge's undertakings, property and assets.
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
L3,080,000 made available to Tamaris (Scotland) Limited. A deposit of L2,830,000
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.
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 33% for the Group. There are no unprovided amounts
for the Company.
<TABLE>
<CAPTION>
GROUP
UNPROVIDED
--------------
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Accelerated capital allowances.............................. 60 153
Other timing differences.................................... -- 20
--- ----
60 173
Less: Trading losses........................................ (60) 173)
--- ----
-- --
=== ====
</TABLE>
No provision has been made for the taxation that arises on the chargeable
profits from the sale of the Group's properties 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 L1,300,000.
F-37
<PAGE> 97
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
21. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
ORDINARY SHARES OF 0.25P NUMBER (pound)'000
------------------------ ------ -----------
<S> <C> <C>
Authorised
At beginning of year................................... 640,000,000 1,600
Increase............................................... 160,000,000 400
----------- -----
At end of year........................................... 800,000,000 2,000
=========== =====
Allotted called up and fully paid
At beginning of year................................... 467,829,821 1,170
Allotment of new ordinary shares....................... 65,331,429 163
----------- -----
At end of year........................................... 533,161,250 1,333
=========== =====
</TABLE>
Allotments during the year:
Pursuant to shareholders' authority, given at the Annual General
Meeting of shareholders on 31 July, 1995, 23,600,000 new ordinary shares of
0.25p each were allotted by a Placing on 8 May 1996 at 2.0p per share. The
difference between the total consideration of L472,000 and the nominal
value of the allotted new shares of L59,000 was, after deduction of
expenses, credited to the share premium account.
Pursuant to shareholders' authority, given at the Extraordinary
General Meeting of shareholders on 3 October 1996, regarding the
acquisition of the investments of Speciality Care Plc, 28,571,429 new
ordinary shares of 0.25p each were allotted on 9 December 1996 at 3.5p per
share. The difference between the allotment value of the shares, totalling
L1,000,000 and their par value of L71,429 was transferred to merger
reserve.
Pursuant to shareholders' authority, given at the Annual General
Meeting of shareholders on 31 July 1996, 13,160,000 new ordinary shares of
0.25p each were allotted by a Placing on 7 January 1997 at 2.5p per share.
The difference between the total consideration of L329,000 and the nominal
value of the allotted new shares of L32,900 was, after deduction of
expenses, credited to the share premium account.
A total of 10,909,710 options over the company's 0.25p ordinary shares have
been granted, as follows:
(i) Under the Company's Approved 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>
DATE OF DATE OF EXERCISE
NUMBER OF OPTIONS GRANT EXERCISE PRICE (P)
----------------- ------- -------- ---------
<S> <C> <C> <C>
3,536,570................................ 9/9/1993 10/9/1996 to 2.25
9/9/2003
100,000.................................. 8/10/1993 9/10/1996 to 2
8/10/2003
200,000.................................. 23/6/1995 24/6/1998 to 2
23/6/2005
</TABLE>
(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.
F-38
<PAGE> 98
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
21. CALLED UP SHARE CAPITAL (CONTINUED)
During the year the Group acquired the Lodge Care Homes (see note 28) 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 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.
ALLOTMENTS SINCE THE YEAR END:
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 L945,000 and the nominal
value of the allotted new shares of L87,500 will, after deduction of
expenses, be 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 each. The
difference between the total consideration of L70,731 and the nominal value
of the allotted new shares of L8,841 will, after deduction of expenses, be
credited to the share premium account.
22. SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
SHARE PREMIUM REVALUATION OTHER MERGER PROFIT AND
ACCOUNT RESERVE RESERVE RESERVE LOSS ACCOUNT
GROUP (pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
----- ------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
At beginning of year...................... 3,910 480 848 -- 188
Arising on share allotments............... 709 -- -- 929 --
Share issue expenses...................... (37) -- -- (62) --
Goodwill written off...................... -- -- -- (1,000) --
Reserve movement.......................... -- (480) (133) 133 480
Profit for year........................... -- -- -- -- 1,813
----- ---- ---- ------ -----
At 31 March 1997.......................... 4,582 -- 715 -- 2,481
===== ==== ==== ====== =====
</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 L2,074,000 (1996: L1,074,000).
<TABLE>
<CAPTION>
SHARE PREMIUM MERGER PROFIT AND
ACCOUNT RESERVE LOSS ACCOUNT
COMPANY (pound)'000 (pound)'000 (pound)'000
------- ------------- ----------- ------------
<S> <C> <C> <C>
At beginning of year.......................... 3,910 875 181
Arising on share allotments................... 709 929 --
Share issue expenses.......................... (37) (62) --
Profit for year............................... -- -- 19
----- ----- ---
At 31 March 1997.............................. 4,582 1,742 200
===== ===== ===
</TABLE>
F-39
<PAGE> 99
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
23. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997 1996
GROUP GROUP
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Retained profit for the financial year...................... 1,813 615
New ordinary share capital subscribed....................... 1,801 3,200
Costs of issue.............................................. (99) (453)
Goodwill written off........................................ (1,000) (1,044)
------ ------
2,515 2,318
Opening shareholders' funds................................. 6,596 4,278
------ ------
Closing shareholders' funds................................. 9,111 6,596
====== ======
</TABLE>
24. COMMITMENTS UNDER OPERATING LEASES
The Company and Group have commitments under operating leases in respect of
land and buildings for payments of L6,461,000 (1996: L1,680,000) in the year to
31 March 1998. The leases to which these amounts relate all expire after more
than five years.
25. NET CASH INFLOW FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
---------- -----------
<S> <C> <C>
Operating profit............................................ 1,323 1,317
Depreciation charges........................................ 332 207
Increase in debtors......................................... (1,533) (697)
Increase in creditors....................................... 1,648 98
------ -----
Net cash inflow from operating activities................... 1,770 925
====== =====
</TABLE>
26. RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
1997 1996
(pound)'000 (pound)'000
----------- -----------
<S> <C> <C>
Increase/(decrease) in cash in the year..................... 1,948 (1,084)
Cash outflow/(inflow) from financing........................ 3,537 (97)
------ ------
Change in net debt resulting from cash flows................ 5,485 (1,181)
Inception of hire purchase agreements....................... (103) (119)
Loan notes/unsecured loan issued for non cash
consideration............................................. -- (3,039)
------ ------
Movement in net debt in the year............................ 5,382 (4,339)
Net debt at 1 April 1996.................................... (8,708) (4,369)
------ ------
Net debt at 31 March 1997................................... (3,326) (8,708)
====== ======
</TABLE>
F-40
<PAGE> 100
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
27. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT 1 APRIL NON-CASH AT 31 MARCH
1996 CASH FLOW ITEMS 1997
(pound)'000 (pound)'000 (pound)'000 (pound)'000
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Cash at bank and in hand............. 333 1,538 -- 1,871
Bank overdrafts and short term
loans.............................. (1,442) 410 -- (1,032)
------ ----- ---- ------
(1,109) 1,948 -- 839
Bank loans........................... (4,434) 3,480 -- (954)
Hire purchase agreements............. (126) 57 (103) (172)
Loan notes........................... (3,000) -- -- (3,000)
Other loans.......................... (39) -- -- (39)
------ ----- ---- ------
(8,708) 5,485 (103) (3,326)
====== ===== ==== ======
</TABLE>
28. ACQUISITIONS
During the year the group acquired a number of care homes and, with one
exception, entered into simultaneous sale and leaseback arrangements. Details of
the capitalised values of each transaction are given below. In each case the
businesses concerned formed part of businesses where only certain assets were
acquired. In these circumstances, it is not practical to provide details of
profits or losses for these businesses for financial periods before acquisition.
Details of the contribution to and utilisation of Group cash flow is given at
note 29.
LODGE CARE HOMES
On 11 June 1996, Tamaris subscribed L499 for 49.9% of the shares in a newly
formed company, Continental Shelf 55 Limited ("CS55"). On the same day CS55
acquired the entire issued share capital of Lodge Care PLC, a company owning and
operating six care homes, 257 beds, registered for the care of the frail
elderly.
The freehold properties, related fixed assets and business of the Lodge
Care PLC homes were then purchased by three newly incorporated wholly owned
Tamaris subsidiaries Doulton Court Limited, Keslaw Limited and Leeland Limited
with the freeholds being simultaneously sold to and leased back from Principal
Healthcare Finance Limited ("Principal") on 30 year operating leases.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR VALUE
(pound)'000
--------------
<S> <C>
Freehold land and buildings................................. 5,847
Fixtures and fittings within the homes...................... 611
------
6,458
Sale proceeds............................................... (5,500)
------
958
Costs of acquisition........................................ 178
------
Net assets acquired -- Short leasehold interest............. 1,136
======
Satisfied by:
Cash........................................................ 1,136
======
</TABLE>
F-41
<PAGE> 101
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
28. ACQUISITIONS (CONTINUED)
PARKLANDS CARE HOMES
In June 1996, two newly incorporated wholly owned Tamaris subsidiaries,
Bewick Waverley Limited and Chapelfield View Limited acquired the freehold land
and buildings, related fixed assets and business of four homes, 170 beds, from
Parklands Care Homes Limited for an aggregate consideration of L5,000,000. The
homes were simultaneously sold to Principal for L4.5m and leased back on 30 year
operating leases.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR VALUE
(pound)'000
--------------
<S> <C>
Purchase consideration...................................... 5,000
Sale proceeds............................................... (4,500)
------
500
Costs of acquisition........................................ 606
------
Net assets acquired -- Short leasehold interest............. 1,106
======
Satisfied by:
Cash........................................................ 1,036
Amounts due at year end..................................... 70
------
1,106
======
</TABLE>
SPECIALITY CARE HOMES
With effect from 12 September 1996, Tamaris subscribed L500,000 and
Speciality Care L1,000,000 for respective 33.3% and 66.7% holdings in three
newly formed companies, Laudcare Limited, Maldcare Limited and Torrcare Limited.
The subscription monies of L1,500,000 were used to purchase the business and
assets (other than leasehold property) of six leased care homes from Speciality
Care Limited subsidiaries, as follows:
<TABLE>
<CAPTION>
ORDINARY
SHARES OF
(pound)1 EACH BUSINESS AND ASSETS CONSIDERATION
SUBSCRIBED OF CARE HOME ACQUIRED (pound)'000
---------- --------------------- -------------
<S> <C> <C> <C>
Laudcare Limited................. 1,063 Blackwell Vale................... 319
Millbrow......................... 224
Stanton Lodge.................... 291
Willoughby Grange................ 229
----- -----
1,063 1,063
Maldcare Limited................. 157 Stanton Grove.................... 157
Torrcare Limited................. 280 Lakeside Gardens................. 280
----- -----
1,500 1,500
===== =====
</TABLE>
The operating leases on these six care homes were then assigned to
Laudcare, Maldcare and Torrcare. Immediately thereafter, Tamaris acquired the
Speciality Care holding in the above companies for L1,000,000, satisfied by the
issue of 28,571,429 new ordinary shares at a deemed price of 3.5p.
The purchase of Laudcare Limited, Maldcare Limited and Torrcare Limited has
been dealt with by the acquisition method of accounting. Advantage has been
taken of Section 131 of the Companies Act in respect of the premium on the issue
of shares to finance the acquisition.
F-42
<PAGE> 102
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
28. ACQUISITIONS (CONTINUED)
The assets and liabilities of Laudcare Limited, Maldcare Limited and
Torrcare Limited were as follows:
<TABLE>
<CAPTION>
BOOK VALUE
AND FAIR VALUE
(pound)'000
--------------
<S> <C>
Short leasehold interests................................... 500
Costs of acquisition........................................ 554
-----
1,054
Purchased goodwill.......................................... 1,000
-----
2,054
-----
Satisfied by:
Cash........................................................ 1,054
Shares...................................................... 1,000
-----
2,054
=====
</TABLE>
The goodwill of L1,000,000 has been written off against merger reserve and
the remaining costs and short leasehold interest have been capitalised at
L1,054,000.
Under the terms of the acquisition agreement, Tamaris may be liable to pay
up to a further L220,000 satisfied by the issue to Speciality Care Limited of up
to 6,285,174 new ordinary shares at a deemed issue price of 3.5p, dependent on
the amount of post tax profits of the above homes in the period 1 April 1997 to
31 March 1998. However, the Directors are strongly of the opinion that no
further consideration will be payable based on the current trading position of
those homes.
GUTHRIE COURT NURSING HOME
With effect from 17 September 1996, Continental Shelf 64 Limited, ("CS64"),
a wholly owned Tamaris subsidiary, acquired the business and assets of Guthrie
Court Nursing Home for L4,000,000. The home was subsequently sold to and leased
back from Principal for L3,800,000 on a 30 year operating lease. CS64 changed
its name to Guthrie Court Limited on 19 September 1996.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE AND
FAIR VALUE
(pound)'000
--------------
<S> <C>
Purchase consideration...................................... 4,000
Sale proceeds............................................... (3,800)
------
200
Costs of acquisition........................................ 140
------
Net assets acquired -- Short leasehold interest............. 340
======
Satisfied by:
Cash...................................................... 340
======
</TABLE>
F-43
<PAGE> 103
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
28. ACQUISITIONS (CONTINUED)
LUNAN HOUSE NURSING HOME
On 27 November 1996, Lunan House Limited, a wholly owned Tamaris
subsidiary, acquired the freehold property, related fixed assets and business of
Lunan House Nursing Home for L1,146,000 financed by a loan facility of up to
L1,280,000 from Barclays Bank Plc.
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE AND
FAIR VALUE
(pound)'000
--------------
<S> <C>
Tangible fixed assets....................................... 1,146
=====
Satisfied by:
Cash...................................................... 1,146
=====
</TABLE>
PEAR TREE HOUSE RESIDENTIAL CARE HOME
ROSS WYLD LODGE NURSING HOME
With effect from 21 March 1997, Ross Pear Limited, a wholly owned
subsidiary of Tamaris, agreed to purchase the freehold properties, related fixed
assets and business of Pear Tree House Residential Care Home (55 beds) and Ross
Wyld Lodge Nursing Home (57 beds) for L2,400,000 and L3,500,000 respectively.
The homes were simultaneously sold to and leased back from IHP Limited on 21
year operating leases.
<TABLE>
<CAPTION>
BOOK VALUE AND
FAIR VALUE
(pound)'000
--------------
<S> <C>
Purchase consideration...................................... 5,900
Sale proceeds............................................... (5,900)
------
0
Costs of acquisition........................................ 67
------
Net assets acquired -- Short leasehold interest............. 67
======
Satisfied by:
Cash...................................................... 67
======
</TABLE>
TRIASMA HOMES
With effect from 27 March 1997, three wholly owned Tamaris subsidiaries,
Edgewater Lodge Limited, Rosevale Lodge Limited and Westview Lodge Limited
acquired the freehold interests in the properties from which they trade, from
Triasma Homes Limited, a property company in which Tamaris held 49.99% of the
ordinary share capital.
The freehold properties were simultaneously sold to and leased back from
Nursing Home Properties Plc for L6,581,000 on 25 year operating leases. The sale
price for Rosevale Lodge and Westview Lodge includes deferred consideration of
L264,000 and L130,000 respectively, dependent on those homes achieving occupancy
rates in excess of 90% for three consecutive months.
F-44
<PAGE> 104
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
28. ACQUISITIONS (CONTINUED)
The assets acquired were as follows:
<TABLE>
<CAPTION>
BOOK VALUE AND
FAIR VALUE
(pound)'000
--------------
<S> <C>
Purchase consideration...................................... 7,227
Sale proceeds (including deferred consideration)............ (6,581)
------
646
Costs of acquisition........................................ 217
------
Net assets acquired -- Short leasehold interest............. 863
======
Satisfied by:
Cash...................................................... 863
======
</TABLE>
]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>
(pound)'000
-----------
<S> <C>
Net cash inflow from operating activities................... 494
Returns on investment and servicing of finance.............. (42)
Capital expenditure and financial investment................ (214)
----
238
====
</TABLE>
Operating activities excludes central overhead.
As all businesses were acquired by newly formed companies there were no
cash or bank balances or borrowings taken over. The total cash consideration of
L5,642,000 was the only outflow in respect of the purchase of these businesses.
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
L394,000 (1996: Lnil).
F-45
<PAGE> 105
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
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.
33. RELATED PARTY TRANSACTIONS
There were no transactions with Directors or related companies during the
year other than as disclosed as Directors Emoluments in note 6.
34. POST BALANCE SHEET EVENTS
As of 17 May 1997 the Company entered into an agreement with Principal
Healthcare Finance Limited (Principal) to take a 50% interest in a joint venture
company formed to facilitate the acquisition of certain assets and leasing of
care homes of Quality Care Homes plc. Following completion of the acquisition of
Quality Care Homes plc on 30 June 1997, the Company assumed responsibility
through a management agreement executed by a subsidiary for the operation of the
care homes. Subsequently, the Company acquired Principal's interest in the joint
venture company, and simultaneously the latter was granted operating leases of
care homes and acquired the assets of associated businesses previously owned and
operated by Quality Care Homes plc.
On 30 April 1997 the Company entered into a conditional agreement to
acquire the business and assets of Bearehill Nursing & Residential Home,
comprising 60 beds, in Brechin for a consideration of L1,625,000 to be satisfied
by way of a vendor placing of 65,000,000 ordinary shares at 2.5p per share.
35. POST BALANCE SHEET EVENTS (UNAUDITED)
On 25 July 1997 the Company entered into a conditional agreement to acquire
the entire issued share capital of Caledonian Care Limited, an operator of two
care homes in Scotland comprising 114 beds, for a consideration of L1,200,000 to
be satisfied by the allotment of 43,636,364 Ordinary Shares at 2.75p per share.
On 15 August 1997 the Company subscribed for a 34 per cent. interest in The
Nunnery Limited, an Isle of Man Company, which owns the freehold and leasehold
interests of a property called The Nunnery, located in Douglas, Isle of Man, for
a cash consideration of L855,000. On 27 October 1997 the Company disposed of 182
ordinary shares of The Nunnery Limited (which represented 10 per cent. of the
issued share capital) for a cash consideration of L250,000.
On 12 September 1997 Shareholder approval was given for the acquisition of
a commercial property portfolio from Colegate Management Limited for L8,923,000,
satisfied as to L6,375,000 in cash and L2,548,000 by the issue of 92,654,545
Ordinary Shares at 2.75p per share on 24 September 1997.
On 29 October 1997 The Company entered into a conditional subscription
agreement with Roseview International Limited, a Singapore based company,
pursuant to which Roseview agreed to subscribe for 114,545,455 Ordinary Shares
at 2.75p per share. This agreement became unconditional on 14 January 1998.
On 13 December 1997 the Company and two wholly owned subsidiaries entered
into conditional agreements with Westminster Health Care Limited for the
acquisition and sale and leaseback of 12 care home businesses. The consideration
for the seven homes in England to be satisfied by the issue and allotment to
Westminster of either 4,000,000 Preference Shares at par and 18,181,818 Ordinary
Shares at 2.75p per share or 4,500,000 Preference Shares, and by the payment at
completion of L6.5 million in cash. The consideration for the five homes in
Northern Ireland to be satisfied by a payment at completion of L9.05 million in
cash. The
F-46
<PAGE> 106
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
cash consideration in both cases to be financed by sale and subsequent leaseback
of the properties. These agreements were completed on 23 January 1998.
The following share issues were made in the period 1 April 1997 to 30
September 1997.
i) 35,000,000 Ordinary Shares of 0.25p each on 19 May 1997 at 2.7p per
share.
ii) 3,536,570 Ordinary Shares of 0.25p each on 11 June 1997 at 2p per
share.
iii) 65,000,000 Ordinary Shares of 0.25p each on 18 June 1997 at 2.5p
each, for the acquisition of Bearehill referred to above.
iv) 43,636,364 Ordinary Shares of 0.25p each on 25 July 1997 at 2.75p
each, for the acquisition of Caledonian Care Limited as referred to above.
v) 92,654,545 Ordinary Shares of 0.25p each on 24 September 1997 at
2.75p each in part consideration for the acquisition of the Colegate
property portfolio as referred to above.
All of these issues of shares are reflected, after deduction of issue
expenses, in the unaudited interim financial statements.
36. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
<TABLE>
<CAPTION>
YEAR ENDED 31
MARCH
----------------------- SIX MONTHS TO
1997 1996 30 SEPTEMBER 1997
(pound)'000 (pound)'000 (pound)'000
----------- ----------- -----------------
AUDITED UNAUDITED
<S> <C> <C> <C>
Net profit before dividends per UK GAAP..................... 2,293 968 647
Capitalised short leasehold interests(1).................... (5,011) (296) (902)
Amortisation of goodwill(2)................................. (104) (54) (58)
Revalued assets(3).......................................... 480 10 --
Deferred taxation(4)........................................ (725) (575) --
------ ----- ------
Net profit (loss) per US GAAP............................... (3,067) 53 (313)
====== ===== ======
Closing shareholders' equity per UK GAAP.................... 9,111 6,596 14,441
Capitalised short leasehold interests(1).................... (5,622) (611) (6,524)
Capitalisation and amortisation of goodwill(2).............. 1,915 1,019 2,564
Revalued assets(3).......................................... -- (480) --
Deferred taxation(4)........................................ (1,300) (575) (1,300)
------ ----- ------
Closing shareholders' equity per US GAAP.................... 4,104 5,949 9,181
====== ===== ======
Changes in shareholders' equity on a US GAAP basis:
Shareholders' equity at beginning of period................. 5,949 3,502 4,104
Net profit (loss)........................................... (3,067) 53 (313)
Dividends................................................... (480) (353) (211)
New ordinary shares issued (net of issue costs)............. 1,702 2,747 5,601
------ ----- ------
Shareholders' equity at the end of period................... 4,104 5,949 9,181
====== ===== ======
</TABLE>
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
F-47
<PAGE> 107
TAMARIS PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
36. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
(CONTINUED)
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, the Companies Act permits the inclusion of certain
assets at a revaluation or on a current cost basis. Under US GAAP, fixed
assets are stated at historical cost.
(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 and 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 finance 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. For US GAAP purposes, the company adopted SFAS 121, "Accounting for
the Long-Lived Assets and for Long-Lived Assets to be Disposed of", as of 1
April 1996. The effect of adoption of SFAS 121 was not material.
3. For US GAAP purposes, disclosures required under SFAS 123,
"Accounting for Stock-Based Compensation" have not been determined. The
option schemes are not compensatory under SFAS 123.
4. In June 1997 the Financial Accounting Standards Board issued SFAS
130 "Reporting Comprehensive Income", SFAS 130 is effective for fiscal
years beginning after December 15, 1997. The company has considered the
effects of this statement and does not believe to have any comprehensive
income as defined by this statement.
5. In May 1997 the Financial Accounting Standards Board issued SFAS
131 "Disclosure about Segments of an Enterprise and Related Information" is
effective for fiscal years beginning after December 15, 1997. The company
believes that the effect of adoption of SFAS 131 will not be material.
6. During the unaudited six months ended 30 September 1997 a total of
239,827,479 Ordinary Shares of 0.25p each were issued at between 2p and
2.75p per share for a gross amount of L6,389,000. The aggregate issue costs
were L788,000.
F-48
<PAGE> 108
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY DISTRIBUTION MADE PURSUANT HERETO SHALL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS OR IN AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Summary............................... 3
Risk Factors.......................... 15
The Company........................... 20
The Rights Offering................... 20
The Distribution...................... 25
Use of Proceeds....................... 29
Capitalization........................ 30
Dividend Policy....................... 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Business.............................. 33
Taxation of the Company and its
Shareholders........................ 37
Plan of Distribution.................. 40
Management............................ 41
Principal and Selling Shareholders.... 47
Certain Transactions.................. 48
Description of Omega Worldwide
Stock............................... 48
Certain Antitakeover Provisions....... 51
Experts............................... 58
Legal Matters......................... 58
Index to Financial Statements......... F-1
</TABLE>
------------------------
UNTIL APRIL 27, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK DISTRIBUTED PURSUANT HERETO, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
OMEGA WORLDWIDE, INC.
10,250,000 SHARES OF COMMON STOCK
2,250,000 RIGHTS TO PURCHASE
SHARES OF COMMON STOCK
------------------
PROSPECTUS
------------------
======================================================
<PAGE> 109
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the Omega Worldwide Common
Stock and Rights registered hereby, all of which expenses, except for the SEC
registration fee, are estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ------
<S> <C>
SEC Registration Fee..................................... $ 13,386
Listing Fee.............................................. $ 75,000
Transfer Agent's and Related Fee......................... $ 25,000
Printing and Engraving Fees.............................. $ 75,000
Legal Fees and Expenses.................................. $ 250,000
Accounting Fees and Expenses............................. $ 200,000
Miscellaneous............................................ $ 111,614
---------
Total.................................................. $ 750,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its Charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by Maryland law.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise from and against any
claim or liability to which such person may become subject or which such person
may incur by reason of his status as a present or former director or officer of
the Company. The Bylaws of the Company obligate it, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer who is made a party to the proceeding by reason of
his service in that capacity or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or
II-1
<PAGE> 110
(c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse judgment
in a suit by or in the right of the corporation or for a judgment of liability
on the basis that personal benefit was improperly received, unless in either
case a court orders indemnification and then only for expenses. In addition, the
MGCL permits a corporation to advance reasonable expenses to a director or
officer upon the corporation's receipt of (a) a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification by the corporation and (b) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
the corporation if it shall ultimately be determined that the standard of
conduct was not met.
The Charter also specifically authorizes the Company, or a subsidiary or an
affiliate of the Company, to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company, or
who, while a director, officer, employee or agent of the Company, is or was
serving at the request of the Company as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, real estate
investment trust, partnership, joint venture, trust, other enterprise or
employee benefit plan against any liability asserted against and incurred by
such person in any such capacity or arising out of such person's position,
whether or not the Company would have the power to indemnify against such
liability under the provisions of Section 2-418 of the MGCL.
The Charter provides that no future amendment to the Charter shall affect
any right of any person under these provisions based on any event, omission or
proceeding prior to such amendment.
The Company has entered into indemnification agreements with each of its
officers and directors. The indemnification agreements require, among other
things, that the Company indemnify its officers and directors to the fullest
extent permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that the
indemnification is not permitted. The Company also must indemnify and advance
expenses incurred by officers and directors seeking to enforce their rights
under the indemnification agreements and cover officers and directors under the
Company's directors' and officers' liability insurance. Although the
indemnification agreements offer substantially the same scope of coverage
afforded by provisions in the Charter and Bylaws, they provide greater assurance
to directors and executive officers that indemnification will be available,
because, as contracts, they cannot be modified unilaterally in the future by the
Board of Directors or by the stockholders to alter, limit or eliminate the
rights they provide.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the formation of the Company, Omega Healthcare
Investors, Inc., a Maryland corporation ("Omega"), became the Company's sole
stockholder by acquiring 1,000 shares (100%) of its outstanding common stock for
$1,000. This issuance and sale of common stock is claimed to be exempt from the
registration provisions of the Securities Act of 1933 pursuant to Section 4(2)
of the Act.
II-2
<PAGE> 111
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1* -- Form of Articles of Amendment and Restatement
3.2* -- Form of Amended and Restated Bylaws
3.3* -- Form of Articles Supplementary for the Series B Preferred
Stock
3.4* -- Form of Articles Supplementary for the Series A Preferred
Stock (included as part of Exhibit 10.6)
4.1* -- Specimen stock certificate
5* -- Opinion of Mayer, Brown & Platt as to the legality of the
Common Stock and Rights being registered
8* -- Tax Opinion of Mayer, Brown & Platt
10.1* -- Form of Stock Option and Restricted Stock Plan
10.2* -- Form of Opportunity Agreement, dated as of April 1, 1998,
between Omega and the Company
10.3* -- Form of Services Agreement, dated as of April 1, 1998,
between Omega and the Company
10.4* -- Form of Contribution Agreement, dated as of April 1, 1998
between Omega and the Company
10.5* -- Amended and Restated Advisory Agreement, dated as of July
21, 1995, between the Company (successor by assignment to
Omega) and Principal
10.6* -- Form of Rights Agreement, dated as of April 1, 1998, between
the Company and Chicago Trust Company of New York
10.7* -- Form of Indemnification Agreements
10.8* -- Form of Rights Investors Agreement, dated as of April 1,
1998, between the Company and the Rights Investors
21* -- List of Subsidiaries
23.1 -- Consent of Ernst & Young
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Grant Thornton
23.4 -- Consent of Mayer, Brown & Platt (included as part of Exhibit
5 and Exhibit 8)
99.1* -- Form of Rights Certificate
99.2* -- Form of Notice of Guaranteed Delivery
</TABLE>
- -------------------------
* Previously filed
(b) Financial Statement Schedules.
Not applicable.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
a. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
b. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no
II-3
<PAGE> 112
more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
c. To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ann Arbor, State of
Michigan, on April 2, 1998.
OMEGA WORLDWIDE, INC.
(Registrant)
By: /s/ ESSEL W. BAILEY
------------------------------------
Essel W. Bailey, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ESSEL W. BAILEY President, Chief Executive Officer
- ------------------------------------------------ and Director April 2, 1998
Essel W. Bailey, Jr.
/s/ DAVID A. STOVER Vice President and Chief Financial
- ------------------------------------------------ Officer (Principal Financial and
David A. Stover Accounting Officer) April 2, 1998
/s/ JAMES P. FLAHERTY Chief Operating Officer April 2, 1998
- ------------------------------------------------
James P. Flaherty
</TABLE>
II-5
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1* -- Form of Articles of Amendment and Restatement
3.2* -- Form of Amended and Restated Bylaws
3.3* -- Form of Articles Supplementary for the Series B Preferred
Stock
3.4* -- Form of Articles Supplementary for the Series A Preferred
Stock (included as part of Exhibit 10.6)
4.1* -- Specimen stock certificate
5* -- Opinion of Mayer, Brown & Platt as to the legality of the
Common Stock and Rights being registered
8* -- Tax Opinion of Mayer, Brown & Platt
10.1* -- Form of Stock Option and Restricted Stock Plan
10.2* -- Form of Opportunity Agreement, dated as of April 1, 1998,
between Omega and the Company
10.3* -- Form of Services Agreement, dated as of April 1, 1998,
between Omega and the Company
10.4* -- Form of Contribution Agreement, dated as of April 1, 1998
between Omega and the Company
10.5* -- Amended and Restated Advisory Agreement, dated as of July
21, 1995, between the Company (successor by assignment to
Omega) and Principal
10.6* -- Form of Rights Agreement, dated as of April 1, 1998, between
the Company and Chicago Trust Company of New York
10.7* -- Form of Indemnification Agreements
10.8* -- Form of Rights Investors Agreement, dated as of April 1,
1998, between the Company and the Rights Investors
21* -- List of Subsidiaries
23.1 -- Consent of Ernst & Young
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of Grant Thornton
23.4 -- Consent of Mayer, Brown & Platt (included as part of Exhibit
5 and Exhibit 8)
99.1* -- Form of Rights Certificate
99.2* -- Form of Notice of Guaranteed Delivery
</TABLE>
- -------------------------
* Previously filed
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 2, 1997 (except Note 10, as to which the
date is January 15, 1998) with respect to the financial statements of Principal
Healthcare Finance Limited in the Registration Statement (Amendment No. 7 to
Form S-1) dated April 2, 1998.
/s/ Ernst & Young
Jersey, Channel Islands
April 2, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated December 18, 1997 with respect to the financial
statements of Omega Worldwide, Inc., in the Registration Statement (Amendment
No. 7 to Form S-1) dated April 2, 1998.
/s/ Ernst & Young LLP
Detroit, Michigan
April 2, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We have issued our report dated June 16, 1997 (except for Note 36 as to which
the date is March 3, 1998) accompanying the financial statements of Tamaris
PLC as of and for the two years ended March 31, 1997. We consent to the
inclusion of the aforementioned report in this Registration Statement of Omega
Worldwide, Inc. on Form S-1 and to the use of our name as it appears under the
caption "Experts".
/s/ GRANT THORNTON
London, United Kingdom
March 25, 1998
