UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended September 30, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 000-23953
OMEGA WORLDWIDE, INC.
(Exact name of Registrant as specified in its charter)
Maryland 38-3382537
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
900 Victors Way, Suite 345 48108
Ann Arbor, Michigan (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 734-887-0300
Securities Registered Pursuant to Section 12 (b) of the Act:
Common Stock, $.10 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of the voting stock of the registrant held
by non-affiliates was $43,273,082 based on the $4.125 closing price per share
for such stock on the NASDAQ National Market on December 15, 1999.
As of December 15, 1999, there were 12,266,000 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders which will be filed with the Commission on or about January 10,
2000, are incorporated herein by reference as indicated herein.
<PAGE>
PART I
Item 1 -- Business of the Company
The business of the Company is to provide asset management services and
management advisory services, as well as equity and debt capital, to the
healthcare industry, particularly residential healthcare services to the
elderly. The Company has established financing activities in the United Kingdom
and the Commonwealth of Australia. Subsequent to September 30 the Company
acquired leasehold rights and other assets incidental to 119 nursing homes in
the United Kingdom.
The Company often provides seed equity and debt capital to enable the
establishment of operating or financing firms, identifying high quality
management personnel and providing financial support to such companies. The
intent of the Company is to invest in less than majority equity positions in
such firms, to provide continuing support while such firms are not public, and
to secure local capital as the major source of the growth capital for expansion
and development of such firms. The result is to enable such firms to access
capital markets in the locales in which services are provided.
It is the intent of the Company to develop a significant international
presence in healthcare services to the elderly, both in finance and operations,
and to undertake within the United States, operating or real estate activities
of a sort not possible for a healthcare Real Estate Investment Trust ("REIT").
The Company was established by and shares certain management personnel with
Omega Healthcare Investors, Inc. ("Omega"), a publicly traded REIT, which owns
and finances healthcare operating facilities in the United States.
The Company was established in November 1997 and began initial
operation as a separate entity on April 2, 1998, when Omega distributed shares
of the Company's common stock to Omega's existing shareholders. At the same
time, the Company undertook a primary offering and Omega undertook a secondary
offering of shares of the Company's common stock. Omega distributed 5.2 million
shares, sold 2.8 million shares (of which 500,000 shares were sold for the
account of the Company) and retained approximately 9.9% of the common shares
then outstanding, together with 260,000 preferred shares, in exchange for the
contribution to the Company of the following assets:
(a) 33.375% of the ordinary shares in Principal Healthcare Finance
Limited ("Principal-UK"), a Jersey corporation which is engaged
in investing in long-term care facilities in the United Kingdom;
(b) Warrants to purchase 10,556,250 shares of Principal-UK;
(c) A subordinated debt note of Principal-UK in the amount of (pound)
15 million; and
(d) Miscellaneous other net assets stated at a net carrying amount of
$150,000.
Principal-UK is, as of the date of this report, the owner of 207
long-term care facilities, primarily purpose-built nursing homes, subject to
long-term, triple-net leases to 13 operating companies in the UK. Principal-UK's
revenues for the year ending August 31, 1999 totaled $61.8 million, assets
totaled $570 million and net earnings totaled $3.9 million. Principal-UK has
employed fixed-rate financing in which it attempts to match the term of assets
and liabilities. Its rental agreements provide annual increases in rentals in
30-year terms, generally in accordance with the British consumer price index.
Principal has financed its activities through the issuance of long-term,
fixed-rate securitized debt. Its initial securitization was issued in December
1997 in the amount of (pound)150 million, repayable in the years 2025 and 2027.
In March 1999 a second securitization was issued in the amount of (pound)122
million, repayable in the years 2027 and 2029. Pursuant to the contract expiring
on December 31, 2002, the Company provides management services to Principal-UK
for a fee equal to 0.9% of assets managed. In November 1999, Principal-UK
declined to extend the contract for an additional year as provided in its self
extending clause. Both securitizations have maturities that are consistent with
the term of the leases with respect to the facilities financed.
In June 1998, the Company acquired 100% of the units of Assisted Living
Unit Trust from FAI Insurances Limited, a life and health insurer in Australia,
and its subsidiary, Premier Care Australia (Holdings) Pty Limited, and changed
the name of the trust to Principal Healthcare Finance Trust
("Principal-Australia"). Principal-Australia is an Australian Unit Trust which
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owned, as of the date of acquisition by the Company, ten long-term nursing homes
and 480 assisted living units in New South Wales. Initial long-term financing of
A$127.9 million was completed in October 1999. The amount is repayable in
quarterly installments through 2027.
Principal-Australia net leased its assets to an affiliate of Moran
Health Care Group Pty Limited ("Moran"), the largest operator of long-term care
and assisted living facilities in Australia, for an initial term of 30 years. On
November 12, 1998, Principal-Australia completed the first phase of a three-part
purchase and leaseback transaction, also with Moran, which encompassed 30
long-term care facilities in Victoria, New South Wales and Western Australia. In
phase one of the transaction, an affiliate of Moran sold 25 homes to
Principal-Australia for A$80 million and immediately leased them back for an
initial 30-year term. Simultaneously, phase two of the agreement called for
Principal-Australia to acquire, upon completion and rent-up to stabilized
occupancy, five additional Victoria facilities from an affiliate of Moran for an
aggregate purchase price of A$10.5 million. Phase two was completed in March
1999. Phase three involves the advance by Principal-Australia of an additional
A$25 million to enable refurbishing and renovation of such of the initial
facilities as is necessary over a five-year period. The advance of funds in
excess of A$90 million is subject to the tenant achieving special performance
standards and operating profitability (rent coverage) over the period of the
commitment, which expires in October 2003. The Company provides management
services to Principal-Australia for a fee equal to 0.9% of assets managed. The
agreement extends through December 31, 2007.
The Company acquired, in connection with its initial establishment, an
interest in Essex Healthcare Corporation ("Essex") and an affiliate, Atrium
Living Centers, Inc. In August 1998, the Company invested an additional
$500,000, increasing its equity interest in Essex to 47%. Essex is an operator
of 13 long-term care facilities containing 1,400 beds in Ohio, which are leased
from independent third parties, and manages 33 facilities (approximately 1,800
beds) in Indiana, Michigan, Illinois and Texas.
In August 1998, the Company acquired from a subsidiary of Principal-UK
for (pound)640,000 a 19.9% interest in Moran Healthcare (UK) Limited ("Moran
UK"), the sole shareholder of Baneberry Healthcare ("Baneberry"), a UK operating
company engaged in the business of providing healthcare services in Northern
Ireland and England. Baneberry was previously financed by Principal-UK. Moran
(UK) is an affiliate of Moran, the operator of the long-term care facilities in
Australia that are owned by Principal-Australia.
Subsequent to year end, in October 1999, the Company, through a wholly
owned subsidiary, Idun Healthcare Ltd., acquired the operating subsidiaries of
Tamaris. The 48 subsidiaries acquired operate 119 nursing homes and three
pharmacies in England, Scotland and Northern Ireland.
Employees
At November 15, 1999, the Company employed ten persons in its operating
office in London, England, three persons in its operating office in Sydney,
Australia, three persons at the Company's executive offices in Ann Arbor,
Michigan and 31 persons as shared employees with Omega at the Company's
executive offices in Ann Arbor, Michigan. The Company's Idun Healthcare Ltd.
employs approximately 8,700 employees in the operations it purchased in October
1999.
The Opportunity Agreement
The Company and Omega have entered into the Opportunity Agreement to
provide each other with rights to participate in certain transactions and make
certain investments. The Opportunity Agreement provides, subject to certain
terms, that, regardless of whether the following kinds of investments (each a
"Worldwide Opportunity") first come to the attention of the Company or Omega,
the Company will have the right to: (a) provide advisory services and/or
management services to any healthcare investors, wherever located; (b) acquire
or make debt and/or equity investments (through a joint venture or otherwise) in
any healthcare investor or in healthcare real estate-related assets outside the
United States; (c) make investments in any entity conducting healthcare
operations; and (d) make any other real estate, finance or other investments not
customarily undertaken by a qualified REIT. However, Omega will have the right,
regardless of whether the following kinds of investments (each a "REIT
Opportunity") first come to the attention of the Company or Omega, to: make any
investment within the United States (a) in real estate, real estate mortgages,
real estate derivatives or entities that invest exclusively in or have a
substantial portion of their assets in any of the foregoing, so long as Omega's
REIT status would not be jeopardized by the investment; and (b) that, if made by
a REIT, would not result in the termination of the REIT's status as a REIT under
Sections 856 through 860 of the Internal Revenue Code ("Code"). If the Company
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declines to pursue a Worldwide Opportunity, it must offer that opportunity to
Omega, and if Omega declines to pursue a REIT Opportunity, it must offer that
opportunity to the Company. Each of the Company and Omega may participate, in
its discretion, in any REIT Opportunity or Worldwide Opportunity that the other
requests be pursued jointly. The terms upon which each of the Company and Omega
may elect to participate in such an opportunity will be negotiated in good faith
and must be mutually acceptable to the respective boards of directors of the
Company and Omega, with the affirmative votes of the independent directors of
the respective boards of directors of the Company and Omega. Each of the Company
and Omega, in its sole discretion, will make all decisions as to whether to
pursue transactions or investments. The determination by each of the Company and
Omega as to whether to pursue an investment or transaction individually shall be
made by the affirmative votes of the independent director(s) of the board of
directors of the Company or Omega. Each of Omega and the Company has agreed to
notify the other of and make available to the other investment opportunities
developed by such party or of which such party becomes aware but is unable or
unwilling to pursue. The Opportunity Agreement has a term of ten years and
automatically renews for successive five-year terms unless terminated. Pursuant
to the Opportunity Agreement, Omega acquired 8% of the common shares of
Principal-Australia.
Omega and the Company have entered into a Services Agreement pursuant
to which Omega provides shared management and other employees, office space and
administrative services to the Company. The Company reimburses Omega quarterly
for a portion of Omega's overhead expenses, such as rent, compensation and
utilities, based on a formula determined by dividing the value of the assets
managed by the Company at the end of each fiscal quarter by the sum of the value
of the assets of Omega and assets managed by the Company at the end of each
fiscal quarter.
Investment Objectives
The investment objectives of the Company are:
1. To extend its franchise value by providing and financing long-term
care services to the elderly.
2. To expand its asset management business by establishing new
financing entities and establishing relationships with strong
operating companies to extend and expand assets under management.
3. To expand the Company's ability to provide financial capital to
develop, expand and consolidate nursing home operating companies,
primarily outside the United States.
4. To grow the capital value of the Company through prudent use of
leverage, extension of its franchise value and the application of
the intellectual capital of the Company to investment opportunities
in Europe, Australia, Asia and the United States.
There is no expectation or intent in the near-term to pay a dividend on
common stock.
Financial information about foreign and domestic operations.
The information required by this item is incorporated herein by
reference to the "Business Segment Information" footnote on page F-14 of the
Company's consolidated financial statements.
Regulation of the Healthcare Industry
The Company will invest in entities which own healthcare facilities
principally outside of the United States. Accordingly, the Company does not
intend to diversify its investments to reduce the risks associated with
investment in the healthcare industry. Future investments by the Company may be
on terms or conditions less favorable than the terms applicable to the 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. Operating companies in which the Company invests, as well as
the lessees and mortgagors of Principal-UK, Principal-Australia and similar
companies, 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-UK and
Principal-Australia are attempting to develop and market a method of financing
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for healthcare properties which is not, at present, widely accepted in the
United Kingdom, Australia or elsewhere, and the business of the Company may not
develop and grow as the Company anticipates.
The operating results of the healthcare facilities underlying the
investments of Principal-UK, Principal-Australia and operating 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-UK, Principal-Australia and similar companies in which
the Company invests through rate increases or otherwise to absorb increases in
operating expenses, changes in governmental regulations and changes in planning
(zoning) regulations.
A significant portion of the revenues of operating companies, including
the lessees of Principal-UK, Principal-Australia and similar companies in which
the Company invests, will be dependent upon payments from third party payors,
including private insurers and local and national governments. The levels of
revenues and profitability of such lessees, mortgagors and operating companies
may be affected by the continuing efforts of third party payors to contain or
reduce the cost of healthcare. Medical advances and changes in the method of
providing long-term healthcare services may significantly change the healthcare
needs of the elderly and thereby reduce the demand for long-term healthcare
facilities. Likewise, such advances and changes may make obsolete the healthcare
properties owned or financed by Principal-UK, Principal-Australia and similar
companies in which the Company invests.
Although Principal-UK plans to increase rapidly the number of
healthcare operators it finances, currently over 50% of Principal-UK's rents are
derived from rent payments received from two operators. Principal-Australia also
plans to increase the number of healthcare operators it finances, but presently
all of its assets are operated by and leased to affiliates of Moran. Thus, the
results of operations and financial condition of Principal-UK and
Principal-Australia will be dependent upon the ability of these tenants to meet
their obligations under their agreements with Principal-UK and
Principal-Australia.
Healthcare services, particularly those for the elderly outside the
United States, often have been provided by government or by not-for-profit
organizations, and the ability of the Company to extend its financing and
investment activities is premised upon additional changes in the way in which
healthcare services for the elderly will be provided in such countries as the
Company may invest. While the United Kingdom and the Commonwealth of Australia
have been advanced in permitting and encouraging the private for-profit sector
to develop healthcare services, there is no assurance that such encouragement
and permission will be available in other countries in which the Company may
desire to invest.
No assurance can be given that a lessee will exercise any option to
renew its lease upon the expiration of its term. In such an instance, the
Company may not be able to locate a qualified purchaser or qualified replacement
tenant for the healthcare properties in question, and as a result it would lose
a source of revenue while remaining responsible for payment of its obligations
incurred in financing such properties.
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Directors and Executive Officers of Omega Worldwide
Set forth below is information regarding (i) current Directors of the
Company, who will serve until the term expires at the indicated annual meeting
of shareholders or until their successors are elected, and (ii) the current
executive officers of the Company, who are elected to serve at the discretion of
the Board of Directors.
<TABLE>
<CAPTION>
Term
Name Expires Age Positions
---- ------- --- ---------
<S> <C> <C> <C> <C>
Jacques Aigrain ............ 2001 45 Director
Essel W. Bailey, Jr ........ 2002 55 Director, President and Chief Executive Officer
James E. Eden .............. 2000 62 Director
James P. Flaherty .......... 52 Chief Operating Officer
Thomas F. Franke ........... 2001 70 Director
Anil Gupta ................. 2000 50 Director
Harold J. Kloosterman ...... 2002 57 Director
Bernard J. Korman .......... 2000 68 Director
Susan A. Kovach ............ 39 Vice President, General Counsel and Secretary
Edward Lowenthal ........... 2001 54 Director
Edward C. Noble ............ 45 Vice President and Chief Financial Officer
Robert L. Parker ........... 2002 65 Chairman of the Board of Directors
</TABLE>
Jacques Aigrain has been employed by J.P. Morgan and Company for 15
years. Mr. Aigrain is a managing director of J.P. Morgan and Company and joined
the firm's Investment Banking Committee in July 1998 and was also made co-head
of Global Mergers and Acquisitions, working from New York and London. For the
previous two years, Mr. Aigrain headed Morgan's Paris office, and from 1991
through 1996 served in the London office, where he was responsible for
transactions in the healthcare and chemical industries. Mr. Aigrain became a
director of the Company on July 7, 1998 and holds a Ph.D. in Economics from the
Sorbonne in Paris.
Mr. Bailey has been Chief Executive Officer of the Company since April
1998, as well as a Director since its formation in November 1997. Mr. Bailey
also has served as President and Chief Executive Officer of Omega, as well as a
Director of Omega since its formation in 1992, and he has served as Chairman of
the Board of Directors of Omega since 1995. Prior to forming Omega, he was a
Managing Director of Omega Capital, a healthcare investment partnership, from
1986 to 1992. Mr. Bailey was formerly a Director of Evergreen Healthcare, Inc.,
which was a NYSE listed company engaged in the operation of long-term healthcare
facilities, and of Vitalink Pharmacy Services, Inc., a NYSE listed company, and
the operator of institutional pharmacies serving the long-term care industry in
the United States. Mr. Bailey currently serves as Managing Director of
Principal-UK and of Principal-Australia.
Mr. Eden has been a Director of the Company since April 1998. He is
President and principal owner of Eden & Associates, Inc., which provides
consulting services to the senior living and long-term care industries. He is
also President and principal owner of Senior Living Properties, LLC, and serves
as Chairman and Chief Executive Officer of Oakwood Living Centers, Inc., which
owns and operates 7 nursing homes in Massachusetts and Virginia. From 1976 to
1992, he held various positions in healthcare at Marriott Corporation
ultimately, as Executive Vice President and General Manager of its Senior Living
Services Division. Mr. Eden is also a Director of Omega, the Alliance for Aging
Research and United Vanguard Homes.
Mr. Flaherty joined Omega in 1996 and was appointed Vice
President-International of Omega and Chief Executive of Omega (UK) Limited in
January 1997. Mr. Flaherty was appointed Chief Operating Officer of the Company
in April 1998. Before he joined Omega, Mr. Flaherty was Chairman of Black Rock
Capital Corporation, a leasing and merchant banking firm he founded in 1994.
From April 1991 until December 1993, Mr. Flaherty was Managing Partner of Pareto
Partners, a London based investment management firm. Prior to 1991, he was
employed by American Express Bank Ltd. in London and Geneva in a number of
senior management capacities and by State National Bank of Connecticut and its
successor, The Connecticut Bank & Trust Co.
Mr. Franke has been a Director of the Company since April 1998. He is
Chairman and principal owner of Cambridge Partners, Inc., an owner, developer
and manager of multifamily housing in Grand Rapids and Ann Arbor, Michigan. He
is also the principal owner of private healthcare firms operating in the United
States and the United Kingdom and a private hotel firm in the United Kingdom.
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Mr. Franke has been a Director of Omega since its formation in 1992, and since
Principal-UK's formation in 1995, Mr. Franke has been a Director of
Principal-UK.
Dr. Anil K. Gupta has been a Director of the Company since July 7, 1998.
He is Professor of Strategy, Organization and International Business at the
Robert H. Smith School of Business, The University of Maryland. He holds
a Doctor of Business Administration from Harvard Business School. Dr. Gupta
served as a director of Vitalink Pharmacy Services, Inc. from 1992 to 1998.
Recipient of numerous scholarly awards, he also provides consulting and
executive training to a number of multinational companies.
Mr. Kloosterman has been a Director of the Company since April 1998. He
also has been a Director of Omega since its formation in 1992 and was a Managing
Director of Omega Capital from 1986 to 1992. Mr. Kloosterman has been involved
in the acquisition, development and management of commercial and multi-family
properties since 1978. He has been a senior officer of LaSalle Partners, Inc.,
and in 1985 he formed Cambridge Partners, Inc., where he serves as President. At
Cambridge, he has been involved in the development and management of commercial,
apartment and condominium projects in Grand Rapids and Ann Arbor, Michigan and
in the Chicago area.
Mr. Korman has been a Director of the Company since April 1998. He is
Chairman of the Board of Trustees of Philadelphia Healthcare Trust, a
not-for-profit health care system, and of NutraMax Products, Inc., a public
consumer health care products company. He formerly was President, Chief
Executive Officer and Director of MEDIQ Incorporated (health care services) from
1977 to 1995. Mr. Korman has been a Director of Omega since 1993 and also is a
Director of the following public companies: The New America High Income Fund
(financial services), The Pep Boys, Inc. (auto supplies), and Kranzco Realty
Trust (real estate investment trust).
Ms. Kovach joined Omega in December 1997 as Vice President, General
Counsel and Secretary, and was appointed Vice President, General Counsel and
Secretary of the Company in April 1998. Prior to that she was a lawyer with
Dykema Gossett PLLC in Detroit, Michigan for 12 years, the last three years as a
senior member of the firm.
Mr. Lowenthal has served as a Director of the Company since April 1998.
He is President and Chief Executive Officer of Wellsford Real Properties, Inc.
(AMEX: WRP), a real estate merchant bank, and was President of the predecessor
of Wellsford Real Properties, Inc. since 1986. Mr. Lowenthal has been a Director
of Omega since 1995 and also serves as a Director of Equity Residential
Properties Trust and Great Lakes REIT, Inc. He also has served as a director of
United American Energy Corporation, a developer, owner and operator of energy
facilities, and Corporate Renaissance Group, Inc., a mutual fund.
Mr. Noble joined Worldwide in March 1999 as Vice President and Chief
Financial Officer. From 1995 to 1998, Mr. Noble was Chief Financial Officer of
the international group of Culligan Water Technologies, Inc., a manufacturer of
water treatment products. From 1991 to 1995, he was Assistant Treasurer for
Astrum International, Inc., a holding company in diverse industries.
Mr. Parker has served as Chairman of the Company's Board of Directors
since April 1998. He is a consultant to, and formerly was Chairman of Omega from
1992 to 1995 and Managing Director of Omega Capital from 1986 to 1992. From 1972
through 1983, Mr. Parker was a senior officer of Beverly Enterprises, the
largest operator of long-term care facilities in the United States. At the time
of his retirement in 1983, Mr. Parker was Executive Vice President of Beverly
Enterprises. Mr. Parker is a registered architect and is licensed in California
and Oklahoma. Mr. Parker also served as a Director of GranCare, Inc., a public
company engaged in the operation of long-term care facilities, from 1995 to
1997, and of Vitalink Pharmacy Services Inc., a publicly-traded institutional
pharmacy, during 1997. He has served as a director of Principal-UK since 1995,
and of First National Bank of Bethany, Oklahoma.
The Company believes that all filings required to be made pursuant to
Section 16(a) of the Securities Exchange Act of 1934 were timely made.
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Item 2 -- Properties
At September 30, 1998, the Company's real estate investments were in
purchased long-term care facilities located in New South Wales, Australia and
leased and operated by Moran. There are ten nursing homes with a total of 733
licensed beds (weighted average occupancy 99.1%), and the yield on this
investment is 10.0%. Eight of the properties also have a total of 480 assisted
living units. At September 30, 1999, the real estate investments described above
continue to be owned by its unconsolidated affiliate, Principal-Australia.
Item 3 -- Legal Proceedings
There were no legal proceedings pending as of September 30, 1999, or as
of the date of this report, to which the Company is a party or to which the
properties are subject.
Item 4 -- Submission of Matters to a Vote of Security Holders
No matters were submitted to shareholders during the last quarter of
the year covered by this report.
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PART II
Item 5--Market for Registrant's Common Equity and Related Shareholder Matters
The Company completed its IPO on April 2, 1998, and its common stock
began trading on the NASDAQ National Market System on April 10, 1998. Therefore,
data for the first and second quarters of the Company's fiscal year ended
September 30, 1998 does not exist. The Company's shares of common stock are
traded under the symbol OWWI. The following table sets forth, for the year ended
September 30, 1999 and the period ended September 30, 1998, the high and low
prices as reported by the NASDAQ National Market System:
Quarter High Low
------- ---- ---
April 10, 1998 through June 30, 1998 ............ $ 10.625 $ 6.875
July 1, 1998 through September 30, 1998 ......... $ 8.250 $ 4.000
October 1, 1998 through December 31, 1998 ....... $ 4.750 $ 3.500
January 1, 1999 through March 31, 1999 .......... $ 5.250 $ 3.438
April 1, 1999 through June 30, 1999 ............. $ 6.000 $ 3.563
July 1, 1999 through September 30, 1999 ......... $ 4.500 $ 4.000
The closing price quoted on the NASDAQ National Market System on
December 15, 1999 was $4.125 per share. As of December 15, 1999, there were
12,266,000 shares of common stock outstanding with approximately 2,000
registered holders and approximately 12,000 beneficial owners.
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Item 6 - Selected Financial Data
The following selected financial data should be used in conjunction with
the Company's consolidated financial statements appearing elsewhere herein (in
thousands, except per share data):
<TABLE>
<CAPTION>
Period from
Year Ended April 2, 1998 to
September 30, 1999 September 30, 1999
------------------ ------------------
<S> <C> <C>
Operating Data
Revenues .............................................................. $ 14,753 $ 5,095
Operating income ...................................................... 6,414 2,429
Equity in earnings of Principal Healthcare Finance, Limited ........... 1,223 421
Equity in earnings of Principal Healthcare Finance Trust .............. 484 -
Equity in earnings (loss) of Essex Healthcare, Inc .................... (282) 32
Gain on dilution of interest in Principal Healthcare Finance Trust .... 951 -
Income tax provision .................................................. (2,670) (927)
Net earnings .......................................................... 6,120 1,955
Net earnings available to common shareholders ......................... 5,912 1,851
Earnings per common share, basic ...................................... 0.48 0.15
Earnings per common share, dilutive ................................... 0.48 0.15
Weighted average of shares outstanding, basic ......................... 12,261 12,255
Weighted average of shares outstanding, dilutive 12,262 12,255
September 30,
-------------
1999 1998
---- ----
Balance Sheet Data
Current assets ........................................................ $ 7,042 $ 21,567
Total assets .......................................................... 68,412 88,992
Current liabilities ................................................... 4,272 30,341
Long-term debt ........................................................ - -
Shareholders' equity .................................................. 64,140 58,651
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
"Safe Harbor" Statement Under the United States Private Securities
Litigation Reform Act of 1995. Statements that are not historical facts
contained in Management's Discussion and Analysis are forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
from projected results. Some of the factors that could cause actual results to
differ materially include: the financial strength of the operators of the
facilities owned by the Company's investees as it affects their continuing
ability to meet their obligations under the terms of the lease agreements;
changes in operators or ownership of operators; government policy relating to
the healthcare industry, including changes in the reimbursement levels;
operators' continued eligibility to participate in the government sponsored
payment programs; changes in reimbursement by other third-party payors;
occupancy levels at the facilities; the availability and cost of capital of the
Company and its investees; the strength and financial resources of competitors
of the Company and investees; the ability of investees to make additional real
estate investments at attractive yields; and the ability of investees to obtain
debt and equity capital at reasonable costs.
Following is a discussion and analysis of the Company's consolidated
results of operations, financial condition and liquidity and capital resources.
The discussion should be read in conjunction with the audited consolidated
financial statements and notes thereto. The Company began operations on April 2,
1998. Accordingly, results through September 30, 1998 include six months of
activity, while results through September 30, 1999 include twelve months of
activity.
Results of Operations
The Company generates income from three primary sources: (1) Fee income
from providing investment advisory and management services; (2) Interest income
from providing financing to companies in the healthcare and healthcare financing
industries; and (3) Equity in earnings of companies in the healthcare and
healthcare financing industries. Prior to April 1, 1999, the Company also
recorded rental income earned by its then wholly owned subsidiary,
Principal-Australia.
Revenues
Advisory fees are earned from Principal-UK and Principal-Australia
based on assets (as defined) under management by the Company and its
subsidiaries. Assets subject to fees from Principal-UK increased from (pound)220
million at April 2, 1998 to (pound)324 million at September 30, 1999; 26% of
this increase occurred during the current fiscal year. Equivalent U.S. dollar
amounts based on exchange rates in effect on those dates were $367 million and
$516 million, respectively. Prior to April 1, 1999, fee income from
Principal-Australia was eliminated in consolidation, but with the dilution of
the Company's interest to 47% (see below), they are now reported separately.
Principal-Australia's assets under management at September 30, 1999 were
approximately A$171 million (US$109 million).
Interest income from Principal-UK has increased from prior years based
on increased advances to fund, temporarily, acquisitions by Principal-UK. The
average balance for the current year was approximately $18.6 million, compared
to $6.3 million for the six-month period last year.
Expenses
Direct costs of services provided are the costs associated with
generating fee income from Principal-UK and Principal-Australia. The increase
from the prior year monthly expense level is due to the opening of Omega
Australia to service Principal-Australia. The monthly increase in general and
administrative expenses and allocated expenses from Omega is reflective of the
growth in assets under management and increased usage of the services provided
by Omega. Interest expense was largely incurred at Principal-Australia when it
was a consolidated entity for purposes of funding its investments. In its most
recent quarter the Company was debt free, and interest expense of $50,000
relates to commitment fees on its line of credit.
10
<PAGE>
Other
Equity in earnings of Principal-UK increased from $421,000 in the prior
year to $1,223,000 in the current year. The Company's ownership percentage in
Principal-UK has remained constant at 33.375%. The increase in income is due to
improved performance of Principal-UK as its leased assets and their rents have
increased.
The equity in loss of Essex of $282,000 was largely due to
non-recurring costs associated with an unfavorable decision by a third-party
payor. Essex management continues to make progress in structuring operations to
be profitable under the new Medicare pay structure and in improving performance
at the several skilled nursing facilities that were acquired when they were
unprofitable. Essex has recorded profits in the two most recent quarters.
The Company has two other investments in skilled nursing home
operators, both located in the UK. Investments in Baneberry Healthcare Ltd. and
Tamaris Plc at September 30, 1999 represent less than 20% of the shares
outstanding of these companies and are held as investments. The Company does not
record income or loss from these operators, except to the extent of dividends
received. The investment cost of Baneberry approximates market value. As Tamaris
was traded on the London exchange and market value information was readily
available, fluctuations in market value were reported as adjustments to total
comprehensive income. Subsequent to year end the Company purchased all of the
operating subsidiaries of Tamaris, see Note 17 to the Financial Statements
for further details.
As more fully described in the Form 8-K dated April 1, 1999, on April 1
Principal-Australia sold 7,500,000 newly issued shares to Omega and AMP, as well
as 875,000 additional shares to the Company, diluting the Company's ownership to
47%. The transaction created the one-time gain on dilution of interest in
Principal-Australia of $951,000, resulting in after tax earnings of $628,000, or
$0.05 per share.
The Company's effective tax rate varies from the federal statutory rate
of 34% due to the benefit of available foreign tax credits.
Liquidity and Capital Resources
As of year end, the Company had cash and short-term investments of $5.7
million and availability of $25 million under the Company's bank revolving
credit facility. These funds are in excess of short-term operating requirements
of the Company and are available for further investments or expansion of the
Company's operations into other geographical areas. Subsequent to year end the
acquisition of Tamaris' operating entities by Idun and temporary working capital
requirements of Idun were financed by this cash and a portion of the revolving
credit facility.
Market Risk
The Company is exposed to various market risks. Market risk is the
potential loss arising from adverse changes in market interest rates and prices,
such as short-term borrowing and foreign currency exchange rates. The Company
does not enter into derivatives or other financial instruments for trading or
speculative purposes. The Company enters into forward foreign currency contracts
principally to hedge currency fluctuations in its investments denominated in
foreign currencies, thereby limiting the Company's risk that would otherwise
result from changes in exchange rates. At September 30, 1999, the Company had
outstanding a ten-year British pound sterling forward currency swap to exchange
BPS 20,000,000 for $31,740,000 to mature on October 15, 2007, and a five-year
Australian dollar forward currency swap to exchange A$11.0 million Australian
dollars for $6,749,000 to mature on July 3, 2003. From time to time, the Company
may also obtain hedges for its foreign currency exposure relative to temporary
loans to Principal and the Trust. Because of the Company's foreign exchange
contracts, its sensitivity to foreign exchange currency exposure is considered
low.
11
<PAGE>
Year 2000 Implications
The Year 2000 compliance issue concerns the inability of certain
systems and devices to properly store dates beyond December 31, 1999. This could
result in system failures, malfunctions or miscalculations that disrupt normal
operations. This issue affects most companies and organizations, at least to the
extent that potential exposures must be evaluated.
The Company has reviewed risks with regard to the impact of outside
vendors' ability to operate, including Omega's services under the Services
Agreement, and the impact of tenants' ability to operate. Based upon information
available from technology vendors to date, Omega does not believe that there are
issues which could have a material effect upon its internal operations, its
technology infrastructure, information systems and software applications. In
those cases where there are compliance issues, these are considered to be minor
in nature and remedies are already identified. Expenditures for such remedies
have not and will not be material.
With respect to the Company's other material outside vendors, such as
its banks, the Company's assessment covered the compliance efforts of
significant vendors, the effects of potential non-compliance, and remedies that
may mitigate or obviate such effects as to the Company's business and
operations. Based upon its assessment of outside vendors, the Company does not
believe that there are issues which could have a material effect, but there can
be no assurances that such issues won't have a material effect on the Company.
12
<PAGE>
Item 7a--Qualitative and Quantitative Disclosure About Market Risk
These disclosures are included in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Item 8--Financial Statements and Supplementary Data
The consolidated financial statements and report of independent auditors are
filed as part of this report on pages F-1 through F-15.
Item 9--Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
13
<PAGE>
PART III
Item 10 -- Directors and Executive Officers of the Registrant
Located in Part I as permitted by Instruction 3 to Item 401(b) of Regulation
S-K.
Item 11 -- Executive Compensation
The information required by this item is incorporated by reference to the
Company's definitive proxy statement for the Annual Meeting of Shareholders to
be held on April 19, 2000, which will be filed on or about January 10, 2000 with
the Securities and Exchange Commission pursuant to Regulation 14A.
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
Company's definitive proxy statement for the Annual Meeting of Shareholders to
be held on April 19, 2000, which will be filed on or about January 10, 2000 with
the Securities and Exchange Commission pursuant to Regulation 14A.
Item 13 -- Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
Company's definitive proxy statement for the Annual Meeting of Shareholders to
be held April 19, 2000, which will be filed on or about January 10, 2000 with
the Securities and Exchange Commission pursuant to Regulation 14A.
14
<PAGE>
PART IV
Item 14 -- Exhibits, Financial Statements, Financial Statement Schedules and
Reports on Form 8-K.
(a)(1) Listing of Consolidated Financial Statements
<TABLE>
<CAPTION>
Title of Document Page Number
- ----------------- -----------
<S> <C>
Report of Independent Auditors ........................................................ F-1
Consolidated Balance Sheets as of September 30, 1999 and September 30, 1998 ........... F-2
Consolidated Statements of Operations for the year ended September 30, 1999
and for the period from April 2, 1998 to September 30, 1998 ...................... F-3
Consolidated Statements of Shareholders' Equity for the year ended
September 30, 1999 and for the period from April 2, 1998 to
September 30, 1998 ............................................................... F-4
Consolidated Statements of Cash Flows the year ended September 30, 1999 and
for the period from April 2, 1998 to September 30, 1998 ...................... F-5
Notes to Consolidated Financial Statements ............................................ F-6
</TABLE>
(a)(2) Listing of Financial Statement Schedules. All schedules for
which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
(a)(3) Listing of Exhibits -- See Index to Exhibits beginning on Page
18 of this report.
(b) Reports on Form 8-K - none filed in the quarter ended September
30, 1999.
(c) Exhibits -- See Index to Exhibits beginning on Page 18 of this
report.
(d) Financial Statement Schedules -- The following consolidated
financial statement schedule is included herein: None
15
<PAGE>
Report of Independent Auditors
Board of Directors
Omega Worldwide, Inc.
We have audited the accompanying consolidated balance sheets of Omega Worldwide,
Inc. and subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended September 30, 1999 and the period from April 2, 1998
(commencement of operations) through September 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Omega
Worldwide, Inc. and subsidiaries at September 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for the year ended
September 30, 1999 and the period from April 2, 1998 through September 30, 1998
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
November 11, 1999
Detroit, Michigan
F-1
<PAGE>
OMEGA WORLDWIDE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par values)
<TABLE>
<CAPTION>
ASSETS
September 30,
1999 1998
<S> <C> <C>
---- ----
Current Assets:
Cash and short-term investments .................................... $ 5,738 $ 10,281
Restricted cash .................................................... 389 9,330
Other .............................................................. 915 1,956
--------- ---------
Total Current Assets ............................................. 7,042 21,567
Land and buildings subject to triple-net lease,
net of $157 accumulated depreciation ............................... - 27,300
Investments in and temporary advances to Principal
Healthcare Finance Limited ........................................... 48,842 37,902
Investment in Principal Healthcare Finance Trust ..................... 6,619 -
Other assets ......................................................... 5,909 2,223
--------- ---------
61,370 67,425
--------- ---------
Total Assets ..................................................... $ 68,412 $ 88,992
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses .............................. $ 1,177 $ 1,901
Accrued income taxes ............................................... 1,880 433
Deferred revenue ................................................... 1,215 -
Non-interest bearing deferred purchase obligation .................. - 28,007
--------- ---------
Total Current Liabilities ........................................ 4,272 30,341
Shareholders' Equity:
Preferred stock $1.00 par value
Authorized 10,000 shares
Outstanding 260 Class B shares at liquidation value .............. 2,600 2,600
Common stock $.10 par value
Authorized 50,000 shares
Outstanding shares 12,266 and 12,258 shares,
at September 30, 1999 and 1998, respectively ..................... 1,227 1,226
Additional paid-in capital ......................................... 52,893 52,861
Retained earnings .................................................. 8,075 1,955
Accumulated other comprehensive income (loss) ...................... (655) 9
--------- ---------
Total Shareholders' Equity ....................................... 64,140 58,651
--------- ---------
Total Liabilities and Shareholders' Equity ....................... $ 68,412 $ 88,992
========= =========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
April 2, 1998
(Commencement of
Year Ended Operations) to
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Fee income - Principal Healthcare Finance Limited .................... $ 4,918 $ 1,920
Fee income - Principal Healthcare Finance Trust ...................... 405 -
Interest:
Principal Healthcare Finance Limited ............................... 4,761 1,784
Short-term investments ............................................. 663 347
Rent income .......................................................... 3,908 1,014
Other income ......................................................... 98 30
--------- ---------
14,753 5,095
Expenses:
Direct costs of asset management services ............................ 2,494 1,113
General and administrative ........................................... 1,718 485
Allocated expenses from Omega Healthcare Investors, Inc .............. 768 303
Imputed and other interest expense ................................... 2,685 573
Provision for depreciation ........................................... 674 192
--------- ---------
8,339 2,666
--------- ---------
Earnings before equity earnings and income taxes ....................... 6,414 2,429
Equity in earnings of Principal Healthcare Finance Limited ............. 1,223 421
Equity in earnings of Principal Healthcare Finance Trust ............... 484 -
Equity in earnings (loss) of Essex Healthcare, Inc ..................... (282) 32
Gain on dilution of interest in Principal Healthcare Finance Trust ..... 951 -
--------- ----------
Earnings before income taxes ........................................... 8,790 2,882
Provision for income taxes ............................................. (2,670) (927)
---------- ----------
Earnings before preferred stock dividends .............................. 6,120 1,955
Preferred stock dividends .............................................. (208) (104)
---------- ---------
Net earnings available to common shareholders .......................... $ 5,912 $ 1,851
========== ==========
Earnings per common share, Basic ....................................... $ 0.48 $ 0.15
========== ==========
Earnings per common share, Diluted ..................................... $ 0.48 $ 0.15
========== ==========
Average shares outstanding, Basic ...................................... 12,261 12,255
========== ==========
Average shares outstanding, Diluted .................................... 12,262 12,255
========== ==========
Total comprehensive income, net of taxes ............................... $ 5,456 $ 1,964
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except per share amount)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Preferred Retained Comprehensive
Stock Capital Stock Earnings Income
----- ------- ----- -------- ------
<S> <C> <C> <C> <C> <C>
Issuance of stock:
Issuance of 8,500 common shares and 260
preferred shares to Omega Healthcare
Investors, Inc ................................... $ 850 $ 25,802 $ 2,600 $ - $ -
Proceeds from April 2, 1998 equity offering of
3,750 shares at $7.50 per share, net of
issuance costs of $750 ........................... 375 27,000 - - -
Grants of restricted stock (8 shares at
$7.50 per share) ................................. 1 59 - - -
Net earnings for 1998 ................................ - - - 1,955 -
Foreign currency translation adjustments ............. - - - - 9
------ ------- ------ ------ ------
Balance at September 30, 1998 ........................ 1,226 52,861 2,600 1,955 9
Issuance of stock:
Grants of restricted stock (8 shares
at an average of $4.09 per share) ................ 1 32 - - -
Net earnings for 1999 ................................ - - - 6,120 -
Unrealized loss on Tamaris stock, net of tax
effect of $281 .................................... - - - - (657)
Foreign currency translation adjustments ............. - - - - (7)
------ ------- ------- ------ --------
Balance at September 30, 1999 ........................ $ 1,227 $ 52,893 $ 2,600 $ 8,075 $ (655)
======= ======= ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
OMEGA WORLDWIDE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
Period from
April 2, 1998
(Commencement of
Year Ended Operations) to
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Operating activities:
Net earnings .............................................................. $ 6,120 $ 1,955
Adjustments to reconcile net earnings to cash provided
by operating activities:
Equity earnings in Principal Healthcare Finance Limited ................. (1,223) (421)
Equity earnings in Principal Healthcare Finance Trust ................... (484) -
Equity (earnings) loss in Essex Healthcare, Inc. ........................ 282 (32)
Gain on dilution of interest in Principal Healthcare
Finance Trust ......................................................... (951) -
Imputed interest ........................................................ 1,146 573
Depreciation and amortization ........................................... 903 192
Write-off of investment in AVC Holdings ................................. 281 -
Other non-cash charges .................................................. 402 92
Net change in operating assets and liabilities ............................ 354 (106)
Foreign currency translation .............................................. 7 (22)
--------- ---------
Net cash provided by operating activities ................................... 6,837 2,231
Cash flows provided by financing activities:
Proceeds from revolving warehouse facility drawn by Principal
Healthcare Finance Trust ................................................ 34,502 -
Proceeds from issuance of common stock .................................... - 27,375
Cash contributed by Omega in exchange for liabilities assumed ............. - 837
--------- ---------
Net cash provided by financing activities ................................... 34,502 28,212
Cash flows from investing activities:
Acquisition of real estate by Principal Healthcare Finance Trust .......... (49,288) -
Decrease (increase) in restricted cash .................................... 5,831 (9,330)
Temporary advances with Principal Healthcare Finance Limited .............. (9,989) (8,379)
Temporary advances with Principal Healthcare Finance Trust ................ 13,631 -
Dividends from Principal Healthcare Finance Limited ....................... 272 -
Investment in Principal Healthcare Finance Trust .......................... (1,108) -
Investment in Baneberry Healthcare Ltd .................................... (1,622) -
Investment in Tamaris stock ........................................... (2,842) -
Proceeds from repayment of secured loan ................................... 102 -
Secured loan to individual ................................................ - (812)
Loan to Baneberry Healthcare Ltd .......................................... (228) -
Loan to an enterprise ..................................................... (465) -
Other ..................................................................... (176) (1,635)
--------- ---------
Net cash used in investing activities ....................................... (45,882) (20,162)
--------- ---------
Increase (decrease) in cash and short-term investments ...................... $ (4,543) $ 10,281
========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
OMEGA WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
Note 1 - Organization and Significant Accounting Policies
Organization
Omega Worldwide, Inc. (the "Company") was formed to provide investment
advisory and management services as well as equity and debt capital to the
healthcare industry, primarily in Europe and the Pacific Rim. On April 2, 1998,
the Company's registration statement became effective, and it offered 3,750,000
shares of common stock to the public at $7.50 per share. The Company received
$27,375,000, net of issuance costs of $750,000. Shares offered included 500,000
shares in a primary offering and 3,250,000 shares in a rights offering.
Operations commenced upon the effectiveness of the initial public offering.
Except for $1,000 invested by Omega Healthcare Investors, Inc. ("Omega") at the
date of formation (November 1997), there were no cash flow activities of the
Company from the date of formation to the date operations commenced.
Immediately prior to the offering of shares by the Company, Omega
contributed substantially all of its investment in Principal Healthcare Finance
Limited ("Principal-UK") to the Company. Assets contributed by Omega, which were
recorded by the Company at Omega's accounting basis, included a $23,805,000
subordinated loan to Principal-UK, 33.375% of the common stock of Principal-UK
with a carrying value of $5,297,000, 10,556,250 warrants and other net assets
totaling $150,000. Omega also assigned its interest in a management agreement
with Principal-UK in which the Company receives an annual fee of 0.9% of
Principal-UK's assets (as defined) for providing certain advisory services. In
exchange, Omega received 8,500,000 shares of common stock and 260,000 shares of
Class B preferred stock. Of the common stock received by Omega, approximately
5,200,000 shares were distributed pro rata to Omega's shareholders, and
approximately 2,300,000 were sold pursuant to the Company's registration
statement. Omega retained approximately 9.9% of the Company's common stock then
outstanding.
Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries after elimination of all material
inter-company accounts and transactions. Prior to April 1, 1999, the Company
owned 100% of Principal Healthcare Finance Trust ("Principal-Australia"). As
more fully explained in Note 3 and the report on Form 8-K dated April 1, 1999
newly issued shares of Principal-Australia were issued to independent investors
resulting in the dilution of the Company's ownership to 47%.
Principal-Australia's financial results prior to April 1, 1999 are
included in the Company's results on a consolidated basis, while
Principal-Australia's results after April 1, 1999 are included in the Company's
results using the equity method of accounting.
The Company reports the results of those subsidiaries, for which it has
over 20% ownership, but in which it does not hold a majority interest, using the
equity method of accounting, using a one-month lag. Investments in companies
over which the Company does not exercise control are recorded at fair market
value. Temporary changes in fair market value are charged to accumulated other
comprehensive income, while permanent reductions in fair market value are
charged to operations.
Cash and Short-Term Investments
Short-term investments consist of highly liquid investments with a
maturity date of three months or less when purchased. These investments are
stated at cost, which approximates fair value.
F-6
<PAGE>
Revenue Recognition
Rental income is recognized on a straight-line basis over the initial
terms of the related master lease. Such income includes periodic increases based
upon predetermined formulas as defined in the master lease. Fee income is
recognized as earned and is based on assets under management.
Depreciation
Depreciable assets are recorded at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of the
depreciable asset. Estimated useful lives of depreciable assets range from 3 to
7 years for furniture, fixtures and equipment, and 40 years for buildings.
Translation
Translation of currencies for foreign subsidiary financial information
is computed pursuant to the provisions of Financial Accounting Standards Board
Statement No. 52, which provides that balance sheet amounts are translated at
the year end exchange rate and income statement amounts are translated at the
average annual rate. There are no material amounts of exchange gains or losses
included in the results of operations for 1999 or 1998.
Financial Instruments
The Company has foreign exchange rate contracts which mitigate the risk
of currency movements. Any gain or loss on the contract offsets any losses or
gains, respectively, on its investments denominated in pounds sterling and
Australian dollars.
Stock Based Compensation
The Company grants stock options to employees and directors with an
exercise price equal to the value of the shares at the date of the grant. In
accordance with the provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees, compensation expense is not recognized for these stock
option grants.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
period. Actual results could differ from those estimates.
Prior Period Classification
Certain prior year amounts have been reclassified to correspond with
the current year's presentation.
Comprehensive Income
Comprehensive income consists of the Company's earnings before
preferred stock dividends adjusted for the unrealized loss on investments, net
of tax and foreign currency translation adjustments.
F-7
<PAGE>
Note 2 - Investment in Principal Healthcare Finance Limited (Principal-UK)
As described in Note 1, the Company acquired 33.375% of Principal-UK's
voting ordinary shares in connection with the Omega distribution/exchange. The
Company accounts for its interest in Principal-UK using the equity method.
Principal-UK has a fiscal year end of August 31; therefore, the equity in
earnings of Principal-UK is recognized on a one-month lag. Principal-UK has $414
million and $377 million of real estate investments in long-term care facilities
as of August 31, 1999 and August 31, 1998, respectively. These facilities are
operated by independent operators and are located in the United Kingdom.
Substantially all of Principal-UK's real estate is pledged as collateral for
Principal-UK's debt agreements.
The following summarizes selected financial information of Principal-UK
in accordance with United States generally accepted accounting principles (in
thousands): <TABLE> <CAPTION>
Year Ended Year Ended
August 31, 1999 August 31, 1998
--------------- ---------------
<S> <C> <C> >
Selected Operating Results:
Revenues:
Rent income ................................... $ 55,693 $ 47,542
Interest income ............................... 6,107 2,991
Other income .................................. - 509
------- -------
Total revenues .............................. 61,800 51,042
Expenses:
Interest expense .............................. (39,149) (34,572)
Depreciation and amortization ................. (9,839) (7,202)
General and administrative .................... (5,880) (4,284)
------- -------
Total expenses .............................. (54,868) (46,058)
------- -------
Net income from operations ...................... 6,932 4,984
Non-operating income ............................ - 1,406
------- -----
Net income before income taxes and
extraordinary charge for prepayment
of debt ...................................... 6,932 6,390
Provision for income taxes ...................... (3,053) (2,283)
Extraordinary charge for prepayment of debt ..... - (1,985)
------- ------
Net Income ...................................... $ 3,879 $ 2,122
======== =======
Selected Balance Sheet Information as of: August 31, 1999 August 31, 1998
--------------- ---------------
Investments in real estate subject to
triple-net leases; net of depreciation ........ $ 395,533 $ 365,941
Total assets .................................... 569,666 479,541
Non-recourse debt borrowings .................... 478,233 396,282
Total liabilities ............................... 552,544 464,717
Total stockholders' equity ...................... 17,122 14,824
</TABLE>
The effective tax rates are 44% and 36% for the years ended August 31,
1999 and 1998, respectively. These rates differ from the UK tax rate primarily
because the provisions for depreciation and amortization are not deductible for
tax purposes in the United Kingdom. The Company's proportionate share of
Principal-UK's earnings for the years ended August 31, 1999 and the six-month
period ended August 31, 1998 are approximately $1,296,000 and $474,000,
respectively. Included in the Company's share of Principal-UK earnings during
the six-month period ended August 31, 1998, is $172,000 ($0.01 per share)
related to the non-recurring operating items realized by Principal-UK. The
Company has recorded a charge against earnings of approximately $73,000 for the
year ended August 31, 1999 and approximately $53,000 for the six month period
ended August 31, 1998, representing amortization over a ten-year period of the
excess of the Company's investment in Principal-UK of approximately $ $771,000
over its proportionate share of Principal-UK's underlying equity at the date of
acquisition. In January 1999, the Company received $272,000, representing a
5-pence annual dividend declared by Principal-UK's Board of Directors.
F-8
<PAGE>
The Company also acquired a British pound sterling denominated
subordinated loan due December 31, 2000. The carrying amount of the loan is
$23.8 million and it bears interest at rates ranging from 12.55% to 12.93%
during the remaining term. The estimated fair value of the loan approximates
$24.7 million based on estimates of management and on coupon rates currently
prevailing for comparable loans.
The Company also received warrants to purchase 10,000,000 ordinary
shares of Principal-UK expiring June 30, 2001 at an exercise price of
(pound)1.50 (approximately $2.55) per share and 556,250 ordinary shares of
Principal expiring December 31, 2000 at an exercise price of (pound)1.00
(approximately $1.60) per share. As to the warrants that expire in December
2000, no value was assigned at the date of issuance because the underlying
securities were issued at their fair value at that date. As to the warrants that
expire in June 2001, the coupon rate for the subordinated debt was the
prevailing market rate on the date of the loan, and, therefore, the face amount
of the subordinated loans approximated its fair value on the date of issuance.
In addition, at the grant date the exercise price on these warrants
significantly exceeded the fair value of the stock on the date of issuance since
the warrants enabled the purchase of shares at (pound)1.50, while the current
value of the shares at that time was approximately (pound)1.00. Based on these
factors at the date of the loan, no value was ascribed to the warrants. However,
the estimated fair value of these warrants at September 30, 1999 approximates
$8,758,000. In determining the estimated fair value, the Company used a
Black-Scholes pricing model with the following assumptions: risk free interest
rate of 6%; a volatility factor of 40%; and an average life of five years from
the date of grant.
Note 3 - Principal Healthcare Finance Trust (Principal-Australia)
In June 1998 the Company acquired Assisted Living Unit Trust, an
Australian property trust that owns nursing homes, for a cash investment of $3
million plus a loan of $6.2 million and a guarantee of the entity's deferred
purchase obligation of $30 million. Concurrent with the acquisition, the
Assisted Living Unit Trust's name was changed to Principal Healthcare Finance
Trust (Principal-Australia). The investment in facilities approximated $30
million, which was paid in June 1999. The investment in facilities and the
deferred obligation are recorded net of imputed interest at 8%. Imputed interest
expense for the year ended September 30, 1999 was $1,146,000 and for the
six-month period ended September 30, 1998 was $573,000. Principal-Australia
provided $9,330,000 in cash collateral to secure a $30 million letter of credit
obtained by the Principal-Australia to provide funding for the deferred payment.
The cash collateral was classified as restricted cash.
In November 1998 Principal-Australia agreed to acquire and lease back
30 nursing homes in the Australian states of New South Wales, Queensland,
Westerns Australia and Victoria for $60 million. The transaction is in three
phases with the first phase closing in November and consisting of the purchase
of 25 facilities for approximately $49 million. The purchase of five Victoria
homes occurred in the second phase in March 1999 upon completion of construction
and the stabilized occupancy of the homes for an aggregate purchase price of
approximately $7 million. The final phase involves an additional $15 million
investment encompassing the renovation and refurbishing of facilities during a
five-year period ending October 2003. This phase will assist the homes to comply
with physical plant regulations being implemented by the Commonwealth of
Australia. All disbursements subsequent to the first phase are conditioned upon
various levels of operating profitability and performance.
In April 1999, Principal-Australia sold 7,500,000 newly issued shares
to Omega and AMP Life Limited, as well as 875,000 additional shares to the
Company. Prior to the issuance of these shares, the Company owned 100% of
Principal-Australia. Issuance of the new shares reduced the Company's ownership
to 47% of shares outstanding. The transaction created a one-time gain on
dilution of interest in Principal-Australia of $951,000, resulting in after tax
earnings available to common shareholders of $628,000, or $0.05 per share.
As described in Note 1, the financial results of Principal-Australia
prior to April 1, 1999 are included in the Company's results on a consolidated
basis, while Principal-Australia's results after April 1, 1999 are included in
the Company's results using the equity method of accounting. Principal-Australia
has a fiscal year end of August 31; therefore, the equity in earnings of
Principal-Australia is recognized on a one-month lag. Included in consolidated
earnings is $484,000 of undistributed earnings of Principal-Australia,
representing the Company's share of Principal-Australia earnings for the period
from April 1, 1999 through August 31, 1999.
F-9
<PAGE>
The following summarizes selected financial information of
Principal-Australia in accordance with United States generally accepted
accounting principles (in thousands):
Year Ended
Selected Operating Results: August 31, 1999
---------------
Revenues:
Rent Income ..................................... $ 9,592
Interest and other income ....................... 322
------
Total Revenues ................................ 9,914
Expenses:
Interest expense .................................. (5,203)
Depreciation and amortization ..................... (1,856)
General and Administrative ........................ (932)
------
Total expenses ................................ (7,991)
------
Income from operations ............................ $ 1,923
======
Selected Balance Sheet Information as of: August 31, 1999
---------------
Investments in real estate subject to triple-net
leases, net of depreciation .................... $85,652
Total assets ..................................... 96,986
Non-recourse debt borrowings ..................... 75,815
Total liabilities ................................ 82,215
Total unit holders' equity ...................... 14,771
Note 4 - Essex Healthcare Corporation
On April 2, 1998, Omega contributed to the Company its holdings in the
preferred stock of Essex Healthcare Corporation ("Essex"), an Atlanta-based
private operator of skilled nursing facilities. The preferred stock was valued
at approximately $39,000. Essex's primary activities are in Ohio, where it
operates 13 long-term care and assisted living facilities (approximately 1,400
beds). It also manages 33 facilities (approximately 1,800 beds) in Indiana,
Michigan, Illinois, and Texas. On July 30, 1998, the Company acquired 55,000
shares of Essex's common stock for $500,000 and converted its preferred stock
into 1,940 shares of common stock. The Company holds approximately 47% of the
outstanding common shares of Essex. The Company accounts for this investment
using the equity method.
The Company's proportionate share of Essex's loss for the year ended
August 31, 1999 is $282,000 and earnings of $32,000 for the six-month period
ended August 31, 1998.
Note 5 - Land and Buildings
The real estate properties owned by Principal-Australia at September
30, 1998 were 10 long-term care facilities and 475 assisted living units and are
leased under the provisions of a 30-year master lease.
A summary of the Company's land and buildings subject to triple net
lease and related accumulated depreciation is as follows (in thousands):
1998
----
Land and buildings subject to triple-net lease ....... $ 27,457
Less accumulated depreciation ........................ (157)
------
$ 27,300
======
F-10
<PAGE>
As a result of the Company's dilution of interest in
Principal-Australia to 47% at September 30, 1999, the Company no longer
consolidates Principal-Australia.
Note 6 - Secured Loans
On May 28, 1998, the Company loaned $818,000 to an individual. The loan
is secured by the individuals' interest in Tamaris., an aged care operating
company in the United Kingdom. The loan bears interest at 10.5% and principal
payments are due through the year 2000. The carrying value of the loan at
September 30, 1999 and September 30, 1998 is $716,000 and $818,000,
respectively.
On August 18, 1999, the Company loaned $465,000 to an enterprise. The
loan is secured by the enterprise's interest in Tamaris plc. The loan bears
interest at 7.15% and principal and interest is due on demand. The carrying
value of the loan at September 30, 1999 is $465,000.
Note 7 - Financial Instruments
The carrying amounts and fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments .................. $ 5,738 $ 5,738 $ 10,281 $ 10,281
Restricted cash .................................. 389 389 9,330 9,330
Subordinated loan to Principal-UK ................ 23,805 24,699 23,805 27,348
Temporary advances to Principal-UK ............... 18,368 18,368 8,379 8,379
Warrants for 10,556,250 Principal-UK shares ...... - 8,758 - 6,700
Secured loans .................................... 1,181 1,181 818 856
------- ------- ------ ------
$ 49,481 $ 59,133 $ 52,613 $ 62,894
======= ======= ======= =======
Off Balance Sheet Financial Instruments:
Foreign currency contracts ....................... $ (1,629) $ (1,629) $ 1,789 $ (1,789)
</TABLE>
Fair value estimates are subjective in nature and are dependent on a
number of important assumptions, including estimates of future cash flows,
risks, discount rates and relevant comparable market information associated with
each financial instrument. The use of different market assumptions and
estimation methodologies may have a material effect on the reported estimated
fair value amounts. Accordingly, the estimates presented above are not
necessarily indicative of the amounts the Company would realize in a current
market exchange.
The Company has forward contracts to hedge currency risks associated
with investments in Principal-UK and Principal-Australia. Pursuant to a ten-year
British pound sterling currency swap agreement, the Company is obligated to
exchange (pound)20,000,000 for $31,740,000 on October 15, 2007. At September 30,
1999, the Company is obligated to exchange A$11,000,000 at an average rate of
US$ 0.6135. The carrying amount of the investment in Principal-UK, the
subordinated loans/advances to Principal-UK, and the investment in
Principal-Australia, are based on the rates established in the forward exchange
contracts.
F-11
<PAGE>
Note 8 - Income Taxes
Income tax expense differs from the amounts computed by applying the
U.S. Federal income tax rate of 34% to earnings before taxes as follows for the
year ended September 30, 1999 and the six-month period ended September 30, 1998
(in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Computed expected tax expense ......................... $ 2,989 $ 979
Tax effect of equity in earnings of investments ....... (320) (143)
Other ................................................. 1 91
------ ------
Total ............................................ $ 2,670 $ 927
====== ======
</TABLE>
The tax basis of assets transferred from Omega to the Company exceeded
the book basis by approximately $36 million, resulting in a deferred tax asset
of approximately $12 million. Due to the uncertainties in realizing this
benefit, management has provided a valuation reserve against the full amount.
Note 9 - Credit facilities
In November 1998, the Company entered into a revolving credit agreement
with a group of banks allowing for borrowings up to $25 million. Omega provided
a guarantee to the banks in consideration of a fee of 1%, plus an annual 25
basis point facility fee. The agreement is scheduled to expire on September 30,
2000. The Company also pays to the banks an unused facility fee of .40%.
Borrowings under the facility bear interest at LIBOR plus 1.350% or at the
Company's option, at the prime rate. At September 30, 1999, the Company has no
outstanding borrowings under the credit facility.
Note 10 - Stock Options
Under the terms of the 1998 Stock Option and Restricted Plan (the
"Plan"), the Company reserved 750,000 shares of common stock for grants to be
issued during a period of up to 10 years. Directors, officers and key employees
are eligible in the Plan. Options for 99,000 and 648,000 shares have been
granted to eligible participants during the year ended September 30, 1999 and
the six-month period ended September 30, 1998, respectively. Additionally, 8,000
shares of restricted stock have been granted under the provisions of the Plan
during both the year ended September 30, 1999 and the six-month period ended
September 30, 1998. The vesting period on restricted stock is six months after
the date of grant and expense related to the restricted stock grants during 1999
and 1998 is $33,000 and $60,000 for the year ended September 30, 1999 and the
six-month period ended September 30, 1998, respectively.
The following is a summary of activity under the Plan.
<TABLE>
<CAPTION>
Number of Exercise Weighted
Shares Price Average Price
------ ----- -------------
<S> <C> <C> <C>
Outstanding at April 2, 1998 - $ - $ -
Grants during 1998 ..................... 648,000 5.688-7.500 7.479
Forfeited .............................. (42,000) 7.500 7.500
------- ----------- -----
Outstanding at September 30, 1998 ........ 606,000 5.688-7.500 7.477
Granted during 1999 .................... 99,000 4.000-4.688 4.521
Forfeited .............................. (31,000) 4.688-7.500 7.100
------- ----------- -----
Outstanding at September 30, 1999 ........ 674,000 $4.000-7.500 $ 7.116
======= =========== ======
</TABLE>
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 123, " Accounting for
Stock-Based Compensations." This standard prescribes a fair value based method
of accounting for employee stock options or similar equity instruments and
requires certain pro forma disclosures. For purpose of the pro forma disclosures
required under Statement 123, the estimated fair value of the options is
amortized to expense over the option's vesting period. The estimated weighted
average fair value of options granted approximates $204,000, and $2,000,000,
during the year ended September 30, 1999 and the six-month period ended
September 30, 1998, respectively. In determining the estimated fair value of the
F-12
<PAGE>
Company's stock options as of the date of grant, a Black-Scholes option pricing
model was used with the following weighted-average assumptions: risk-free
interest rates of 6.0%; volatility factors of the expected market price of the
Company's common stock at 30%; and a weighted-average expected life of the
options of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company's pro forma net earnings would be $5,741,000 and $1,784,000, and pro
forma earnings per common share, basic and diluted, would be $0.47 and $0.14,
for the year ended September 30, 1999 and the six-month period ending September
30, 1998, respectively.
Note 11 - Preferred Stock
Effective April 2, 1998, the Company issued 260,000 shares of 8% Series
B Cumulative Preferred Stock ("Preferred Stock") at $1 par value per share to
Omega in connection with the terms of the agreement. Each share of Series B
Preferred converts to one share of the Company's Common Stock immediately after
Omega makes a distribution of the Series B Preferred to its shareholders or
otherwise transfers the shares to any unaffiliated third party. Dividends on the
Preferred Stock are payable annually based on liquidation value of $10 per
share.
Note 12 - Net Earnings Per Share
Net earnings per share are computed based on the weighted average
number of common shares outstanding during the period. Average shares
outstanding for the basic earnings per share were 12,261,000 for 1999, and
12,255,000 for 1998. The assumed conversion of shares of preferred stock is
currently antidilutive.
Note 13 - Related Party Transactions
Pursuant to the provision of a Services Agreement between Omega and the
Company, indirect costs incurred by Omega, including compensation of shared
executive officers and relations support personnel, and costs incurred by Omega
for rent, insurance, telephone, utilities, supplies, maintenance and travel, are
allocated to the Company based upon the relationship of assets under the
Company's management to the combined total of those assets and Omega's assets.
Assets and costs in the formula are on a one-quarter lag basis. Allocated
expenses during the period ended September 30, 1999 and for the six-month period
ended September 30, 1998 were approximately $768,000 and $303,000, respectively.
Such allocations are based on estimates and formulas that management believes to
be reasonable.
Temporary unsecured advances to Principal-UK in the amount of
$18,368,000 and $8,379,000 are outstanding at September 30, 1999 and 1998
respectively. Interest at 9.25% is paid on a monthly basis. Included in interest
income for the year ended September 30, 1999 and the six-month period ended
September 30, 1998 is $1,719,000 and $292,000 respectively, related to advances
to Principal-UK.
Interest on the subordinated loan to Principal-UK and fees from
services are $3,042,000 and $4,918,000, respectively, for the year ending
September 30, 1999, and $1,492,000 and $1,920,000, respectively, for the
six-month period ended September 30, 1998.
Fees from services provided to Principal-Australia for the period April
1, 1999 through September 30, 1999 are $405,000.
Interest expense relating to a bridge loan from Omega totaled $226,000
for the year ended September 30, 1999. This loan was repaid prior to December
31, 1998.
F-13
<PAGE>
Note 14 - Business Segment Information
The Company provides investment advisory and management services, as
well as equity and debt capital to the healthcare industry, primarily in Europe
and the Pacific Rim. The Company emphasizes investments in firms, which provide
residential services to the elderly. The Company has established subsidiary
businesses, Omega (UK) Ltd. in London and Omega (Australia) Pty Ltd., in Sydney,
to manage, finance, and monitor investments in Europe and Australia/New Zealand,
respectively. Accordingly, the Company presently operates in three geographic
regions, the United States, United Kingdom and Australia.
The following is a summary of operations by geographic region for the year ended
September 30, 1999 and the six-months ended September 30, 1998.
1999 1998
Revenue:
United States ................ $ 5,369 $ 2,065
United Kingdom ............... 4,918 1,920
Australia .................... 4,466 1,110
------ -----
Total ...................... $ 14,753 $ 5,095
======= =======
Operating income (expense):
United States ................ $ 6,295 $ 2,643
United Kingdom ............... 2,828 477
Australia .................... 1,385 247
Corporate expenses ........... (1,718) (485)
------ ------
Total ...................... $ 8,790 $ 2,882
======= =======
Identifiable assets:
United States ................ $ 67,921 $ 57,108
United Kingdom ............... 113 131
Australia .................... 378 31,753
------ ------
Total ...................... $ 68,412 $ 88,992
======= =======
Identifiable assets attributable to the United States include
approximately $45 million represented by cash, loans and investments denominated
in currencies other than the U.S. dollar.
F-14
<PAGE>
Note 15 - Supplemental Disclosure of Cash Flow Information
Following are details of changes in operating assets, liabilities and
other non-cash transactions for the year ending September 30, 1999 and the
six-month period ended September 30, 1998 (in thousands):
<TABLE>
<CAPTION>
Increase (decrease) in cash from changes in
operating assets and liabilities: 1999 1998
---- ----
<S> <C> <C>
Operating assets ................................................... $ (3,310) $ (880)
Other liabilities .................................................. 1,936 341
Accrued taxes ...................................................... 1,728 433
----- -----
$ 354 $ (106)
======= ======
Noncash investing and financing transactions:
Contribution by Omega Healthcare Investors, Inc.,
excluding cash:
Investments ...................................................... $ - $ 5,297
Loans ............................................................ - 23,805
Other ............................................................ - 150
Equity ........................................................... - (29,252)
Acquisition of land and buildings subject to triple-net lease .... - (27,457)
Non-interest bearing deferred obligation ......................... - 27,457
Income taxes paid during the period, net of refunds received ......... 923 600
Interest expense paid during the period .............................. 1,627 -
Principal-Australia cash balance at April 1, 1999 .................... 151 -
</TABLE>
Note 16 - Quarterly Data (Unaudited)
The following is an unaudited summary of quarterly results of
operations for the years ended September 30, 1999 and the six-month period ended
September 30, 1998.
<TABLE>
<CAPTION>
December 31 March 31 June 30 September 30
<S> <C> <C> <C> <C>>
(In thousands, except per share)
1999
Revenues ....................................... $ 3,858 $ 5,269 $ 2,740 $ 2,886
Net earnings ................................... 1,291 1,214 2,112 1,503
Net earnings available to common ............... 1,239 1,162 2,060 1,451
Per Share Amounts:
Net earnings available to common, basic ........ 0.10 0.10 0.16 0.12
Net earnings available to common, diluted ...... 0.10 0.10 0.16 0.12
1998
Revenues ....................................... $ - $ - $ 1,778 $ 3,317
Net earnings ................................... - - 744 1,211
Net earnings available to common ............... - - 692 1,159
Per Share Amounts:
Net earnings available to common, basic ........ - - 0.06 0.09
Net earnings available to common, diluted ...... - - 0.06 0.09
</TABLE>
Note 17- Subsequent Event
In October 1999, the Company, through its wholly owned subsidiary, Idun
Healthcare Ltd., acquired the operating subsidiaries of Tamaris, plc. The 48
subsidiaries acquired, operate 119 nursing homes located throughout England,
Scotland and Northern Ireland. The purchase price consisted of cash of
$1.7 million, 4,170,250 shares of Tamaris, plc with an original cost at
$2.8 million and a carrying value as of September 30, 1999 of $1.9 million,
and the assumption of liabilities of the operations, estimated at $40 million.
The companies acquired had approximately $2 million of combined tangible net
assets as of their most recent year end, March 31, 1999, and management believes
the excess of purchase consideration over net tangible assets acquired will not
be significant.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OMEGA WORLDWIDE, INC.
By: /s/ ESSEL W. BAILEY, JR.
-------------------------
Essel W. Bailey, Jr.
Chief Executive Officer
Dated: December 27, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER
/s/ ESSEL W. BAILEY, JR. President, Chief Executive December 27, 1999
- --------------------------- Officer, and Director
Essel W. Bailey, Jr.
PRINCIPAL FINANCIAL OFFICER and
PRINCIPAL ACCOUNTING OFFICER
/s/ EDWARD C. NOBLE Vice President, Chief Financial Officer December 27, 1999
- --------------------------- and Chief Accounting Officer
Edward C. Noble
DIRECTORS
/s/ JACQUES AIGRAIN
- ---------------------------
Jacques Aigrain Director December 27, 1999
/s/ JAMES A. EDEN
- ---------------------------
James A. Eden Director December 27, 1999
/s/ THOMAS F. FRANKE
- ---------------------------
Thomas F. Franke Director December 27, 1999
/s/ ANIL K. GUPTA
- ---------------------------
Anil K. Gupta Director December 27, 1999
/s/ HAROLD J. KLOOSTERMAN
- ---------------------------
Harold J. Kloosterman Director December 27, 1999
/s/ BERNARD J. KORMAN
- ---------------------------
Bernard J. Korman Director December 27, 1999
16
<PAGE>
/s/ EDWARD LOWENTHAL
- ---------------------------
Edward Lowenthal Director December 27, 1999
/s/ ROBERT L. PARKER
- ---------------------------
Robert L. Parker Chairman of the Board December 27, 1999
</TABLE>
17
<PAGE>
INDEX TO EXHIBITS
Exhibit 3.1 Articles of Amendment and Restatement Incorporated by
reference to Exhibit 3.1 to Form S-1 Registration Statement
Exhibit 3.2 Amended and Restated Bylaws Incorporated by reference to
Exhibit 3.2 to Form S-1 Registration Statement
Exhibit 3.3 Articles Supplementary for Series B Preferred Stock
Incorporated by reference to Exhibit 3.3 to Form S-1
Registration Statement
Exhibit 3.4 Articles Supplementary for Series A Preferred Stock
Incorporated by reference to Exhibit 3.4 to Form S-1
Registration Statement
Exhibit 10.1 Omega Worldwide, Inc. 1997 Stock Option and Restricted
Stock Plan Incorporated by reference to Exhibit 10.1 to
Form S-1 Registration Statement
Exhibit 10.2 Opportunity Agreement between the Company and Omega
dated April 1, 1998 Incorporated by reference to Exhibit
10.2 to Form S-1 Registration Statement
Exhibit 10.3 Services Agreement between the Company and Omega dated
April 1, 1998 Incorporated by reference to Exhibit 10.3 to
Form S-1 Registration Statement
Exhibit 10.4 Amended and Restated Advisory Agreement dated as of
July 21, 1995 between the Company (as successor by
assignment from Omega) and Principal Incorporated by
reference to Exhibit 10.5 to Form S-1 Registration
Statement
Exhibit 10.5 Indemnification Agreements between the Company and its
Directors and Executive Officers Incorporated by reference
to Exhibit 10.7 to form S-1 Registration Statement
Exhibit 10.6 Advisory Agreement between Omega (Australia) Pty
Limited and Principal Healthcare Finance Trust incorporated
by reference to Exhibit 10.6 to Form 10-K for the fiscal
year ended September 30, 1998.
Exhibit 10.7 Form of Loan Agreement dated as of November 20, 1998
among the Company, Fleet Bank, N.A., as Agent, and other
financial institutions named therein. Incorporated by
reference to Exhibit 10.7 to Form 10-K for the fiscal year
ended September 30, 1998.
Exhibit 10.8 Promissory Note executed by Principal-Australia to
Omega and Guaranty executed by the Company in favor of
Omega Incorporated by reference to Exhibit 10.3 to the
Company's report on Form 8-K filed on November 27, 1998
Exhibit 10.9 Transaction documents dated June 19, 1998 --
Incorporated by reference to Exhibit 10.1 to the Company's
report on Form 8-K filed on July 2, 1998:
(a) Mortgage of Deposit between the Company and ABN AMRO
Facilities Australia Limited ("ABN Facilities")
(b) Bill Facility Agreement between Principal Pty and ABN
AMRO Australia Limited ("ABN Australia")
(c) Deed of Guarantee and Indemnity between the Company
and ABN Facilities
18
<PAGE>
(d) Redemption and Subscription Agreement among
Premier Care Australia (Holdings) Pty Limited, FAI
Insurances Limited ("FAI"), PHF No. 1 Pty Limited
("PHF No. 1"), Tanoa Pty Limited ("Tanoa"), and
Premier Care Australia Pty Limited (now known as
Principal Healthcare Finance Pty Limited ("Principal
Pty")
(e) Relationship Agreement among the Company, PHF No. 1
Pty Limited, PHF No. 2 Pty Limited, Tanoa, Mindra
Pty Limited, Beheer-en Beleggingsmaatschappij
Dilava BV, Beheer-en Beleggingsmaatschappij Rocla BV,
Moran Health Care ("Australia") Pty Limited ("Moran
Australia") and Moran Health Care Group Pty Limited
("Moran")
(f) Deed of Mortgage and Annexure B to Mortgage between
Principal Pty and ABN Facilities
(g) Capital Contribution Agreement among Moran Australia,
Moran and Principal Pty
(h) NSW Lease between Principal Pty, as lessor, and Moran
Australia, as lessee
(i) Lease Guarantee between Moran and Principal Pty
(j) Indemnity Deed
(k) Procurement Agreement among Moran Australia, FAI,
Moran, Douglas John Moran, Greta Richmond Moran, Peter
Godfrey Moran and Shane Moran
(l) Mortgage of Shares between Moran and Principal Pty
Exhibit 10.10 Transaction documents dated April 16, 1999 with the
following exhibits. Incorporated by reference to Exhibit
to the Company's report on Form 8-K filed on April 16,
1999.
(a) Form of Transaction Documents
(b) Subscription Deed, Principal Healthcare Finance Unit
Trust No. 1
(c) Subscription Deed, Principal Healthcare Finance Unit
Trust No. 2
(d) Deed of Loan, PHF No. 1 Pty Limited, AMP Life
Limited, Omega Worldwide, Inc.
(e) Principal Healthcare Finance Unit Trust No. 1, Term
of 2004 Options
(f) Principal Healthcare Finance Unit Trust No. 2, Term
of 2004 Options
(g) Advisory Agreement
Exhibit 10.11 Share Acquisition Agreement between Tamaris and
the Company - Incorporated by reference to Exhibit 10.1 to
the Company's report on Form 8-K filed on November 1, 1999
Exhibit 10.12 Amendment to Loan agreement dated as of November 20, 1998
among the Company, Fleet Bank, N.A. as agent - Filed
herewith
Exhibit 10.13 Asset Administration deed between Principal Healthcare
Finance Pty Limited and Omega (Australia) Pty Limited dated
as of November 1, 1999 - Filed herewith
Exhibit 11 Statement re Computation of Per-Share Earnings - Filed
herewith
Exhibit 12 Statement re Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends - Filed
herewith
19
<PAGE>
Exhibit 21 Subsidiaries of Registrant - Filed herewith
Exhibit 27 Financial Data Schedule - Filed herewith
Exhibit 99(a) Financial Statements of Principal Healthcare Finance
Limited-- (filed herewith):
-Report of Auditors
-Consolidated Statement of operations for the years
ended August 31, 1999, 1998 and 1997
-Consolidated Balance Sheets as of August 31, 1999
and 1998
-Consolidated Statements of Shareholders' Equity for
the years ended August 31, 1999, 1998, and 1997
-Consolidated Statements of Cash Flows for the years
ended August 31, 1999, 1998, and 1997
-Notes to Consolidated Financial Statements
Exhibit 99(b) Proforma Financial Statements of Idun Health Care Limited
(UK) -- (filed herewith):
-Report of Independent Accountant
-Proforma Combined Profit and Loss Account for the
years ended March 31, 1999 and 1998
-Proforma Combined Balance Sheets as of March 31, 1999
and 1998
-Proforma Combined Cash Flow Statement for the years
ended March 31, 1999 and 1998
-Notes to the Financial Statements
20
AMENDMENT NO. 1 TO LOAN AGREEMENT
---------------------------------
AMENDMENT NO. 1 TO LOAN AGREEMENT (this "First Amendment"), made
and executed this 22nd day of October, 1999, effective as of August 18, 1999,
by and between:
OMEGA WORLDWIDE, INC., a Maryland corporation (the "Borrower");
The Banks that have executed the signature pages hereto (individually,
a "Bank" and collectively, the "Banks"); and
FLEET BANK, N.A., a national banking association, as Agent for the
Banks (in such capacity, together with its successors in such capacity, the
"Agent").
PRELIMINARY STATEMENTS
----------------------
(A) The Borrower has entered into a certain Loan Agreement dated
November 20, 1998 (together with all Exhibits and Schedules thereto, hereinafter
referred to as the "Loan Agreement") with the Agent and the Banks;
(B) The Borrower has requested that the Banks and the Agent amend
certain provisions of the Loan Agreement, and the Banks and the Agent are
willing to so amend the Loan Agreement, all on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the agreements and provisions
contained herein, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used but not otherwise
------------
defined herein shall have the meanings ascribed to such terms in the Loan
Agreement.
2. Certain Amendments to Loan Agreement. The Loan Agreement is hereby
------------------------------------
amended, effective on the date this First Amendment becomes effective in
accordance with Section 4 hereof, as follows:
2.1. Article 1 of the Loan Agreement (Definitions) is amended
by deleting the chart appearing in the definition of "Applicable Margin" and
substituting therefor the following:
"Category 1
-----------
Both of the following Ratings:
BBB or higher by S&P; and
Baa2 or higher by Moody's 1.0625%
Category 2
----------
Both of the following Ratings:
BBB- by S&P; and
Baa3 by Moody's 1.1875%
Category 3
----------
BBB- or higher by D&P and one of the following Ratings:
BBB- by S&P; or
Baa3 by Moody's 1.350%"
2.2. Article 1 of the Loan Agreement (Definitions) is amended
by deleting the chart appearing in the definition of "Commitment Fee Percentage"
and substituting therefor the following:
"Category 1
-----------
Both of the following Ratings:
BBB or higher by S&P; and
Baa2 or higher by Moody's .250%
Category 2
----------
Both of the following Ratings:
BBB- by S&P; and
Baa3 by Moody's .300%
Category 3
----------
BBB- or higher by D&P and one of the following Ratings:
BBB- by S&P; or
Baa3 by Moody's .400%"
2.3 The following definition is added to Article 1 of the Loan
Agreement (Definitions) in its appropriate alphabetical position:
"'D&P' - Duff & Phelps."
2.4 The definition of "Ratings Agencies" appearing in Article
1 of the Loan Agreement (Definitions) is deleted in its entirety and the
following is substituted therefor:
"'Ratings Agencies' - Moody's, S&P and D&P."
2.5 Article 8 of the Loan Agreement (Events of Default) is
amended by deleting Section 8.11 (Ratings) in its entirety and substituting
therefor the following:
"Section 8.11 Ratings.
-------
Failure by Omega to maintain an investment grade Rating
from at least two of the three Ratings Agencies."
2.6 Article 10 of the Loan Agreement (Miscellaneous
Provisions) is amended by substituting the following addresses in subsections
(a) and (c) of Section 10.9 (Notices), as follows:
"(a) If to the Borrower:
c/o Omega Healthcare Investors, Inc.
900 Victors Way, Suite 345
Ann Arbor, Michigan 48108
Attention: Mr. Essel W. Bailey, Jr., President
Telecopier No.: (734) 887-0301"
"(c) If to the Agent:
Fleet Bank, N.A., as Agent
1185 Avenue of the Americas
New York, New York 10036
Attention: Mr. Christian J. Covello
Telecopier No.: (212) 819-4120
with a copy (other than in the case of
Borrowing Notices and reports and other
documents delivered in compliance with
Article 5 hereof) to:
Emmet, Marvin & Martin, LLP
120 Broadway
New York, New York 10271-3291
Attention: Richard S. Talesnick, Esq.
Telecopier No.: (212) 238-3100"
3. Representations and Warranties. In order to induce the Banks and the
------------------------------
Agent to enter into this First Amendment, each of the Loan Parties hereby
represents and warrants to the Banks and the Agent that:
3.1 No Default. After giving effect to this First Amendment,
----------
no Default or Event of Default shall have occurred or be continuing.
3.2 Existing Representations and Warranties. As of the date
-----------------------------------------
hereof and after giving effect to this First Amendment, each and every one of
the representations and warranties set forth in the Loan Documents are true,
accurate and complete in all respects and with the same effect as though made on
the date hereof, and each is hereby incorporated herein in full by reference as
if restated herein in its entirety, except for changes in the ordinary course of
business which are not prohibited by the Loan Agreement (as amended hereby) and
which do not, either singly or in the aggregate, have a Material Adverse Effect.
3.3 Authority; Enforceability. (i) The execution, delivery and
-------------------------
performance by each Loan Party of this First Amendment are within its
organizational powers and have been duly authorized by all necessary action
(corporate or otherwise) on the part of each Loan Party, (ii) this First
Amendment is the legal, valid and binding obligation of each Loan Party,
enforceable against each Loan Party in accordance with its terms, and (iii) this
First Amendment and the execution, delivery and performance by each Loan Party
thereof does not: (A) contravene the terms of any Loan Party's organization
documents, (B) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any contractual obligation
to which any Loan Party is a party or any order, injunction, writ or decree to
which any Loan Party or its property is subject, or (C) violate any requirement
of law.
4. Conditions Precedent to Effectiveness of Amendments. The amendments
---------------------------------------------------
contemplated by Section 2 hereof are subject to the satisfaction of each of the
---------
following conditions precedent:
4.1 First Amendment. The Loan Parties shall have delivered or
---------------
caused to be delivered to the Agent and each Bank an original executed
counterpart of this First Amendment.
4.2 No Default. As of the date hereof, no Default or Event
-----------
of Default shall have occurred and be continuing.
4.3 Warranties. As of the date hereof, the representations and
----------
warranties contained in Section 3 of this First Amendment shall be true and
---------
correct.
4.4 Amendment Fee. The Borrower shall have paid the
--------------
Amendment Fee in accordance with Section 6.2 below
5. Reference to and Effect Upon the Loan Agreement.
-----------------------------------------------
5.1 Effect. Except as specifically amended hereby, the Loan
------
Agreement and the other Loan Documents shall remain in full force and effect in
accordance with their terms and are hereby ratified and confirmed.
5.2 No Waiver; References. The execution, delivery and
----------
effectiveness of this First Amendment shall not operate as a waiver of any
right, power or remedy of the Agent or any Bank under the Loan Agreement, nor
constitute a waiver of any provision of the Loan Agreement, except as
specifically set forth herein. Upon the effectiveness of this First Amendment,
each reference in:
(i) the Loan Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall mean and
be a reference to the Loan Agreement as amended hereby;
(ii) the other Loan Documents to the "Loan
Agreement" shall mean and be a reference to the Loan Agreement as amended
hereby; and
(iii) the Loan Documents to the "Loan Documents"
shall be deemed to include this First Amendment.
6. Miscellaneous.
--------------
6.1 Expenses. The Loan Parties agree to pay the Agent upon
---------
demand for all reasonable expenses, including reasonable attorneys' fees and
expenses of the Agent, incurred by the Agent in connection with the preparation,
negotiation and execution of this First Amendment.
6.2. Amendment Fee. Simultaneously with the execution and
--------------
delivery of this Agreement, the Borrower shall pay to the Agent, for the benefit
of the Banks, pro rata, according to their respective Revolving Credit
Commitments, a non-refundable Amendment Fee in an amount equal to .125% of the
Total Commitment.
6.3 Law. THIS FIRST AMENDMENT SHALL BE CONSTRUED IN
---
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
6.4 Successors. This First Amendment shall be binding upon
----------
the Loan Parties, the Banks and the Agent and their respective successors and
assigns, and shall inure to the benefit of the Loan Parties, the Banks and the
Agent and the successors and assigns of the Banks and the Agent.
<PAGE>
6.5 Execution in Counterparts. This First Amendment may be
--------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed and delivered by their respective officers thereunto
duly authorized as of the date first written above.
OMEGA WORLDWIDE, INC.
By /s/ Edward C. Noble
-------------------
Title
FLEET BANK, N.A., as Agent and as
a Bank
By /s/ Christian Covello
---------------------
Title
HARRIS TRUST AND SAVINGS BANK
By /s/ Kirby M. Law
---------------------
Title
Agreed to and Accepted:
OMEGA HEALTHCARE INVESTORS, INC.
By /s/ David A. Stover
-------------------
Title
ASSET ADMINISTRATION AGREEMENT
Principal Healthcare Finance Pty Limited
Omega (Australia) Pty Limited
Permanent Nominees (Aust) Limited
Permanent Trustee Australia Limited
Deloitte Touche Tohmatsu
255 Elizabeth Street Sydney NSW 2000 Australia
Tel +61 2 9286 8000 Fax +61 2 9283 4144 DX 107 SYDNEY
Email: [email protected]
WWW site: http://www.PhillipsFox.com.au
<PAGE>
CONTENTS
1. DEFINITIONS AND INTERPRETATION......................................2
1.1 Definitions................................................2
1.2 Presumptions of interpretation.............................2
1.3 Headings and table of contents.............................3
1.4 Joint and several..........................................3
1.5 Successors and assigns.....................................3
1.6 References to and calculations of time.....................3
1.7 Bond Trustee's capacity....................................3
1.8 Security Trustee's capacity................................4
2. APPOINTMENT.........................................................4
2.2 Duration...................................................6
2.3 General Rights and Duties..................................6
2.4 Delegation.................................................6
2.5 Consultation with other professionals......................7
2.6 Professional indemnity insurance...........................7
2.7 Indemnity..................................................7
2.8 Approvals and Authorisations...............................8
2.9 Compliance with Agreements.................................8
2.10 Trust......................................................8
2.11 Property Manager' Expenses.................................8
2.12 Reliance on Information....................................9
3. REMUNERATION........................................................9
4. PROPERTY MANAGER' OBLIGATIONS.......................................9
4.1 The Properties.............................................9
4.2 Property Manager to keep records relating to Properties....9
4.3 Deliberately omitted......................................10
4.4 Investor Reports..........................................10
4.5 Use of electronic systems.................................10
4.6 Access to Books and Records...............................10
4.7 Service of notices........................................10
4.8 Warranties................................................10
4.9 Records kept at Property Manager's Address................10
4.10 Property Manager to supply copies.........................11
4.11 No Liability..............................................11
4.12 Rent collection...........................................11
4.13 Arrears procedures........................................11
4.14 General monitoring and inspection.........................12
4.15 Tenant liaison and application for consent................12
4.16 Rent reviews and re-lettings..............................13
4.17 Properties insurance......................................13
4.18 Taxation administration...................................13
4.19 Letting...................................................14
4.20 Maintenance of records....................................14
4.21 Statutory Accounts........................................14
4.22 Property Manager's Accounts...............................15
4.23 Statutory obligations.....................................15
4.24 Records and Books of Account..............................15
4.25 Compliance with Deed......................................15
4.30 Exercise of Lessee Substitution Right....................16
5. TERMINATION........................................................17
5.2 Consequence of termination................................18
5.3 Responsibilities following termination....................18
6. FURTHER ASSISTANCE.................................................19
7. MISCELLANEOUS......................................................19
8. GENERAL............................................................20
8.1 Variations................................................20
8.2 Waiver....................................................20
8.3 Rights cumulative.........................................20
8.4 Services non-exclusive....................................20
8.5 No Partnership............................................21
9. ASSIGNMENT.........................................................21
9.1 Property Manager..........................................21
9.2 Permitted Assignments.....................................21
9.3 Issuer, Bond Trustee and Security Trustee.................21
10. NOTICES............................................................21
11. GOVERNING LAW AND SUBMISSION TO JURISDICTION.......................22
11.1 Submission to Courts......................................22
11.2 Waiver to objection to forum..............................22
11.3 Service of Process........................................22
12. COUNTERPARTS.......................................................23
13. APPOINTMENT OF STANDBY MANAGER.....................................23
14. NON PETITION.......................................................25
15. FORCE MAJEURE......................................................25
SCHEDULE 1..............................................................26
SCHEDULE 2..............................................................27
<PAGE>
ASSET ADMINISTRATION DEED
THIS DEED is made on the day of October 1999
BETWEEN:
PRINCIPAL HEALTHCARE FINANCE PTY LIMITED, ACN 069 875 476 in its capacity as
trustee of the PHF Trust of C/- Phillips Fox, 255 Elizabeth Street, Sydney, New
South Wales ("the Issuer")
OMEGA (AUSTRALIA) PTY LIMITED ACN 082 747 331 of C/- Phillips Fox, 255 Elizabeth
Street, Sydney, New South Wales ("the Property Manager" which expression
includes any entity for the time being providing property management services
under or pursuant to this Deed);
PERMANENT NOMINEES (AUST) LIMITED ACN 000 154 441 of 23-25 O'Connell Street,
Sydney, New South Wales ("Bond Trustee")
PERMANENT TRUSTEE AUSTRALIA LIMITED ACN 008 412 913 of 23-25 O'Connell
Street, Sydney, New South Wales ("Security Trustee")
The partners in the firm of chartered accountants known as DELOITTE TOUCHE
TOHMATSU of Grosvenor Place, 225 George Street, Sydney, New South Wales
("Standby Manager") which expression includes its assignees or transferees;
RECITALS
A The Issuer is the registered proprietor of the Property and is the lessor
or licensor of the Leases.
B The Issuer wishes to appoint the Property Manager to manage its interests
in the Properties in the manner set out in this Deed.
C The Property Manager has agreed to accept such appointment on the terms set
out in this Deed.
D The Issuer has entered into the Securities in favour of the Security
Trustee over, inter alia, all the Properties as security inter alia for its
obligations to the Bondholders pursuant to the Bond and Security Trust
Deed.
E The Standby Manager has agreed to act as substitute for the Property
Manager in the manner set out in this Deed.
BACKGROUND
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this deed, words and expressions which are defined in the Definitions
Deed but are not defined in this deed have the same meaning as in the
Definitions, and
"Definitions Deed" means the deed dated on or about the date of this deed
and made between, among others the Issuer, the Bond Trustee, the Security
Trustee and the Property Manager and setting out the meaning of certain
words and expressions.
"Invested Assets" means the book value of Invested Assets for the Issuer
where Book Value means the assets of the Issuer as recorded from time to
time:
(a) before any appraisal write-up in accordance with Australian GAAP; and
(b) before provision for amortisation depreciation, depletion or valuation
reserves,
and the book value of the Invested Assets means the total assets of any
nature owned, leased, managed or operated by the Issuer from time to
time, excluding:
(a) goodwill and other intangible assets;
(b) cash; and
(c) cash equivalent investments with terms which mature in one year or less
and increased by the amount of any increase in appraisal, write-up
of assets of the Issuer and its consolidated subsidiaries as
reported in annual valuations for such fiscal period and decreased
by the amount of any reduction in appraisal of assets of the
Issuer as reported in annual valuation for such fiscal period.
"GST" means and goods and services, value added, consumption or
similar tax which is imposed by law whether of the Commonwealth of
Australia or any State or Territory of Australia;
"Investor Report" means a report containing the information in
Schedule 1.
"Loan Enforcement Notice" means a written notice provided by the
Bond Trustee or the Security Trustee to the Property Manager
advising the Property Manager that an Event of Default ( as
defined in the Bond and Security Trust Deed) or a Step-in Event
(as defined in the Bond and Security Trust Deed) has occurred and
that the Bond Trustee or Security Trustee has exercised any of its
rights under the Finance Documents arising as a result of such
Event of Default or Step-in Event.
"Project Account Deed" means the deed so entitled between the
Issuer, the Bond Manager, the Bond Trustee and the Property
Manager dated on or about the date of this deed.
Services" means the services to be performed by the Property
Manager pursuant to the terms of this deed including under clauses
2.1.1 and 2.9;
1.2 Presumptions of interpretation
1.2.1 Unless the context otherwise requires a word which denotes:
(a) the singular denotes the plural and vice versa;
(b) any gender denotes the other genders; and
(c) a person includes an individual, a body corporate, and a
government.
1.2.2 Unless the context otherwise requires a reference to:
(a) any legislation includes any regulation or instrument made under
it and where amended, re-enacted or replaced means that amended,
re-enacted or replacement legislation;
(b) any other agreement or instrument where amended or replaced means
that agreement or instrument as amended or replaced; and
(c) a group of persons includes any one or more of them.
1.2.3 Where a word or phrase is given a defined meaning another part of speech
or other grammatical form in respect of that word or phrase has a
corresponding meaning.
1.3 Headings and table of contents
Headings and any table of contents must be ignored in the interpretation
of this agreement.
1.4 Joint and several
An agreement warranty representation or obligation which binds or
benefits two or more persons under this agreement binds or benefits those
persons jointly and separately.
1.5 Successors and assigns
A person includes the trustee, executor, administrator, successor in
title and assign of that person. This clause must not be construed as
permitting a party to assign any right or obligation under this
agreement.
1.6 References to and calculations of time
Unless the context otherwise requires a reference to a time of day means
that time of day in the state or territory whose laws apply in the
construction of this agreement.
1.7 Bond Trustee's capacity
The Bond Trustee has entered into this deed and has undertaken or will
undertake all covenants, terms and conditions on its part to be observed
and performed under this deed in its capacity as Bond Trustee only. Any
liability or right of indemnity in respect of any matter, thing, act or
omission arising from this agreement actual or contingent, prospective or
of some other kind (in this clause called the "liability" ) on the part
of the Bond Trustee:
(a) is not personal;
(b) is at all times limited to the Trust Property in respect of which
the liability arose; and
(c) does not extend beyond money received by the Bond Trustee for or on
behalf of the Issuer, the Bond Manager or the Bondholders subjest
always to such payments, deductions, withholdings by the Bond
Trustee as authorised by the Finance Documents,
except to the extent that such liability arises from the Bond
Trustee's fraud, gross negligence, wilful misconduct or breach of
trust.
1.8 Security Trustee's capacity
The Security Trustee has entered into this agreement and has undertaken
or will undertake all covenants, terms and conditions on its part to be
observed and performed under this agreement in its capacity as Security
Trustee only. Any liability or right of indemnity in respect of any
matter, thing, act or omission arising from this agreement actual or
contingent, prospective or of some other kind (in this clause called the
"liability" ) on the part of the Security Trustee:
(a) is not personal;
(b) is at all times limited to the Trust Property in respect of which the
liability arose; and
(c) does not extend beyond money received by the Security Trustee for or
on behalf of the Issuer, the Bond Manager or the Bondholders subject
always to such payments, deductions, withholdings by the Bond Trustee
as authorised by the Finance Documents,
except to the extent that such liability arises from the Security
Trustee's fraud, gross negligence, wilful misconduct or breach of
trust.
2. APPOINTMENT
2.1 The Parties' agreement:
2.1.1 Subject to Clause 2.2 and until termination pursuant to Clause 5, the
Issuer appoints the Property Manager as its agent and on its behalf:
(a) to manage the day to day operations of the business of the Issuer
and the Properties on the terms contained in this deed;
(b) to exercise the rights, powers, authority, discretions and remedies
of the Issuer and to perform the obligations of the Issuer under or
arising out of the Leases, Lease Guarantees, the Moran Securities,
the Substitution Deed and the Bondholder Securities;
(c) to enforce the Moran Securities;
(d) to bring, defend, settle and adjust any claims relating to the
Leases, Lease Guarantees and the Moran Securities, and
(e) promptly upon becoming aware of any such event, to notify the Bond
Trustee of any event of default under a Project Document;
(f) assisting in the preparation of annual budgets and business plans for
approval by the board of the Issuer ("the Business Plans");
(g) using its best efforts to present to the Issuer a continuing
investment program consistent with the investment policies and
objectives of the Issuer as set out in the Business Plans;
(h) using its best efforts to present to the Issuer investment
opportunities consistent with the Business Plans and such investment
program as the Issuer may adopt from time to time;
(i) furnishing or obtaining and supervising the performance of the
administration of the day-to-day operations of the Issuer, including
the investment of reserve funds and surplus cash in investments
approved by the Issuer;
(j) serving as one of the Issuer's investment and financial advisors and
providing research, economic, and statistical data in connection with
the Issuer's investments and investment and financial policies;
(k) assisting the Issuer in investigating, selecting and negotiating with
borrowers, lenders, mortgagors, brokers, investors, builders,
developers and others;
(l) consulting with the Issuer and providing the Issuer with advice and
recommendations with respect to the making, acquiring (by purchase,
investment, exchange, or otherwise), holding, and disposition
(through sale, exchange, or otherwise) of investments consistent with
the Business Plans;
(m) assisting the Issuer in obtaining such services as may be required
for property management, loan disbursements, and other activities
relating to the investments of the Issuer, so long as the
remuneration for such services is to be agreed to by the Issuer and
the service provider;
(n) advising the Issuer in connection with capital market activities;
(o) quarterly, and at any time requested by the Issuer making reports to
the Issuer regarding the Issuer's performance to date in relation to
the Issuer's current approved Business Plan and its various
components, as well as the Property Manager's performance of its
services under this Agreement;
(p) making or providing appraisal reports, where appropriate, on
investments or contemplated investments of the Issuer;
(q) assisting in preparation of reports and other documents necessary to
satisfy the reporting and other requirements of any governmental
bodies or agencies and assisting in maintaining effective
communications with shareholders of the Issuer and the Bondholders;
and
(r) doing all things necessary to ensure its ability to render the
services contemplated under this deed, including providing office
space and office furnishings, computing and accounting equipment and
personnel necessary for the performance of these services as Property
Manager, all at the Property Manager's own expense, except as
otherwise expressly provided for in this deed
in each case, subject to and in accordance with any express
restrictions or limitations contained in the Bondholder Securities.
The Property Manager accepts such appointments and undertakes to
carry out and perform asset administration services and property
administration services on the terms set out in this Deed, subject to
the conditions of this Deed.
2.2 Duration
Without prejudice to the obligations of the Property Manager which this
Deed contemplates will be performed on or before Financial Close, the
appointment pursuant to Clause 2.1 is conditional upon the Initial Bond
Issue taking place and will take effect automatically without further
action on the part of any person. If the Initial Bond Issue has not taken
place by 12 November 1999 this Deed will cease to be of further effect.
2.3 General Rights and Duties
2.3.1 The Property Manager must at all times during the term of this Deed
administer pursuant to the terms of this Deed, the Issuer's interest in
the Properties and the Leases, Lease Guarantees and Moran Securities with
the same skill and care as it would administer such assets if it was the
beneficial owner of them.
2.3.2 The Property Manager will not have any powers, rights, authorities and
discretions in respect of the operating and financial policies of the
Issuer, the power to determine which remains vested in the board of
directors of the Issuer.
2.4 Delegation
2.4.1 The Property Manager may on its own behalf (and not as agent of the
Issuer) sub-contract or delegate the performance of all or any of its
powers and obligations under this Deed only if (but subject to Clauses
2.4.2 and 2.4.3):
(a) the prior written consent of the Bond Trustee has been obtained, which
consent must not be unreasonably withheld and will be deemed to be
given if not refused within thirty Banking Days of the later of the
date of:
(i) receipt of request for consent; and
(ii) the date of receipt by the Bond Trustee of any information
reasonably requested by the Bond Trustee in order to evaluate
such a request; and
(b) the terms of any contract on which such arrangements are to be made
have been approved by the Issuer and the Bond Trustee, which approval
must not be unreasonably withheld, and will be deemed to be given if
not refused within thirty Banking Days of the later of:
(i) the date of receipt of request for consent; and
(ii) the date of receipt by the Bond Trustee of any information
reasonably requested by the Bond Trustee in order to evaluate
such a request; and
(c) where the arrangements involve the custody or control of any deeds,
documents or files of the Issuer for the purpose of performing
any delegated services, the sub-contractor or delegate has
executed an acknowledgment in form and substance acceptable to
the Bond Trustee to the effect that any such deeds, documents or
files are and will be held to the order of the Security Trustee
free from any lien or encumbrance in favour of the sub-contractor
or delegate; and
(d) where the arrangements involve or may involve the receipt by the
sub-contractor or delegate of money which, in accordance with this
Deed, is to be paid into the Project Account, the sub-contractor
or delegate has executed a legally binding declaration in
form and substance acceptable to the Issuer and the Bond Trustee
that any such monies held by it or to its order are held on trust for
the Issuer, and/or will be paid forthwith into the Project Account
and
(e) any such sub-contractor or delegate has executed a written waiver of
any Encumbrance arising in connection with such delegated services to
the extent that such Encumbrance relates to the Properties or any
amount referred to in 2.4.1(d) above.
Neither the Security Trustee nor the Bond Trustee (unless they
otherwise agree in writing) will have any liability for any costs,
charges or expenses payable to or incurred by such sub-contractor or
delegate or arising from the entering into, the continuance or the
termination of any such arrangement.
2.4.2 Notwithstanding any sub-contract or delegation of the whole or any part
of the Property Manager's duties under this Deed, it will not be released
from its obligations hereunder and shall remain liable to the same extent
as if such duty had not been sub-contracted or delegated for any right,
remedy or cause of action that may arise due to any act or omission on
the part of any such sub-contractor or delegate acting in such capacity.
2.4.3 The provisos to Clause 2.4.1 contained in paragraphs (a)-(e) inclusive of
clause 2.4.1 do not apply to the engagement by the Property Manager of
any legal adviser, valuer, surveyor, estate agent, accountant, auditor or
other professional adviser, in connection with the performance by the
Property Manager of any of its obligations or functions or the exercise
of its powers under this Deed.
2.5 Consultation with other professionals
The Property Manager is entitled (or on the instruction of the Issuer
compelled) at the expense of the Issuer to consult such other
professional advisers on all matters it reasonably considers necessary in
connection with the due discharge of the Services.
2.6 Professional indemnity insurance
During the term of this Deed the Property Manager must effect and keep in
force a professional indemnity insurance policy with a minimum cover of
$5,000,000.00 in form and substance reasonably satisfactory to the Issuer
and the Bond Trustee concerning the performance by the Property Manager
and any of its respective employees, agents, delegates or contractors of
their obligations under this Deed (which policy may also cover other
property management activities of the Property Manager). The Property
Manager must:
(a) deposit a copy of the insurance policy with the Bond Trustee within
five (5) Banking Days after the date of this Deed with evidence of
payment of the premium and
(b) deposit evidence of renewal of the policy with the Bond Trustee within
five (5) Banking Days of such renewal being effected in each
succeeding year during which this Deed is current.
2.7 Indemnity
The Property Manager indemnifies each of the Issuer, the Bond Trustee and
the Security Trustee (according to their interests in the Properties) on
an after tax basis for any direct loss suffered, damage sustained or cost
incurred as a result of a breach by any of the Property Manager or any
sub contractor or delegate of any of the material terms and conditions in
this Deed.
2.8 Approvals and Authorisations
The Property Manager must, so far as it reasonably can do so, perform its
obligations under this deed in such a way as not to prejudice the
continuation of any approval, authorisation, consent or license required
by any applicable law or regulation to be held by the Issuer or MHCA in
connection with the Properties.
2.9 Compliance with Agreements
The Services include procuring (so far as the Property Manager having
used all reasonable endeavours is able so to do) compliance by the Issuer
with all applicable legal and regulatory requirements and with the terms
of the Transaction Documents to which the Issuer is a party, but the
Property Manager must not lend or provide any sum to the Issuer and that
the Property Manager shall have no liability whatsoever to the Issuer,
the Bond Trustee, the Security Trustee, or any other person for any
failure by the Issuer to make any payment due by it under any of the
Transaction Documents (other than, but subject always to Clause 2.7, as a
result of damages for breach of the Property Manager's obligations under
this deed).
2.10 Trust
If the Property Manager (including in its capacity as agent for the
Issuer) receives any money arising from:
(a) the Properties, Leases or Lease Guarantees; or
(b) any contract of insurance or otherwise,
subject to the obligations of the Issuer or the rights of tenants to
be reimbursed in respect of rent paid by them or to apply such rent
(or require such money to be applied) in accordance with the Leases
or otherwise in the repair and reinstatement of the insured
Properties, and that money belongs to the Issuer or, the Bond Trustee
or the Security Trustee, then that money is to be paid into the
Project Account (to be dealt with in accordance with the Project
Account Deed), and it will hold such money on trust for the Issuer
the Bond Trustee or the Security Trustee (to the extent of their
respective interests) and will immediately upon receipt pay that
money into the Project Account.
2.11 Property Manager' Expenses
2.11.1 The Issuer will, subject to Clause 2.11.3, reimburse the Property Manager
for all out-of-pocket costs, expenses and charges reasonably incurred by
the Property Manager in the performance of the Services on its behalf,
but the Issuer shall only be obliged to reimburse the Property Manager in
respect of any GST incurred by the Property Manager on such costs and
expenses to the extent that such GST is not recoverable by the Property
Manager by way of repayment, credit or set-off and the amount of such
costs, expenses and charges
(including GST) paid to the Property Manager or to any affiliate of or
person connected with the Property Manager will not exceed $125,000.00 in
any calendar year.
2.11.2 The Issuer authorises the Property Manager on its behalf to incur those
costs, expenses and liabilities to third parties which either of them
reasonably considers necessary in connection with the enforcement of any
Lease Guarantee or the Moran Securities or otherwise in respect of the
Properties. Such costs, expenses and liabilities are obligations of the
Issuer, to be reimbursed to the Property Manager.
2.11.3 The Property Manager is (subject to clause 2.11.1) entitled on each
Payment Date to reimbursement of out-of-pocket and other expenses
properly incurred pursuant to Clauses 2.11.1 and 2.11.2.
2.12 Reliance on Information
The Property Manager is entitled to act or rely on and assume the
accuracy of (in the absence of manifest error) any information it
receives from the Issuer, the Bond Trustee or the Security Trustee and
will incur no liability to any person in acting on or relying on such
information or advice.
2.16 Deliberately omitted.
2.17 Deliberately omitted.
3. REMUNERATION
3.1 In consideration of the Property Managers' agreement to carry out the
Services, but subject to the other provisions of this Deed and so long as
this Deed is not terminated and the Property Manager is not in breach of
its material obligations under this Deed, the Property Manager is
entitled to receive the Asset Management Fee
calculated as set out in Schedule 2 and payable in accordance with
Schedule 2.
4. PROPERTY MANAGER' OBLIGATIONS
4.1 The Properties
The Property Manager must, perform the Services, and carry on the day to
day management of the Properties in accordance with the terms of this
Deed. Upon service of a Loan Enforcement Notice, the Property Manager, as
an overriding obligation, shall act in accordance with directions issued
by the Security Trustee, in accordance with the terms of this Deed and as
contemplated by the Finance Documents, to the exclusion of all others.
4.2 Property Manager to keep records relating to Properties
The Property Manager must, in respect of the Properties:
(a) prepare and maintain, in accordance with the best practices of
commercial landlords and all applicable laws, all necessary management
records and such other records as the Issuer may reasonably require
from time to time;
(b) maintain copies of and account for the necessary sets of building
maintenance manuals and "as-built" drawings in each case (where
already available);
(c) provide copy schedules to the Issuer detailing action dates in
relation to rent (including any turnover rent) reviews, lease renewals
and options;
(d) use its reasonable endeavours to obtain and keep copies of planning
consents and all current certificates of registration and
inspection reports under the Aged Care Act (Cth) 1997, Aged or
Disabled Persons Care Act 1954 (Cth), National Health Act 1953
(Cth), the Nursing Homes Act 1988 (NSW), the Retirement Villages
Act 1989 (NSW), the Hospital and Health Services Act 1927 (WA),
the Retirement Villages Act 1992 (WA), the Health Act 1911 (WA),
the Health Act 1937 (Qld), and the Retirement Villages Act 1937 (Qld);
(e) obtain and keep copies of all certificates and notices received from
MHCA or any other Operator relating to
occupancy levels and turnover; and
(f) maintain all accounting records in respect of the Issuer in accordance
with generally accepted accounting principles in Australia and the
best practices of commercial landlords.
4.3 Deliberately omitted
4.4 Investor Reports
The Asset Manager will provide the Investor Reports on a semi annual
basis to the, the Security Trustee and the Bond Trustee, within
twenty-five (25) Banking Days of the end of each half of the calendar
year.
4.5 Use of electronic systems
The Property Manager will use reasonable endeavours to maintain in
working order the electronic systems used by the Property Manager in
relation to the Properties and shall use such systems in managing such
Properties. A duplicate of any computer tape or similar record held by
the Property Manager which contains information relating to the
Properties must be maintained by the Property Manager in accordance with
the disaster recovery procedures of the Property Manager or any delegate
of the Property Manager from time to time, such tape to be replaced by a
revised duplicate as and when the original tape or record is revised.
4.6 Access to Books and Records
The Property Manager shall, subject to all applicable laws, permit the
Issuer and following receipt of a Loan Enforcement Notice the Security
Trustee and its or their auditors and any other person nominated by it at
any time upon reasonable notice to have access to all books of record and
accounts relating to the management of the Properties in accordance with
this Deed.
4.7 Service of notices
The Property Manager must in respect of the Properties and the Leases,
use its reasonable endeavours to ensure that any notices which the Issuer
is required to serve are served by or on behalf of the Issuer
4.8 Warranties
The Property Manager must use its reasonable endeavours to ensure (to the
extent it considers it appropriate to do so in accordance with the best
practice of a prudent commercial landlord), that all claims under any
warranties given to the Issuer in respect of the construction of the
Properties are made within each and every applicable time period and in
any case within the time periods prescribed by law.
4.9 Records kept at Property Manager's Address
All registers, records, accounts or contracts in the Property Manager's
possession or control, relating to the Properties and the provision of
the Services, together with all supporting invoices, correspondence and
the like in its possession or control will, be kept in a permanent office
maintained in Australia by the Property Manager and will be available on
reasonable notice for inspection, audit and copying by the Bond Trustee,
the Security Trustee and the Issuer.
4.10 Property Manager to supply copies
The Property Manager may on its own behalf (and not as agent for the
Issuer) enter into such contracts and agreements permitted by Clause 2.4
and shall supply the Issuer, and the Bond Trustee with copies of all
material contracts and agreements entered into by the Property Manager in
connection with the provision of the Services delegated or sub-contracted
by the Property Manager pursuant to this Deed within ten (10) Banking
Days of entering into such contract.
4.11 No Liability
4.11.1 The Property Manager has no liability for any obligation of MHCA or MHCG
under any of the Leases, the Lease Guarantee or the Moran Securities and
nothing in this deed constitutes a guarantee, or similar obligation, by
the Property Manager of MHCA or MHCG.
4.11.2 The Property Manager has no liability for the obligations or otherwise of
the Issuer or any of the other parties to the Project Documents and
nothing in this deed will constitute a guarantee, or similar obligation,
by the Property Manager to the Issuer or any of the other parties to the
Project Documents.
4.12 Rent collection
4.12.1 The Property Manager will on behalf of the Issuer demand the rents in
accordance with the provisions of each of the Leases and will notify the
Issuer and the Bond Trustee, if any payment is not made within ten (10)
Banking Days of the due date and will act as rent collection agent of the
Issuer.
4.12.2 In the case of late payment, the Property Manager will demand and use all
reasonable endeavours to recover any rent and interest due to the
relevant Issuer where the Leases so allow and to the extent it (in good
faith) considers it appropriate to do so in accordance with the
reasonable practice of a prudent commercial landlord (considering the
interests of the Bond Trustee and the Security Trustee) including
instituting proceedings, in the name of the Issuer, against MHCA and,
where available, enforce the Issuer' rights under the Moran Securities.
4.13 Arrears procedures
The Property Manager will:
(a) operate a rent collection system in respect of any arrears of rent or
other payments due from MHCA; and
(b) if there are arrears outstanding after the due date in accordance
with the terms and conditions of any Lease, provide an arrears
schedule to the Issuer and the Bond Trustee and on a monthly basis
thereafter;
(c) where rent deposits are held in respect of any Lease or Lease
Guarantee, where it (in good faith) considers it appropriate to do so
in accordance with the reasonable practice of a prudent commercial
landlord, draw down such rent deposits, PROVIDED THAT:
(i) the Property Manager will only use the proceeds of such drawdown
to meet the obligations referred to in clause 4.1 (a)-(f)
inclusive of the Project Account Deed;
(ii) the Property Manager must promptly notify the Bond Trustee and
the Bond Manager if it draws down a rent deposit; and
(iii) and the Property Manager must liaise with MHCA to replenish the
applicable deposit account in accordance with the terms of the
applicable guarantee; and
(d) following a service of a Loan Enforcement Notice the Security Trustee
or the Bond Trustee as the case may be will, pursuant to the terms of
the Bondholder Securities, be entitled to the exclusion of the Issuer
and the Property, Manager to deal with rent deposits as if it were
the Property Manager.
The Standby Manager is only obliged to use reasonable endeavours in
respect of the above.
4.14 General monitoring and inspection
The Property Manager will monitor the state of repair and condition of
the Properties advise on any appropriate works or repairs, carry out
inspections at least once every twelve months with a view to ensuring
that the Properties are kept, in a good and tidy condition in accordance
with the terms of each of the Leases and the requirements of the best
practices of a prudent commercial landlord.
4.15 Tenant liaison and application for consent
The Property Manager must:
(a) liaise with MHCA and any other Operator with a view to ensuring the
proper running of the Properties and general compliance with the Aged
Care Act (Cth) 1997 and the, Aged or Disabled Persons Care Act 1954
(Cth), National Health Act 1953 (Cth), the Nursing Homes Act 1988
(NSW), the Retirement Villages Act 1989 (NSW), the Hospital and
Health Services Act 1927 (WA), the Retirement Villages Act 1992 (WA),
the Health Act 1911 (WA), the Health Act 1937 (Qld), and the
Retirement Villages Act 1937 (Qld) or any legislation of a similar
nature in each case to the extent it is able to do so using its
reasonable endeavours.
(b) receive applications from MHCA for works or alterations, consider
such applications and decide a course of action with the Issuer and
the Security Trustee or following the service of a Loan Enforcement
Notice, the Security Trustee and following such decision, process
such matters through to completion; and
(c) receive applications from MHCA for the Issuer's consent to assign or
sublet any of the Leases or for the Issuer's agreement for any
extension or any amendment, waiver or release, or any dealing with or
disposal of any property, asset, undertaking or right subject to the
Lease, advise and take instructions from the Issuer, convey those
instructions to MHCA and, in accordance with those instructions, see
matters through to a satisfactory conclusion, with any charges or
fees chargeable by the Issuer in respect of these services being
recovered from MHCA and not charged to the Issuer.
4.16 Rent reviews and re-lettings
The Property Manager will, where appropriate in its opinion, procure
advice on behalf of the Issuer and comment upon it regarding all
negotiations relevant to surrenders of tenancies, rent reviews, the
granting of new tenancies and renewals of existing tenancies and provide
information for completion of relevant notices, advise upon options for
renewal of tenancies and rights of purchase or pre-emption contained in
Leases or other agreements concerning the Properties. Copies of such
advice and comments must be sent to the Issuer (together with the
Property Manager's recommendations) seeking the Issuer's instructions.
The Property Manager must act in accordance with instructions received
from the Issuer or, following the service of a Loan Enforcement Notice,
the Security Trustee as the case may be.
4.17 Properties insurance
4.17.1 The Property Manager will not knowingly permit any Property to cease to
be insured as required under the relevant Lease and Finance Documents.
4.17.2 The Property Manager must in accordance with the provisions of the
relevant Lease:
(a) use reasonable endeavours to procure that each insurance policy is
issued in the name (inter alia) of the relevant Issuer and the
Security Trustee;
(b) not knowingly take any action or omit to take any action which would
result in the avoidance or termination of any applicable insurance
policy or would reduce the amount payable on any claim;
(c) use reasonable endeavours to keep each policy of insurance (or
another policy succeeding such policy and providing equivalent cover)
in full force and effect in relation to any Property to which it
applies;
(d) pay from funds received from MHCA or the Issuer as applicable the
premiums due and payable under any applicable policy in order that
the cover provided by such policy shall not lapse;
(e) use its best endeavours to procure payment by MHCA (without
obligation to make payment of the premium itself) of premiums in
relation to policies in accordance with the Leases, and the payment
to the relevant insurance company.
4.18 Taxation administration
4.18.1 The Property Manager must:
(a) procure that the Issuer prepares and submits the appropriate returns
to the Australian Taxation Office or the appropriate authority when
necessary and in accordance with all legislative requirements in that
regard then in force;
(b) procure that the Issuer prepares and submits any claims for GST
credits and will account to the relevant Issuer for such refunds
received by the Property Manager in a timely fashion and in
accordance with all applicable legislative requirements in that
regard;
(c) issue GST invoices on behalf of and in the name of the Issuer where
GST is payable in relation to any supply of goods or services by the
Issuer; and
(d) use its best endeavours generally to carry out, on behalf of the
Issuer, such other administration of GST and other Tax affairs as is
reasonably necessary in order to ensure that the Issuer is not and
does not become liable to pay interest or penalties to any person or
authority having power to administer GST or such Tax. The Standby
Manager is only obligated to use reasonable endeavours to carry out
such obligations.
4.19 Letting
The Property Manager must on request from the Issuer advise on all
aspects of the letting of any vacant Property (or part of it) which
becomes available during the term of this Deed or in connection with any
refurbishment of any Property or part of it.
4.20 Maintenance of records
The Property Manager must maintain records in hard copy and shall use its
reasonable endeavours to maintain records in computer readable form
containing information in relation to each Property and Lease. The
Property Manager must keep records and information in relation to the
Leases in such manner as is identifiable from other leases and properties
in respect of which the Property Manager is landlord or administrator and
shall retain such records and information for the minimum period required
by law from time to time for the keeping of records or other information
for the purposes of any applicable Taxes.
4.21 Statutory Accounts
4.21.1 The Property Manager must:
(a) prepare, or procure the preparation of, and deliver to the Issuer and
the Bond Trustee a profit and loss account, balance sheet and
directors' report and any other reports and information required to
be attached or incorporated for the Issuer in respect of each
accounting reference period of the Issuer; and
(b) cause such accounts to be audited by Ernst & Young or other auditors
nominated by the Issuer who are reputable and professionally
qualified; and
(c) use its reasonable endeavours to procure that the Issuer' auditors
shall make a report thereon and the directors of the Issuer shall
consider each of them as required by law, all as soon as reasonably
practicable and in any event within 180 days after the end of the
relevant accounting period (and draft copies of all such documents
shall be delivered by or on behalf of the Property Manager to the
Bond Trustee and the Issuer as soon as reasonably practicable once
they become available to the Property Manager).
4.21.2 At the same time as the audited accounts referred to in Clause 4.23.1
are delivered, the parties will endeavour to procure that the Issuer'
auditors report to the Bond Trustee on the procedures and practices
followed by the Property Manager and/or the Issuer for the management
and control of the Properties during the year to which such audited
accounts relate.
4.21.3 The parties acknowledge that the Standby Manager, in its capacity as
Standby Manager is under no obligation at any time to prepare the
statutory accounts of the Issuer. If the Standby Manager is appointed
pursuant to clause 13.1 and/or Property Manager, it will provide such
information as it has to the Issuer' auditors and assist and co-operate
with the Issuer auditors in the preparation of such accounts.
4.22 Property Manager's Accounts
The Property Manager will, as soon as they become available but in any
event within 180 days after the end of each accounting period of the
Property Manager, deliver to the Issuer and the Bond Trustee a copy of
its annual audited balance sheets, profit and loss accounts and
directors' report (or such other financial statements as are customary
in the relevant jurisdiction) together with any attachments. The Standby
Manager will not be obliged to provide such accounts if it is appointed
pursuant to clause 13.1 at any time the and/or the Property Manager.
4.23 Statutory obligations
The Property Manager will, on behalf of the Issuer, prepare or procure
the preparation of and, so far as it is able, file all reports, annual
returns, statutory forms and other returns which the Issuer is required
by law to prepare and file.
4.24 Records and Books of Account
The Property Manager will, on behalf of the Issuer, keep and maintain
proper books of account and other necessary records in accordance with
all applicable laws and regulations, generally accepted accounting
principles and this Deed.
4.25 Compliance with Deed
4.26 The Property Manager will use its reasonable endeavours to do all such
things as the Issuer or the Bond Trustee may reasonably require with a
view to enabling the Issuer to comply with its obligations under the
Bond and Security Trust Deed.
4.27 The Property Manager shall give to the Bond Trustee such information and
evidence as it shall reasonably require, and in such form as it shall
reasonably require, as to the performance by the Property Manager of its
obligations under this Deed.
4.28 The Property Manager (but not the Standby Manager) will, on the
occurrence of an Event of Default or Step-in Event and so long as
the relevant event has not been remedied promptly provide to the
Bond Trustee and the Security Trustee notification of the
occurrence of such an event and to the extent that it may be
possible, details of the steps proposed to be taken to remedy the
relevant Event of Default or Step-in Event.
4.29 The Property Manager covenants with and undertakes to the Issuer, the
Bond Trustee and the Security Trustee (on behalf of itself) that without
prejudice to any of its specific obligations under this deed:
(a) it will devote such amount of time and attention to, and will
exercise such level of skill, care and diligence in, the performance
of the Services as is reasonably required of a reasonably prudent
commercial landlord;
(b) it will comply with any proper and reasonable directions, orders and
instructions in accordance with the terms of this Deed and as
contemplated by the Project Documents which the Issuer and, after the
service of a Loan Enforcement Notice, the Security Trustee may from
time to time give to each of them in relation to the performance of
the Services and, in the event of any conflict after the service of a
Loan Enforcement Notice, the directions and instructions of the
Security Trustee shall prevail;
(c) it will use its best endeavours to obtain and keep in force all
licenses, approvals, authorisations and consents which may be
necessary for it to hold in connection with the performance of the
Services and use its reasonable endeavours to keep in force such
licenses, approvals, authorisations and consents in respect of the
Issuer;
(d) it will not knowingly fail to comply with any legal requirements in
the performance of the Services;
(e) it will make all payments required to be made by it pursuant to this
Deed on the due date for payment for value on such day without
set-off or counterclaim;
(f) it will not amend or terminate any of the Project Documents to which
it is a party save in accordance with their terms without in any case
the prior written consent of the Bond Trustee and the Security
Trustee as the case may be.
4.30 Exercise of Lessee Substitution Right
4.30.1 If a Lessee exercises its right of substitution pursuant to a
Substitution Agreement the Property Manager shall promptly inform
the Issuer and the Bond Trustee of the exercise of such right and
the action required to ensure the Issuer complies with its
obligations in relation thereto and transfers or procures the
transfer of the relevant interest or interests in the relevant
Property to the Lessee in accordance with the relevant
Substitution Deed.
4.30.2 The Issuer appoints the Property Manager as its agent for the purpose
of doing or procuring to be done all things necessary to ensure
that the Issuer complies with its obligations in relation to the
exercise by a Lessee of a Moran Option Substitution or a
Voluntary Substitution and, subject to the provisions of the
Substitution Deed, including without limitation the discretion to
waive any of the conditions or criteria for substitution
thereunder subject to and in accordance with the Substitution Deed.
The Property Manager covenants to do or procure to be done all things
(other than the payment of money) within its reasonable control necessary
to ensure that the Issuer complies with its obligations in relation to
the Substitution Deed and transfers or procures the transfer of the
relevant interest in the relevant Property to the Lessee in accordance
with that Substitution Deed.
4.30.3 For good and valuable consideration the Issuer irrevocably and as
security for its obligations in Clause 4.21.1 hereby appoints the
Property Manager to be its attorney and agent (with full power to
appoint substitutes and to delegate, including the power to
authorise the person so appointed to make further appointments) on
its behalf and in its name or otherwise to execute any document with
power to deliver the same and do any act or thing the Asset Manager, in
its absolute discretion, considers appropriate or desirable in
connection with the discharge of the obligations of the Issuer under
or otherwise in connection with the relevant Substitution Deed.
4.30.4 Where a Moran Option Substitution or a Voluntary Substitution is
exercised the Security Trustee shall accept the substitution of a
Property pursuant to and subject to, the Substitution Deed subject to
satisfying the substitution criteria set out in or referred to in clause
12 and Schedules 10 and 11 of the Bond and Security Trust Deed.
5. TERMINATION
5.1 Subject to Clause 5.3, if any of the following events shall occur:
default is made by the Property Manager in the performance or observance
of any of its covenants and obligations under this Deed, which would in
the opinion of the Security Trustee be materially prejudicial to the
interests of the Bondholders and such default continues unremedied for a
period of thirty (30) Banking Days and the Bond holders have passed a
resolution that the Property Manager shall be removed by reason of such
material prejudice. If the relevant default occurs as a result of a
default by any person to whom the Property Manager has, in accordance
with the terms of this Deed, sub-contracted or delegated part of its
obligations hereunder, such default shall not entitle the Bond Trustee
to terminate the appointment of the Property Manager under this clause 5
if within such thirty (30) Banking Day period the Property Manager
terminates the relevant sub-contracting or delegation arrangements and
takes such steps as the Bond Trustee or Issuer may reasonably specify to
remedy such default and indemnifies the Issuer, the Bond Trustee and the
Security Trustee (according to their respective interests) against the
consequences of such default;
(a) an order is made or an effective resolution passed for the winding up
of the Property Manager;
(b) the Property Manager ceases or threatens to cease to carry on its
business or a substantial part of its business or stops payment or
threatens to stop payment of its debts; or
(c) the Property Manager is deemed unable to pay its debts under any
applicable law;
(d) proceedings are initiated against the Property Manager under any
applicable liquidation, administration, insolvency, composition,
reorganisation (other than a reorganisation the terms of which have
been approved by the Bond Trustee and where the Property Manager is
solvent) or other similar laws, except where such proceedings are
being contested in good faith by the Property Manager; or
(e) an administrator or other receiver, administrator, supervisor,
liquidator or other similar official is appointed in relation to the
Property Manager or in relation to the whole or any substantial part
of the undertaking or assets of the Property Manager; or
(f) an encumbrancer takes possession of the whole or any substantial part
of the undertaking or assets of the Property Manager; or
(g) distress, execution or other process is levied or enforced upon or
sued out against the whole or any substantial part of the undertaking
or assets of the Property Manager and is not discharged within
fifteen (15) Banking Days; or
(h) the Property Manager initiates or consents to judicial proceedings
relating to itself under any applicable liquidation, administration,
insolvency, composition, reorganisation or other similar laws or the
Property Manager shall makes a conveyance or assignment of the whole
or any substantial part of its assets for the benefit of its
creditors generally; or
(i) a Loan Enforcement Notice is given and the Bond Trustee is of the
opinion that the continuation of the appointment of the Property
Manager is materially prejudicial to the interests of the Bondholders
, and the Bondholders have passed a resolution that the Property
Manager shall be removed by reason of such material prejudice;
then the Bond Trustee may, if directed by the Bondholders, at once or
at any time thereafter while such default continues by notice in
writing to the Property Manager terminate the appointment of the
Property Manager with effect from a date (not earlier than the date
of the notice) specified in the notice.
5.2 Consequence of termination
On and after termination of the appointment of the Property Manager
pursuant to Clause 5.1 all authority and power of the Property Manager
will be terminated and be of no further effect and the Property Manager
will not subsequently hold itself out in any way as the agent of the
Issuer or as the case may be the Security Trustee or Bond Trustee
pursuant to this Deed.
5.3 Responsibilities following termination
5.3.1 Upon termination of the appointment of the Property Manager pursuant
to Clause 5.1 the Property Manager must promptly deliver to (and in
the meantime hold on trust for, and to the order of), the Security
Trustee and the Issuer (or as the Security Trustee shall direct)
all books of account, papers, records, registers, correspondence and
documents in their possession or under its control relating to the
affairs of or belonging to the Issuer or the Security Trustee or
relating to the Property the Leases and any monies then held by the
Property Manager on behalf of the Issuer and any other assets of the
Issuer or the Security Trustee and shall take such further action in
relation thereto as the Security Trustee may direct. The Property
Manager will, in addition, provide all relevant information contained
on computer records in the form of magnetic tape, together with
details of the layout of the files encoded on such magnetic tapes.
The Property Manager must co-operate with and assist the Issuer
and the Security Trustee and their respective nominees for the
purposes of explaining the file layouts and the format of the magnetic
tapes generally.
5.3.2 The Property Manager must deliver to the Issuer and the Bond Trustee as
soon as reasonably practicable but in any event within five (5) days of
it becoming aware of a notice of any of the matters in clause 5.1(a)-(j)
or any event which with the giving of notice or lapse of time or
certification would constitute such an event.
5.3.3 Termination of the appointment of the Property Manager is without
prejudice to liabilities of any of the parties due or incurred to
the Property Manager or any liability which it is committed to
incur before the date of such termination or vice versa. The
Property Manager shall have no right of set-off or any lien in
respect of such amounts against amounts held by them on behalf of
any of the parties which will be held in trust or in escrow as
appropriate in any event.
5.3.4 On termination of the appointment of the Property Manager the
Property Manager is entitled to receive all fees and other moneys
accrued in respect of such appointment up to the date of
termination but will not be entitled to any other or further
compensation. Moneys so receivable by the Property Manager must be
paid subject to and in accordance with the provisions of the Bond
and Security Trust Deed on the dates on which they would otherwise
have fallen due. For the avoidance of doubt, such termination
shall not affect the Property Manager's rights to receive payment
of all amounts due to it by any of the parties hereto under this
Deed.
5.3.5 The Property Manager will not be entitled to terminate its
appointment and will continue to be obliged to provide the
Services in respect of the Properties notwithstanding non-payment
of the Asset Management Fee or any other amount owed to it under
this Deed. Where such non-payment is not rectified within 15
Banking Days the Property Manager will be entitled to terminate
its appointment on 90 days notice to the Issuer and the Bond
Trustee (if such unpaid amount remains unpaid at the end of that
90-day period).
5.3.6 The provisions of Clauses 8 and 13 (to the extent that they relate to
Clause 2) of this Deed shall remain in full force and effect
notwithstanding the termination of the appointment of the Property
Manager hereunder.
6. FURTHER ASSISTANCE
6.1 The parties hereto agree that they will co-operate fully and do all such
further acts and things and execute any further documents as may be
reasonable and necessary or desirable to give full effect to the
arrangements contemplated by this Deed.
6.2 Without prejudice to the generality of Clause 6.1, the Issuer and the
Bond Trustee (subject to and in accordance with the Finance Documents)
will upon request by the Property Manager forthwith give to the Property
Manager such written authorisations or mandates and instruments as are
necessary to enable the Property Manager to perform the Services.
6.3 In the event that there is any change in the identity of the
Security Trustee in accordance with the Bond and Security Trust
Deed, the retiring Security Trustee shall execute such documents
with any other parties to this Deed and take such actions as such
new Security Trustee may reasonably require for the purposes of
vesting in such new Security Trustee the rights of the Security
Trustee under this Deed and under the Bond and Security Trust Deed
and, if so determined by the new Security Trustee, releasing the
retiring Security Trustee from further obligations thereunder.
6.4 In the event that there is any change in the identity of the Bond
Trustee in accordance with the Bond and Security Trust Deed, the
retiring Bond Trustee shall execute such documents with any other
parties to this Deed and take such actions as such new Bond
Trustee may reasonably require for the purposes of vesting in such
new Bond Trustee the rights of the Bond Trustee under this Deed
and under the Bond and Security Trust Deed and, if so determined
by the new Bond Trustee, releasing the retiring Bond Trustee from
further obligations thereunder.
6.5 Nothing contained in this deed will impose any obligation or liability
on the Bond Trustee or the Security Trustee to assume or perform any of
the obligations of the Issuer or the or the Property Manager under this
deed will or render them liable for any
breach.
7. MISCELLANEOUS
7.1 In the event that, after redemption in full of the Bonds and
payment of all other amounts owing to any person (other than the
Issuer) under the Finance Documents, the remaining sums available
to the Issuer and the Bond Trustee or Security Trustee or
remaining proceeds of enforcement are insufficient to satisfy in
full the outstanding fees of the Property Manager, such fees shall
be reduced by the amount of such insufficiency.
7.2 The Property Manager agrees that it will not set off or purport to set
off any amount which the Issuer is or will become obliged to pay to it
under this Deed against any amount from time to time owing by the
Property Manager to the Issuer or the Bond Trustee or the Security
Trustee.
7.3 Deliberately omitted.
7.4 Deliberately omitted.
7.5 Notwithstanding any other provisions of this Deed, all obligations
to, and rights of, the Bond Trustee or the Security Trustee under
or in connection with this Deed shall automatically terminate 6
months after the discharge in full of all amounts owing by the
Issuer under the Finance Documents, provided that this shall be
without prejudice to any claims in respect of such obligations and
rights arising prior to such date.
7.6 The Property Manager assumes no responsibility other than to
render the Services in good faith and in accordance with normal
standards required of a prudent manager of commercial property.
The Property Manager will not be responsible for any action of the
Issuer in following or declining to follow any advice or
recommendation of the Property Manager, except by reason of acts
constituting bad faith, wilful misconduct or negligence of the
Property Manager.
7.7 The obligations and duties of the Property Manager with regard to the
Services extend only to those obligations and duties expressly referred
to in this Deed.
8. GENERAL
8.1 Variations
No variation of this Deed shall be valid unless it is made by deed by or
on behalf of each of the parties.
8.2 Waiver
The failure to exercise or delay in exercising a right or remedy under
this Deed shall not constitute a waiver of such right or remedy or a
waiver of any other rights or remedies and no single or partial exercise
of any right or remedy under this Deed shall prevent any further
exercise of such right or remedy or the exercise of any other right or
remedy.
8.3 Rights cumulative
The rights and remedies contained in this Deed are cumulative and not
exclusive of any rights or remedies provided by law.
8.4 Services non-exclusive
Nothing in this Deed shall prevent the Property Manager from rendering
services similar to those provided for in this Deed to other persons,
firms or companies or from carrying on a business similar to or in
competition with the business of the Issuer.
8.5 No Partnership
8.5.1 None of the parties to this Deed are partners or joint venturers with
each other, and nothing herein shall be construed so as to make them
such partners or joint venturers or impose any liability as such on any
of them.
8.5.2 The Property Manager shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its
duties pursuant to this Deed which in its reasonable opinion may involve
it in any expense or liability.
9. ASSIGNMENT
9.1 Property Manager
The Property Manager must not assign or transfer or purport to assign or
transfer any of its respective rights or obligations under this Deed
subject to Clause 9.2. The Standby Manager may assign its rights under
this deed with the prior written consent of the Bond Trustee and the
Issuer (none of which are to be unreasonably withheld) but the Standby
Manager may only transfer its obligations under or pursuant to this Deed
with the prior written consent of the Bond Trustee and the Issuer (none
of which are to be unreasonably withheld) and provided further that such
transferee shall execute a form of asset administration agreement in the
same form as this Deed.
9.2 Permitted Assignments
9.2.1 The Property Manager is entitled to assign or transfer any of its rights
or obligations under this Deed to
(a) any Related Body Corporate or Subsidiary of the Property Manager; or
(b) any entity which is approved by the Bond Trustee, such approval not
to be unreasonably withheld.
9.2.2 Upon any such assignment the transferee or assignee must execute
an Asset Administration Deed in the same form and on the same
terms as this Deed. It is acknowledged that it will be reasonable
for the Bond Trustee not to approve a proposed assignee if the
Bond Trustee, in its absolute discretion, considers such proposed
assignee is not a reputable and experienced provider of asset
management and advisory services in relation to nursing and
residential care homes.
9.3 Issuer, Bond Trustee and Security Trustee
The Security Trustee or the Bond Trustee may assign or transfer any of
their respective rights or obligations under this Deed to any successor
additional Security Trustee or Bond Trustee (as appropriate) appointed
under the Bond and Security Trust Deed. The Issuer may only assign or
transfer their respective rights and obligations hereunder in accordance
with, or as contemplated by, the terms of the Transaction Documents.
10. NOTICES
All Notices must be in writing and will be duly and validly given or
made if given or served by personal delivery or sent by pre-paid
registered or recorded delivery mail to the persons and the addresses
specified below or to such other person and/or address as a party may
specify from time to time by written notice to the other parties.
Notices given or served by personal delivery shall be deemed to be given
or served on the date of delivery. Notices sent by pre-paid registered
or recorded delivery mail shall be deemed to be given or served on the
second Banking Day after the period of posting unless they are proved to
have been received later, in which case they shall be treated as given
or served on receipt.
Notices shall be addressed as follows:
(a) in the case of the Property Manager, to Omega (Australia) Pty
Limited, Suite 1601, Level 16, 227 Elizabeth Street, Sydney,
New South Wales, facsimile number 612 9267 0955, telephone number
612 9261 4499, attention: Chief Executive;
(b) copies, to Omega Worldwide Inc, 900 Victors Way, Suite 345,
Ann Arbor, Michigan, MI 48103,United States of America, facsimile
number: + 1 734 887 0301, telephone number: + 1 734 887 0300,
attention: Chief Financial Officer;
(c) copy to Omega (UK) Limited, 145 Cannon Street, London, EC4N 5BQ,
facsimile number 44 171 929 3555, telephone number 44 171 929 3444;
11. GOVERNING LAW AND SUBMISSION TO JURISDICTION
11.1 Submission to Courts
Each of the parties hereto agree that:
(a) this Deed is governed by and shall be construed in accordance with
the laws of New South Wales;
(b) for the benefit of the Security Trustee and the Bond Trustee, the
courts of New South Wales have jurisdiction to hear and decide any
suit, action or proceedings, and to settle any disputes which may
arise out of or in connection with this Deed (respectively,
"Proceedings" and "Disputes"); and
(c) for the above purposes, each party irrevocably submits to the
jurisdiction of the courts of New South Wales.
11.2 Waiver to objection to forum
Each party irrevocably waives any objection which it might view or at
any time have to the courts of New South Wales being nominated as the
forum to hear and determine any Proceedings and to settle any Disputes
and agree not to claim that the courts of New South Wales are not a
convenient or appropriate forum.
11.3 Service of Process
Process by which any Proceedings are begun in New South Wales may be
served on any party to this Deed to be served by being delivered to the
address for such party set out in Clause 10 but, in respect of the
Issuer, Proceedings must be served on the Property Manager at: Suite
1601, Level 16, 227 Elizabeth Street, Sydney, New South Wales (or at
such other address notified by Issuer), or in all other cases, such
other address in Australia that each party shall have notified to the
others in writing. Should the appointment by the Issuer cease for any
reason to be effective, then the relevant party shall immediately
appoint a further person in Australia to accept service of process on
its behalf and failing such appointment within 15 days, the Security
Trustee shall be entitled to appoint such a person by notice to the
other parties.
Nothing contained in this Clause affects the right to serve process in
another manner permitted by law.
12. COUNTERPARTS
This Deed may be executed in any number of counterparts each of which
when executed and delivered shall be an original, but all the
counterparts together shall constitute one and the same instrument.
13. APPOINTMENT OF STANDBY MANAGER
13.1 The Standby Manager agrees that it will, immediately upon receiving the
written request of the Bond Trustee or the Issuer, assume and perform
all the respective duties and obligations of the Property Manager under
this Deed on the terms of this Deed and the Standby Manager covenants
and undertakes to accept such appointment.
13.2 Subject to this Clause 13, upon such appointment without the need for
further action the Standby Manager will become bound by and subject to
the terms of this Deed applicable to the Property Manager and will be
entitled to all rights, benefits and powers and any discretions of the
Property Manager hereunder except that:
(a) the remuneration due to the Standby Manager (inclusive of any
GST payable) pursuant to any appointment pursuant to this Deed
shall be calculated at the rate of 1.5 per cent of the then
applicable Lease rents of the applicable Property or Properties
in respect of which the Standby Manager has responsibility. The
appointment pursuant to this Deed includes the remuneration of the
Standby Manager in respect of the matters provided for in the
Substitution Deed, the Bond and Security Trust Deed and any renewal
thereof;
(b) the Standby Manager has no obligation to incur any out of pocket
expenses pursuant to Clause 2.11 or following any appointment
pursuant to this Deed if it is of the view that there is no
reasonable prospect of recovery of those expenses from the Issuer;
(c) the Issuer will as soon as practicable following any appointment of
the Standby Manager under this Deed provide powers of attorney in
favour of the Standby Manager in the same form, to those provided
to the Property Manager in respect of the performance of the
Services;
(d) the Standby Manager shall have no liability for any act or omission
by the Property Manager (or its delegates or sub-delegates) prior
to the Standby Manager assuming responsibilities in that capacity.
13.3 In consideration of the Standby Manager assuming the obligations under
this Clause 13 the Property Manager shall pay, on behalf of the Issuer
to the Standby Manager, a fee of $25,000.00(inclusive of GST) payable on
Financial Close.
13.4 The parties acknowledge that the Standby Manager shall have no liability
(including, in particular, under Clause 2.7) and is not obliged to act
pursuant to any agreement hereunder in any manner in excess of that
which it would have been obliged to so act had the relevant breach or
failure referred to in this Clause 13.4 not occurred in respect of:
(a) any breach of the terms of this Deed by the Property Manager prior
to the Standby Manager assuming its responsibilities hereunder;
(b) any failure to comply with the terms of this Deed insofar as the
results from any breach mentioned in (a) above or any necessary
information, documents, agreements, computer tapes or other data or
intellectual property rights not being made freely available to the
Standby Manager in good order and in time for it to assume its
obligations as Standby Manager or the Property Manager not
explaining to the Standby Manager, the file layouts and format of
magnetic tapes in time and in sufficient detail (as required under
Clause 5.3) for the Standby Manager to assume its obligations as
Standby Manager;
(c) any breach of this Deed insofar as it shall arise through any
difficulties not attributable to the Standby Manager arising from
any change in payment instructions or operations on the appointment
of the Standby Manager.
Nevertheless, the Standby Manager will be entitled to any fees payable
to it under this deed.
13.5 The Standby Manager is entitled to rely on and will be entitled to
assume the accuracy of any information it receives from the Issuer, the
Security Trustee, the Bond Trustee, or the Property Manager, except in
the case of manifest error.
13.6 The Standby Manager acknowledges that only the Security Trustee is
entitled to enforce the security created in favour of the Security
Trustee by or pursuant to the Finance Documents in accordance with
the provisions of the Bond and Security Trust Deed and that the
Standby Manager's rights in respect of the Security shall be
limited to those of the Standby Manager under the Finance
Documents.
13.7 The Standby Manager will not be bound by any variation or amendment to
this Deed if such variation or amendment increases the obligations of
the Property Manager or the Standby Manager unless it has consented in
writing to such variation or amendment.
13.8 The appointment of the Standby Manager under this Deed will
automatically terminate upon the first to occur of the date on which all
the Bonds have been repaid in full and that date being thirty (30) years
after Financial Close.
13.9 The Standby Manager has the right to assign the benefit of and the
obligations relating to this Deed subject to:
(a) the assignee being 100% controlled by the Standby Manager,
(b) the assignee first undertaking to the other parties to this deed
(except for the Property Manager ) to undertake the obligations and
accept the liabilities of the Standby Manager under this deed, and
(c) the Bond Trustee first having given its consent in writing to such
assignment not to be unreasonably withheld.
13.10 If and when the Standby Manager becomes liable to perform the Services,
it will not be bound to act under the general management and control of
the Issuer but must act with regard to the interests of the Security
Trustee, the Bond Trust and Bondholders and all the Issuer's secured
creditors and shall act as would a prudent Property Manager.
13.11 No enquiry
The Standby Manager is under no obligation to enquire as to the
termination of the Property Manager pursuant to clause 5 and immediately
on appointment pursuant to clause 13,1 can assume that such appointment
is a valid appointment.
14. NON PETITION
While any Bonds are outstanding the Standby Manager and the Property
Manager acknowledge to the Bond Trustee and the Security Trustee and
covenant and undertake accordingly that each of them have no rights to
take any steps:
(a) to enforce the security created or governed by or pursuant to the
Finance Documents or to direct the Security Trustee to do so;
(b) to obtain payment of the fees due to any of them hereunder; nor
(c) to recover any other debts whatsoever owing by the Issuer to the
Standby Manager or Property Manager, as the case may be, solely in
their capacity as such or to petition for the winding-up,
administration or liquidation of the Issuer in respect of any of its
liabilities whatsoever.
15. FORCE MAJEURE
15.1 Notwithstanding any other provision of this Deed, the Property
Manager shall be deemed not to have breached this Deed or have any
liability whatsoever under this Deed for any non-performance or
delay in performance of any of its obligations to the extent that
the non-performance or delay arises out of any circumstances
beyond their reasonable control, including any act of God,
accident, fire, explosion, failure of equipment or machinery,
general failure in electricity, delays in transportation, civil
commotion, riot, sabotage, applicable legislation and regulation
thereunder, interruptions by government or act of governmental
authority, strike, lock-out or other form of industrial action
(unless any such strike, lockout or other form of industrial
action is caused by a breach of contract by the Property Manager).
15.2 The Property Manager shall provide the Services as soon as reasonably
practicable after any event set out in Clause 15.1 ceases to apply.
DULY EXECUTED as a deed.
<PAGE>
SCHEDULE 1
Investor Reports
The following information shall be included in the Investor Reports:-
Transaction performance
Income (lease rentals, re-investment etc.) receivable, and received
Balances and movements on transaction ledgers
Outgoings analysis, detailed as per priority of payments
Details of substitutions
Details of and reason for liquidity facility drawings
Details of any full note redemptions
Details of circumstances giving rise to an insurance claim and whether the
claim is accepted or challenged by the insurers
Underlying Loan performance, monthly breakdown by home, grouped by operator
Available beds - Nursing Home
Available beds - Residential
Percentage occupancy
Fees receivable
Labour costs
Other direct costs
Indirect costs
Repairs and maintenance
Net trading profit
Lease rentals due
Rent cover calculation
Labour costs per cent. turnover
Other costs per cent. turnover
Profit per cent. turnover before rent
Profit per cent. turnover after rent
Fees per occupied bed
Breach of any financial and other material covenants by Operating Tenants
Rental Deposit and Letter of Credit usage
Additional Aggregate Portfolio Information
Total operating profit before rent
Total rents
Total interest cost plus management fees
Total operating profit before rent/(Total interest cost plus management fees)
Total rents/(Total interest cost plus management fees)
<PAGE>
SCHEDULE 2
Asset Management Fee
The Asset Management Fee shall be an annual amount exclusive of GST (except as
provided below) equal to 0.90% per annum of Invested Assets from time to time.
The Asset Management Fee shall be paid quarterly in advance on each Payment
Date, provided that the Asset Management Fee payable in respect of the period
between Financial Close and the first Payment Date shall be payable in arrears
on the first Payment Date.
If on any Payment Date GST is payable on the Asset Management Fee and there is
insufficient funds to pay or provide for items (i) to (xviii) in accordance with
the Project Account Deed then the whole or part of the Asset Management Fee
shall be deemed to be inclusive of GST added tax to the extent necessary to pay
or provide for items (i) to (xviii). If there would be insufficient to pay or
provide for items (i) to (xviii) in accordance with the Project Account Deed
even if the whole of the Asset Management Fee was inclusive of value added tax
then they shall be inclusive of GST, but if the Property Manager does not, on
any Payment Date, receive the full amount of the Asset Management Fee, the
Issuer must to the extent permitted by the Project Account Deed make good any
such shortfall on the next occurring Payment Date.
<PAGE>
SIGNED by
Signed, sealed and delivered by the attorney of Principal
Healthcare Finance Pty Limited under power of attorney
registered Book ............ No ............ in the
presence of:
/s/ WG Chapman /s/ Kevin Wayne Moss
- -------------- --------------------
Signature of witness Signature of attorney
/s/ WG Chapman /s/ Kevin Wayne Moss
- -------------- --------------------
Name of witness (print) Name of attorney (print)
Signed, sealed and delivered by the attorney of Omega
(Australia) Pty Limited under power of attorney registered
Book ............ No ............ in the presence of:
/s/ WG Chapman /s/ Kevin Wayne Moss
- -------------- --------------------
Signature of witness Signature of attorney
/s/ WG Chapman /s/ Kevin Wayne Moss
- -------------- --------------------
Name of witness (print) Name of attorney (print)
Signed, sealed and delivered by the attorney of Permanent
Nominees (Aust.) Limited under power of attorney registered
Book ............ No ............ in the presence of:
. . . . . . . . . . . . . . . . . . . . . . . .
Signature of witness Signature of attorney
. . . . . . . . . . . . . . . . . . . . . . . .
Name of witness (print) Name of attorney (print)
Signed, sealed and delivered by the attorney of Permanent
Trustee Australia Limited under power of attorney
registered Book ............ No ............ in the
presence of:
. . . . . . . . . . . . . . . . . . . . . . . .
Signature of witness Signature of attorney
. . . . . . . . . . . . . . . . . . . . . . .
Name of witness (print) Name of attorney (print)
Signed, sealed and delivered by Christopher Robert Campbell on behalf of
Deloitte Touche Tohmatsu
Derek Hilliard Christopher Robert Campbell
- -------------- ---------------------------
Signature of witness Signature of attorney
Derek Hilliard Christopher Robert Campbell
- -------------- ---------------------------
Name of witness (print) Name of attorney (print)
STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS
<TABLE>
<CAPTION>
FOR PERIOD ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
Net earnings available to common .......................................... $ 5,912,000
===========
Average shares outstanding ................................................ 12,261,397
Basic net earnings per-share ................................................... $ 0.48
===========
Average shares outstanding ................................................ 12,261,397
Stock options incremental shares .......................................... 791
----------
Average shares outstanding, diluted .................................. 12,262,188
Diluted net earnings per-share ................................................. $ 0.48
==========
Diluted net earnings per-share assuming conversion of preferred stock:
Net earnings available to common .......................................... $ 5,912,000
Preferred stock dividends for the period .................................. $ 208,000
-----------
Net earnings before preferred stock dividends ............................. $ 6,120,000
===========
Average shares outstanding ................................................ 12,261,397
Assumed conversion of preferred stock ..................................... 260,000
Stock options incremental shares .......................................... 791
-----------
Total ..................................................................... 12,522,188
===========
Per-share amount (anti-dilutive) .......................................... $ 0.49
===========
</TABLE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
PERIOD ENDED
SEPTEMBER 30, 1999
------------------
Ratio of earnings to fixed charges 5.37x
For purposes of calculating the ratio of earnings to combined fixed charges and
preferred stock dividends, net earnings has been added to combined fixed charges
and preferred stock dividends, and that sum has been divided by such charges.
Fixed charges consist of inputed interest expense. The Company has outstanding
260,000 shares of 8% Series B Cumulative Preferred Stock.
LIST OF SUBSIDIARIES
OMEGA WORLDWIDE, INC.
Jurisdiction of
Names Incorporation
----- -------------
Omega (UK) Limited ........................................ England
Omega (Australia) Pty Limited ............................. Australia
Principal Healthcare Finance Unit Trust No.3 .............. Australia
Principal Healthcare Finance Unit Trust No.4 .............. Australia
PHF No.1 Pty Limited ...................................... Australia
PHF No.2 Pty Limited ...................................... Australia
Principal Healthcare Finance Pty Limited .................. Australia
Beheer-en Beleggingsmaatschappij Rocla BV ................. Netherlands
Beheer-en Beleggingsmaatschappij Dilava BV ................ Netherlands
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Sep-30-1999
<PERIOD-START> Oct-01-1998
<PERIOD-END> Sep-30-1999
<CASH> 6,127
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 915
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 68,412
<CURRENT-LIABILITIES> 4,272
<BONDS> 0
0
2,600
<COMMON> 1,227
<OTHER-SE> 60,313
<TOTAL-LIABILITY-AND-EQUITY> 68,412
<SALES> 0
<TOTAL-REVENUES> 14,753
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,339
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,790
<INCOME-TAX> 2,670
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,912
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
</TABLE>
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, 1999 and 1998, 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, 1999 and 1998, 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
Chartered Accountants
Jersey, Channel Islands
Date: December 21, 1999
<PAGE>
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Year Ended August 31
--------------------
1999 1998
---- ----
(In thousands)
<S> <C> <C>
ASSETS:
Investment in real estate:
Real estate properties .............................. $413,927 $377,332
Accumulated depreciation ............................ (18,394) (11,391)
-------- -------
395,533 365,941
Zero coupon investment .................................. 61,385 28,997
Other investments ....................................... 3,541 7,950
-------- --------
460,459 402,888
Cash and short-term investments ......................... 6,668 5,354
Accounts receivable ..................................... 29,184 17,233
Cash on deposit as collateral - restricted .............. 20,371 17,452
Notes receivable ........................................ - 8,790
Debt issue costs ........................................ 38,429 13,495
Cost in excess of tangible assets acquired,
net of amortization .................................... 14,025 13,235
Other assets ............................................ 530 1,094
-------- --------
Total assets ............................................ $569,666 $479,541
======== ========
LIABILITIES:
Accounts payable and other liabilities .................. $ 13,912 $ 10,838
Borrowings under revolving credit facility .............. 19,139 117,625
Deferred tax liability .................................. 18,491 16,653
Long-term borrowings .................................... 459,094 287,017
Loans from Worldwide .................................... 41,908 32,584
-------- -------
Total liabilities ....................................... 552,544 464,717
SHAREHOLDERS' EQUITY:
Class A Common stock $.016 par value:
Authorized - 60,000,000 shares
Issued and outstanding - 10,000,000 shares .......... 161 161
Additional paid-in capital .............................. 14,472 14,472
Retained earnings (deficit) ............................. 2,808 (243)
Foreign currency translation adjustments ................ (319) 434
-------- --------
Total shareholders' equity .............................. 17,122 14,824
-------- --------
Total liabilities and shareholders' equity .............. $569,666 $479,541
======== ========
</TABLE>
See accompanying notes.
<PAGE>
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenue:
Rental Income ....................................... $ 55,693 $ 47,542 $ 16,722
Mortgage interest income ............................ 1,007 - 103
Other investment income ............................. 5,100 3,500 187
-------- -------- --------
61,800 51,042 17,012
Expenses:
Interest ............................................ 39,149 34,572 12,403
Provisions for depreciation and amortization ........ 9,839 7,202 2,959
General and administrative .......................... 5,880 4,284 1,652
-------- -------- --------
54,868 46,058 17,014
Net income (loss) from operations ....................... 6,932 4,984 (2)
Non-operating income .................................... - 1,406 -
-------- -------- --------
Net income (loss) before income taxes and
extraordinary charge from prepayment of debt .......... 6,932 6,390 (2)
Provision for income taxes:
Current ............................................. 460 184 202
Deferred ............................................ 2,593 2,099 509
-------- -------- -------
3,053 2,283 711
-------- -------- -------
Net income (loss) before extraordinary charge for
prepayment of debt .................................... 3,879 4,107 (713)
Extraordinary charge from prepayment of debt - (1,985) -
-------- -------- -------
Net income (loss) ....................................... $ 3,879 $ 2,122 $ (713)
======== ======== ========
Total comprehensive income (loss) ....................... $ 3,166 $ 2,490 $ (656)
======== ======== ========
</TABLE>
See accompanying notes.
<PAGE>
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended
August 31, 1999, 1998, and 1997
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Retained Other
Class A Class B Paid Earnings Comprehensive
------------------ -----------------
Shares Amount Shares Amount in Capital (Deficit) Income
------ ------ ------ ------ ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 1997 - - - - - (713) -
----- ----- ----- ----- ------- ------- ------
Balance at August 31, 1997 ..................... 4,000 65 6,000 96 14,472 (1,697) 66
Dividends paid ............................... - - - - - (668) -
Recapitalization ............................. 6,000 96 (6,000) (96) - - -
Foreign currency translation adjustment ...... - - - - - - 368
Net income for 1998 .......................... - - - - - 2,122 -
------ ----- ------ ----- ------ ------- ------
Balance at August 31, 1998 ..................... 10,000 161 - - 14,472 (243) 434
Dividends paid ............................... - - - - - (828) -
Foreign currency translation adjustment ...... - - - - - - (753)
Net income for 1999 .......................... - - - - - 3,879 -
------ ----- ------ ----- ------ ------- ------
Balance at August 31, 1999 ..................... 10,000 $ 161 - $ - $14,472 $ 2,808 $ (319)
====== ====== ====== ===== ======= ======== ======
</TABLE>
See accompanying notes.
<PAGE>
PRINCIPAL HEALTHCARE FINANCE LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income (loss) ............................................ $ 3,879 $ 2,122 $ (713)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation and amortization ............................... 9,839 7,202 2,959
Deferred tax provision ...................................... 2,593 2,099 509
Change in operating assets and liabilities
Accounts receivable ....................................... (15,929) (14,726) (2,572)
Accounts payable and accruals ............................. 2,082 3,111 2,542
Foreign currency translation ................................. 173 201 120
------ ------ -----
Cash provided by operating activities ........................ 2,637 9 2,845
INVESTING ACTIVITIES
Acquisition of real estate ................................... (50,915) (96,447) (60,716)
Proceeds from disposal of real estate ........................ - 2,751 -
Notes receivable ............................................. - (8,696) -
Proceeds from notes and loan receivables ..................... 8,817 - -
Investment and loans to subsidiaries ......................... (932) - -
Quality Care Homes Plc acquisition ........................... - - (54,728)
Other investments ............................................ - - (6,566)
Decrease (increase) in cash on deposit as collateral ......... (3,828) 1,257 1,243
Proceeds from disposal of assets held for sale ............... - 3,017 -
Other ........................................................ - 999 -
------ ------ -------
Cash used in investing activities ............................ (46,858) (97,119) (120,767)
FINANCING ACTIVITIES
Proceeds from borrowings ..................................... 197,584 256,395 59,958
Borrowing under revolving credit facility .................... 54,612 116,366 -
Payments of borrowings ....................................... (157,401) (121,121) -
Issuance of common stock - - 13,472
Short-term borrowings from (repayments to)
Omega and Worldwide, net .................................... 11,097 (53,596) 50,875
Early extinguishment of debt - (59,382) -
Zero coupon investment ....................................... (31,808) (27,400) -
Debt issue costs ............................................. (27,722) (14,318) -
Dividends paid .............................................. (827) (668) (158)
Cost of raising capital ...................................... - - (634)
------ ------ -------
Cash provided by financing activities ........................ 45,535 96,276 123,513
------ ------ -------
Increase (decrease) in unrestricted cash
and cash equivalents ........................................ 1,314 (834) 5,591
Unrestricted cash and cash equivalents at
beginning of period ........................................ 5,354 6,188 597
----- ----- -----
Unrestricted cash and cash equivalents at
end of period ............................................... $ 6,668 $ 5,354 $ 6,188
======= ======= =======
See accompanying notes.
</TABLE>
<PAGE>
PRINCIPAL HEALTHCARE FINANCE LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICES
ORGANIZATION
Principal Healthcare Finance Limited (the "Company") was formed and
initially funded in June 1995 by Omega Healthcare Investors, Inc. ("Omega"). In
April 1998, Omega Worldwide, Inc. ("Worldwide") acquired a 33.375% interest in
the Company from Omega. The Company is a Jersey, Channel Islands based company
organized to purchase and lease back nursing homes in the United Kingdom. The
Company maintains its records in British pounds sterling under accounting
principles generally acceptable in the United Kingdom. The accompanying
financial statements are based on generally accepted accounting principles in
the United States and are stated in U.S. dollars.
The consolidated financial statements of the Company include the
accounts of the Company and all wholly owned subsidiaries after elimination of
all material intercompany accounts and transactions.
CASH AND SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid investments with a
maturity date of three months or less when purchased. These investments are
stated at cost, which approximates the 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.
COSTS IN EXCESS OF TANGIBLE ASSETS ACQUIRED
The excess of the sum of the purchase cost and the deferred tax
liability recognized over the fair value of real estate and other tangible
assets acquired in connection with the purchase of Quality Care Homes Plc is
amortized on a straight-line basis over a 30-year period. Amortization expense
was approximately $450,000, $452,000 and $22,000 in 1999, 1998, and 1997,
respectively.
IMPAIRMENT OF ASSETS
Impairment losses related to long-lived assets, certain intangible
assets and goodwill related to those assets are recognized when expected future
cash flows are less than the carrying value of the assets. If indicators of
impairment are present, the Company evaluates the carrying value of the related
real estate investments in relationship to the future undiscounted cash flows of
the underlying operations. The Company adjusts the net book value of the leased
assets and other long-lived assets to fair value if the sum of the expected
future cash flows is less than book value.
<PAGE>
REVENUE RECOGNITION
Rental income is recognized on a straight-line basis over the terms of
the related master leases. Such income includes periodic increases based on
predetermined formulas as defined in the master leases and mortgage loan
agreements.
TRANSLATION
Translation from British pounds sterling has been performed under the
provisions of Financial Accounting Standards Board Statement No. 52 which
provides that balance sheet amounts are translated at the year end exchange rate
and income statement amounts are translated at the average annual rate. There
are no material amounts of exchange gains or losses included in the results of
operations for 1999, 1998, and 1997.
INCOME TAXES
The Company and its' Channel Island resident subsidiaries are subject
to UK income tax at a rate of 23% on their income after deducting related
expenses, including interest. The Company's UK resident subsidiaries are subject
to the UK corporate tax, at a rate of 30%.
COMPREHENSIVE INCOME
Comprehensive income consists of the Company's net income (loss)
adjusted for the foreign currency translation adjustment.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates 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 207 long-term care
facilities at August 31, 1999, are leased under provisions of master leases with
initial terms of thirty years. However, certain leases may be terminated after
10 or 20 years by exercise of a purchase option by the operator or upon giving
proper notice. Purchase options are generally either at fair market value or at
original purchase price increased by a stipulated annual percentage or by
reference for annual increases 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 (In thousands):
August 31,
----------
1999 1998
---- ----
Buildings ............................... $ 351,839 $ 320,732
Land .................................... 62,088 56,600
-------- ---------
413,927 377,332
Less accumulated depreciation ........... (18,394) (11,391)
-------- ---------
Total ................................... $ 395,533 $ 365,941
========= =========
<PAGE>
The following table summarizes the changes in real estate properties and
accumulated depreciation during 1999 and 1998.
Real Estate Accumulated
Properties Depreciation
---------- ------------
(In thousands)
Balance at August 31, 1997 .............. $ 274,982 $ (4,294)
Additions for 1998 ...................... 96,447 (6,824)
Disposals for 1998 ...................... (2,751) 175
Other, primarily currency adjustments ... 8,654 (448)
-------- -------
Balance at August 31, 1998 .............. 377,332 (11,391)
Additions for 1999 ...................... 50,915 (7,722)
Other, primarily currency adjustments ... (14,320) 719
-------- -------
Balance at August 31, 1999 .............. $ 413,927 $ (18,394)
========= =========
The future minimum annual rentals expected to be received for the
remainder of the initial terms of the leases, are as follows (In thousands):
2000 ........... $ 46,698
2001 ........... 47,586
2002 ........... 48,496
2003 ........... 49,428
2004 ........... 50,383
Thereafter ..... 974,763
-----------
$ 1,217,354
===========
3. INVESTMENT CONCENTRATIONS
As of August 31, 1999, all of the Company's real estate investments
were related to long-term care facilities. The Company's real estate investments
are operated by 13 companies, including Tamaris.(31.90% of amount invested)
and Sun Healthcare (21.51% of amount invested). The Company's facilities are
located in England (79.37% of amount invested), Northern Ireland (15.39% of
amount invested) and Scotland (5.24% of amount invested).
<PAGE>
The following is a summary of the amounts invested and the number of
facilities owned at August 31 (In thousands):
<TABLE>
<CAPTION>
1999 1998
-------------- ----------------
Number of Number of
Investment Facilities Investment Facilities
County Amount Owned Amount Owned
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Berkshire ..................... $ 5,241 3 $ 3,780 2
Cambridgeshire ................ 1,264 1 1,328 1
Cleveland ..................... 5,981 3
Coventry ...................... - - - -
Cumbria ....................... 5,884 2 3,717 1
Derbyshire .................... 6,051 4 6,357 4
Durham ........................ 42,340 19 46,693 19
East Riding of Yorkshire ...... 1,076 1
Essex ......................... 2,351 1 2,470 1
Greater London ................ 10,600 3 11,136 3
Greater Manchester ............ 3,844 2 4,038 2
Hertfordshire ................. 3,899 1 4,096 1
Kent .......................... 16,306 12 3,136 1
Leeds ......................... 2,296 1
Leicestershire ................ 3,188 1 3,349 1
Lincolnshire .................. 6,342 3 6,662 3
Merseyside .................... 8,191 4 8,605 3
Newcastle Upon Tyne ........... 2,135 1
Norfolk ....................... 13,676 8 5,052 3
Norwich ....................... 3,417 1 - -
North Ayrshire ................ 6,685 1 7,022 1
North Humberside .............. 4,603 1 4,835 1
North Linconshire ............. 1,114 1 1,170 1
North Yorkshire ............... 7,149 4 7,510 4
Northhamptonshire ............. 2,534 1 2,662 1
Northhumberland ............... 10,133 4 8,048 3
Nottinghamshire ............... 20,803 12 21,854 12
Oxfordshire ................... 6,366 3 6,270 3
Shropshire .................... 1,158 1
South Yorkshire ............... 15,541 11 8,594 5
Staffordshire ................. 16,338 18 14,508 13
Suffolk ....................... 10,107 4 10,618 4
Tyne & Wear ................... 42,413 19 43,511 18
Warwickshire .................. 1,401 1 1,488 1
West Midlands ................. 19,866 12 20,920 12
West Yorkshire ................ 18,241 5 21,574 6
------------------- --------------------
Total England .............. 328,534 169 291,003 130
Antrim ........................ 21,541 13 19,253 11
Armagh ........................ 10,504 4 11,034 4
Down .......................... 7,510 2 7,889 2
Fermanagh ..................... 7,454 4 7,830 4
Londonderry ................... 9,645 6 10,132 6
Tyrone ........................ 7,042 3 7,398 3
------------------ --------------------
Total Northern Ireland ..... 63,696 32 63,536 30
Dundee City ................... 10,505 3 11,035 3
East Lothian .................. 8,276 2 8,694 2
Glasgow ....................... 2,916 1 3,064 1
------------------ -------------------
Total Scotland ............. 21,697 6 22,793 6
------------------ --------------------
Total ......................... $413,927 207 $377,332 166
=================== ====================
</TABLE>
Pursuant to leases the Company's tenants provide liquidity deposits and
letters of credit, which generally represent monthly rent for a period of six
months. Additional security from operations 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.
<PAGE>
As of August 31, 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.
The following is condensed financial data pertaining to:
<TABLE>
<CAPTION>
Idun Health
Care Ltd. Tamaris Tamaris
Proforma 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Year ended March 31: (In thousands)
Cash flows from:
Operating activities .......... $ 6,298 $ (14,148) $ (4,874)
Financing activities .......... (10,350) 18,507 (9,844)
Investing activities .......... 5,478 (8,960) 17,893
Net revenues .................. 120,882 59,158 31,172
Net profit (loss).............. (6,251) (5,620) (4,999)
Total assets .................. $ 39,208 $ 74,697 $ 22,016
Total liabilities ............. 37,402 42,527 15,902
Shareholders' equity .......... 1,806 32,170 6,114
</TABLE>
On October 29, 1999, Idun, a wholly owned subsidiary of Omega Worldwide,
Inc. purchased the operating subsidiearies of Tamaris plc.
4. NOTES RECEIVABLE
Notes receivable is comprised of the following (In thousands):
August 31,
--------------------
1999 1998
---- ----
Notes receivable from tenant ......... $ - $ 5,998
Notes receivable from sale of stock .. - 2,106
Other ................................ - 686
------ ------
$ - $ 8,790
====== =======
The notes receivable from tenant and from stock sale relate to
transactions with Baneberry (see note 11).
5. BORROWING ARRANGEMENTS
In October 1997, the Company obtained through a wholly owned
subsidiary, a secured revolving credit facility permitting borrowings of
approximately $250,000,000. As of August 31, 1999, $19,139,000 had been drawn on
the facility. The facility matures on October 6, 2000 with each advance bearing
interest at LIBOR plus 1.50% (6.8% at August 31, 1999).
The loans payable to Worldwide at August 31, 1999 consist of a
short-term loan of $18,034,000, which bears interest at 9.25%, and a $23,874,000
subordinated loan, which bears interest at 12.55% and matures in December 31,
2000. The estimated fair value of the subordinated loan at August 31, 1999 is
$24,699,000. The carrying value of the short-term loan approximates its fair
value. In connection with the subordinated loan, the Company provided warrants
to acquire 10,000,000 shares of stock at (pound)1.50 (approximately $2.55) per
share. These warrants expire June 30, 2001.
<PAGE>
The following is a summary of other long-term borrowings, all of which
are British pound sterling denominated (In thousands):
August 31,
--------------------
1999 1998
---- ----
Mortgage bonds ..................... $432,285 $250,800
Secured bank loan .................. 12,585 16,730
Collateralized bank term loan ...... 6,266 11,127
Subordinated loan .................. 7,958 8,360
-------- --------
$459,094 $287,017
======== ========
Substantially all of the real estate properties are collateralized by
commercial mortgages and bank loans.
On December 12, 1997, the Company completed a $238,740,000
((pound)150,000,000) mortgages bond placement issued in two series. The first
series of bonds with a balance of $167,200,000 ((pound)100,000,000) have a
final maturity in 2025. The second series of bonds with a balance of
$71,540,000 ((pound)50,000,000) have a final maturity in 2027. The proceeds
were primarily used to repay certain outstanding borrowings totaling
$190,000,000 at the date of the offering. The bonds have a weighted average
coupon of 7.52%.
On March 23, 1999, the Company completed a $194,175,000 mortgage bond
placement issued in three series. The first series of Class A bonds, with a
balance of $130,511,000 ((pound)82,000,000) have a final maturity in 2027. The
second series Class M, with a balance of $47,748,000 ((pound)30,000,000) have a
final maturity of 2029. The third series Class B, with a balance of $15,916,000
((pound)10,000,000) have a final maturity of 2029. The proceeds were primarily
used to repay outstanding borrowings totaling $152, 993,000 at the date of the
offering. The bonds have a weighted average coupon of 6.31%.
The secured bank loan matures on August 25, 2000 and bears interest to
maturity at rates fixed at the time each tranche of the loan was drawn down. The
average rate on funds drawn down at August 31, 1999 and 1998 was 8.67% and
8.70%, respectively.
The collateralized bank term is secured by restricted cash of
$11,538,000, bears interest at 7.5% and matures on October 1, 2001.
The subordinated loan is due for repayment on December 31, 2000 and
bears interest over the remaining term of the loans at rates ranging from 12.55%
to 12.93%. In connection with the loans, the Company provided warrants to
acquire 3,333,333 shares of stock at (pound) 1.50. These warrants expire June
30, 2001. The carrying amount and the estimated fair value of the loan for the
year ending August 31, 1999 are $7,958,000 and $8,233,000.
The borrowings from commercial mortgages, the acquisition finance loan
and the loan notes and guarantees were all repaid during 1998 from proceeds from
the secured revolving credit facility. The interest on the commercial mortgages
had varying interest rates ranging from 6.18% to 8.5%. The interest rate on the
acquisition finance loan was 1% per annum over LIBOR. The interest rate on the
loan notes and guarantees was 6.5% per annum.
<PAGE>
The principal payments for each of the five years following August 31,
1999 is set forth below (In thousands):
2000 .......... $ 20,543
2001 .......... 4,716
2002 .......... 1,551
2003 .......... -
2004 .......... -
Thereafter .... 432,284
---------
$ 459,094
=========
The aggregate carrying value and fair values of borrowings at August
31, 1999 and 1998 are set forth below (In thousands):
Carrying Fair
Value Value
----- -----
1999 ........... $524,626 $526,234
1998 ........... 441,407 443,871
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 (In thousands):
Land and Buildings ................ $ 4,524
Receivables and inventory ......... 3,224
Cash .............................. 23
Accounts payable and accruals ..... (4,730)
------
Assets held for sale .............. $ 3,041
=======
7. CAPITAL STOCK
The Company has issued warrants to subscribe for additional shares as
follows:
<TABLE>
<CAPTION>
Number Exercise Expiration
of Shares Price Date
---------- ------ ------------------
<S> <C> <C> <C>
Class A Shares ........ 1,666,666 (pound)1.00 December 31, 2000
Class A Shares ........ 750,000 (pound)1.10 December 31, 2000
Class A Shares ........ 13,333,333 (pound)1.50 June 30, 2001
</TABLE>
As to the warrants, which expire in December, 2000, no value was
assigned at the date of issuance because the underlying securities were issued
at their fair value at that date. As to the warrants which expire in June 2001,
the Company believes that the coupon rate for the subordinated debt was the
prevailing market rate on the date of the loan, and therefore the face amount of
the subordinated loans approximated its fair value on the date of issuance. In
addition, the exercise price on these warrants significantly exceeded the fair
value of the stock on the date of issuance since the warrants enabled the
purchase of shares at (pound)1.50, while the current value of the shares at that
time was approximately (pound)1.00. Based on these factors at the date of the
borrowing, no value was ascribed to the warrants when they were issued.
<PAGE>
8. INCOME TAXES
The provision for income taxes is as follows (In thousands):
Year ended August 31,
---------------------
1999 1998 1997
---- ---- ----
Current
UK income tax on net rental income .... $ 460 $ 184 $ 266
UK corporation tax credit ............. - - (64)
------- ------- ------
460 184 202
Deferred .............................. 2,593 2,099 509
------- ------- ------
$ 3,053 $ 2,283 $ 711
======= ======= ======
The effective tax rate differs from the UK income tax rate, primarily
due to depreciation and amortization expense, which is not deductible for tax
purposes in the UK.
The Primary components of the Company's deferred tax liability are as
follows (In thousands):
August 31,
----------------
1999 1998
---- ----
Deferred tax liability
Accounts receivable .......... $ 2,639 $ 2,663
Real estate .................. 15,682 13,811
Other ........................ 170 179
-------- --------
$ 18,491 $ 16,653
======== ========
9. RELATED PARTY TRANSACTIONS
The Company has an agreement with Worldwide under which Worldwide
provides investment advice, portfolio monitoring, administration and advisory
services to the Company. The Company pays and annual fee of 0.9% of the
Company's invested assets (as defined) to Worldwide. The Company paid
approximately $4,479,100, $3,295,000 and $1,341,000 during 1999, 1998 and 1997,
respectively.
On February 26, 1998, a purchase/leaseback transaction with County
Healthcare Limited, a company in which a director of the Company has an
ownership interest, was completed at a purchase price of approximately
$4,370,000. The lease has a term of thirty years and an initial yield of 10.75%.
A loan of approximately $300,000 to County Healthcare (P2) Limited was closed on
the same date. The loan was repaid during fiscal year 1999.
During 1999, two purchase/leaseback transactions with County Healthcare
Limited, a company in which a director of the Company has as ownership interest,
was completed at a total purchase price of approximately $5,265,000. The leases
have a term of thirty years and an initial yield of 10.5%. The transaction was
approved unanimously by the disinterested directors.
Interest expense on the short-term loan from Worldwide for the years
ended August 31, 1999, 1998 and 1997 is $1,614,798, $902,809 and $1,397,563
respectively.
Interest expense on the subordinated loan from Worldwide for the years
ended August 31, 1999, 1998 and 1997 is $2,963,453, $2,990,922, and $2,987,809
respectively.
<PAGE>
10. LOSS ON EARLY EXTINGUISHMENT OF DEBT
In November, 1997 the Company borrowed $56,000,000 under its secured
revolving credit facility to repay a portion of the $64,000,000 due under the
secured bank loan agreement (see note 5). As a result of the repayment of the
bank loan, the Company paid prepayment fees and related expenses of
approximately $1,985,000 and recorded such amount as an extraordinary charge
from prepayment of debt.
11. NON-OPERATING INCOME
In July 1998, Principal sold its entire ownership interest in Baneberry
Healthcare Limited (Baneberry) which it acquired as part of Baneberry's
formation in November 1997. The Company realized sale proceeds of approximately
$4,000,000, resulting in a gain of approximately $1,900,000, which is included
in non-operating income in 1998. Of the ownership interest sold, 19.9% was sold
to Worldwide, and included in non-operating income is approximately $500,000
related to the Worldwide sale.
IDUN HEALTH CARE LIMITED
PROFORMA FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED 31 MARCH 1999 AND 31 MARCH 1998
CONTENTS PAGE
Definitions and background 1
Report of Independent Accountant 2
Proforma Combined Profit and Loss Account 4
Proforma Combined Balance Sheet 5
Proforma Combined Cash Flow Statement 6
Notes to the Proforma Financial Statements 7
<PAGE>
IDUN HEALTH CARE LIMITED
DEFINITIONS
BACKGROUND
On 29 October 1999, 48 care home operating companies owned by Tamaris
plc ("Tamaris") were acquired by Idun Health Care Limited ("Idun Health
Care")(formerly Mixtop Limited).
Of the 48 companies acquired on 29 October 1999, 39 companies were
wholly owned by Tamaris at 31 March 1998, a further six companies were
incorporated by Tamaris during the year to 31 March 1999, and one
company was incorporated by Tamaris after 31 March 1999, before 29
October 1999.
For the purposes of SEC reporting only, the financial statements of 47
companies have been combined as at 31 March 1999 and 39 companies
owned by Tamaris at 31 March 1998, have been combined for comparative
purposes.
Idun Health Care Limited is a shell company wholly owned by Omega
Worldwide, Inc. ("Omega") for combining the 48 care home operating
companies within one entity. Omega is now the ultimate parent
undertaking of the Group. Idun Health Care was incorporated on 22
October 1999, and commenced trading on 29 October 1999.
"Proforma Financial Statements" The combined results, and balance
sheets of the Group for the two years
ended 31 March 1999.
"Group" The 48 companies acquired by Idun on
29 October 1999 (1998: 39 companies)
"Combination" The combined results and balance sheets
of the group. Idun was not a statutory
entity or parent undertaking at
31 March 1999. Hence, it is not
appropriate to prepare consolidated
financial statements within the normal
meaning of the term.
The financial statements have been
prepared for SEC reporting purposes.
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANT TO THE SHAREHOLDERS OF IDUN
HEALTH CARE LIMITED
To the Shareholders of the Idun Health Care Limited
We have audited the proforma combined balance sheets of the Idun
companies as at 31 March 1999 and 31 March 1998, and the related
proforma combined profit and loss accounts and proforma combined
cashflow statements for the two years ended 31 March 1999, which
together with the accompanying notes constitute the proforma
combined financial statements on pages 3 to 31.
The proforma combined financial statements have been prepared in
accordance with the accounting policies set out in note 1. In
particular, we draw your attention to the basis of the combination
of these proforma combined financial statements.
Directors' responsibilities for the financial statements
The Directors are responsible for preparing the proforma combined
financial statements. In preparing those statements, the directors
are required to:
select suitable accounting policies and then apply them
consistently;
make judgements and estimates that are reasonable and
prudent;
state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the proforma combined financial statements.
The Directors are responsible for keeping proper accounting records,
for safeguarding the assets of the Group and for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
Respective responsibilities of directors and auditors
The Company's Directors are responsible for the preparation of
proforma combined financial statements. It is our responsibility to
form an independent opinion, based on our audit, on those statements
and to report our opinion to you.
Basis of opinion
We conducted our 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 proforma combined financial
statements. It also includes an assessment of the significant
estimates and judgements made by the Directors in the preparation of
the proforma combined financial statements, and of whether the
accounting policies are appropriate to the circumstances,
consistently applied and adequately disclosed.
2
<PAGE>
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.
Going concern
In forming our opinion, we have considered the adequacy of the
disclosures made in note 1a) of the proforma combined financial
statements concerning the going concern assumption. Immediately
after acquisition, Omega Worldwide, Inc. advanced (pound)8 million
to the Group for the settlement of short term liabilities and
working capital. On the basis of the Directors' current projections,
the Board does not believe that the Group will require more than
(pound)1 million of additional funds for the foreseeable future. It
is the opinion of the Directors of Idun Health Care Limited that the
Group, in order to continue as a going concern, is reliant on the
continued support of Omega Worldwide, Inc., the ultimate controlling
party of the Group. In view of the significance of this uncertainty
we consider it should be drawn to your attention, but our opinion is
not qualified in this respect.
Related party transactions
In forming our opinion, we have considered the disclosures made in
note 29 of the financial statements which sets out those
transactions which the Directors of Idun Health Care Limited have
identified between the Idun companies and related parties. In view
of the significance of these transactions we consider that they
should be drawn to your attention, but our opinion is not qualified
in this respect.
Opinion
In our opinion the proforma combined financial statements have been
properly prepared in accordance with the basis of preparation and
the accounting policies set out in note 1.
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 year ended 31 March
1999 and 31 March 1998 and the determination of aggregated
shareholders' equity and aggregated financial position as at 31
March 1999and 31 March 1998 to the extent summarised in note 30 to
the consolidated financial statements.
/s/ Grant Thornton
Grant Thornton
registered auditors
chartered accountants
London
24 DECEMBER 1999
3
<PAGE>
IDUN HEALTH CARE LIMITED
PROFORMA COMBINED PROFIT AND LOSS ACCOUNT
FOR THE TWO YEARS ENDED 31 MARCH 1999 AND 1998
<TABLE>
<CAPTION>
Notes 1999 1998
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
Turnover 2
Continuing operations 69,432 33,938
Acquisitions 3,657 -
----- ------
73,089 33,938
Staff costs 5 (40,520) (18,932)
Depreciation (1,044) (437)
Other operating charges (286,556) (12,985)
-------- -------
Operating profit before
exceptional items 2,869 1,584
Other operating charges:
Exceptional items 4 (544) -
Operating profit 3
Continuing operations 1,617 1,584
Acquisitions 708 -
----- ---- ----- ------
2,325 1,584
Net interest 6 (691) (235)
---- ----
Profit on ordinary
activities before taxation 2 1,634 1,349
Taxation 7 (647) (351)
----- ---- ----
Profit for the financial year 987 998
=== ===
</TABLE>
There were no recognised gains or losses other than the profit for each
financial year.
The accompanying policies and notes form an integral part of these financial
statements.
4
<PAGE>
IDUN HEALTH CARE LIMITED
PROFORMA COMBINED BALANCE SHEETS AT 31 MARCH 1999 AND 1998
<TABLE>
<CAPTION>
Notes 1999 1998
(pound)'000 (pound)'000
<S> <C> <C> <C>
Fixed assets
Tangible assets 9 11,845 16,556
Intangible assets 8 100 -
- ----- -----
11,945 16,556
------ ------
Current assets
Debtors: amounts falling due after more than one year 11 7,665 7,639
Debtors 10 6,739 5,986
Cash at bank and on deposit 20 3,895 3,662
----- -----
18,299 17,287
------ ------
Creditors: amounts falling due within one year 12 (17,479) (21,712)
Net current assets 820 (4,425)
Total assets less current liabilities 12,765 12,131
Creditors: amounts falling due after more than one year 13 (5,718) (6,220)
------ ------
Net assets 7,047 5,911
===== =====
Capital and reserves
Called up share capital 17 6,327 6,178
Share premium account 18 875 875
Other reserve 18 (2,189) (2,189)
Profit and loss account 18 2,034 1,047
----- -----
Shareholders' funds 19 7,047 5,911
===== =====
</TABLE>
The financial statements were approved by the Board of Directors on 24
December 1999
James Flaherty /s/ James Flaherty )
)
) Directors
)
Graeme Willis /s/ Graeme Willis )
The accompanying policies and notes form an integral part of these financial
statements.
5
<PAGE>
IDUN HEALTH CARE LIMITED
PROFORMA COMBINED CASH FLOW STATEMENTS
FOR THE TWO YEARS ENDED 31 MARCH 1999 AND 1998
<TABLE>
<CAPTION>
Notes 1999 1998
(pound)'000 (pound)'000
<S> <C> <C> <C>
Net cash inflow/(outflow) from operating activities 21 4,737 (4,647)
----- ------
Returns on investments and servicing of finance
Interest paid (873) (459)
Interest element of hire purchase agreements (43) (24)
Interest received 225 248
--- ---
Net cash outflow from returns on
investments and servicing of finance (691) (235)
---- ----
Taxation
Tax paid (238) (40)
---- ---
Capital expenditure and financial investment
Payments to acquire tangible fixed assets (3,752) (2,428)
Receipts from sales of tangible fixed assets (net of expenses) 1,836 -
----- -----
Net cash outflow from capital expenditure
and financial investment (1,916) (2,428)
------ ------
Acquisitions and disposals 25
Net cash taken over on purchase of subsidiary undertaking - 273
Purchase of care home businesses (net of sale receipts) (4,342) (7,097)
------ ------
Net cash outflow from acquisitions and disposals (4,342) (6,824)
------ ------
Financing
Capital element of hire purchase agreements (209) (70)
Receipts from borrowing 2,920 2,495
Repayment of borrowing (473) (22)
Net funding from former holding company 1,074 8,907
----- -----
Net cash inflow from financing 3,312 12,310
----- ------
Increase/(decrease) in cash 22 862 (1,864)
=== ======
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
6
<PAGE>
IDUN HEALTH CARE LIMITED
NOTES TO THE PROFORMA FINANCIAL STATEMENTS
FOR THE TWO YEARS ENDED 31 MARCH 1999 AND 1998
1. ACCOUNTING POLICIES
a) BASIS OF PREPARATION - GOING CONCERN
The Directors have given due consideration to the preparation of the
proforma financial statements on a going concern basis having reviewed
the forecasts for the next 12 months from the date of approval of these
proforma financial statements. Immediately after acquisition, Omega
Worldwide, Inc. advanced (pound)8 million to the Group for settlement
of short term liabilities and working capital. On the basis of the
Directors' current projections, the Board does not believe that the
Group will require more than (pound)1 million of additional funds
for the foreseeable future. It is the opinion of the Directors of Idun
Health Care that the Group in order to continue as a going concern, is
reliant upon the continued support of Omega Group the ultimate
controlling party of the companies.
Immediately following the acquisition, Omega paid (pound)8 million to
settle overdue liabilities of the Group and to provide the Group with
working capital. Omega has given an undertaking to continue to support
the Group for the foreseeable future.
b) ACCOUNTING CONVENTION
The proforma combined financial statements are prepared in accordance
with applicable accounting standards and under the historical cost
convention, except that:
Consolidation adjustments have not been made in respect of investments,
share capital and goodwill on the ground that Idun was not a legal
entity as at 31 March 1999, nor was it the parent undertaking as at 31
March 1999.
c) ACCOUNTING STANDARDS
The proforma financial statements have been prepared in accordance with
applicable accounting standards in the United Kingdom. The Group has
adopted Financial Reporting Standards No's 10 - 14 for the first
time. Other than for goodwill the adoption of these accounting
policies has not lead to a change in accounting treatments used in
earlier years.
d) BASIS OF COMBINATION
These proforma financial statements combine the results of 47 companies
as at 31 March 1999 acquired by Idun Health Care Limited on 29
October 1999. For comparative purposes these financial statements
combine the results of the 39 companies owned by Tamaris as at
31 March 1998. There were no disposals of companies during the
two years ended 31 March 1999 and 1998. An additional company
acquired by Omega on 29 October 1999 was not incorporated until after
31 March 1999.
The results of undertakings acquired during the year are included from
the date of acquisition. On acquisition of a company, all of the
company's assets and liabilities which exist at the date of acquisition
are recorded at their fair values reflecting their condition at that
date. The effect of transactions between the Idun companies have been
removed. The reserves and share capital of each company have been
aggregated at the balance sheet date. No adjustment to reserves or
issued share capital has been made, except where it is necessary to
remove pre-acquisition results.
e) 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.
7
<PAGE>
Proceeds of sale and leaseback transactions are shown net of disposal
costs. Consideration paid for the acquisition of a new home includes
costs of acquisition of the home.
ACCOUNTING POLICIES (CONTINUED)
f) DEPRECIATION
Depreciation is provided on the cost or valuation of tangible fixed
assets less estimated residual values over their estimated useful lives
at the following annual rates:
Freehold buildings 50 years
Short leasehold interests period of lease
Plant, fixtures and fittings 5% - 15% on net book value
Motor vehicles 25% on cost
Freehold buildings, short leasehold interests and motor vehicles are
assumed to have nil estimated residual value.
g) GOODWILL
Purchased goodwill is capitalised and is amortised on a straight line
basis over its estimated useful economic life as shown in note 8.
Purchased goodwill first accounted for in accounting periods ending
before 23 December 1998, the implementation date of Financial Reporting
Standard No 10, was eliminated from the financial statements by
immediate write-off on acquisition against reserves. Such goodwill will
be charged or credited to the profit and loss account on the subsequent
disposal of the business to which it relates.
h) HIRE PURCHASE AND LEASING CONTRACTS
Assets held under finance leases and hire purchase contracts are
capitalised in the balance sheet and depreciated over their useful
lives. The interest element of leasing payments represents a constant
proportion of the capital balance outstanding and is charged to the
profit and loss account over the period of the agreement.
All other leases are regarded as operating leases and the payments made
under them are charged to the profit and loss account on a straight
line basis over the lease term.
i) DEFERRED TAXATION
Deferred taxation is provided to take account of timing differences
between the treatment of certain items for accounts purposes and for
taxation purposes, only to the extent it is probable that a liability
or asset will crystallise in the foreseeable future. Unprovided
deferred tax is disclosed as a contingent liability.
Debit balances arising in respect of advance corporation tax on
dividends payable or proposed are carried forward to the extent
that they are expected to be recoverable.
j) PENSION COSTS
No Group or Company pension scheme exists other than the Group Personal
Pension Scheme, which was established on 1 January 1999 for
participation by certain senior employees. Payments to the Scheme or to
an employee's own pension scheme are charged to the profit and loss
account when incurred.
k) TURNOVER
Turnover represents the amount receivable for services provided.
l) SALE AND LEASEBACK TRANSACTIONS
The companies recognise the profit on any sale and leaseback
transactions on completion through operating profit.
8
<PAGE>
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.
Turnover arises solely from activities within the United Kingdom.
The amounts shown for continuing operations include the following in
respect of acquisitions:
1999
(pound)'000
Staff costs 2,187
Depreciation 19
Other operating charges 743
-----
2,949
=====
3. OPERATING PROFIT
Operating profit is stated after charging:
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Auditors' remuneration :
Audit services 164 64
Non audit services 157 139
Less amounts capitalised on acquisitions (118) (99)
Operating lease rentals: land and buildings 16,671 7,906
====== =====
</TABLE>
Included within the operating profit is a profit on sale and leaseback
transactions of (pound)532,000.
4. OTHER OPERATING CHARGES : EXCEPTIONAL ITEMS
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
(i) Impairment of short leasehold interests 10,465 -
(ii) Impairment of freehold care home assets 450 -
(iii) Provision for profit related pay tax liability 1,000 -
(iv) Waiver of amounts owed to Tamaris (11,371) -
------- ----
544 -
======= ====
</TABLE>
9
<PAGE>
OTHER OPERATING CHARGES : EXCEPTIONAL ITEMS (CONTINUED)
(i) Impairment of short leasehold interests
The care home operating companies acquired by Idun Health Care Limited
have written down the carrying value of short leasehold interests based
on the cash flow projections of the companies acquired by Idun on 29
October 1999 (see note 9).
(ii) Impairment of freehold care home assets
The Group's freehold care home assets were valued on 8 January 1999 by
Conrad Ritblat at (pound)2,970,000 against a book value of
(pound)3,420,000. The impairment provision represents the corresponding
shortfall.
(iii) Provision of profit related pay tax liability
On 29 October 1999, Idun acquired the share capital of 48 companies
formerly owned by Tamaris plc. The break-up of the Tamaris group has
resulted in an overpayment of profit related pay through the scheme
run by Tamaris for the year ended 31 March 1999. The individual
liabilities fall on each company and are therefore fully
provided within these combined proforma financial statements.
(iv) Waiver of amounts owed to Tamaris by the 48 care home
operating companies
As part of the sale agreement between Idun and Tamaris referred to
above, all inter-company debt between the companies acquired and the
former holding company and its remaining subsidiaries was waived on 29
October 1999.
5. STAFF COSTS
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Employee costs including directors' emoluments during the year were:
Salaries and wages 38,117 17,914
Social security costs 2,299 1,018
Pension costs 104 -
------ -------
40,520 18,932
====== ======
Number Number
The average numbers of staff employed during the year were:
Management and administration 237 200
Nursing and ancillary services 5,180 2,413
----- -----
5,417 2,613
===== =====
</TABLE>
10
<PAGE>
6. NET INTEREST
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Interest payable:
On bank loans and overdrafts 681 253
Hire purchase interest 43 24
Other loan interest 192 206
--- ---
916 483
Interest receivable (225) (248)
---- ----
Net interest payable 691 235
=== ===
</TABLE>
7. TAXATION ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
The tax charge is based on the loss for the year and represents:
Corporation tax at 31% (1998 - 31%) 914 351
Overprovision in respect of previous years (267) -
---- ---
647 351
=== ===
</TABLE>
The taxation charge for 1998 was reduced by rollover relief on property
gains, accelerated capital allowances, loss relief and other timing
differences.
11
<PAGE>
8. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Goodwill
(pound)'000
<S> <C>
Cost
Additions 100
---
At 31 March 1999 100
---
Amortisation
Charge for the year -
---
At 31 March 1999 -
---
Net book value
At 31 March 1999 100
===
The goodwill arose on the acquisition of the Buchanan homes by Tamhealth Limited
on 9 December 1998 (see note 24).
</TABLE>
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
Freehold Short Plant
land and leasehold fixtures Motor
buildings interests and fittings vehicles Total
(pound)'000 (pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C> <C>
Cost or valuation
At 1 April 1998 4,336 9,859 2,607 414 17,216
Additions 3,489 3,959 1,736 94 9,278
Disposals (1,812) (146) (54) (51) (2,063)
------ ---- --- --- ------
At 31 March 1999 6,013 13,672 4,289 457 24,431
-- ---- ----- ------ ----- --- ------
Depreciation
At 1 April 1998 44 102 453 61 660
Provided in year 38 542 355 109 1,044
Impairment write
down 450 10,465 - - 10,915
Disposals - (4) - (29) (33)
--- --- --- --- ---
At 31 March 1999 532 11,105 808 141 12,586
Net book value at
31 March 1999 5,481 2,567 3,481 316 11,845
== ==== ===== ===== ===== === ======
Net book value at
31 March 1998 4,292 9,757 2,154 353 16,556
===== ===== ===== === ======
</TABLE>
12
<PAGE>
TANGIBLE FIXED ASSETS (CONTINUED)
Freehold land of (pound)836,000 is not depreciated.
Under the new accounting standard Financial Reporting Standard No 11
'Impairment of fixed assets and goodwill', the Directors have reviewed
the carrying value of short leasehold interests for impairment.
For the purpose of review of short leasehold interests the healthcare
business has been split into two income generating units ("IGU"), one
to be those care home businesses where rent may be renegotiated with
the lessor and the other being the remainder of homes in the Group.
The cost of capital of an equally risky investment is defined as the
cost of capital of the parent undertaking.
Based on cash flow projections for these IGU's and assuming that the
cost of capital of an equally risky investment would be 13%, the
directors have concluded that a provision of (pound)10,465,000 is
required for impairment.1
The freehold care home assets were valued on 8 January 1999 by Conrad
Ritblat at (pound)2,970,000 against a book value of (pound)3,420,000.
The impairment provision represents the corresponding shortfall.
The net book value of assets in the table stated above include assets
held under hire purchase agreements, as follows:
Plant
Fixtures Motor
and fittings Vehicles
(pounds) (pounds)
Net book value at 31 March 1999 171 235
=== ===
Net book value at 31 March 1998 101 176
=== ===
Depreciation provided in the year 19 60
=== ===
10. DEBTORS
1999 1998
(pound)'000 (pound)'000
Trade debtors 3,692 3,612
Other debtors 1,980 1,444
Prepayments and accrued income 1,067 930
----- ---
6,739 5,986
====== =====
Prepayments include costs of (pound)38,000 (1998 - (pound)27,000)
incurred on anticipated future care home acquisitions.
13
<PAGE>
11. DEBTORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1999 1998
(pound)'000 (pound)'000
Prepayments 5,351 5,553
Other debtors 2,314 2,086
----- -----
7,665 7,639
===== =====
Prepayments relate to a forward payment of rental costs which will be
written off over the lease period of 30 years.
Other debtors relate to rent security deposits which are not expected
to be recovered within a period of twenty years, as they are recovered
at the end of the lease term.
12. CREDITORS; AMOUNTS FALLING DUE WITHIN ONE YEAR
1999 1998
(pound)'000 (pound)'000
Bank loans and overdrafts 6,046 3,755
Trade creditors 1,771 1,378
Corporation tax 1,197 788
Amounts due to Tamaris - 10,447
Other taxes and social security costs 1,040 780
Hire purchase agreements 120 100
Accruals and deferred income 7,305 4,464
----- -----
17,479 21,712
====== ======
Details of the security provided for bank and other loans and
overdrafts are given in note 15.
Amounts due under hire purchase agreements are secured on the assets to
which they relate.
Further details of the repayment periods of borrowings are given in
note 14.
14
<PAGE>
13. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Bank loans 2,477 2,950
Unsecured loan notes 3,000 3,000
Unsecured loan 39 39
Hire purchase agreements 202 231
----- -----
5,718 6,220
===== =====
</TABLE>
Details of the security provided for bank and other loans, overdrafts
and guarantees are given in note 15.
Amounts due under hire purchase agreements are secured on the assets to
which they relate.
Further details of the repayment periods of borrowings are given in
note 14.
14. BORROWINGS AND FINANCIAL INSTRUMENTS
Borrowings
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Within one year or on demand
Hire purchase agreements 120 100
Bank loans and overdrafts 6,046 3,755
After one and within two years
Hire purchase agreements 108 136
Bank loans 508 508
After two years and within five years
Hire purchase agreements 94 94
Bank loans 1,084 1,530
Unsecured loan notes 3,000 3,000
Unsecured loan 39 39
After five years
Bank loans 885 913
------ ------
11,884 10,075
====== ======
</TABLE>
15
<PAGE>
BORROWINGS AND FINANCIAL INSTRUMENTS (CONTINUED)
Financial instruments
The weighted average interest rate of fixed rate liabilities is 8.9%.
The weighted average period for which interest rates on fixed rate
liabilities are fixed is three years.
There are no financial liabilities on which no interest is paid.
The benchmark rate where applicable, for determining interest payments
for the floating rate financial liabilities is the London Interbank
Offered Rate ("LIBOR").
Borrowing facilities
The Group had no undrawn committed borrowing facilities available at 31
March 1999.
The difference between book value and fair value of Group financial
instruments is not material.
15. SECURED CREDITORS DISCLOSURE
BARCLAYS BANK PLC
i) Barclays Bank had a floating charge over the assets and
business of Lunan House Limited as its security for a loan
facility of(pound)1,280,000. The period remaining for the
repayment of the Loan was 18 years and the loan carried
interest at 2.0% above London Interbank Offered Rate
("LIBOR"). The indebtedness to Barclays at the year end was
(pound)1,225,000.
ii) Barclays Bank had a fixed and floating charge over the assets
and business of Tamaris (QCH) Limited as security for a loan
facility of (pound)2,200,000. The period remaining for the
repayment of the loan was 4 years and carried interest at 2.0%
above LIBOR. Capital repayments were made at a rate of
(pound)110,000 per quarter. The indebtedness to Barclays at
the year end was (pound)1,760,000.
iii) Barclays Bank had a fixed and floating charge over the assets
and business of Tamaris Care Properties Limited as security
for bridging loan facilities of (pound)1,700,000 and
(pound)1,220,000. In addition, cash at bank and on deposit
included (pound)450,000 on Treasurers Deposit which
represented part of the security for the bridging loan of
(pound)1,700,000. Barclays indicated that they were
willing to convert the (pound)1,700,000 facility into a term
loan upon similar terms to the Lunan House loan disclosed
above. The loans carried interest at 2.5% above the
Bank's base lending rate. The indebtedness to Barclays at the
year end was (pound)2,920,000.
16
<PAGE>
SECURED CREDITORS DISCLOSURE (CONTINUED)
Clydesdale Bank PLC
i) Tamaris (Scotland) Limited had an overdraft facility of
(pound)250,000 which was repaid prior to the acquisition of
the Company by Idun.
ii) Clydesdale Bank had made available a guarantee facility of up
to (pound)3,080,000 in relation to the unsecured loan notes of
(pound)3,000,000. As at 31 March 1999 the Bank provided a
guarantee of (pound) 2,750,000. This was secured by a cash
deposit of (pound)2,830,000 made with the Bank. It is included
under current assets but was not available for Group use
unless replaced by comparable security.
Both facilities were secured by a fixed and floating charge over the
assets of Tamaris (Scotland) Limited.
16. PROVISION FOR LIABILITIES AND CHARGES
The deferred taxation not provided for in the financial statements is
set out below and is calculated using tax rates of 31% for the Group
(1998 - 31%).
<TABLE>
<CAPTION>
Unprovided
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Accelerated capital allowances - 43
Other timing differences - -
--- ---
- 43
Less: Trading losses - (43)
--- ---
- -
==== ===
</TABLE>
No provision has been made for the taxation that arises on the
chargeable profits from the sale of Group properties in 1997, as it is
the Directors' intention to claim roll-over relief on the acquisition
of replacement assets. The estimated amount of tax not provided is
(pound)1,300,000 (1998 - (pound)1,300,000).
17. CALLED UP SHARE CAPITAL
Called up share capital represents the aggregate share capital of 47
of the companies acquired by Idun.
17
<PAGE>
18. SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
Share
premium Profit and
account Other reserve loss account
(pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C>
At 1 April 1998 875 (2,189) 1,047
Profit for the year \ - - 987
--- ------ ---
At 31 March 1999 875 (2,189) 2,034
=== ====== =====
</TABLE>
Share premium account represents the aggregate share premium for the 47
companies acquired by Idun.
The Other reserve represents a capital reserve arising on acquisition
of subsidiary companies in previous years.
19. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Retained profit for the financial year 987 998
New share capital 149 -
--- ---
1,136 998
Shareholders' funds at 1 April 1998 5,911 4,913
----- -----
Shareholders' funds at 31 March 1999 7,047 5,911
===== =====
</TABLE>
20. COMMITMENTS UNDER OPERATING LEASES
The Group have commitments under operating leases in respect of care
home properties for payments of (pound)19,600,000 in the year to 31
March 2000 (1998 - (pound)15,556,000). The leases to which these
amounts relate all expire after more than five years.
18
<PAGE>
21. NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Operating profit before exceptional items 2,869 1,584
Depreciation charges 1,044 437
Increase in debtors (802) (2,493)
Increase in creditors 1,626 1,378
Lease rental paid in advance - (5,553)
---- ------
Net cash inflow/(outflow) from operating activities 4,737 (4,647)
===== ======
</TABLE>
There is no cash flow effect from exceptional items.
22. RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN DEBT
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Increase/(decrease) in cash in the year 862 (1,864)
Cash outflow from financing (2,238) (2,403)
------ ------
Change in net debt resulting from cash flows (1,376) (4,267)
Inception of hire purchase agreements (200) (343)
---- ----
Movement in net debt in the year (1,576) (4,610)
Net debt at 1 April 1998 (6,413) (1,803)
------ ------
Net debt at 31 March 1999 (7,989) (6,413)
====== =====
</TABLE>
19
<PAGE>
23. ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
At 1 April Non-cash At 31 March
1998 Cash flow items 1999.00
(pound)'000 (pound)'000 (pound)'000 (pound)'000
<S> <C> <C> <C> <C>
Cash at bank and in hand 832 (217) - 615
Bank overdrafts (3,247) 629 - (2,618)
Deposit guaranteeing loan notes 2,830 - - 2,830
Deposit guaranteeing loan facility - 450 - 450
--- --- --- ---
415 862 - 1,277
Bank loans (3,458) (2,447) - (5,905)
Hire purchase agreements (331) 209 (200) (322)
Loan notes (3,000) - - (3,000)
Other loans (39) - - (39)
--- --- --- ---
(6,413) (1,376) (200) (7,989)
====== ====== ==== ======
</TABLE>
Non-cash items represent the inception of new hire purchase agreements.
24. ACQUISITIONS
During the year the Tamaris plc acquired a number of care home
businesses. Details of the capitalised values of each transaction are
given below. In each case only the business and certain assets and
liabilities were acquired. In these circumstances, it is not practical
to provide details of profits or losses for financial periods before
acquisition. Details of the contribution to and utilisation of Group
cash flow is given at note 25.
20
<PAGE>
ACQUISITIONS (CONTINUED)
ST CATHERINE'S NURSING HOME
On 24 June 1998, Tameng Care Limited, then a newly formed wholly owned
subsidiary of Tamaris, acquired the freehold property, related
fixed assets and business of St. Catherine's Nursing Home, Bolton (63
beds), for (pound)1,675,000 from D R and R E Walker.
Immediately following the acquisition Tameng Care Limited entered into
an agreement with Tamaris Care Properties Limited for the sale of the
freehold property for (pound)1,700,000 and its subsequent lease back on
a 25 year operating lease on normal industry terms. The initial annual
rent payable is (pound)170,000. The acquisition by Tamaris Care
Properties Limited was financed by a bridging facility from Barclays
Bank PLC of (pound)1,700,000.
The assets acquired were as follows:
<TABLE>
<CAPTION>
Book value
and
Fair value
(pound)'000
<S> <C>
Purchase consideration 1,675
Costs of acquisition 43
--
Net assets acquired 1,718
-----
Satisfied by:
Bank loan 1,700
Cash 18
--
1,718
=====
</TABLE>
21
<PAGE>
ACQUISITIONS (CONTINUED)
Beach Court Nursing Home
On 6 November 1998, Tamscot Care Limited, then a wholly owned
subsidiary of Tamaris, acquired the freehold property, related
fixed assets and business of Beach Court Nursing Home, Aberdeen (43
beds), for (pound)1,625,000 from Mr P Marr.
Immediately following the acquisition Tamscot Care Limited entered into
an agreement with Tamaris Care Properties Limited for the sale of the
freehold property for (pound)1,625,000 and its subsequent lease back on
a 25 year operating lease on normal industry terms. The initial annual
rent payable is (pound)162,000. The acquisition by Tamaris Care
Properties Limited was financed by a bridging facility from Barclays
Bank PLC of (pound)1,220,000.
The assets acquired were as follows:
Book value
and
Fair Value
(pound)'000
Purchase consideration 1,625
Costs of acquisition 93
-----
Net assets acquired 1,718
=====
Satisfied by:
Bank loan 1,220
Cash 498
-----
1,718
=====
22
<PAGE>
ACQUISITIONS (CONTINUED)
Tamhealth Limited
Tamhealth Limited, then a newly formed wholly owned subsidiary of
Tamaris plc has entered into the following transactions during the
year.
On 8 December 1998, the company acquired the freehold property, related
fixed assets and business of Flowerdown Nursing Home, Winchester (28
beds) for a consideration of (pound)1,303,500 from Lt Colonel A D and
Mrs J I Price, satisfied by cash. The home was simultaneously sold to
and leased back from Healthcare Holdings Limited for (pound)1,385,000
on a 35 year operating lease. The initial annual rent payable is
(pound)145,000.
On 9 December 1998, the company acquired the goodwill and business of
the Buchanan Homes (97 beds), Glasgow from S & A Glass and Buchanan
Properties Limited for a consideration of (pound)100,000.
On 11 December 1998, the company acquired the freehold property,
related fixed assets and business of Rosemount Nursing Home,
Blairgowrie (60 beds) from F & M Henderson Limited for a consideration
of (pound)1,475,000.
The home was simultaneously sold to and leased back from Healthcare
Holdings Limited for (pound)1,650,000 on a 35 year operating lease. The
initial annual rent payable is (pound)173,000.
On 23 December 1998, the company acquired the freehold property,
related fixed assets and business of Garioch Nursing Home, Inverurie
(41 beds) and Woodside Nursing Home, Aberdeen (31 beds) from Garioch
Nursing Home Limited and Woodside House Nursing Home Limited
respectively for a consideration of (pound)1,432,000 and
(pound)1,000,000 respectively, satisfied by cash. The homes were
simultaneously sold to and leased back from Healthcare Holdings Limited
for (pound)2,750,000 on 35 year operating lease. The initial annual
rent payable is (pound)289,000.
On 18 January 1999, the company was granted 35 year operating leases by
Healthcare Holdings Limited in respect of three nursing homes (197
beds), two located in Hertfordshire and one in Kent. The initial annual
rent payable is (pound)714,000.
23
<PAGE>
ACQUISITIONS (CONTINUED)
The aggregate assets acquired were as follows:
<TABLE>
<CAPTION>
Book value
and Fair value
(pound)'000
<S> <C>
Purchase consideration 5,311
Sale proceeds, net of costs (5,746)
------
Profit on disposal - credited to profit and loss account (435)
Costs of acquiring leases - capitalised as short leasehold interests 705
---
270
===
Satisfied by:
Cash (net) 270
===
</TABLE>
Hawthorn House Nursing Home
On 19 February 1999, Tamulst Care Limited, then a wholly owned
subsidiary of Tamaris acquired the freehold property, related
assets and business of Hawthorn House Nursing Home, Belfast from the
Civil Service Benevolent Fund for (pound)625,000 payable in cash.
Simultaneously with completion, Tamulst Care Limited entered into a
sale agreement for the property with PHF Securities No 3 Limited
(Principal Healthcare Finance Limited), for (pound)712,000 and its
subsequent leaseback on a 30 year operating lease. The initial annual
rent payable is (pound)71,000.
The assets acquired were as follows:
<TABLE>
<CAPTION>
(pound)'000
<S> <C>
Purchase consideration 625
Sale proceeds (712)
----
(87)
Profit on disposal - credited to profit and loss account
Costs of acquiring lease - capitalised as short leasehold interests 76
--
(11)
===
Satisfied by:
Cash (net) (11)
===
</TABLE>
24
<PAGE>
ACQUISITIONS (CONTINUED)
Hallhouse Nursing Home
On 31 March 1999, Lifecare International plc, then and now a wholly
owned subsidiary of Tamaris, acquired the freehold property, related
fixed assets and business of Hallhouse Nursing Home, Aberdeen (47 beds)
from Hallhouse Nursing Home Limited, for (pound)1,550,000.
Simultaneously with completion, Lifecare International plc entered into
a sale agreement for the property with Care Property Holdings Limited,
a Jersey based company, for (pound)1,790,000 and its subsequent
leaseback by Dounemead Limited, then a wholly owned subsidiary of
Tamaris on a 25 year operating lease. The initial annual rent payable
is (pound)179,000.
The costs incurred by Donnemead Limited were (pound)124,000, satisfied
by cash.
25. CASH FLOW FROM ACQUISITIONS
The business undertakings acquired during the year made the following
contribution to and utilisation of Group cash flow.
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Net inflow from operating activities 1,710 540
Net outflow from returns on investment and servicing of finance (4) (349)
Net outflow from capital expenditure and financial investment (1,626) (255)
------ ----
(80) (64)
====== =====
</TABLE>
Operating activities excludes central overhead.
26. PENSION CONTRIBUTIONS
Contributions to employees' own pension schemes are accrued and payable
during the term of employment.
A Group Personal Pension Scheme was established on 1 January 1999 for
participation by certain senior employees. The scheme is a defined
contribution scheme. The amount paid into the scheme during the year
was (pound)33,960.
27. CAPITAL COMMITMENTS
The Idun companies had no contracted capital commitments at the year
end of (pound)nil (1998 - (pound)nil).
25
<PAGE>
28. CONTINGENT LIABILITIES
The Idun companies 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 disclosed
within notes 15 and 20.
29. RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS
Related Party Transactions
There were no transactions with Directors or related parties during the
year other than:
Mr William Fitch
The Directors consider that Mr William Fitch is a related party by
virtue of his being a Director of Tamaris plc until 31 December 1998
and his holding of ordinary shares in Tamaris plc which amounted to
840,006 ordinary shares at 31 March 1999.
Under the terms of a Guarantee dated 16 July 1997, Tamaris and Mr.
Fitch guaranteed the loan made by MeesPierson Corporate Bank to
Triasma Homes Limited for the construction of Westview House Residental
Home, now operated by the Group. The obligations under this Guarantee
were released on 15 September 1999.
Under the terms of an agreement dated 22 May 1998 between Omega and
Automated Ventures, Inc. ("Automated") (a company incorporated in the
British Virgin Islands), Omega agreed to make available to Automated a
loan in the principal amount of (pound)500,000. The loan bears interest
at 10.5%, and is repayable by quarterly instalments up to and
including October 2000. Civicextra Limited, a company incorporated in
England and Wales, and Mr Fitch have guaranteed the loan. The loan was
made to enable Mr Fitch to buy 200,000,000 0.25 pence ordinary shares
in Tamaris from Roseview International Limited ("Roseview"), a
company incorporated in the British Virgin Islands. These shares were
originally subscribed for by Roseview in January 1998.
The balance due from Mr. Fitch to Omega is now (pound)437,500.
Omega
The Directors consider Omega to be a related party by virtue of its
interest in 100% of the shares of the companies and because Mr James
Flaherty, a Director of Idun Health Care Limited, is an officer of
Omega.
During the year Omega paid (pound)867,000 on behalf of Tamaris (QCH)
Limited in respect of professional fees payable in respect of the
acquisition of 37 care home businesses from Quality Care Homes Limited.
During the year, the Group has made payments of (pound)8,545,000 (1998:
(pound)2,919,000) to Principal Healthcare Finance Limited, an
associated company of Omega, which is equivalent to the annual
commitments under its operating leases with that company.
These leases extend to periods up to 30 years.
26
<PAGE>
30. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(US GAAP)
<TABLE>
<CAPTION>
1999 1998
(pound)'000 (pound)'000
<S> <C> <C>
Net profit after tax per UK GAAP 987 998
Capitalised short leasehold interests (net of impairment provision) (1) 7,189 (4,728)
Waiver of amounts owed to Tamaris plc (2) (10,297) 8,301
Rent payable (net of tax) (3) (1,786) 265
------- -----
Net (loss)/profit per US GAAP (3,907) 4,306
====== =====
Closing shareholders' equity per UK GAAP 7,047 5,911
Capitalised short leasehold interest (1) (2,567) 9,757
Waiver of amounts owed to Tamaris plc (2) - 10,447
Rent payable (net of tax) (3) (2,051) (265)
Deferred taxation (4) (1,300) (1,300)
----- -----
Closing shareholders' equity per US GAAP 1,129 5,036
===== =====
Changes in shareholders' equity on a US GAAP basis:
Shareholders' equity at beginning of period 5,036 730
Net (loss)/profit (3,907) 4,306
------ -----
Shareholders' equity at the end of period 1,129 5,036
===== =====
</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 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 the terms of the sale and purchase agreement between
Idun Health Care Limited and Tamaris plc, Tamaris agreed to
waive all amounts due to it at 29 October 1999 from the 48
companies. Under UK GAAP, the Group write back the balance as
at 31 March 1999 due to Tamaris through the profit and loss
account. Under US GAAP, the balance must be written back in
the period in which the liability has arisen.
(3) Under UK GAAP, rent payable under the care home operating
leases is expensed in the period in which it is incurred.
Under US GAAP, the total rent payable over the lease term is
amortised on a straight line basis through the profit and loss
account, which includes provision for minimum rental
increments.
(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.
27
<PAGE>
Additional disclosures are as follows:
1. Under UK GAAP returns on investment, servicing of finance,
taxation, dividends paid and financial investment are shown as
separate activities in the consolidated statement of cash
flows. Under US GAAP, changes to such balances are generally
included in operating activities as to returns on investment,
servicing of finances and taxation, with the remaining items
shown as financing activities. Under UK GAAP, capital
expenditure and acquisitions and disposals are shown as
separate activities. Under US GAAP, changes to such balances
are generally included in investing activities. The sum of
cash flows stemming from operating activities, returns on
investment and servicing of finance and taxation under UK GAAP
is the same in all material respects to cash flows from
operating activities under US GAAP.
31. POST BALANCE SHEET EVENTS
On 28 April 1999 Tamaris Care Properties Limited, then a wholly owned
subsidiary of Tamaris, sold Beach Court Nursing Home, Aberdeen, to
Care Home Properties Limited for (pound)1,650,000. The home was
subsequently leased back by Tamscot Care Limited, then a wholly owned
subsidiary of Tamaris, on a 25 year operating lease commencing on
31 March 1999. The initial annual rent payable is (pound)165,000.
On 11 May 1999 Laudcare Limited, then a wholly owned subsidiary of
Tamaris, exchanged contracts for the acquisition of the Leases of
five Care Homes from Loughbray Limited for a consideration of
(pound)250,000. The five homes comprise modern purpose built
accommodation in Wiltshire and South Gloucestershire and are registered
for 256 residents, comprising 7 Residential, 18 Elderly Mentally Infirm
and 231 Frail Elderly beds. The 25 year leases are with Nursing Home
Properties Limited and the shortest lease has an unexpired term of 22
years. The initial annual rent payable is (pound)902,000.
On 18 May 1999, Lifecare International plc, a wholly owned subsidiary
of Tamaris plc, acquired Havencourt Nursing Home, Stonehaven,
registered for 47 beds plus 5 day care places for frail elderly
residents, for a consideration of (pound)1,555,000 from Mr J E and Mrs
A S Towle. The home was subsequently sold to Carlton Healthcare
Properties Limited, a Jersey based company, for (pound)1,720,000 and
leased back by Ringdane Limited, then a wholly owned subsidiary of
Tamaris plc, on a 30 year operating lease. The initial annual rent
payable is (pound)172,000.
On 14 September 1999 Tamaris (RAM) Limited, then a wholly owned
subsidiary of Tamaris, entered into the leases of the seven homes
previously operated by Grampian Care (Dundee) Limited (now in
administrative receivership). Six of the homes are in Scotland and one
is in Berkshire. They are registered for 325 residents, comprising 132
Elderly Mentally Infirm and 193 Frail Elderly beds. The leases for
which no premiums were paid, are with MM&S (2538) Limited and are for a
period of 30 years on standard industry terms. The initial annual rent
payable is (pound)1,180,000.
28
<PAGE>
POST BALANCE SHEET EVENTS (CONTINUED)
Subsequent to the year end the Group carried out the following
transactions in respect of its borrowings:
1 The Barclays Bank plc Treasury Loan of(pound)1,220,000 in
respect of Beach Court Nursing Home was repaid in full on 29
April 1999.
2 In July 1999, Tamaris (Scotland) Limited repaid (pound)
2,750,000 of guaranteed loan notes due to Mr. Peter Marr. The
company utilised a cash deposit of (pound)2,830,000 held at
Clydesdale Bank (see note 15) to make this repayment. The
balance was utilised for working capital purposes.
3 On 29 October 1999 ownership of the 48 care home operating
companies was acquired from Tamaris by Idun Health Care
Limited.
As part of the sale and purchase agreement dated 29 October
1999, Tamaris agreed to waive amounts due to Tamaris from
the 48 care home operating companies.
4 During October 1999, the 48 companies received (pound)620,000
from Principal Healthcare Finance Limited, an associated
company of Omega.
5 On acquisition, Omega advanced (pound)8 million to Idun
Health Care Limited as consideration for 4 million ordinary
shares of (pound)1 each, with the balance as a loan. Idun
utilised the funds with the 48 care home operating
companies as follows:-
<TABLE>
<CAPTION>
(pound)'000
<S> <C>
Payment of rent arrears 4,100
Security Deposit against various loan facilities of Barclays Bank PLC 1,250
Repayment of an unsecured loan from Principal Healthcare Finance Limited 620
Working capital 2,030
-----
8,000
=====
</TABLE>
In addition, a further sum has been advanced to Idun by Omega in order
to alleviate potential short term cash flow difficulities over the
forthcoming holiday period.
29
<PAGE>
POST BALANCE SHEET EVENTS (CONTINUED)
The 48 companies acquired by Idun Health Care are listed below:
The share capital of these companies was held either directly or
indirectly (*) via an intermediate holding company.
Name of company
Healthcare operating companies at 31 March 1998
Belmont Nursing Home Limited, The
Bewick Waverley Limited
Cedarhurst Lodge Limited
Chapelfield View Limited
Chestnut Lodge Limited
Doulton Court Limited
Dounemead Limited
Duncare Limited # *
Edgewater Lodge Limited
Guthrie Court Limited
Keslaw Limited
Laudcare Limited
Leeland Limited L
Lisnisky Limited
Lodge Care PLC
Lodge Care Services Limited
Lunan House Limited
Maldcare Limited
Meadowvale Care Limited
North East Pharmacies Limited*
Osborne Limited
Ringdane Limited
Rosevale Lodge Limited
Saintfield Limited
Tamaris (England) Limited
Tamaris (QCH) Limited
Tamaris (Scotland)Limited #
Tamaris (South East) Limited
Tamaris (Ulster) Limited +
Tammillec Limited
Westview Lodge Limited
Healthcare operating companies incorporated during the year ended
31 March 1999
Atlas Healthcare Limited*
Tamaris Management Services Limited
Tameng Care Limited
Tamhealth Limited
Tamscot Care Limited
Tamulst Care Limited
30
<PAGE>
Property Company Incorporated during the year ended 31 March 1999
Tamaris Care Properties Limited
Dormant Companies which traded during the year ended at 31 March 1998,
but were dormant thereafter
Bearehill Limited
Caledonian Care Limited#
Caledonian Care (Turriff) Limited#*
Continental 89 Limited
Continental 92 Limited
Forebank Limited
Laurels Lodge Limited
St Cuthberts Nursing Agency Limited
Dormant company incorporated during the year ended 31 March 1999
Tamcare Limited
In addition to the above, Tamaris (RAM) Limited was incorporated during
the post balance sheet period and represents the additional company
acquired by Omega on 29 October 1999.
All companies were incorporated in England and Wales except where
indicated; # registered in Scotland, + registered in Northern Ireland,
+ registered in the Isle of Man.
31
