<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 24, 1994
REGISTRATION NO. 33-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
OMEGA HEALTHCARE INVESTORS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 6798 38-3041398
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
905 W. EISENHOWER CIRCLE, SUITE 110
ANN ARBOR, MICHIGAN 48103
(313) 747-9790
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
------------------------
MR. ESSEL W. BAILEY, JR.
CHIEF EXECUTIVE OFFICER
905 W. EISENHOWER CIRCLE, SUITE 110
ANN ARBOR, MICHIGAN 48103
(313) 747-9790
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
DON M. PEARSON, ESQ. RICHARD H. MILLER, ESQ. JAMES R. TANENBAUM, ESQ.
ARGUE PEARSON HARBISON & MYERS JONES, DAY, REAVIS & POGUE STROOCK & STROOCK & LAVAN
801 SOUTH FLOWER STREET, SUITE
500 3500 ONE PEACHTREE CENTER SEVEN HANOVER SQUARE
LOS ANGELES, CALIFORNIA 90017 303 PEACHTREE STREET, N.E. NEW YORK, NEW YORK 10004
(213) 622-3100 ATLANTA, GEORGIA 30308-3242 (212) 806-5400
(404) 521-3939
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -----------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) REGISTRATION FEE(3)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.10 per share........... 5,885,958 $24.01 $141,345,365.30 $21,428.16
- -----------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Represents the maximum number of shares of Common Stock, par value $.10 per
share, of the Registrant ("Omega Common Stock") issuable to shareholders of
Health Equity Properties Incorporated ("HEP") upon the consummation of the
merger of HEP with and into the Registrant assuming an Exchange Ratio of
.393 shares of Omega Common Stock for each share of Common Stock, par value
$.01 per share, of HEP ("HEP Common Stock").
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Section 6(b) of the Securities Act of
1933, as amended, and Rule 457(f)(1) thereunder on the basis of $9.4375, the
average of the high and low prices of the HEP Common Stock reported in the
consolidated reporting system for the New York Stock Exchange on August 19,
1994, and 14,976,992.36, the maximum number of such shares that may be
exchanged for the securities being registered.
(3) In accordance with Rule 457(b) under the Securities Act of 1933, the
$27,311.63 filing fee paid pursuant to Section 14(g) of the Securities
Exchange Act of 1934 and Rule 0-11 thereunder at the time of filing of the
Joint Proxy Statement and Prospectus contained in this Registration
Statement as preliminary proxy materials of the Registrant and HEP has been
credited to offset the registration fee that otherwise would be payable in
connection with this Registration Statement.
------------------------
THIS REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH THE PROVISIONS OF SECTION 8(A) OF THE SECURITIES ACT OF 1933.
- --------------------------------------------------------------------------------
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<PAGE> 2
OMEGA HEALTHCARE INVESTORS, INC.
CROSS-REFERENCE SHEET TO FORM S-4 REGISTRATION STATEMENT
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
PART I -- INFORMATION REQUIRED IN THE PROSPECTUS
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FORM S-4 ITEM NUMBERS AND CAPTIONS LOCATION IN JOINT PROXY STATEMENT AND PROSPECTUS
---------------------------------------- -------------------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front Cover
Page of Joint Proxy Statement and Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Inside Front Cover Page of Joint Proxy
Statement and Prospectus; Available
Information; Incorporation by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... Summary; Selected Historical and Pro Forma
Financial Data; Certain Considerations
4. Terms of the Transaction................ Summary; The Proposed Merger; Comparison of
Rights of Holders of HEP Common Stock and
Omega Common Stock; Certain Federal Income
Tax Considerations; Description of Omega
Capital Stock
5. Pro Forma Financial Information......... Selected Historical and Pro Forma Financial
Data
6. Material Contacts with the Company Being
Acquired................................ Summary; The Proposed Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to Be Underwriters...................... Not Applicable
8. Interests of Named Experts and
Counsel................................. The Proposed Merger -- Opinions of Financial
Advisors
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants............................. Available Information; Incorporation by
Reference; Summary; Information Concerning
Omega
11. Incorporation of Certain Information by
Reference............................... Incorporation by Reference
12. Information with Respect to S-2 or S-3
Registrants............................. Not Applicable
13. Incorporation of Certain Information by
Reference............................... Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants....... Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies............................... Available Information; Incorporation by
Reference; Summary; Information Concerning
HEP
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
LOCATION IN JOINT PROXY STATEMENT AND
FORM S-4 ITEM NUMBERS AND CAPTIONS PROSPECTUS
---------------------------------------- --------------------------------------------
<S> <C> <C>
16. Information with Respect to S-2 or S-3
Companies............................... Not Applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies......... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited...... Outside Front Cover Page of Joint Proxy
Statement and Prospectus; Incorporation by
Reference; Summary; Omega Special Meeting;
HEP Special Meeting; The Proposed Merger;
Shareholder Proposals for 1995 Annual
Meeting of Omega Shareholders; Expenses of
Solicitation
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer................. Not Applicable
</TABLE>
<PAGE> 4
OMEGA HEALTHCARE INVESTORS, INC.
905 WEST EISENHOWER CIRCLE, SUITE 110
ANN ARBOR, MICHIGAN 48103
August 24, 1994
To the Shareholders of Omega
Healthcare Investors, Inc.
You are cordially invited to attend a Special Meeting of Shareholders (the
"Omega Special Meeting") of Omega Healthcare Investors, Inc. ("Omega") to be
held on Wednesday, September 28, 1994, at 2:00 P.M., local time. The Omega
Special Meeting will be held at the offices of Omega located at 905 W.
Eisenhower Circle, Suite 110, Ann Arbor, Michigan. A Notice of the Meeting, a
Joint Proxy Statement and Prospectus, and a Proxy containing information about
the matters to be acted upon are enclosed.
At the Omega Special Meeting you will be asked to consider and vote upon
the proposed Amended and Restated Merger Agreement and Plan of Reorganization
(the "Merger Agreement") pursuant to which Health Equity Properties Incorporated
("HEP") would be merged (the "Merger") with and into Omega. If the Merger is
approved, each holder of HEP Common Stock would receive, in a tax-free exchange,
.393 of a share of Omega Common Stock for each share of HEP Common Stock held at
the time of the Merger. The Merger and certain related matters are described in
detail in the Joint Proxy Statement and Prospectus.
After careful consideration, the Board of Directors of Omega has
unanimously approved the Merger Agreement and the transactions contemplated
thereby and unanimously recommends that all shareholders vote for its approval.
The Board of Directors of Omega believes the Merger offers Omega and its
shareholders many benefits, including:
- the Merger provides Omega the opportunity to consolidate with a company
having a large portfolio of owned and leased income producing health care
properties, particularly long-term care properties;
- enhanced diversification of the combined company's portfolio will result
since no single facility operator or state is anticipated to represent
more than 15% of the total investments or revenues of the combined company
(except for the State of Indiana which will represent approximately 21% of
the total investments and 24% of the total revenues of the combined
company), significantly increasing the diversification of Omega's
investments; and
- the increased market capitalization and enhanced financial strength of
the combined company should facilitate Omega's ability to raise capital.
All shareholders are invited to attend the Omega Special Meeting in person.
The affirmative vote of holders of a majority of the outstanding shares of
Omega's Common Stock entitled to vote will be necessary for approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
<PAGE> 5
It is very important that your views be represented whether or not you are
able to attend the Special Meeting. Accordingly, please complete, sign and date
your proxy card and return it to us in the enclosed envelope as soon as
possible. Failure to return your proxy card or to vote in person at the Special
Meeting will have the effect of a vote against the Merger. Returning your
completed proxy card will not limit your right to vote in person if you attend
the Special Meeting.
If you have any questions regarding the proposed transaction, please call
Georgeson & Company Inc., our proxy solicitation agent, toll free at (800)
223-2064 or collect at (212) 509-6240.
Sincerely,
Essel W. Bailey, Jr.
President and Secretary
YOUR PROXY IS IMPORTANT -- PLEASE VOTE PROMPTLY
- --------------------------------------------------------------------------------
The Proxy Solicitor For Omega:
GEORGESON
& COMPANY INC.
Call Toll Free 1-800-223-2064
Wall Street Plaza
New York, New York 10005
(212) 509-6240 (collect)
Banks and Brokers call
(212) 440-9800
- --------------------------------------------------------------------------------
<PAGE> 6
OMEGA HEALTHCARE INVESTORS, INC.
905 WEST EISENHOWER CIRCLE, SUITE 110
ANN ARBOR, MICHIGAN 48103
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, SEPTEMBER 28, 1994
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Omega
Healthcare Investors, Inc. ("Omega") will be held on Wednesday, September 28,
1994, commencing at 2:00 P.M., local time, at the offices of Omega located at
905 W. Eisenhower Circle, Suite 110, Ann Arbor, Michigan, for the following
purposes:
1. To consider and vote upon the approval and adoption of an Amended and
Restated Merger Agreement and Plan of Reorganization dated as of June
17, 1994 (the "Merger Agreement") between Omega and Health Equity
Properties Incorporated, a North Carolina corporation ("HEP"), pursuant
to which, among other matters, (i) HEP would be merged with and into
Omega (the "Merger"), and (ii) each share of Common Stock of HEP would
be converted into .393 of a share of Common Stock of Omega, all as more
fully described in the accompanying Joint Proxy Statement and
Prospectus.
2. To transact any other business that may properly come before the Special
Meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth as Annex I to the Joint Proxy
Statement and Prospectus attached hereto and is incorporated herein by
reference.
The Board of Directors of Omega has fixed August 22, 1994 as the record
date for the determination of shareholders entitled to notice of and to vote at
the Special Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of Omega entitled to vote at the Special
Meeting is necessary to approve and adopt the proposal. Holders of Common Stock
of Omega are not entitled to dissenters' rights under Maryland law in connection
with the Merger.
Whether or not you plan to attend the meeting, please fill in, date and
sign the proxy card furnished herewith and mail it promptly in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States.
By Order of the Board of Directors,
Essel W. Bailey, Jr.
Secretary
Ann Arbor, Michigan
August 24, 1994
<PAGE> 7
HEALTH EQUITY PROPERTIES INCORPORATED
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
AUGUST 24, 1994
To the Shareholders of Health Equity
Properties Incorporated:
You are cordially invited to attend a Special Meeting of Shareholders (the
"HEP Special Meeting") of Health Equity Properties Incorporated ("HEP") to be
held on Wednesday, September 28, 1994, at 10:00 A.M. local time. The HEP Special
Meeting will be held at the Adams Mark Winston Plaza, 425 N. Cherry Street,
Winston-Salem, North Carolina. A Notice of the Meeting, a Joint Proxy Statement
and Prospectus, and a Proxy containing information about the matters to be acted
upon are enclosed.
At the HEP Special Meeting you will be asked to consider and vote upon the
proposed Amended and Restated Merger Agreement and Plan of Reorganization (the
"Merger Agreement") pursuant to which HEP would be merged (the "Merger") with
and into Omega Healthcare Investors, Inc. ("Omega"). If the Merger is approved,
each holder of HEP Common Stock would receive, in a tax-free exchange, .393 of a
share of Omega Common Stock for each share of HEP Common Stock held at the time
of the Merger. The Merger and certain related matters are described in detail in
the Joint Proxy Statement and Prospectus.
After careful consideration, the Board of Directors of HEP, other than
those Board Members having certain interests in the Merger who abstained from
voting, has unanimously approved the Merger Agreement and the transactions
contemplated thereby and unanimously recommends that all shareholders vote for
its approval. The Board of Directors of HEP believes the Merger offers HEP and
its shareholders many benefits, including:
- a tax-free exchange for shares in a company that will be financially
stronger and more competitive and have greatly enhanced resources;
- enhanced diversification of the combined company's portfolio will result
since no single facility operator or state is anticipated to represent
more than 15% of the total investments or revenues of the combined
company (except for the State of Indiana which will represent
approximately 21% of the total investments and 24% of the total revenues
of the combined company); and
- opportunities for growth in markets common to HEP and Omega.
Additionally, the Board of Directors of HEP has received the opinion of its
financial advisor, Equitable Securities Corporation, that the consideration to
be received by the holders of HEP's Common Stock in the proposed Merger is fair
from a financial point of view.
All shareholders are invited to attend the HEP Special Meeting in person.
The affirmative vote of holders of a majority of the outstanding shares of HEP's
Common Stock entitled to vote will be necessary for approval and adoption of the
Merger Agreement and the transactions contemplated thereby.
It is very important that your views be represented whether or not you are
able to attend the Special Meeting. Accordingly, please complete, sign and date
your proxy card and return it to us in the enclosed envelope as soon as
possible. Failure to return your proxy card or to vote in person at the Special
Meeting will have the effect of a vote against the Merger.
<PAGE> 8
Returning your completed proxy card will not limit your right to vote in person
if you attend the Special Meeting.
If you have any questions regarding the proposed transaction, please call
Georgeson & Company Inc., our proxy solicitation agent, toll free at (800)
223-2064 or collect at (212) 509-6240.
Sincerely,
William G. Benton
Chairman of the Board, Chief
Executive Officer and President
YOUR PROXY IS IMPORTANT -- PLEASE VOTE PROMPTLY
HEP shareholders should not surrender or otherwise attempt to exchange
their HEP stock certificates for Omega stock certificates unless and until they
have received appropriate notice and instructions for exchange.
- --------------------------------------------------------------------------------
The Proxy Solicitor For HEP:
GEORGESON
& COMPANY INC.
Call Toll Free 1-800-223-2064
Wall Street Plaza
New York, New York 10005
(212) 509-6240 (collect)
Banks and Brokers call
(212) 440-9800
- --------------------------------------------------------------------------------
<PAGE> 9
HEALTH EQUITY PROPERTIES INCORPORATED
915 WEST FOURTH STREET
WINSTON SALEM, NORTH CAROLINA 27101
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, SEPTEMBER 28, 1994
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Health
Equity Properties Incorporated ("HEP") will be held on Wednesday, September 28,
1994, commencing at 10:00 A.M., local time, at the Adams Mark Winston Plaza, 425
N. Cherry Street, Winston-Salem, North Carolina, for the following purposes:
1. To consider and vote upon the approval and adoption of an Amended and
Restated Merger Agreement and Plan of Reorganization dated as of June
17, 1994 (the "Merger Agreement") between Omega Healthcare Investors,
Inc., a Maryland corporation ("Omega"), and HEP, pursuant to which,
among other matters, (i) HEP would be merged with and into Omega (the
"Merger"), and (ii) each share of Common Stock of HEP would be converted
into .393 of a share of Common Stock of Omega, all as more fully
described in the accompanying Joint Proxy Statement and Prospectus.
2. To transact any other business that may properly come before the Special
Meeting or any adjournment or postponement thereof.
A copy of the Merger Agreement is set forth as Annex I to the Joint Proxy
Statement and Prospectus attached hereto and is incorporated herein by
reference.
The Board of Directors of HEP has fixed August 22, 1994 as the record date
for the determination of shareholders entitled to notice of and to vote at the
Special Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock of HEP entitled to vote at the Special
Meeting is necessary to approve and adopt the proposal.
Each shareholder of HEP has the right to dissent from the Merger and to
demand payment of the fair value of his/her shares in the event the Merger is
approved and consummated. The right of any such shareholder to receive such
payment is contingent upon strict compliance with the requirements set forth in
Article 13 of the North Carolina Business Corporation Act, the full text of
which is attached as Annex IV to the accompanying Joint Proxy Statement and
Prospectus. For a summary of those requirements, see "The Proposed Merger --
Dissenters' Rights" in the accompanying Joint Proxy Statement and Prospectus.
Whether or not you plan to attend the meeting, please fill in, date and
sign the proxy card furnished herewith and mail it promptly in the enclosed
pre-addressed envelope, which requires no postage if mailed in the United
States.
By Order of the Board of Directors,
Susan L. Christiansen
Secretary
Winston-Salem, North Carolina
August 24, 1994
<PAGE> 10
OMEGA HEALTHCARE INVESTORS, INC.
HEALTH EQUITY PROPERTIES INCORPORATED
---------------------
JOINT PROXY STATEMENT AND PROSPECTUS
---------------------
This Joint Proxy Statement and Prospectus relates to the proposed merger
(the "Merger") of Health Equity Properties Incorporated, a North Carolina
corporation ("HEP"), with and into Omega Healthcare Investors, Inc., a Maryland
corporation ("Omega"), pursuant to an Amended and Restated Merger Agreement and
Plan of Reorganization dated as of June 17, 1994 (the "Merger Agreement"). At
such time as the Merger becomes effective, each outstanding share of Common
Stock, par value $.01 per share, of HEP ("HEP Common Stock") will be converted
into the right to receive .393 of a share (the "Exchange Ratio") of Common
Stock, par value $.10 per share, of Omega ("Omega Common Stock").
The Exchange Ratio was determined by dividing the average closing sale
price per share of HEP Common Stock on the New York Stock Exchange ("NYSE") for
the ten trading days ended June 15, 1994 by the average closing sale price per
share of Omega Common Stock on the NYSE for the same period.
Omega and HEP are soliciting proxies from shareholders for use at the
Special Meetings of Shareholders of Omega and HEP scheduled to be held on
September 28, 1994 and at any adjournments or postponements thereof to consider
the approval and adoption of the Merger Agreement and the transactions
contemplated thereby. A conformed copy of the Merger Agreement is attached to
this Joint Proxy Statement and Prospectus as Annex I and is incorporated herein
by reference.
This Joint Proxy Statement and Prospectus constitutes both the joint proxy
statement of Omega and HEP relating to the solicitation of proxies by their
respective Boards of Directors for use at the Special Meetings of Shareholders
of Omega and HEP, and the prospectus of Omega with respect to up to 5,885,958
shares of Omega Common Stock, to be issued in the Merger in exchange for
outstanding shares of HEP Common Stock. This Joint Proxy Statement and
Prospectus and the enclosed forms of proxy are first being sent to shareholders
of Omega and HEP on or about August 26, 1994.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING
THE MERGER, SEE "CERTAIN CONSIDERATIONS."
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT AND
PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
---------------------
The date of this Joint Proxy Statement and Prospectus is August 24, 1994.
i
<PAGE> 11
AVAILABLE INFORMATION
Omega and HEP are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Copies of such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following regional offices
of the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. Omega Common Stock
and HEP Common Stock are listed and traded on the NYSE. Reports, proxy
statements and other information concerning Omega and HEP may be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Omega has filed with the SEC a registration statement on Form S-4 (together
with any amendments thereto, the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the shares of
Omega Common Stock to be issued pursuant to the Merger Agreement. This Joint
Proxy Statement and Prospectus does not contain all the information set forth in
the Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the SEC. Such additional information may be
obtained from the SEC's principal office in Washington, D.C.
INCORPORATION BY REFERENCE
THIS JOINT PROXY STATEMENT AND PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(OTHER THAN THE EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE
WITHOUT CHARGE UPON ORAL OR WRITTEN REQUEST FROM, IN THE CASE OF OMEGA, ESSEL W.
BAILEY, JR., PRESIDENT AND SECRETARY OF OMEGA, AT OMEGA'S PRINCIPAL EXECUTIVE
OFFICES AT 905 WEST EISENHOWER CIRCLE, SUITE 110, ANN ARBOR, MICHIGAN 48103,
TELEPHONE (313) 747-9790, AND, IN THE CASE OF HEP, SUSAN L. CHRISTIANSEN, VICE
PRESIDENT, SECRETARY AND GENERAL COUNSEL OF HEP, AT HEP'S PRINCIPAL EXECUTIVE
OFFICES AT 915 WEST FOURTH STREET, WINSTON-SALEM, NORTH CAROLINA 27101,
TELEPHONE (910) 723-7580. IN ORDER TO ENSURE TIMELY DELIVERY OF THESE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY SEPTEMBER 21, 1994 (FIVE BUSINESS DAYS BEFORE THE
SCHEDULED DATE OF THE SPECIAL MEETINGS OF SHAREHOLDERS OF OMEGA AND HEP).
The following documents, which have been filed with the SEC pursuant to the
Exchange Act, are hereby incorporated herein by reference:
(a) Omega's Annual Report on Form 10-K for the year ended December 31,
1993;
(b) Omega's Quarterly Reports on Form 10-Q for the periods ended March
31, 1994 (and Form 10-Q/A with respect thereto dated May 26, 1994)
and June 30, 1994;
(c) Omega's Current Reports on Form 8-K filed February 10, 1994, March
9, 1994, March 11, 1994, March 24, 1994, June 23, 1994 and July 26,
1994;
(d) Omega's Articles of Incorporation and amendments thereto
incorporated by reference as Exhibit 4.1 to the Registration
Statement;
(e) The portions of the Proxy Statement for the Annual Meeting of
Stockholders of Omega held April 19, 1994 that have been incorporated
by reference in Omega's Annual Report on Form 10-K for the year ended
December 31, 1993;
(f) HEP's Annual Report on Form 10-K for the year ended December 31,
1993;
(g) HEP's Quarterly Reports on Form 10-Q for the periods ended March 31,
1994 and June 30, 1994;
(h) HEP's Current Reports on Form 8-K filed April 12, 1994 and June 23,
1994; and
(i) The information set forth under the caption "Information Concerning
Security Ownership" in the Proxy Statement for the Annual Meeting of
Shareholders of HEP held April 28, 1994.
ii
<PAGE> 12
All documents filed by Omega or HEP pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the date the Merger
becomes effective shall be deemed to be incorporated herein by reference and to
be a part hereof from the date of filing of such documents. All information
appearing in this Joint Proxy Statement and Prospectus or in any document
incorporated herein by reference is not necessarily complete and is qualified in
its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein by reference and should
be read together with such information and documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement and Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that is
deemed to be incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement and Prospectus.
No person is authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Joint Proxy Statement and Prospectus, and if given or made, such information or
representations should not be relied upon as having been authorized. This Joint
Proxy Statement and Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint Proxy
Statement and Prospectus, or the solicitation of a proxy, in any jurisdiction to
or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement and Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement and Prospectus shall, under
any circumstances, create any implication that there has been no change in the
information set forth or incorporated herein by reference or in the affairs of
Omega or HEP since the date of this Joint Proxy Statement and Prospectus.
However, if any material change occurs during the period that this Joint Proxy
Statement and Prospectus is required to be delivered, this Joint Proxy Statement
and Prospectus will be amended and supplemented accordingly. All information
regarding Omega in this Joint Proxy Statement and Prospectus has been supplied
by Omega, and all information regarding HEP in this Joint Proxy Statement and
Prospectus has been supplied by HEP.
iii
<PAGE> 13
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................................................................... 1
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA...................................... 8
INTRODUCTION.......................................................................... 19
OMEGA SPECIAL MEETING................................................................. 19
Purpose of the Meeting........................................................... 19
Date, Time and Place; Record Date................................................ 19
Voting Rights.................................................................... 19
HEP SPECIAL MEETING................................................................... 20
Purpose of the Meeting........................................................... 20
Date, Time and Place; Record Date................................................ 20
Voting Rights.................................................................... 21
CERTAIN CONSIDERATIONS................................................................ 21
Fixed Exchange Ratio............................................................. 21
Government Health Care Regulation................................................ 22
Possible Reduction of Reimbursement by Third Party Payors........................ 22
Real Estate Investment Risks..................................................... 23
Certain Bankruptcy Limitations................................................... 24
Collateralization of Mortgage Loans.............................................. 24
Environmental Risks.............................................................. 24
Limited Investment Diversification............................................... 25
Possible Change of Investment Strategies and Policies and Capital Structure...... 25
Consequences of Failure to Qualify as a Real Estate Investment Trust............. 25
THE PROPOSED MERGER................................................................... 26
General.......................................................................... 26
Dividends........................................................................ 26
Closing; Effective Time.......................................................... 26
Exchange of Stock Certificates................................................... 27
No Fractional Shares............................................................. 27
Background....................................................................... 28
Recommendations of the Boards of Directors and Reasons for the Merger............ 29
Omega....................................................................... 29
HEP......................................................................... 30
Opinions of Financial Advisors................................................... 31
Omega....................................................................... 31
HEP......................................................................... 33
Interests of Certain Persons in the Merger....................................... 37
Stock Options............................................................... 37
Sale of HEP Common Stock by Executive Officers and THE...................... 37
Change in Control Severance Contracts for Executive Officers................ 37
Consulting and Noncompetition Agreement..................................... 37
Taylor House Fee............................................................ 38
The Merger Agreement............................................................. 38
Representations and Warranties.............................................. 38
Certain Covenants and Agreements............................................ 39
No Solicitation of Other Transactions....................................... 40
Conditions to the Merger.................................................... 41
Stock Options and Rights to Acquire HEP Common Stock........................ 42
Termination................................................................. 42
</TABLE>
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Termination Fee............................................................. 43
Amendment and Waiver........................................................ 44
Regulatory Filings and Approvals................................................. 44
Restrictions on Sales by Affiliates.............................................. 44
Accounting Treatment............................................................. 44
Listing on New York Stock Exchange............................................... 44
Expenses......................................................................... 45
Dissenters' Rights............................................................... 45
Management and Operations After the Merger....................................... 47
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 47
Tax Consequences of the Merger to Shareholders................................... 47
Taxation of Omega After the Merger............................................... 49
General..................................................................... 49
Requirements for Qualification.............................................. 50
Income Tests................................................................ 51
Asset Tests................................................................. 52
Treatment of the Mortgages.................................................. 52
Annual Distribution Requirements............................................ 52
Failure to Qualify as a REIT..................................................... 54
Other Organizational Requirements................................................ 54
Taxation of Omega Shareholders................................................... 54
U.S. Shareholders........................................................... 54
Backup Withholding.......................................................... 54
Tax-Exempt Shareholders..................................................... 55
Non-U.S. Shareholders....................................................... 55
Other Tax Matters................................................................ 57
INFORMATION CONCERNING OMEGA.......................................................... 57
Recent Developments.............................................................. 57
Investment Strategies and Policies............................................... 58
Business and Properties.......................................................... 59
Mortgage Indebtedness............................................................ 63
Description of Lessees and Operators............................................. 64
Borrowing Policies............................................................... 64
Restricted Investment Activities................................................. 65
INFORMATION CONCERNING HEP............................................................ 66
Recent Developments.............................................................. 66
Properties....................................................................... 66
Indebtedness..................................................................... 69
Investment and Financing Policies................................................ 69
Investment Policies......................................................... 69
Financing Policies.......................................................... 70
Restricted Investment Activities............................................ 70
Competition...................................................................... 71
COMPARATIVE PER SHARE PRICES AND DIVIDENDS OF OMEGA COMMON STOCK AND HEP COMMON
STOCK............................................................................... 72
DESCRIPTION OF OMEGA CAPITAL STOCK.................................................... 73
Common Stock..................................................................... 73
Restricted Securities....................................................... 73
Redemption and Business Combination Provisions.............................. 73
Transfer Agent and Registrar................................................ 74
</TABLE>
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Omega Preferred Stock............................................................ 74
Shelf Registration............................................................... 75
COMPARISON OF RIGHTS OF HOLDERS OF HEP COMMON STOCK AND OMEGA COMMON STOCK............ 75
Restrictions on Transfer and Redemption of Shares................................ 75
Vote Required for Mergers........................................................ 76
Business Combinations............................................................ 76
Dissenters' Rights............................................................... 77
Amendments to the Articles of Incorporation...................................... 78
Amendments to the Bylaws......................................................... 78
Directors........................................................................ 79
Removal of Directors............................................................. 79
Newly Created Directorships and Vacancies........................................ 79
Limitation on Liability.......................................................... 79
Indemnification.................................................................. 80
Loans to Directors and Officers.................................................. 80
Special Meetings................................................................. 80
LEGAL MATTERS......................................................................... 81
EXPERTS............................................................................... 81
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING OF OMEGA SHAREHOLDERS................... 82
EXPENSES OF SOLICITATION.............................................................. 82
Annex I: Amended and Restated Merger Agreement and Plan of Reorganization........ I-1
Annex II: Fairness Opinion of Bear, Stearns & Co. Inc............................. II-1
Annex III: Fairness Opinion of Equitable Securities Corporation.................... III-1
Annex IV: Sections 55-13-03 through 55-13-30 of the North Carolina Business
Corporation Act......................................................... IV-1
</TABLE>
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<PAGE> 16
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Joint Proxy Statement and Prospectus or
incorporated herein by reference. Shareholders are urged to review the entire
Joint Proxy Statement and Prospectus, the Annexes hereto and the documents
incorporated herein by reference. Capitalized terms used and not otherwise
defined in this summary have the meanings given to them elsewhere in this Joint
Proxy Statement and Prospectus.
THE MERGER
This Joint Proxy Statement and Prospectus relates to the proposed merger
(the "Merger") of Health Equity Properties Incorporated, a North Carolina
corporation ("HEP"), with and into Omega Healthcare Investors, Inc., a Maryland
corporation ("Omega"), pursuant to an Amended and Restated Merger Agreement and
Plan of Reorganization dated as of June 17, 1994 (the "Merger Agreement"). See
"The Proposed Merger -- The Merger Agreement." At such time as the Merger
becomes effective (the "Effective Time"), each outstanding share of HEP Common
Stock will be converted into the right to receive .393 of a share of Omega
Common Stock. The exchange ratio of .393 of a share of Omega Common Stock for
each share of HEP Common Stock, as set forth in the Merger Agreement, is
hereinafter referred to as the "Exchange Ratio." The Exchange Ratio was
determined by dividing the average closing sale price per share of HEP Common
Stock on the New York Stock Exchange (the "NYSE") for the ten trading days ended
June 15, 1994 by the average closing sale price per share of Omega Common Stock
on the NYSE for the same period. In the event that, at any time commencing on
June 17, 1994 and ending on the tenth business day before the date of the HEP
Special Meeting, the average closing sale price of Omega Common Stock on the
NYSE for 30 consecutive trading days is less than $19.00 per share, Omega and
HEP are obligated to renegotiate the Exchange Ratio. See "The Proposed Merger --
The Merger Agreement -- Termination."
SPECIAL MEETINGS
Omega. At the Special Meeting of Shareholders of Omega and any adjournment
or postponement thereof (the "Omega Special Meeting"), the shareholders of Omega
will be asked to consider and vote upon the proposal to approve and adopt the
Merger Agreement and the transactions contemplated thereby. The Omega Special
Meeting is scheduled to be held at 2:00 P.M., local time, on Wednesday,
September 28, 1994, at the offices of Omega at 905 West Eisenhower Circle, Suite
110, Ann Arbor, Michigan. The Board of Directors of Omega (the "Omega Board")
has fixed the close of business on August 22, 1994 as the record date for the
determination of holders of Omega Common Stock entitled to notice of and to vote
at the Omega Special Meeting. See "Omega Special Meeting."
THE OMEGA BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS THAT OMEGA
SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY. SEE "THE PROPOSED MERGER -- RECOMMENDATIONS
OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER -- OMEGA."
HEP. At the Special Meeting of Shareholders of HEP and any adjournment or
postponement thereof (the "HEP Special Meeting"), the shareholders of HEP will
be asked to consider and vote upon the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby. The HEP Special Meeting is
scheduled to be held at 10:00 A.M., local time, on Wednesday, September 28,
1994, at the Adams Mark Winston Plaza at 425 N. Cherry Street, Winston-Salem,
North Carolina. The Board of Directors of HEP (the "HEP Board") has fixed the
close of business on August 22, 1994 as the record date for the determination of
holders of HEP Common Stock entitled to notice of and to vote at the HEP Special
Meeting. See "HEP Special Meeting."
THE HEP BOARD, BY UNANIMOUS VOTE OF THE HEP DIRECTORS WHO ARE NOT EMPLOYEES
OF HEP, APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
AND RECOMMENDS THAT HEP SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. DIRECTORS OF HEP WHO
ARE ALSO EMPLOYEES OF HEP ABSTAINED FROM THE HEP BOARD'S VOTE ON THE APPROVAL OF
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<PAGE> 17
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY BECAUSE OF THEIR
INTERESTS IN THE MERGER. HOWEVER, SUCH DIRECTORS HAVE INDICATED TO HEP THAT THEY
INTEND TO VOTE ALL OF THE SHARES OF HEP COMMON STOCK BENEFICIALLY OWNED BY THEM
IN FAVOR OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. SEE
"THE PROPOSED MERGER -- RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS
FOR THE MERGER -- HEP" AND "THE PROPOSED MERGER -- INTERESTS OF CERTAIN PERSONS
IN THE MERGER."
THE PARTIES
Omega. Omega is a self-administered real estate investment trust ("REIT")
which invests in income producing health care properties, principally long-term
care facilities. Its investments are comprised of owned health care properties
and convertible participating and participating mortgages on health care
properties. As of June 30, 1994, Omega's total property portfolio consisted of
87 health care facilities in 14 states. Omega's investments as of such date
included 84 nursing homes, of which it owns and leases 36 long-term health care
facilities, provides convertible participating mortgages on ten long-term health
care facilities, and provides participating mortgages on 38 long-term health
care facilities. These 87 properties are operated by 11 unaffiliated operators.
Omega also owns and leases three medical office buildings. For a description of
Omega's investments subsequent to June 30, 1994, see "Information Concerning
Omega -- Recent Developments."
Omega's objective is to be a major source of financing and capital for high
quality health care operators and to develop a geographically diversified
investment portfolio of net leased properties or participating mortgages, with a
principal focus on long-term care facilities. Omega intends to invest in
established facilities that are operated by creditworthy, middle-market health
care operators who meet Omega's standards for quality and experience of
management. As of June 30, 1994, 45% of Omega's facility investments were
operated by publicly traded companies.
Omega also strives to maintain equity ownership appreciation potential in
its investments. As of June 30, 1994, 61% of Omega's investments are in the form
of fee ownership or convertible participating mortgages. Omega's
investment-to-appraised value for its overall portfolio was approximately 82% as
of June 30, 1994, based upon appraisals performed during 1993 and 1994. Omega
intends to continue its prudent investment policies designed to generate stable
and increasing cash flow and to realize capital appreciation from its property
investments. Omega has its principal executive offices at 905 West Eisenhower
Circle, Suite 110, Ann Arbor, Michigan 48103, telephone number (313) 747-9790.
HEP. HEP is a self-administered REIT which invests primarily in income
producing long-term health care facilities. HEP owns 76 facilities in seven
states comprised of 73 nursing homes and three personal care facilities which
are operated by eight third-party operators. HEP has its principal executive
offices at 915 West Fourth Street, Winston-Salem, North Carolina 27101,
telephone number (910) 723-7580.
REQUIRED VOTES
Omega. Pursuant to Maryland law and the Articles of Incorporation of Omega
(the "Omega Articles of Incorporation"), the affirmative vote of the holders of
at least a majority of the outstanding shares of Omega Common Stock is required
to approve and adopt the Merger Agreement and the transactions contemplated
thereby. The presence, either in person or by proxy, of the holders of a
majority of the outstanding shares of Omega Common Stock, the only class of
capital stock entitled to vote at the Omega Special Meeting, is necessary to
constitute a quorum at the Omega Special Meeting. As of July 31, 1994, Omega's
directors, executive officers and their affiliates as a group held shares
representing approximately 2.3% of the votes entitled to be cast by holders of
Omega Common Stock at the Omega Special Meeting. See "Omega Special Meeting --
Voting Rights."
HEP. Pursuant to North Carolina law and the Articles of Incorporation of
HEP, as amended (the "HEP Articles of Incorporation"), the affirmative vote of
the holders of at least a majority of the outstanding shares of HEP Common Stock
is required to approve and adopt the Merger Agreement and the transactions
contemplated thereby. The presence, either in person or by proxy, of the holders
of a majority of the outstanding shares of HEP Common Stock, the only class of
capital stock entitled to vote at the HEP Special
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<PAGE> 18
Meeting, is necessary to constitute a quorum at the HEP Special Meeting. As of
July 31, 1994, HEP's directors, executive officers and their affiliates as a
group held shares representing approximately 2.5% of the votes entitled to be
cast by holders of HEP Common Stock at the HEP Special Meeting. See "HEP Special
Meeting -- Voting Rights."
THE MERGER
General. At the Effective Time of the Merger, HEP will be merged with and
into Omega, and HEP will cease to exist as a corporation. Omega will be the
surviving corporation in the Merger.
Conversion of Shares. At the Effective Time, each then outstanding share of
HEP Common Stock will be converted into the right to receive .393 of a share of
Omega Common Stock. See "Description of Omega Capital Stock" and "Comparison of
Rights of Holders of HEP Common Stock and Omega Common Stock." No fractional
shares of Omega Common Stock will be issued in the Merger, and holders of shares
of HEP Common Stock that are converted in the Merger will be entitled to a cash
payment in lieu of any fractional share of Omega Common Stock at a pro rata
price based on the average closing sale price of Omega Common Stock for the
ten-day period ended June 15, 1994 which was $24.91. See "The Proposed Merger --
No Fractional Shares." Each share of Omega Common Stock outstanding at the
Effective Time will remain outstanding and will not be converted or otherwise
modified in the Merger.
Dividends. Prior to the closing of the transactions contemplated by the
Merger Agreement or the earlier termination of the Merger Agreement, (i) Omega
will not declare, set aside or pay any dividend or distribution other than
regular quarterly dividends on Omega Common Stock in an amount not to exceed
$.54 per share of Omega Common Stock, and (ii) HEP will not declare, set aside
or pay any dividend or distribution other than a regular quarterly dividend for
the second quarter of 1994 on HEP Common Stock in an amount not to exceed $.245
per share of HEP Common Stock, except for such other dividends or distributions
as may be required in order to maintain HEP's qualification as a REIT through
the Effective Time, and in the event the Effective Time shall not have occurred
on or prior to November 1, 1994, HEP may declare and pay a regular quarterly
dividend for the third quarter of 1994 on HEP Common Stock in an amount not to
exceed $.245 per share of HEP Common Stock. See "The Proposed Merger --
Dividends" and "The Proposed Merger -- The Merger Agreement -- Certain Covenants
and Agreements." Assuming that the Effective Time occurs on or before November
1, 1994, holders of HEP Common Stock will receive the Omega regular quarterly
dividend for the quarter ending September 30, 1994, following the exchange of
their HEP Certificates (as defined below) upon the payment date established
therefor by the Omega Board.
EFFECTIVE TIME
After all the conditions set forth in the Merger Agreement have been
satisfied or waived, the Merger will become effective at such time as the
Articles of Merger required under the Maryland General Corporation Law ("MGCL")
and the North Carolina Business Corporation Act ("NCBCA") are filed with the
Department of Assessments and Taxation for the State of Maryland and the
Secretary of State of the State of North Carolina. Such filings will be made
simultaneously with or as soon as practicable after the closing of the
transactions contemplated by the Merger Agreement. See "The Proposed Merger --
Closing; Effective Time."
EXCHANGE OF STOCK CERTIFICATES
From and after the Effective Time, except as to the payment of dividends
and other distributions, Omega will be entitled to treat certificates for shares
of HEP Common Stock (the "HEP Certificates") that have not been surrendered for
exchange as evidencing ownership of the number of full shares of Omega Common
Stock for which they are exchangeable pursuant to the Merger Agreement. HOWEVER,
HOLDERS OF HEP COMMON STOCK AS OF IMMEDIATELY PRIOR TO THE EFFECTIVE TIME ("HEP
SHAREHOLDERS") WILL NOT BE ENTITLED TO RECEIVE ANY PAYMENT OF DIVIDENDS ON OR
OTHER DISTRIBUTIONS WITH RESPECT TO THEIR SHARES OF OMEGA COMMON STOCK UNTIL
SUCH HEP CERTIFICATES HAVE BEEN SURRENDERED AND EXCHANGED FOR CERTIFICATES
REPRESENTING SHARES OF OMEGA COMMON STOCK ("OMEGA CERTIFICATES"). Subject to
applicable laws, such dividends and distributions,
3
<PAGE> 19
if any, will be accumulated and, at the time an HEP Shareholder surrenders his
or her HEP Certificates to First Interstate Bank of California, as exchange
agent (the "Exchange Agent"), all accrued and unpaid dividends and
distributions, together with any cash payment in lieu of a fractional share of
Omega Common Stock, will be paid without interest. As a result of certain
covenants in the Merger Agreement regarding the timing of the declaration and
payment of dividends prior to the Effective Time, it is not anticipated that any
accrued and unpaid dividends or distributions would exist at the Effective Time.
See "The Proposed Merger -- Dividends" and "The Proposed Merger -- The Merger
Agreement -- Certain Covenants and Agreements." As soon as practicable after the
Effective Time, the Exchange Agent will send transmittal instructions to each
HEP Shareholder describing the procedure for surrendering HEP Certificates for
Omega Certificates.
HEP SHAREHOLDERS SHOULD NOT SEND THEIR HEP CERTIFICATES TO THE EXCHANGE
AGENT UNLESS AND UNTIL THEY HAVE RECEIVED TRANSMITTAL INSTRUCTIONS AND A FORM OF
LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. At any time following 180 days
after the Effective Time, Omega may require the Exchange Agent to return to
Omega (subject to any REIT requirements and any applicable escheat law) all
Omega Common Stock and cash deposited with the Exchange Agent which has not been
disbursed to HEP Shareholders and thereafter any such holders which have not
remitted their HEP Certificates to the Exchange Agent may look to Omega only as
a general creditor with respect thereto. See "The Proposed Merger -- Exchange of
Stock Certificates."
BACKGROUND
The terms of the Merger Agreement resulted from arm's length negotiations
between representatives of Omega and HEP. See "The Proposed Merger --
Background."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
Omega. The Omega Board has unanimously approved the Merger Agreement and
the transactions contemplated thereby and unanimously recommends that Omega
shareholders vote "FOR" approval and adoption of the Merger Agreement and the
transactions contemplated thereby. The recommendations of the Omega Board are
based upon its belief that the terms of the Merger Agreement are fair and in the
best interests of Omega and its shareholders and that the Merger will result in
benefits to Omega and its shareholders. For a discussion of Omega's reasons for
the Merger and the factors considered by the Omega Board in making its
recommendations, see "The Proposed Merger -- Recommendations of the Boards of
Directors and Reasons for the Merger -- Omega."
HEP. The HEP Board, by unanimous vote of the HEP directors who are not
employees of HEP, approved the Merger Agreement and the transactions
contemplated thereby and recommends that the HEP shareholders vote "FOR"
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. Directors of HEP who are also employees of HEP abstained from the HEP
Board's vote on the Merger Agreement and the transactions contemplated thereby
because of their interests in the Merger. However, such directors have indicated
to HEP that they intend to vote all of the shares of HEP Common Stock
beneficially owned by them in favor of the Merger Agreement and the transactions
contemplated thereby. See "The Proposed Merger -- Interests of Certain Persons
in the Merger." The recommendations of the HEP Board are based upon its belief
that the terms of the Merger Agreement are fair and in the best interests of HEP
and its shareholders and that the Merger will result in benefits to HEP's
shareholders. For a discussion of HEP's reasons for the Merger and the factors
considered by the HEP Board in making its recommendations, see "The Proposed
Merger -- Recommendations of the Boards of Directors and Reasons for the Merger
- -- HEP."
OPINIONS OF FINANCIAL ADVISORS
Omega. On June 17, 1994, Bear, Stearns & Co. Inc. ("Bear Stearns"), a
financial advisor to Omega, delivered its oral opinion to the Omega Board to the
effect that, based upon and subject to the matters presented to the Omega Board,
the Merger is fair, from a financial point of view, to the shareholders of
Omega. Bear Stearns subsequently confirmed such opinion by delivery of its
written opinion dated as of the date of this Joint Proxy Statement and
Prospectus. A copy of the opinion of Bear Stearns is attached hereto as
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<PAGE> 20
Annex II. SHAREHOLDERS OF OMEGA ARE URGED TO READ THE OPINION OF BEAR STEARNS IN
ITS ENTIRETY. For additional information concerning the assumptions made,
matters considered and limits of the review by Bear Stearns in reaching its
opinion and the fees received and to be received by it, see "The Proposed Merger
- -- Opinions of Financial Advisors -- Omega" and Annex II hereto.
HEP. On June 16, 1994, Equitable Securities Corporation ("Equitable
Securities"), HEP's financial advisor, delivered its oral opinion to the HEP
Board to the effect that, based upon and subject to the matters presented to the
HEP Board, the consideration to be received by the holders of HEP Common Stock
pursuant to the Merger Agreement is fair, from a financial point of view.
Equitable Securities' opinion was confirmed in writing on June 17, 1994 (the
date that the Merger Agreement was entered into), and updated orally on August
2, 1994 and in writing on August 22, 1994. A copy of the opinion of Equitable
Securities is attached hereto as Annex III. SHAREHOLDERS OF HEP ARE URGED TO
READ THE OPINION OF EQUITABLE SECURITIES IN ITS ENTIRETY. For additional
information concerning the assumptions made, matters considered and limits of
the review by Equitable Securities in reaching its opinion and the fees received
and to be received by it, see "The Proposed Merger -- Opinions of Financial
Advisors -- HEP" and Annex III hereto.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of HEP with
respect to the Merger Agreement and the transactions contemplated thereby, HEP
Shareholders should be aware that certain members of the management of HEP,
including certain members of HEP's management who serve on the HEP Board, have
certain interests in the Merger that are in addition to the interests of HEP
Shareholders generally, including, without limitation, the receipt of certain
payments, the execution of certain consulting and noncompetition agreements, and
certain forgivable loan transactions entered into in connection with such
consulting and noncompetition agreements. William G. Benton, Susan L.
Christiansen and G. L. Clark, Jr., who are members of management of HEP and who
serve on the HEP Board, have certain interests in the Merger and have abstained
from voting with respect to the HEP Board's approval of the Merger Agreement.
See "The Proposed Merger -- Interests of Certain Persons in the Merger."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The current directors and officers (with one exception) of Omega will
continue in office following the Effective Time. Omega does not currently
anticipate any changes in its investment strategies or policies or its dividend
policy in connection with the Merger. Neither Omega nor HEP has any present
plans for dispositions of material assets. See "The Proposed Merger --
Management and Operations After the Merger."
CONDITIONS TO THE MERGER
The obligations of Omega and HEP to consummate the Merger are subject to
the satisfaction of certain conditions, including, among others, (i) obtaining
the requisite shareholder approvals, (ii) the absence of any injunction
prohibiting consummation of the Merger, (iii) the receipt of all governmental
consents, orders and approvals legally required for consummation of the Merger,
(iv) the receipt of certain legal opinions with respect to the tax consequences
of the Merger, REIT qualification and certain other legal matters, (v) the
receipt of accountants' "comfort" letters, (vi) the continuing accuracy of the
representations and warranties of each party, (vii) the absence of the
qualification of holders of more than ten percent (10%) of the outstanding HEP
Common Stock as dissenting shareholders under North Carolina law, and (viii) the
performance of certain other specified obligations by each party. See "The
Proposed Merger -- The Merger Agreement -- Conditions to the Merger" and "The
Proposed Merger -- Regulatory Filings and Approvals."
RIGHTS TO TERMINATE AND AMENDMENTS
The Merger Agreement may be terminated at any time prior to the closing of
the transactions contemplated thereby in certain circumstances, including, among
others, (i) by the mutual consent of Omega and HEP, (ii) unilaterally by either
Omega or HEP if the Merger has not been consummated prior to December 31, 1994,
(iii) unilaterally by either Omega or HEP in certain other situations, including
(A) the
5
<PAGE> 21
failure of the other to cure within 15 business days, after receipt of prior
written notice, a material breach of its covenants or agreements under the
Merger Agreement, (B) the failure of the other to satisfy a condition to its
obligations under the Merger Agreement, (C) the failure of the parties to reach
mutual agreement as to any adjusted Exchange Ratio in the event that, at any
time commencing on June 17, 1994 and ending on the tenth business day before the
date of the HEP Special Meeting, the average closing sale price of Omega Common
Stock on the NYSE for 30 consecutive trading days is less than $19.00 per share,
(D) the execution by HEP of a definitive agreement with an entity or group other
than Omega for the acquisition of all or any substantial part of the business
and properties or capital stock of HEP, or (E) the execution by Omega of a
definitive agreement with a third party for the acquisition of all or
substantially all of the business and properties or capital stock of Omega; or
(iv) unilaterally by Omega in the event (X) HEP notifies Omega that it has
determined to provide confidential information to a potential acquiror or has
received an offer relating to a potential acquisition of all or any substantial
part of the business and properties or capital stock of HEP from any entity or
group other than Omega, (Y) the HEP Board fails to recommend approval of the
Merger to its shareholders or withdraws such recommendation, or (Z) the holders
of more than ten percent (10%) of the outstanding HEP Common Stock shall have
qualified as dissenting shareholders under North Carolina law. See "The Proposed
Merger -- The Merger Agreement -- Termination."
Upon the occurrence of certain events, HEP will be required to pay Omega a
termination fee of $3.75 million. Upon the occurrence of certain other events,
Omega will be required to pay HEP a termination fee of $3.75 million. See "The
Proposed Merger -- The Merger Agreement -- Termination Fee."
Subject to compliance with applicable law, the Merger Agreement may be
amended at any time prior to or, subject to certain conditions, after its
approval by the shareholders of Omega and HEP by a written agreement executed by
Omega and HEP. See "The Proposed Merger -- The Merger Agreement -- Amendment and
Waiver."
COMPARISON OF RIGHTS UNDER APPLICABLE LAW
The rights of shareholders of HEP are currently governed by applicable
North Carolina law, the HEP Articles of Incorporation and the HEP Bylaws.
Holders of HEP Common Stock immediately prior to the Effective Time will become
shareholders of Omega, a Maryland corporation, and from and after the Effective
Time, their rights as shareholders of Omega will be governed by applicable
Maryland law, the Omega Articles of Incorporation and the Omega Bylaws. There
are certain differences between the rights of shareholders of HEP under North
Carolina law, the HEP Articles of Incorporation and the HEP Bylaws and the
rights of shareholders of Omega under Maryland law, the Omega Articles of
Incorporation and the Omega Bylaws. See "Comparison of Rights of Holders of HEP
Common Stock and Omega Common Stock."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify as a "tax-free reorganization" for
federal income tax purposes. Argue Pearson Harbison & Myers, counsel to Omega,
will render an opinion at the Effective Time to the effect that no gain or loss
would be recognized by Omega on the exchange of HEP Common Stock for Omega
Common Stock. Stroock & Stroock & Lavan, special counsel to HEP, will render an
opinion at the Effective Time to the effect that no gain or loss would be
recognized by HEP or by HEP shareholders on the exchange of HEP Common Stock for
Omega Common Stock (except with respect to cash received in lieu of fractional
shares). See "Certain Federal Income Tax Considerations." EACH SHAREHOLDER OF
OMEGA AND HEP IS URGED TO CONSULT HIS OR HER TAX ADVISOR TO DETERMINE THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER.
DISSENTERS' RIGHTS
Under North Carolina law, holders of HEP Common Stock have the right to
dissent from the Merger and receive the fair value of their shares. Omega's
obligations under the Merger Agreement are subject to the condition that the
holders of not more than 10% of the outstanding HEP Common Stock shall have
exercised dissenters' rights under North Carolina law. Holders of Omega Common
Stock are not entitled to dissenters' rights under Maryland law in connection
with the Merger. See "The Proposed Merger -- Dissenters' Rights."
6
<PAGE> 22
COMPARATIVE PER SHARE PRICES OF OMEGA COMMON STOCK
AND HEP COMMON STOCK
Both Omega Common Stock and HEP Common Stock are traded on the NYSE under
the symbols "OHI" and "EQP," respectively. On June 16, 1994 (the last trading
day prior to the public announcement that Omega and HEP had entered into the
Merger Agreement), the high and low sales prices of Omega Common Stock, as
reported on the NYSE Composite Tape, were $25 1/4 and $25, respectively, and the
high and low sales prices of HEP Common Stock, as reported on the NYSE Composite
Tape, were $9 3/4 and $9 5/8, respectively. On an equivalent per share basis
calculated by multiplying the closing sale price of Omega Common Stock on the
NYSE on June 16, 1994 ($25 1/8 per share) by .393, the Exchange Ratio, the value
of shares of Omega Common Stock to be received by holders of HEP Common Stock
was $9.87 per share of HEP Common Stock. Because the Exchange Ratio is fixed and
since the market price of Omega Common Stock is subject to fluctuation, the
market value of the shares of Omega Common Stock which HEP's shareholders will
receive in the Merger may increase or decrease prior to the Effective Time of
the Merger. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS. See
"Comparative Per Share Prices and Dividends of Omega Common Stock and HEP Common
Stock."
CERTAIN CONSIDERATIONS
In considering whether to approve the Merger Agreement and the transactions
contemplated thereby, shareholders should consider the following: (i) the
relative prices of Omega Common Stock and HEP Common Stock at the Effective Time
may vary from the prices as of the date the Exchange Ratio was established, (ii)
the effect of health care regulation and potential changes therein on the
operators of the facilities financed by or invested in by Omega and HEP, (iii)
the possible reduction of reimbursement by third party payors and the effect
thereof on the operators of the facilities financed by or invested in by Omega
and HEP, (iv) the risks inherent in real estate investment, (v) the effect of
debtor-lessee bankruptcies, (vi) certain legal aspects of mortgage loans, (vii)
environmental risks, (viii) limited investment diversification, (ix) possible
changes in investment strategies and policies and capital structure, and (x) the
consequences of the failure of either Omega or HEP to qualify as a REIT. See
"Certain Considerations."
7
<PAGE> 23
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected historical financial data of Omega and HEP
which is based upon and should be read in conjunction with the audited and
unaudited financial statements included in Omega's and HEP's Annual Reports on
Form 10-K and Quarterly Reports on Form 10-Q which are incorporated by reference
in this Joint Proxy Statement and Prospectus.
OMEGA HEALTHCARE INVESTORS, INC.
(IN $000, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AUGUST 14, 1992 YEAR ENDED SIX MONTHS ENDED
TO DECEMBER 31, DECEMBER 31, JUNE 30, 1994
1992(1) 1993 (UNAUDITED)
--------------- ------------ ----------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................................... $ 5,968 $ 20,750 $ 15,435
Net income....................................... 4,424 11,573 7,173
Net income per share............................. .68 1.78 .88
Dividends per share(2)........................... .76 2.08 1.08
BALANCE SHEET DATA:
Total assets..................................... $ 144,752 $243,587 $290,608
Long-term debt................................... 6,246 103,573 97,649
Shareholders' equity............................. 122,511 122,714 190,661
OTHER DATA (UNAUDITED):
Cash available for distribution(3)............... $ 4,965 $ 14,010 $ 9,292
Cash available for distribution per share........ .81 2.15 1.14
Weighted average number of shares
outstanding(4)................................ 6,128 6,513 8,160
</TABLE>
- -------------------------
(1) Operations of Omega commenced on August 14, 1992, the date of the closing of
Omega's initial public offering of Omega Common Stock and the substantially
simultaneous purchase of, or investment in, its initial facilities.
(2) "Dividends per share" represents dividends declared per share for
non-subordinated shares of Omega Common Stock (see "Description of Omega
Capital Stock -- Common Stock -- Restricted Securities") in the month
subsequent to the end of the respective calendar quarter, as follows:
<TABLE>
<CAPTION>
DIVIDEND
DECLARED FOR
QUARTER ENDED THAT QUARTER
--------------------------------------------------------------------- ------------
<S> <C>
September 30, 1992................................................... $ .26
December 31, 1992.................................................... .50
------
$ .76
=========
March 31, 1993....................................................... $ .50
June 30, 1993........................................................ .50
September 30, 1993................................................... .54
December 31, 1993.................................................... .54
------
$ 2.08
=========
March 31, 1994....................................................... $ .54
June 30, 1994........................................................ .54
</TABLE>
The $.26 dividend related to the partial quarter from August 14, 1992 (date
of commencement of operations) to September 30, 1992 and represented a pro
rata portion of a normal $.50 per quarter dividend.
8
<PAGE> 24
Dividends on subordinated shares were as indicated, except for the third
and fourth quarters of 1992 and the third quarter of 1993 when no dividends
were paid on subordinated shares, and for the first quarter of 1993 when
$.20 per subordinated share was paid.
(3) "Cash available for distribution" is defined as net earnings adjusted for
certain non-cash items included in net earnings, such as depreciation and
deferred interest, and certain principal payments. In 1993 and the six
months ended June 30, 1994, the principal payments consisted primarily of
approximately $1,425,000 and $1,999,000, respectively, applicable to the
Senior Mortgage Collateralized Notes. For the periods presented, cash
available for distribution approximated, but was less than, funds from
operations, as generally defined by the National Association of Real Estate
Investment Trusts ("NAREIT"), an industry trade group. Funds from operations
is defined by NAREIT as "net income" (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures.
Management of Omega considers cash available for distribution to be an
informative measure of the ability of a REIT to pay dividends consistent
with measures used by analysts to evaluate REITs. Cash available for
distribution does not represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not necessarily
indicative of cash available to fund cash needs and should not be considered
as an alternative to net income as an indicator of Omega's operating
performance or as an alternative to cash flow as a measure of liquidity.
(4) The 1992 weighted average number of shares outstanding excludes subordinated
shares (336,500 shares) since no dividends were paid on the subordinated
shares for 1992. The 1993 weighted average number of shares outstanding
includes subordinated shares since dividends were paid on such shares for
three of the four quarters of 1993. See Note 2 above.
9
<PAGE> 25
HEALTH EQUITY PROPERTIES INCORPORATED
(IN $000, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED
-------------------------------------------------------- JUNE 30, 1994
1989 1990 1991 1992 1993 (UNAUDITED)
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenue...................... $ 18,929 $ 18,108 $ 18,185 $ 19,040 $ 19,751 $ 12,323
Net income (loss).................. (966) (2,933) (130) 6,534 8,695 6,869
Net income (loss) per share........ (.27) (.78) (.02) .49 .60 .47
Dividends per share................ 1.52 1.06 .87 .95 .98 .49
BALANCE SHEET DATA:
Total assets....................... $131,369 $125,946 $117,657 $117,261 $117,696 $113,246
Debt............................... 94,020 94,639 51,313 26,054 31,545 27,163
Shareholders' equity............... 33,973 28,294 62,407 86,143 81,238 81,372
OTHER DATA:
Weighted average number of shares
outstanding...................... 3,622 3,739 7,264 13,250 14,551 14,585
</TABLE>
10
<PAGE> 26
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth for Omega and HEP certain historical, pro
forma, and pro forma equivalent per share financial data. The pro forma data
does not purport to be indicative of the results of future operations or the
results that would have occurred had the Merger been consummated at the
beginning of the periods presented. The information presented herein should be
read in conjunction with the unaudited pro forma financial statements, including
the notes thereto, appearing elsewhere in this Joint Proxy Statement and
Prospectus.
<TABLE>
<CAPTION>
HEP
OMEGA ---------------------------
--------------------------- EQUIVALENT
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(2)
---------- ------------- --------- --------------
<S> <C> <C> <C> <C>
Net income per share of common stock:
Year ended December 31, 1993................. $ 1.78 $ 1.46 $ .60 $ .57
Six months ended June 30, 1994............... .88 .96 .47 .38
Dividends declared per share of common
stock(3):
Year ended December 31, 1993................. 2.08 2.08 .98 .82
Six months ended June 30, 1994............... 1.08 1.08 .49 .42
Net book value per share of common stock:
December 31, 1993............................ 18.66 21.62 5.57 8.50
June 30, 1994................................ 19.74 21.71 5.55 8.53
</TABLE>
- -------------------------
(1) The pro forma amounts include adjustments for the pro forma effect of (i)
the Merger and (ii) Omega investment transactions that occurred during the
period January 1, 1994 through July 11, 1994. See "Pro Forma Condensed
Statements of Operations."
(2) The HEP equivalent pro forma per share amounts represent Omega pro forma
amounts that have been multiplied by the Exchange Ratio of .393.
(3) "Dividends declared per share of common stock" for Omega represents
dividends declared per share for non-subordinated shares of Omega Common
Stock in the month subsequent to the end of the respective calendar
quarter. For a description of dividends on subordinated shares, see Note 2
to "Selected Historical Financial Data -- Omega Healthcare Investors, Inc."
"Dividends declared per share of common stock" for HEP represents dividends
declared per share of HEP Common Stock in the last month of the respective
calendar quarter. Dividends declared per share of common stock were as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED OMEGA HEP
------------------------------------------------------------------------- ----- -----
<S> <C> <C>
March 31, 1993........................................................... $.50 $.245
June 30, 1993............................................................ .50 .245
September 30, 1993....................................................... .54 .245
December 31, 1993........................................................ .54 .245
----- -----
$2.08 $.98
===== =====
March 31, 1994........................................................... $.54 $.245
June 30, 1994............................................................ .54 .245
</TABLE>
11
<PAGE> 27
PRO FORMA CONDENSED BALANCE SHEET
OMEGA HEALTHCARE INVESTORS, INC. AND HEALTH EQUITY PROPERTIES INCORPORATED
JUNE 30, 1994
On July 11, 1994, Omega consummated an investment in six long-term care
facilities with Sterling Health Care Centers, Inc. This investment was funded
from the proceeds of its March 1994 offering of Omega Common Stock, the issuance
of additional Omega Common Stock and the assumption of certain indebtedness.
On June 17, 1994, Omega entered into the Merger Agreement with HEP whereby
all the outstanding capital stock of HEP will be exchanged for Omega Common
Stock.
This unaudited Pro Forma Condensed Balance Sheet is presented as if both
the Omega investment transaction and the Merger, each as referred to above, had
been consummated on June 30, 1994. In the opinion of Omega's management, all
adjustments necessary to reflect the effects of these transactions have been
made.
This unaudited Pro Forma Condensed Balance Sheet is presented for
comparative purposes only and is not necessarily indicative of what the actual
financial position of Omega would have been at June 30, 1994, nor does it
purport to represent the future financial position of Omega. This unaudited Pro
Forma Condensed Balance Sheet should be read in conjunction with the respective
historical financial statements and notes thereto of Omega and HEP incorporated
by reference in this Joint Proxy Statement and Prospectus.
12
<PAGE> 28
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1994
($000, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HEALTH
OMEGA HEALTHCARE INVESTORS, INC. EQUITY OMEGA
---------------------------------------- PROPERTIES PRO FORMA HEALTHCARE
PRO FORMA INCORPORATED MERGER AND INVESTORS, INC.
INVESTMENT ------------ OTHER ---------------
HISTORICAL ADJUSTMENTS AS ADJUSTED HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate Investments:
Land and buildings --
net................... $ 137,789 $19,740(a) $ 157,529 $ 96,495 $ 68,505(1) $ 322,529
Mortgage notes
receivable............ 134,144 (8,594) 125,550 125,550
---------- ----------- ----------- ------------ ---------------
271,933 11,146 283,079 96,495 448,079
Cash and short-term
investments.............. 10,447 (2,046)(a) 8,401 10,753 (1,528)(2) 4,794
(2,100)(3)
(4,982)(4)
(5,750)(5)
Goodwill and
consulting/non-compete
agreement................ 4,982(4) 11,038
6,056(7)
Other assets............... 8,228 8,228 5,998 (1,500)(5) 12,726
---------- ----------- ------------ ---------------
$ 290,608 $ 299,708 $113,246 $ 476,637
======== ========= ========= ==========
Acquisition line of
credit................... $ 0 $ 0 $ 0
Senior mortgage notes...... 88,611 88,611 88,611
Convertible debentures,
revenue bonds, and
notes.................... 9,038 $ 3,400(a) 12,438 $ 27,163 39,601
Dividend payable........... 3,593 3,593
Accounts payable and
accrued expenses......... 2,298 2,298 1,118 $ 1,500(5) 4,916
---------- ----------- ------------ ---------------
99,947 103,347 31,874 136,721
Common stock............... 966 24(a) 990 576(6) 1,566
Additional paid in
capital.................. 189,729 5,676(a) 195,405 (1,528)(2) 338,384
(2,100)(3)
(8,750)(5)
73,985(6)
81,372(8)
Cumulative net earnings.... 23,170 23,170 23,170
Cumulative dividends
paid..................... (23,204) (23,204) (23,204)
---------- ----------- ------------ ---------------
190,661 196,361 81,372 (81,372)(8) 339,916
---------- ----------- ------------ ---------------
$ 290,608 $ 299,708 $113,246 $ 476,637
======== ========= ========= ==========
Net book value per
share(9)................. $19.74 $19.84 $14.12 $21.71
</TABLE>
13
<PAGE> 29
PRO FORMA INVESTMENT ADJUSTMENTS
(a) Investment in six long-term care facilities on July 11, 1994, ($19,740,000)
funded by cash of $10,640,000, issuance of 239,780 shares of Omega Common
Stock, and debt assumption of $3,400,000, less $8,594,000 of cash advanced
at June 30, 1994; and reclassification of $8,594,000 from mortgage notes to
purchased facilities.
PRO FORMA MERGER AND OTHER ADJUSTMENTS
(1) Increase in net book value of HEP investments to estimated fair value of
$165,000,000. The $165,000,000 is Omega management's current best estimate
of fair value, based primarily upon the income approach using a
capitalization rate of approximately 11.6%. The most recent HEP independent
appraisals, dated from 1987 to 1993, reflect an aggregate fee simple fair
value of approximately $154,000,000.
(2) Payments to HEP management for unexercised stock options ($445,032) and
severance arrangements pursuant to employment contracts ($1,082,979).
(3) Advances to HEP employees for bonuses plus related expenses ($2,100,000) in
connection with the negotiation of a proposed sale to a third party of a
number of HEP Facilities, which negotiations were discontinued in connection
with the Merger.
(4) Loan to Residential Properties Management, Inc. equal to payments due under
Consulting and Non-Competition Agreement ($4,982,269).
(5) Estimated expenses of the Merger and other purchase accounting adjustments.
(6) Excess of agreed upon per share value at date of Merger Agreement of
5,762,938 shares of Omega Common Stock to be issued to HEP shareholders
($143,555,000) over adjusted shareholders' equity of HEP ($68,994,000).
(7) Goodwill, represented by excess of amount in Note 6 below ($74,561,000) over
increase in net book value of HEP investments ($68,505,000).
(8) Consolidating entry.
(9) Net book value per share is based upon actual number of shares outstanding
at June 30, 1994, as adjusted for shares issued in the pro forma
transactions. Historical net book value for HEP has been adjusted for the
.393 Exchange Ratio.
14
<PAGE> 30
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
OMEGA HEALTHCARE INVESTORS AND HEALTH EQUITY PROPERTIES INCORPORATED
YEAR ENDED DECEMBER 31, 1993 AND SIX MONTHS ENDED JUNE 30, 1994
During the first quarter of 1994, Omega consummated three investments in
three nursing home facilities totaling $11,070,000. These investments were
funded temporarily from working capital and the acquisition line of credit and
ultimately replaced from proceeds of the March 1994 offering of Omega Common
Stock. During the period from April 1, 1994 through July 11, 1994, Omega
consummated three investments in 16 nursing home facilities totalling
$43,840,000. These investments were funded from the proceeds of the March 1994
offering of Omega Common Stock, the issuance of additional Omega Common Stock,
and the assumption of certain indebtedness. In a public offering completed on
March 31, 1994, Omega issued 3,000,000 shares of Omega Common Stock.
On June 17, 1994, Omega entered into the Merger Agreement with HEP whereby
all the outstanding capital stock of HEP will be exchanged for Omega Common
Stock.
These unaudited Pro Forma Condensed Statements of Operations are presented
as if the Omega 1994 investment and capital transactions and the Merger, each as
referred to above, had been consummated on January 1, 1993. In the opinion of
Omega's management, all adjustments necessary to reflect the effects of the
transactions have been made.
These unaudited Pro Forma Condensed Statements of Operations are presented
for comparative purposes only and are not necessarily indicative of what the
actual results of operations of Omega would have been for the periods presented,
nor does it purport to represent the results for future periods. These unaudited
Pro Forma Condensed Statements of Operations should be read in conjunction with
the respective historical financial statements and notes thereto of Omega and
HEP incorporated by reference in this Joint Proxy Statement and Prospectus.
15
<PAGE> 31
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
($000, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HEALTH OMEGA
OMEGA HEALTHCARE INVESTORS, INC. EQUITY HEALTHCARE
------------------------------------ PROPERTIES INVESTORS, INC.
PRO FORMA INCORPORATED PRO FORMA ---------------
INVESTMENT AS ------------ MERGER AS
HISTORICAL ADJUSTMENTS ADJUSTED HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- -------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income.............. $ 10,035 $ 4,024(a) $14,059 $ 19,222 $33,281
Mortgage interest income... 10,077 2,273(a) 12,350 12,350
Gain on sale............... 0 0 0
Other...................... 638 638 529 1,167
---------- -------- ------------ ---------------
20,750 27,047 19,751 46,798
Expenses:
Depreciation and
amortization............ 2,743 1,065(a) 3,808 6,508 $ 3,712(1) 14,028
Interest................... 4,605 269(a) 4,874 2,779 7,653
General and
administrative.......... 1,829 1,829 1,769 (1,100)(2) 2,498
---------- -------- ------------ ---------------
9,177 10,511 11,056 24,179
---------- -------- ------------ ---------------
Net earnings................. $ 11,573 $16,536 $ 8,695 $22,619
======== ======= ========== ===========
Net earnings per share....... $1.78 $1.70 $1.52* $1.46
Dividends per share(3)....... $2.08 $2.08 $2.49* $2.08
Cash available for
distribution(4)............ $ 14,010 $20,038 $ 15,076 $36,214
Cash available for
distribution per
share(4)................... $2.15 $2.05 $2.64* $2.34
Weighted average number of
shares outstanding......... 6,513 9,753 5,719* 15,472
</TABLE>
- -------------------------
* As adjusted for the .393 per share Exchange Ratio.
16
<PAGE> 32
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1994
($000, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
HEALTH EQUITY OMEGA
PROPERTIES HEALTHCARE
OMEGA HEALTHCARE INVESTORS, INC. INCORPORATED INVESTORS, INC.
------------------------------------- ------------- ---------------
PRO FORMA PRO FORMA
INVESTMENT AS MERGER AS
HISTORICAL ADJUSTMENTS ADJUSTED HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- -------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental income.............. $7,880 $ 1,654(a) $ 9,534 $ 9,441 $18,975
Mortgage interest income... 6,763 905(a) 7,668 7,668
Gain on sale............... 2,590 2,590
Other...................... 792 792 292 1,084
---------- -------- ------------- ---------------
15,435 17,994 12,323 30,317
Expenses:
Depreciation and
amortization............ 2,127 457(a) 2,584 3,276 $ 1,856(1) 7,716
Interest................... 4,920 (125)(a) 4,795 1,319 6,114
General and
administrative.......... 1,215 1,215 859 (550)(2) 1,524
---------- -------- ------------- ---------------
8,262 8,594 5,454 15,354
---------- -------- ------------- ---------------
Net earnings................. $7,173 $ 9,400 $ 6,869 $14,963
======= ======= ========== ==========
Net earnings per share:
Including gain on sale..... $ .88 $ .95 $1.20* $ .96
Excluding gain on sale..... $ .88 $ .95 $ .75* $ .79
Dividends per share(3)..... $1.08 $1.08 $1.25* $1.08
Cash available for
distribution:(4)
Including gain on sale..... $9,292 $ 11,976 $10,084 $22,610
Excluding gain on sale..... $9,292 $ 11,976 $ 7,494 $20,020
Cash available for
distribution per share:(4)
Including gain on sale..... $1.14 $1.21 $1.76* $1.45
Excluding gain on sale..... $1.14 $1.21 $1.31* $1.28
Weighted average number of
shares outstanding......... 8,160 9,875 5,732 15,607
</TABLE>
- -------------------------
*As adjusted for the .393 per share Exchange Ratio.
17
<PAGE> 33
PRO FORMA INVESTMENT ADJUSTMENTS
(a) Revenues from the investments consummated during the period January 1, 1994
through July 11, 1994 for the periods preceding consummation, plus related
depreciation and interest charges, less historical interest charges related
to debt paid off from proceeds of the March 1994 offering of Omega Common
Stock.
PRO FORMA MERGER ADJUSTMENTS
(1) Depreciation charges related to write-up to fair value of the HEP
investments ($2,412,000 for 1993 and $1,206,000 for 1994) and amortization
charges for goodwill and non-competition agreements ($1,300,000 for 1993
and $650,000 for 1994).
(2) Estimated general and administrative cost savings as a result of the Merger,
due primarily to elimination of personnel and office costs.
(3) "Dividends per share" for Omega represents dividends declared per share for
non-subordinated shares of Omega Common Stock in the month subsequent to
the end of the respective calendar quarter. For a description of dividends
on subordinated shares, see Note 2 to "Selected Historical Financial Data
-- Omega Healthcare Investors, Inc." "Dividends per share" for HEP
represents dividends declared per share of HEP Common Stock in the last
month of the respective calendar quarter. Dividends per share were as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED OMEGA HEP
------------------------------------------------------------------------- ----- -----
<S> <C> <C>
March 31, 1993........................................................... $.50 $.245
June 30, 1993............................................................ .50 .245
September 30, 1993....................................................... .54 .245
December 31, 1993........................................................ .54 .245
----- -----
$2.08 $.98
===== =====
March 31, 1994........................................................... $.54 $.245
June 30, 1994............................................................ .54 .245
</TABLE>
(4) "Cash available for distribution" is defined as net earnings adjusted for
certain non-cash items included in net earnings, such as depreciation and
deferred interest, and certain principal payments. In 1993 and the six
months ended June 30, 1994, Omega principal payments consisted primarily of
approximately $1,425,000 and $1,999,000, respectively, applicable to the
Senior Mortgage Collateralized Notes. For the periods presented, cash
available for distribution approximated, but was less than, funds from
operations, as generally defined by the National Association of Real Estate
Investment Trusts ("NAREIT"), an industry trade group. Omega's management
considers cash available for distribution to be an informative measure of
the ability of a REIT to pay dividends and consistent with measures used by
analysts to evaluate REITs. Funds from operations is defined by NAREIT as
"net income" (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. Cash available for
distribution does not represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not
necessarily indicative of cash available to fund cash needs and should not
be considered as an alternative to net income as an indicator of Omega's
operating performance or as an alternative to cash flow as a measure of
liquidity.
18
<PAGE> 34
OMEGA HEALTHCARE INVESTORS, INC.
HEALTH EQUITY PROPERTIES INCORPORATED
JOINT PROXY STATEMENT AND PROSPECTUS
-------------------------
INTRODUCTION
This Joint Proxy Statement and Prospectus is provided to the shareholders
of Omega Healthcare Investors, Inc., a Maryland corporation ("Omega"), and
Health Equity Properties Incorporated, a North Carolina corporation ("HEP"), in
connection with the Special Meetings of Shareholders of Omega and HEP and any
adjournments or postponements thereof. The Special Meetings will be held on the
date, at the times and in the locations, and will be held to consider the
matters, set forth under "Omega Special Meeting" and "HEP Special Meeting,"
respectively. The Boards of Directors of Omega and HEP (the "Omega Board" and
the "HEP Board," respectively) are soliciting proxies hereby for use at their
respective Special Meetings. A form of proxy is being provided to the respective
shareholders of Omega and HEP with this Joint Proxy Statement and Prospectus.
Information with respect to the execution and the revocation of proxies is
provided under "Omega Special Meeting" and "HEP Special Meeting."
OMEGA SPECIAL MEETING
PURPOSE OF THE MEETING
At the Special Meeting of Shareholders of Omega and any adjournment or
postponement thereof (the "Omega Special Meeting"), the holders of Common Stock,
par value $.10 per share, of Omega (the "Omega Common Stock") will be asked to
consider and vote upon a proposal to approve and adopt the Amended and Restated
Merger Agreement and Plan of Reorganization dated as of June 17, 1994, (the
"Merger Agreement"), between Omega and HEP, pursuant to which, among other
things, (i) HEP will merge with and into Omega (the "Merger"), and (ii) each
share of Common Stock, par value $.01 per share, of HEP ("HEP Common Stock")
outstanding immediately prior to consummation of the Merger will be converted
into the right to receive .393 of a share of Omega Common Stock, except that
cash will be paid in lieu of any fractional share of Omega Common Stock which a
shareholder of HEP may otherwise be entitled to receive. A copy of the Merger
Agreement is attached as Annex I to this Joint Proxy Statement and Prospectus
and is incorporated herein by reference.
THE OMEGA BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. SEE "THE PROPOSED MERGER -- RECOMMENDATIONS OF THE BOARDS
OF DIRECTORS AND REASONS FOR THE MERGER -- OMEGA."
DATE, TIME AND PLACE; RECORD DATE
The Omega Special Meeting is scheduled to be held at 2:00 P.M., local time,
on Wednesday, September 28, 1994, at the offices of Omega at 905 West Eisenhower
Circle, Suite 110, Ann Arbor, Michigan. The Omega Board has fixed the close of
business on August 22, 1994 as the record date (the "Omega Record Date") for the
determination of holders of Omega Common Stock entitled to notice of and to vote
at the Omega Special Meeting. On July 31, 1994, there were 9,897,108 shares of
Omega Common Stock outstanding. As of July 31, 1994, directors and executive
officers of Omega beneficially owned an aggregate of 226,768 shares or
approximately 2.3% of the outstanding Omega Common Stock.
VOTING RIGHTS
Pursuant to Maryland law, the Articles of Incorporation of Omega, as
amended (the "Omega Articles of Incorporation"), and the rules and regulations
of the New York Stock Exchange ("NYSE"), the affirmative vote of the holders of
at least a majority of the outstanding shares of Omega Common Stock is required
to
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approve and adopt the Merger Agreement and the transactions contemplated
thereby. Holders of record of Omega Common Stock on the Omega Record Date are
entitled to one vote per share at the Omega Special Meeting. The presence,
either in person or by proxy, of the holders of a majority of the outstanding
shares of Omega Common Stock entitled to vote at the Omega Special Meeting is
necessary to constitute a quorum at the Omega Special Meeting.
If a shareholder attends the Omega Special Meeting, he or she may vote by
ballot. However, since many of Omega's shareholders may be unable to attend the
Omega Special Meeting, the Omega Board is soliciting proxies so that each holder
of Omega Common Stock on the Omega Record Date has the opportunity to vote on
the proposals to be considered at the Omega Special Meeting. When a proxy card
is returned properly signed and dated, the shares represented thereby will be
voted in accordance with the instructions on the proxy card. If a shareholder
does not return a signed proxy card, his or her shares will not be voted and
thus will have the effect of a vote against the Merger Agreement and the
transactions contemplated thereby. Similarly, an abstention will also have the
effect of a vote against the Merger Agreement and the transactions contemplated
thereby. Shareholders are urged to mark the box on the proxy card to indicate
how their shares are to be voted. If a shareholder returns a signed proxy card,
but does not indicate how his or her shares are to be voted, the shares
represented by the proxy card will be voted FOR approval and adoption of the
Merger Agreement and the transactions contemplated thereby. The proxy card also
confers discretionary authority on the individuals appointed by the Omega Board
and named on the proxy card to vote the shares represented thereby on any other
matter that is properly presented for action at the Omega Special Meeting.
Any Omega shareholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Secretary
of Omega, at 905 West Eisenhower Circle, Suite 110, Ann Arbor, Michigan 48103,
(ii) granting a subsequent proxy or (iii) appearing in person and voting at the
Omega Special Meeting. Attendance at the Omega Special Meeting will not in and
of itself constitute revocation of a proxy.
HEP SPECIAL MEETING
PURPOSE OF THE MEETING
At the Special Meeting of Shareholders of HEP and any adjournment or
postponement thereof (the "HEP Special Meeting"), the holders of HEP Common
Stock will be asked to consider and vote upon a proposal to approve and adopt
the Merger Agreement and the transactions contemplated thereby, pursuant to
which, among other things, (i) HEP will be merged with and into Omega, and (ii)
each share of HEP Common Stock outstanding immediately prior to the consummation
of the Merger will be converted into the right to receive .393 of a share of
Omega Common Stock, except that cash will be paid in lieu of any fractional
share of Omega Common Stock which a shareholder of HEP may otherwise be entitled
to receive. A copy of the Merger Agreement is attached as Annex I to this Joint
Proxy Statement and Prospectus and is incorporated herein by reference.
THE HEP BOARD, BY UNANIMOUS VOTE OF THE HEP DIRECTORS WHO ARE NOT EMPLOYEES
OF HEP, APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
AND RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. DIRECTORS OF HEP WHO
ARE ALSO EMPLOYEES OF HEP ABSTAINED FROM THE HEP BOARD'S VOTE ON THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY BECAUSE OF THEIR INTERESTS
IN THE MERGER. HOWEVER, SUCH DIRECTORS HAVE INDICATED TO HEP THAT THEY INTEND TO
VOTE ALL OF THE SHARES OF HEP COMMON STOCK BENEFICIALLY OWNED BY THEM IN FAVOR
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. SEE "THE
PROPOSED MERGER -- RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR
THE MERGER -- HEP" AND "THE PROPOSED MERGER -- INTERESTS OF CERTAIN PERSONS IN
THE MERGER."
DATE, TIME AND PLACE; RECORD DATE
The HEP Special Meeting is scheduled to be held at 10:00 A.M., local time,
on Wednesday, September 28, 1994, at the Adams Mark Winston Plaza at 425 N.
Cherry Street, Winston-Salem, North
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Carolina. The HEP Board has fixed the close of business on August 22, 1994 as
the record date (the "HEP Record Date") for the determination of holders of HEP
Common Stock entitled to notice of and to vote at the HEP Special Meeting. On
July 31, 1994, there were 14,663,964 shares of HEP Common Stock outstanding. As
of July 31, 1994, directors and executive officers of HEP owned beneficially an
aggregate of 362,052.31 shares or approximately 2.5% of the outstanding HEP
Common Stock. HEP will use its best efforts to cause its directors and executive
officers to vote their shares of HEP Common Stock in favor of the Merger.
VOTING RIGHTS
The affirmative vote of the holders of at least a majority of the
outstanding shares of HEP Common Stock entitled to vote at the HEP Special
Meeting is required under North Carolina law, the Articles of Incorporation of
HEP, as amended (the "HEP Articles of Incorporation") and the rules and
regulations of the NYSE, to approve and adopt the Merger Agreement and the
transactions contemplated thereby. Holders of record of HEP Common Stock on the
HEP Record Date are entitled to one vote per share at the HEP Special Meeting.
The presence, either in person or by proxy, of the holders of a majority of the
outstanding shares of HEP Common Stock entitled to vote at the HEP Special
Meeting is necessary to constitute a quorum at the HEP Special Meeting.
If a shareholder attends the HEP Special Meeting, he or she may vote by
ballot. However, since many of HEP's shareholders may be unable to attend the
HEP Special Meeting, the HEP Board is soliciting proxies so that each holder of
HEP Common Stock on the HEP Record Date has the opportunity to vote on the
proposals to be considered at the HEP Special Meeting. When a proxy card is
returned properly signed and dated, the shares represented thereby will be voted
in accordance with the instructions on the proxy card. If a shareholder does not
return a signed proxy card, his or her shares will not be voted and thus will
have the effect of a vote against the Merger Agreement and the transactions
contemplated thereby. Similarly, an abstention will also have the effect of a
vote against the Merger Agreement and the transactions contemplated thereby.
Shareholders are urged to mark the box on the proxy card to indicate how their
shares are to be voted. If a shareholder returns a signed proxy card, but does
not indicate how his or her shares are to be voted, the shares represented by
the proxy card will be voted FOR approval and adoption of the Merger Agreement
and the transactions contemplated thereby. The proxy card also confers
discretionary authority on the individuals appointed by the HEP Board and named
on the proxy card to vote the shares represented thereby on any other matter
that is properly presented for action at the HEP Special Meeting.
Any HEP shareholder who executes and returns a proxy card may revoke such
proxy at any time before it is voted by (i) notifying in writing the Secretary
of HEP at 915 West Fourth Street, Winston-Salem, North Carolina 27101, (ii)
granting a subsequent proxy or (iii) appearing in person and voting at the HEP
Special Meeting. Attendance at the HEP Special Meeting will not in and of itself
constitute revocation of a proxy.
CERTAIN CONSIDERATIONS
In addition to general investment risks and those factors set forth
elsewhere herein, shareholders should consider the following in determining
whether to approve the Merger Agreement and the transactions contemplated
thereby. Except for " -- Fixed Exchange Ratio," the considerations listed herein
are applicable to the combined entity that will result from the consummation of
the Merger unless otherwise specifically noted.
FIXED EXCHANGE RATIO
The relative stock prices of Omega Common Stock and HEP Common Stock at the
Effective Time may vary from the prices as of the date hereof or the date on
which shareholders vote on the Merger due to changes in the business, operations
and prospects of Omega or HEP, general market and economic conditions, and other
factors. Omega and HEP do not intend to obtain updated opinions of their
respective financial advisors prior to the time the Merger becomes effective
(the "Effective Time"). Because the Exchange Ratio is fixed, except as described
below, the market value of the shares of Omega Common Stock which holders of HEP
Common Stock will receive in the Merger may increase or decrease prior to the
Effective Time due to many
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factors, including, without limitation, investor perceptions of Omega and
long-term health care REITs, Omega's operating results and general economic and
market conditions. In the event that, at any time commencing on June 17, 1994
and ending on the tenth business day before the date of the HEP Special Meeting,
the average closing sale price of Omega Common Stock on the NYSE for 30
consecutive trading days is less than $19.00 per share, Omega and HEP are
obligated to renegotiate the Exchange Ratio. See "The Proposed Merger -- The
Merger Agreement -- Termination."
GOVERNMENT HEALTH CARE REGULATION
Health care is an area of extensive government regulation and dynamic
regulatory change. The lessees and mortgagors of Omega and HEP are and will
continue to be subject to extensive federal, state and local regulation,
including licensing, facility inspections, reimbursement policies, and control
over certain expenditures. There are currently under consideration by Congress
various proposals for national health care reform that could further limit
payments to health care providers or otherwise affect the operations of health
care providers. It is not clear at this time what proposals will be adopted or,
if adopted, what effect, if any, such proposals would have on Omega or HEP
either individually or on a combined basis after the Merger. Changes in laws or
regulations or new interpretations of existing laws or regulations could have a
dramatic effect on methods and costs of doing business and amounts of
reimbursement by government and private third party payors. See "-- Possible
Reduction of Reimbursement by Third Party Payors."
Laws and regulations are regularly adopted to regulate new and existing
health care services. Changes frequently occur in federal laws governing the
activities of long-term care operators, such as regulations concerning Medicare
and Medicaid programs, which programs provide a majority of the revenues of the
facilities owned and leased by Omega or HEP or with respect to which Omega or
HEP provides mortgage financing (the "Omega Facilities" and the "HEP
Facilities," respectively, and collectively, the "Facilities"), as well as
federal and state laws concerning coverage and reimbursement requirements.
Accordingly, there can be no assurance that federal or state governments will
not impose additional restrictions upon all or a portion of the activities of
the lessees, mortgagors and operators of Omega's and HEP's Facilities
(collectively, the "Facility Operators"), which might adversely affect
operations of such Facility Operators. Any material adverse effect on the
operations of the Facility Operators could have a material adverse effect on the
business and financial condition of Omega or HEP either individually or on a
combined basis after consummation of the Merger.
The United States federal government, and the states and local
jurisdictions in which the Facility Operators operate, separately regulate
various aspects of the business of the Facility Operators. Long-term care
facilities such as nursing homes and retirement centers are subject to periodic
inspection by governmental and other authorities to assure continued compliance
with various standards, including standards relating to the financial condition
of the owners and operators of such facilities and physical condition of the
properties. There can be no assurance that federal, state or local governments
will not change existing standards, or impose additional standards, relating to
all or a portion of the Facility Operators' activities or their properties. Such
governmental action might adversely affect a Facility Operator's activities,
business and financial condition. The failure to maintain in effect required
regulatory approvals or licenses could also materially and adversely affect a
Facility Operator's activities, business and financial condition and,
indirectly, the financial condition of Omega or HEP either individually or on a
combined basis after consummation of the Merger.
POSSIBLE REDUCTION OF REIMBURSEMENT BY THIRD PARTY PAYORS
Currently, a majority of the revenues of the Facility Operators is
dependent upon reimbursement from third party payors, including the Medicaid and
Medicare programs, post-employment benefit plans and private insurers. The
levels of revenues and profitability of the Facility Operators are affected by
the continuing efforts of third party payors to contain or reduce the costs of
health care by lowering reimbursement rates, increasing case management review
of services, and negotiating reduced contract pricing. Such efforts are expected
to continue. In addition, in an attempt to reduce the United States' federal
budget deficit, there have been, and Omega and HEP expect that there will
continue to be, proposals to limit Medicaid and Medicare reimbursement for
health care services. Proposals have also been made to limit Medicaid
reimbursement for
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health care services in each of the states in which Omega's and HEP's Facilities
are located. Neither Omega nor HEP can predict whether any of these proposals
will be adopted at the federal or state level or, if adopted and implemented,
what effect, if any, such proposals will have on the Facility Operators, and,
indirectly, Omega or HEP, either individually or on a combined basis after
consummation of the Merger. A significant change in coverage or a reduction in
payment rates by third party payors or the availability of funds for
reimbursement, particularly in Indiana, could have a material adverse effect on
the business and financial condition of the lessees and mortgagors of Omega or
HEP, the Facility Operators, and, indirectly, the financial condition of Omega
or HEP, either individually or on a combined basis after consummation of the
Merger. Indiana recently adopted new rules affecting Medicaid reimbursement
which could have an adverse effect on Medicaid providers in that state. On
August 18, 1994, the new rules became retroactively effective as of August 1,
1994; however, a number of Indiana Medicaid providers have commenced litigation
seeking to enjoin the effectiveness of such rules. In light of the complexity
and newness of these rules, Omega and HEP are currently unable to determine the
impact, if any, of such rules on the Facility Operators. Indiana will represent
approximately 21% of the total investments and 24% of the total revenues of the
combined company resulting from the Merger. Under the terms of HEP's leases with
Res-Care Health Services, Inc. ("Res-Care"), which cover five properties (four
of which are located in Indiana), annual base rent may be adjusted in the event
of a change in reimbursement rate which has a material adverse economic effect
on the property leased. HEP does not anticipate at this time that any rent
reduction with Res-Care would be material to HEP's total revenue.
REAL ESTATE INVESTMENT RISKS
The operating results of the Facilities underlying the investments of Omega
and HEP will depend on various factors over which neither Omega nor HEP have
control and which may affect the present or future cash flow of Omega or HEP,
either individually or on a combined basis after consummation of the Merger.
Those factors include, without limitation, general economic conditions, changes
in the supply of, or demand for, competing long-term care facilities, changes in
occupancy levels, the ability of the Facility Operators through rate increases
or otherwise to absorb increases in operating expenses, changes in government
regulations and changes in zoning laws.
In addition, no assurance can be given that a lessee will exercise any
option to renew its lease upon the expiration of the lease term. In such an
instance, Omega, HEP or the combined entity resulting from the Merger, as the
case may be, may not be able to locate immediately a qualified purchaser or a
qualified replacement tenant, as a result of which it would lose a source of
revenue until a purchaser or replacement tenant is found while Omega, HEP, or
the combined entity resulting from the Merger, as the case may be, would remain
responsible for any outstanding indebtedness secured by the Facility or
Facilities subject to the expired lease. Individual and master leases
(individually, a "Master Lease" or collectively, the "Master Leases") relating
to 60 of HEP's properties, 54 of which are located in Indiana, will expire in
1996 unless renewed under existing renewal options. Furthermore, Omega's lease
arrangements with its lessees are all in the format of Master Leases. Although
the failure to renew any of Omega's Master Leases, or the termination of any of
such Master Leases, may have a material adverse effect on Omega, none of Omega's
existing Master Leases are eligible for renewal prior to 2002. Management of
both Omega and HEP believe that the Merger is a proactive response to the
concentration in HEP's portfolio of leases located in Indiana that expire in
1996 given Omega's experience in Indiana. See "Information Concerning HEP --
Properties" and "Information Concerning Omega -- Business and Properties."
No assurance can be given that a borrower under any mortgage held by the
combined entity resulting from the Merger will be able to repay or refinance any
mortgage at the expiration of the term thereof. In addition, the combined entity
resulting from the Merger may, under certain circumstances, invest a portion of
its portfolio in mortgages that are subordinated to other mortgages or other
payments. See "Information Concerning Omega -- Restricted Investment Activities"
and "-- Business and Properties."
Omega and HEP each believe that it has adequate provisions to protect
against the risks typically associated with business of the type it conducts,
and each requires that its lessees and mortgagors maintain insurance at levels
believed to be adequate to protect against the insurable risks associated with
the operations
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and activities of its facilities. However, there can be no assurance that such
insurance will prove to be adequate or will continue to be available at
reasonable prices.
CERTAIN BANKRUPTCY LIMITATIONS
Although each lease or Master Lease of Omega and most of the leases or
Master Leases of HEP permit termination upon the bankruptcy or insolvency of the
tenant, the Bankruptcy Reform Act of 1978 ("Bankruptcy Code") provides that a
trustee in a bankruptcy or reorganization proceeding under the Bankruptcy Code
(or a debtor-in-possession in a reorganization under the Bankruptcy Code) has
the power and the option to assume or reject the unexpired lease obligations of
a debtor-lessee. In the event that the unexpired lease is assumed on behalf of
the debtor-lessee, all the rental obligations thereunder generally would be
entitled to a priority over other unsecured claims. However, the court also has
the power to modify a lease if a debtor-lessee in a reorganization were required
to perform certain provisions of a lease that the court determined to be unduly
burdensome. It is not possible to determine at this time whether or not any
lease or Master Lease contains any such provisions. If a lease is rejected, the
lessor has a general unsecured claim limited to any unpaid rent already due plus
an amount equal to the rent reserved under the lease, without acceleration, for
the greater of one year or 15% of the remaining term of such lease, not to
exceed three years.
COLLATERALIZATION OF MORTGAGE LOANS
The security interest received by Omega in property held as collateral for
a loan to a Facility Operator is evidenced by either a mortgage or a deed of
trust, depending on the law of the state where the applicable Facility is
located. HEP has also committed to lend an aggregate of $2,890,000 to one of its
Facility Operators under two separate loan commitments pursuant to which each
loan will be secured by first mortgages on separate facilities. Upon the
occurrence of certain defaults by the borrower, Omega is or HEP will be entitled
to foreclose upon the property which is subject to the deed of trust or
mortgage. Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale as specifically permitted by the deed of trust. A
mortgage foreclosure is accomplished by judicial action or, in some states, a
power of sale and is subject, at all times, to a court's equitable power. See
"Information Concerning HEP -- Recent Developments."
Regardless of the legal form of the security interest, the foreclosure
process can be protracted, certain states may limit the lender's ability to
recover fees and expenses incurred in foreclosure proceedings and, in some
instances, may permit debtors to redeem the collateral or reinstate the loan by
paying an amount less than the entire principal balance, accrued interest and
foreclosure expenses. Accordingly, there can be no assurance that the amounts
realized upon foreclosure will be sufficient to repay the mortgage on the
Facility sold and other expenses associated with the foreclosure. However, as a
result of the Merger, mortgage loans, as a percentage of the combined entity's
investment portfolio, will be reduced as compared to the percentage of Omega's
current portfolio invested in mortgage loans.
ENVIRONMENTAL RISKS
Various of the Omega and HEP Facilities may contain, or their operations
may utilize, certain materials, processes or installations which are regulated
pursuant to environmental statutes and regulations, or may require environmental
permits from regulatory authorities. These items include, without limitation,
such items as fuel oil storage tanks, medical or infectious waste, and small
amounts of friable asbestos-containing materials. Neither HEP nor Omega controls
the operational activities of the Facility Operators, nor does HEP or Omega
monitor the Facility Operators with respect to environmental matters. Most of
the leases for the HEP Facilities require the lessee to comply with applicable
laws but do not require the lessee to indemnify HEP with respect to
environmental losses. The current lease form utilized by HEP, however, which has
been entered into by HEP with respect to several of the HEP Facilities, and the
lease and mortgage forms utilized by Omega specifically require lessees and
borrowers to indemnify HEP or Omega, as the case may be, with respect to
environmental losses.
Phase I environmental studies prepared for Omega revealed no significant
environmental risk or failure to comply with such statutes or rules in
connection with such materials, processes or installations at the Omega
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Facilities. HEP has obtained environmental reports from time to time covering
some but not all of the HEP Facilities. Such reports indicated that as of the
date of such reports, the subject HEP Facilities did not have any identifiable
environmental concerns that would materially affect the value of those HEP
Facilities. No assurance can be given, however, that these studies and reports
revealed all environmental liabilities (or that environmental liabilities have
not developed since such studies and reports were prepared). Management of Omega
and HEP believe that the materials used at the Facilities and the manner in
which the Facilities are operated present no material adverse risk and would
have no material adverse effect on the combined entity's financial condition or
results of operations.
No assurance can be given that undiscovered environmental liabilities do
not exist, or that any undiscovered environmental liability will not be material
to the combined entity. Under various federal, state and local laws, ordinances
and regulations, Omega and HEP could, under certain circumstances, be held
liable for the costs of removal or remediation of hazardous substances released
on or in its property or disposed of by it, as well as certain other potential
costs which could relate to hazardous or toxic substances (including
governmental fines and injuries to persons and property). Under several state
laws and the federal Comprehensive Environmental Response, Compensation and
Liability Act, a lender or prior owner may be liable, as an "owner" or
"operator," for the costs of removal or remediation on a mortgaged property from
which there has been a release or a threatened release of hazardous substances
if, with respect to a lender, agents or employees of the lender have become
involved in the operations of the borrower, regardless of whether a previous
owner caused the environmental damage.
LIMITED INVESTMENT DIVERSIFICATION
The objective of the combined entity resulting from the Merger will be to
invest in health care facilities. Accordingly, the combined entity will not
diversify its investment portfolio to reduce the risks associated with
investment in the health care industry and intends to make additional health
care facility related investments which may be made on terms less favorable than
the terms applicable to Omega's and HEP's present investments.
POSSIBLE CHANGE OF INVESTMENT STRATEGIES AND POLICIES AND CAPITAL STRUCTURE
The Bylaws of Omega, which will be the Bylaws of the combined entity
resulting from the Merger, permit the Omega Board, without the approval of the
shareholders, to alter Omega's investment strategies and policies if such a
change is determined to be in the best interests of Omega and its shareholders.
The methods of implementing such investment strategies and policies may vary as
new investment and financing techniques are developed. See "Information
Concerning Omega -- Investment Strategies and Policies."
CONSEQUENCES OF FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
Each of Omega and HEP believes it has been organized and has operated so as
to qualify as a REIT under the Code, and it is intended that the combined entity
resulting from the Merger will continue to so qualify. A qualified REIT
generally is not taxed at the corporate level on income it currently distributes
to its shareholders. Although each of Omega and HEP believes that it has been
organized and operated, and that the combined entity will continue to operate in
a manner which will allow it to qualify as a REIT under the Code, no assurance
can be given that Omega or HEP has qualified or that the combined entity will
remain qualified as a REIT. Omega and HEP, however, will each receive at the
Effective Time a legal opinion from Omega's counsel to the effect that the
Merger will not jeopardize the status of Omega as a REIT under the Code and the
rules and regulations thereunder.
Upon a determination that the combined entity failed to meet the annual
distribution requirements or other requirements necessary to qualify as a REIT,
the combined entity would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Moreover, unless entitled to relief under certain statutory provisions,
the combined entity also would be disqualified from treatment as a REIT for the
four taxable years following the year during which qualification is lost. See
"Certain Federal Income Tax Considerations -- Taxation of Omega After the Merger
- -- Annual Distribution Requirements."
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THE PROPOSED MERGER
GENERAL
The following is a brief summary of certain aspects of the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached to this Joint Proxy
Statement and Prospectus as Annex I and is incorporated herein by reference.
At the Effective Time, HEP will be merged with and into Omega, and HEP will
cease to exist as a corporation. Omega will be the surviving corporation in the
Merger.
At the Effective Time, each then outstanding share of HEP Common Stock will
be converted into the right to receive .393 of a share of Omega Common Stock.
The exchange ratio of .393 of a share of Omega Common Stock, for each share of
HEP Common Stock, as set forth in the Merger Agreement, is hereinafter referred
to as the "Exchange Ratio." In the event that, at any time commencing on June
17, 1994 and ending on the tenth business day before the date of the HEP Special
Meeting, the average closing sale price of Omega Common Stock on the NYSE for 30
consecutive trading days is less than $19.00 per share, Omega and HEP are
obligated to renegotiate the Exchange Ratio. No fractional shares of Omega
Common Stock will be issued in the Merger, and holders of HEP Common Stock whose
shares are converted in the Merger will be entitled to a cash payment in lieu of
fractional shares of Omega Common Stock as described under " -- No Fractional
Shares." Any shares of HEP Common Stock owned immediately prior to the Effective
Time by Omega or any subsidiary of Omega will be cancelled pursuant to the
Merger Agreement. For a description of the treatment of the HEP employee stock
option plans and other rights to acquire HEP Common Stock in the Merger, see "--
The Merger Agreement -- Stock Options and Rights to Acquire HEP Common Stock."
None of the shares of Omega Common Stock will be converted or otherwise
modified in the Merger. All of such shares will continue to be outstanding
capital stock of Omega after the Effective Time.
A description of the relative rights, privileges and preferences of Omega
Common Stock, including certain differences between Omega Common Stock and HEP
Common Stock, is set forth under "Description of Omega Capital Stock" and
"Comparison of Rights of Holders of HEP Common Stock and Omega Common Stock."
DIVIDENDS
Prior to the closing of the transactions contemplated by the Merger
Agreement or the earlier termination of the Merger Agreement, Omega will not
declare, set aside or pay any dividend or distribution other than regular
quarterly dividends on Omega Common Stock in an amount not to exceed $.54 per
share of Omega Common Stock, and HEP will not declare, set aside or pay any
dividend or distribution other than a regular quarterly dividend for the second
quarter of 1994 on HEP Common Stock in an amount not to exceed $.245 per share
of HEP Common Stock, except for such other dividends or distributions as may be
required by law in order to maintain HEP's qualification as a REIT through the
Effective Time. It is not presently anticipated that any such dividends or
distributions will be required. In the event the Effective Time shall not have
occurred on or prior to November 1, 1994, HEP may thereafter declare and pay a
regular quarterly dividend for the third quarter of 1994 on HEP Common Stock in
an amount not to exceed $.245 per share of HEP Common Stock. See "-- The Merger
Agreement -- Certain Covenants and Agreements." Assuming that the Effective Time
occurs on or before November 1, 1994, holders of HEP Common Stock will receive
the Omega regular quarterly dividend for the quarter ending September 30, 1994
following the exchange of their HEP Certificates (as defined below) upon the
payment date established therefor by the Omega Board.
CLOSING; EFFECTIVE TIME
The closing of the transactions contemplated by the Merger Agreement (the
"Closing") will take place on the third business day immediately following the
date on which the last of the conditions set forth in the Merger Agreement is
satisfied or waived, or at such other time as Omega and HEP agree. The Merger
will become effective on the date specified in the Articles of Merger required
under Maryland and North Carolina
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law to be filed with the Secretary of State of the State of North Carolina and
the Maryland Department of Assessments and Taxation. It is anticipated that the
Effective Time will occur as soon as practicable after the Closing.
EXCHANGE OF STOCK CERTIFICATES
From and after the Effective Time, holders of HEP Common Stock immediately
prior to the Effective Time (the "HEP Shareholders") will be entitled to receive
.393 of a share of Omega Common Stock in exchange for each share of HEP Common
Stock held. Notwithstanding the Exchange Ratio, no fractional shares of Omega
Common Stock will be issued. See "-- No Fractional Shares." As soon as
practicable after the Effective Time, First Interstate Bank of California (the
"Exchange Agent") will mail transmittal instructions and a form of letter of
transmittal to each HEP Shareholder. The transmittal instructions will describe
the procedures for surrendering certificates that prior to the Merger
represented HEP Common Stock ("HEP Certificates") in exchange for certificates
representing Omega Common Stock ("Omega Certificates"). HEP SHAREHOLDERS SHOULD
NOT SUBMIT THEIR HEP CERTIFICATES FOR EXCHANGE UNLESS AND UNTIL THEY HAVE
RECEIVED THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF TRANSMITTAL FROM
THE EXCHANGE AGENT.
HEP SHAREHOLDERS WILL NOT BE ENTITLED TO RECEIVE ANY DIVIDENDS OR OTHER
DISTRIBUTIONS ON OMEGA COMMON STOCK UNTIL THE MERGER HAS BEEN CONSUMMATED AND
THEY HAVE EXCHANGED THEIR HEP CERTIFICATES FOR OMEGA CERTIFICATES. Subject to
applicable laws, any such dividends and distributions after the Effective Time
will be accumulated and, at the time an HEP Shareholder surrenders his or her
HEP Certificates to the Exchange Agent, all such accrued and unpaid dividends
and distributions, together with any cash payments in lieu of fractional shares
of Omega Common Stock, will be paid without interest. As a result of certain
covenants in the Merger Agreement regarding the timing of the declaration and
payment of dividends prior to the Effective Time, it is not anticipated that any
accrued and unpaid dividends or distributions would exist at the Effective Time.
See "-- The Merger Agreement -- Certain Covenants and Agreements."
When an HEP Shareholder delivers his or her HEP Certificates to the
Exchange Agent along with a properly executed letter of transmittal and any
other required documents, such HEP Certificates will be cancelled and the HEP
Shareholder will receive an Omega Certificate representing the number of full
shares of Omega Common Stock to which the HEP Shareholder is entitled under the
Merger Agreement and payment in cash in lieu of any fractional share of Omega
Common Stock. If any Omega Certificate is to be issued in a name other than that
in which the corresponding HEP Certificate is registered, it is a condition to
the exchange of the HEP Certificate that the HEP Shareholder comply with
applicable transfer requirements and pay any applicable transfer or other taxes.
Neither the Exchange Agent nor any party to the Merger Agreement will be
liable to any HEP Shareholder for any shares of Omega Common Stock, dividends or
distributions thereon or cash payable in lieu of fractional interests delivered
to state authorities pursuant to applicable escheat or other similar laws. At
any time following 180 days after the Effective Time, Omega may, subject to any
REIT requirements and any applicable escheat law, require the Exchange Agent to
return all Omega Common Stock and cash deposited with the Exchange Agent which
has not been disbursed to HEP Shareholders and thereafter any such holders which
have not remitted their HEP Certificates to the Exchange Agent may look to Omega
only as a general creditor with respect thereto.
HOLDERS OF SHARES OF OMEGA COMMON STOCK WILL NOT BE REQUIRED TO EXCHANGE
THEIR STOCK CERTIFICATES IN CONNECTION WITH THE MERGER.
NO FRACTIONAL SHARES
No certificates or scrip for fractional shares of Omega Common Stock will
be issued upon the surrender for exchange of HEP Certificates in the Merger. No
Omega Common Stock dividend, stock split or interest will be paid with respect
to any fractional share of Omega Common Stock, and such fractional interests
will not entitle the owner thereof to vote or to any of the other rights of a
holder of Omega Common Stock. Instead, each HEP Shareholder who would otherwise
have been entitled to a fraction of a share of Omega Common Stock upon surrender
of HEP Certificates for exchange will be entitled to receive from the
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Exchange Agent an amount in cash (without interest) at a pro rata price based on
the average closing sale price of Omega Common Stock for the ten day period
ended June 15, 1994 which was $24.91.
BACKGROUND
The terms of the Merger Agreement resulted from arm's length negotiations
between representatives of Omega and HEP.
During 1993 and continuing into 1994, senior management of Omega became
convinced that the REIT industry in general would likely experience a trend of
consolidation whereby many of the smaller REITs would be acquired by larger
REITs or consolidated to form a larger REIT. Omega's senior management believed
that Omega was well positioned to benefit from this industry trend and that
shareholder value could be enhanced if Omega were to take the initiative in
identifying appropriate acquisition candidates. See "-- Recommendations of the
Board of Directors and Reasons for the Merger -- Omega."
On or about April 1, 1994, representatives of National Westminster Bank
PLC, New York Branch ("NatWest Markets"), contacted Essel W. Bailey, Jr.,
President and Chief Executive Officer of Omega and suggested HEP as a possible
acquisition candidate. On April 8, 1994, NatWest Markets delivered to Omega
financial analyses and other information evaluating a potential transaction
involving Omega and HEP. Based on the information provided by NatWest Markets,
on April 19, 1994, the Omega Board authorized Omega management to investigate
further a possible acquisition of HEP and engaged NatWest Markets as a financial
advisor to assist in that endeavor.
In mid-May 1994, NatWest Markets provided William G. Benton, Chairman of
the Board and Chief Executive Officer of HEP, with certain financial and other
information related to the proposed transaction and on or about May 18, 1994,
Mr. Benton met with Mr. Bailey and Robert L. Parker, Chairman of Omega's Board,
and representatives of NatWest Markets to discuss preliminarily the basis upon
which a possible transaction could be accomplished. Mr. Benton informed Messrs.
Bailey and Parker that HEP would be interested in pursuing further discussions
but that any such discussions would not be productive until HEP completed the
negotiation of a proposed transaction involving the sale to a third party of a
number of the HEP Facilities that were subject to leases expiring in 1996. These
negotiations were subsequently discontinued in light of the Merger.
Subsequent to the May 18 meeting, the parties entered into a
confidentiality agreement and on May 26, 1994, Mr. Parker delivered a letter to
Mr. Benton formally expressing Omega's interest in a business combination with
HEP and attaching a preliminary draft of a merger agreement. The May 26, 1994
letter suggested that the parties, together with their financial advisors, meet
in New York on Monday, May 30, 1994, to discuss all aspects of the proposed
transaction. On May 26, 1994, a confidentiality agreement was executed and
shortly thereafter each party commenced a due diligence review of the other. On
May 26, 1994, the Compensation Committee of the HEP Board approved the 1994
compensation goals, which included bonuses in the aggregate amount of $1.8
million be paid to certain HEP employees who had participated in the proposed
transaction with the third party, whether or not that transaction was
consummated, including bonuses to executive officers of HEP as follows: William
G. Benton, $350,000, Susan L. Christiansen, $260,000, G.L. Clark, Jr., $225,000,
and Deborah O. Robinson, $125,000. On May 26, 1994, the HEP Board of Directors
discussed the proposed transaction and retained Equitable Securities Corporation
("Equitable Securities") as HEP's financial advisor.
Omega and HEP, together with their respective legal and financial
advisors, met in New York on May 30, 1994 to discuss the proposed transaction
and negotiate the proposed terms of the Merger Agreement. The Omega Board
discussed the status of the proposed transaction and the terms of the proposed
Merger Agreement at a meeting on May 30. On May 30, Omega also concluded that
if the proposed transaction for the sale of a number of HEP Facilities was
consummated, Omega would not be interested in pursuing discussions with HEP.
However, Omega offered to continue discussions with HEP and, in the event the
Merger was consummated, to hold HEP harmless for any costs incurred as a result
of commitments made in connection with the proposed transaction if HEP
terminated its discussions with such third party. In order to induce Omega to
continue its discussions regarding a business combination with HEP and its due
diligence
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review of HEP, Omega and HEP entered into a nonsolicitation agreement, effective
through June 5, 1994, pursuant to which HEP agreed not to solicit, encourage or
provide confidential information to facilitate any proposal for the acquisition
of HEP other than by Omega. Representatives of Omega, HEP, and their respective
legal and financial advisors continued these discussions through June 4. On or
about June 4, 1994, the parties mutually determined to defer further discussions
pending the resolution of certain federal income tax issues that arose as a
result of the due diligence reviews. On or about June 14, 1994, the parties
concluded that the federal income tax issues had been appropriately addressed
and discussions resumed among Omega, HEP, and their respective legal and
financial advisors regarding the potential acquisition of HEP. In early June
1994, Omega retained Bear, Stearns & Co. Inc. ("Bear Stearns") to render an
opinion to the Omega Board as to the fairness of the proposed transaction to the
shareholders of Omega Common Stock. See "The Proposed Merger -- Opinions of
Financial Advisors -- Omega."
The HEP and Omega Boards held special meetings on June 16 and June 17,
1994, respectively, to consider the proposed Merger Agreement and the
transactions contemplated thereby, including the proposed Exchange Ratio as well
as the other provisions contained in the Merger Agreement. At such meetings,
members of each company's senior management, together with its legal and
financial advisors, reviewed with its Board of Directors, among other things,
the background of the proposed Merger, each company's alternatives, the
strategic rationale for, and potential risks and benefits of, the Merger, a
summary of due diligence findings, financial and valuation analyses of the
transaction and the terms of the Merger Agreement.
At the meetings of the respective Boards of Directors, Equitable Securities
delivered its oral opinion to HEP's Board of Directors that, based upon the
matters presented to HEP's Board of Directors, as of such date, the Exchange
Ratio was fair, from a financial point of view, to the holders of HEP Common
Stock and Bear Stearns delivered its oral opinion to Omega's Board of Directors
that, as of such date, the Merger was fair, from a financial point of view, to
the shareholders of Omega Common Stock. After extensive consideration, both
companies' Boards of Directors approved the Merger Agreement and the
transactions contemplated thereby, and authorized their respective officers to
execute the Merger Agreement on behalf of each company.
At its meeting on June 16, 1994, the HEP Board directed its representatives
to address with Omega certain issues regarding HEP management compensation and
related payments and the coordination of Omega and HEP dividends. Pursuant to a
letter of understanding dated June 17, 1994, Omega reaffirmed the terms of the
total compensation package to be received by HEP management and certain
affiliated entities, the details of which are described below under the caption
"-- Interests of Certain Persons in the Merger." In addition, Omega confirmed
that it did not object to the payment by HEP of certain bonuses earned by
members of HEP management in connection with the proposed sale to a third party
of a number of HEP Facilities, even though the negotiations regarding the
proposed sale were subsequently discontinued in light of the Merger. Finally,
Omega also confirmed that the record date for payment of its third quarter
dividend will be on or after November 1, 1994. See "-- Interests of Certain
Persons in the Merger."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER
Omega. The Omega Board believes that the terms of the Merger Agreement are
fair to and in the best interests of Omega and its shareholders. Accordingly,
the Omega Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously recommends approval thereof by
the shareholders of Omega. In reaching its determination, the Omega Board
consulted with Omega management, as well as its financial and legal advisors,
and considered a number of factors, including, without limitation, the
following:
(i) the Merger provides Omega the opportunity to consolidate with a
company having a large portfolio of owned and leased income producing
health care properties, particularly long-term care properties;
(ii) enhanced diversification of the combined company's portfolio will
result since no single facility operator or state is anticipated to
represent more than 15% of the total investments or revenues of the
combined company (except for the State of Indiana which will represent
approximately 21% of the total
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<PAGE> 45
investments and 24% of the total revenues of the combined company),
significantly increasing the diversification of Omega's investments;
(iii) the increased market capitalization and increased financial
strength of the combined company should enhance Omega's ability to raise
capital;
(iv) the combination is expected to enhance Omega's funds from
operations and cash available for dividends per share;
(v) the increased number of shares of Omega Common Stock outstanding
after the Merger could provide Omega shareholders with enhanced liquidity;
(vi) HEP's business, operations, prospects and strategic alliances
should fit well with Omega's business and prospects;
(vii) opportunities for economies of scale and operating efficiencies,
particularly in terms of the integration of office facilities, information
systems and support functions, should result from the Merger;
(viii) the oral opinion of Bear Stearns given on June 17, 1994, that
the Merger is fair, from a financial point of view, to the shareholders of
Omega Common Stock; and
(ix) the terms of the Merger Agreement.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Omega Board did not find it practicable to, and
did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination.
THE OMEGA BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF OMEGA VOTE
"FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
HEP. At a meeting held on June 16, 1994, the HEP Board, by unanimous vote
of the HEP directors who are not employees of HEP, approved the Merger Agreement
and the transactions contemplated thereby and concluded that the Merger was fair
to and in the best interests of the shareholders of HEP. Accordingly, the HEP
Board recommends that the shareholders of HEP approve and adopt the Merger
Agreement and the transactions contemplated thereby. Messrs. Benton and Clark
and Ms. Christiansen, who are members of management of HEP and who serve on the
HEP Board, have certain interests in the Merger and have abstained from voting
with respect to the HEP Board's approval of the Merger Agreement and the
transactions contemplated thereby. See "-- Interests of Certain Persons in the
Merger." Messrs. Benton and Clark and Ms. Christiansen have each indicated,
however, that they intend to vote all shares of HEP Common Stock beneficially
owned by them in favor of the Merger Agreement and the transactions contemplated
thereby. In reaching its determination, the Board of Directors of HEP consulted
with its financial advisor, Equitable Securities, its legal advisors and with
HEP's management, and considered a number of factors, including, without
limitation, the following:
(i) the immediate and potential long-term benefits to HEP's
shareholders inherent in the terms of the Merger and the long-term
prospects for the combined entity;
(ii) the relative prospects for growth in shareholder values and
distributions, as a stand-alone entity and as a part of a substantially
larger organization with a larger real property portfolio;
(iii) a conclusion that further consolidations in the health care REIT
industry were inevitable, that HEP could be at a competitive disadvantage
as a stand-alone entity in such an environment, and that current market
conditions were favorable for the Merger;
(iv) enhanced diversification of the combined company's portfolio will
result since no single facility operator or state is anticipated to
represent more than 15% of the total investments or revenues of the
combined company (except for the State of Indiana which will represent
approximately 21% of the total investments and 24% of the total revenues of
the combined company);
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(v) the relative prospects for raising capital in current industry
conditions as a stand-alone entity and as part of a larger organization;
(vi) the potential cost savings in management and general and
administrative expenses;
(vii) the tax-free nature of the transaction to HEP's shareholders;
(viii) the larger market capitalization of the combined entity as
providing potentially greater market liquidity for HEP's shareholders than
they presently have in HEP as a stand-alone entity; and
(ix) the oral opinion of Equitable that the consideration to be
received by the holders of HEP's Common Stock pursuant to the Merger was
fair from a financial point of view.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the HEP Board did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weight to the specific
factors considered in reaching its determination.
THE HEP BOARD, BY UNANIMOUS VOTE OF THE HEP DIRECTORS WHO ARE NOT EMPLOYEES
OF HEP, APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY
AND RECOMMENDS THAT HEP SHAREHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. DIRECTORS OF HEP WHO
ARE ALSO EMPLOYEES OF HEP ABSTAINED FROM THE HEP BOARD'S VOTE ON THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY BECAUSE OF THEIR INTERESTS
IN THE MERGER. HOWEVER, SUCH DIRECTORS HAVE INDICATED TO HEP THAT THEY INTEND TO
VOTE ALL OF THE SHARES OF HEP COMMON STOCK BENEFICIALLY OWNED BY THEM IN FAVOR
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. SEE "--
INTERESTS OF CERTAIN PERSONS IN THE MERGER."
OPINIONS OF FINANCIAL ADVISORS
Omega. Bear Stearns delivered its oral opinion to the Omega Board on June
17, 1994 that, as of such date, the Merger was fair, from a financial point of
view, to the shareholders of Omega. Bear Stearns' opinion was confirmed in
writing as of the date of this Joint Proxy Statement and Prospectus at the
request of the Omega Board. The discussion of the opinion in this Joint Proxy
Statement and Prospectus is qualified in its entirety by reference to the full
text of such written opinion of Bear Stearns dated August 24, 1994. The full
text of the Bear Stearns opinion, which sets forth certain assumptions made,
certain procedures followed and certain matters considered by Bear Stearns, is
attached as Annex II.
In connection with its opinions, Bear Stearns reviewed certain publicly
available financial information concerning HEP and Omega regarding the business
and prospects of both companies. As described in its opinion, Bear Stearns
assumed and relied upon, without independent verification, the accuracy and
completeness of the information that it reviewed for purposes of rendering its
opinion. With respect to information relating to the prospects of HEP and Omega,
Bear Stearns assumed that such information reflected the best currently
available projections and judgments of the respective managements of HEP and
Omega as to the likely future financial performance of their respective
companies, including the assurances of the managements that they were unaware of
any facts that would make such information provided to Bear Stearns incomplete
or misleading. In addition, Bear Stearns has not made an independent evaluation
or appraisal of the assets of HEP or Omega, nor has it been furnished with any
such evaluation or appraisal. No limitations were imposed by the Board of
Directors of Omega with respect to the investigation made, or the procedures
followed, by it in rendering its opinion, and HEP and Omega and each company's
management cooperated fully with Bear Stearns in connection therewith. Bear
Stearns' opinion was based on market, economic and other conditions as they
existed and could be evaluated at the date of the opinion. Shareholders are
encouraged to read Bear Stearns' opinion in its entirety.
In conducting its analysis and arriving at its opinions, Bear Stearns,
among other things: (i) reviewed this Joint Proxy Statement and Prospectus, (ii)
reviewed Omega's Annual Reports to Shareholders and Annual Reports on Form 10-K
for the fiscal years ended December 31, 1991 through 1993, and its Quarterly
Report on Form 10-Q for the periods ended March 31 (as amended) and June 30,
1994, (iii) reviewed HEP's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the fiscal years ended December 31, 1991
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through 1993 and its Quarterly Reports on Form 10-Q for the periods ended March
31 and June 30, 1994; (iv) reviewed certain operating and financial information,
including projections, provided to it by HEP and Omega relating to their
respective businesses and prospects, (v) interviewed the senior managements of
HEP and Omega to discuss their respective operations, historical financial
statements and future prospects, (vi) reviewed the historical stock prices and
trading volume of the HEP Common Stock and Omega Common Stock, (vii) reviewed
publicly available financial data and stock market performance data of public
companies which it deemed generally comparable to HEP and Omega, and (viii)
conducted such other studies, analyses, inquiries and investigations as it
deemed appropriate.
In connection with its opinion on June 17, 1994, Bear Stearns analyzed the
following information: (i) the historical market value of the HEP Common Stock
and Omega Common Stock, (ii) the value of HEP and Omega in comparison with other
public companies in the health care REIT industry, (iii) historical and
projected earnings information and dividend payout ratios, and (iv) pro forma
analysis of HEP's and Omega's financial contribution to the combined entity.
The following information describing the methodology utilized by Bear
Stearns in connection with its opinion was provided by Bear Stearns for
inclusion in this Joint Proxy Statement and Prospectus.
1. Market Price. Bear Stearns reviewed the trading price ranges of HEP
Common Stock and Omega Common Stock. HEP Common Stock has traded between
$9.00 and $9.875 during 1994, and Omega Common Stock has traded between
$22.375 and $26.50 during 1994. The closing sale prices on June 16, 1994 of
HEP Common Stock and Omega Common Stock, prior to the public announcement
of the Merger, were $9.75 and $25.125, respectively. The Exchange Ratio
reflects a no premium exchange of shares based upon the trading price range
of HEP Common Stock and Omega Common Stock for the ten trading days prior
to the date that the Merger Agreement was entered into. No unusual pre-
announcement trading materially affected either company's stock price.
2. Comparison with Selected Publicly Traded Companies. Bear Stearns
reviewed and compared the financial and market performance of HEP and Omega
to the financial and market performance of American Health Properties,
Inc., Health Care Property Investors, Inc., Health Care REIT, Inc.,
Healthcare Realty Trust Incorporated, LTC Properties, Inc., Meditrust,
National Health Investors, Inc., Nationwide Health Properties, Inc. and
Universal Health Realty Income Trust, nine publicly traded health care
REITs that Bear Stearns believed were comparable in certain respects to HEP
and Omega, although none of such companies possessed characteristics
identical to those of HEP or Omega. For each company, Bear Stearns examined
certain financial data that was publicly available, including revenues,
funds from operations ("FFO"), dividends, dividend yield, published
analysts' projections of FFO, dividend payout ratios and balance sheet
items. Bear Stearns also calculated the ratio of the current stock
price/projected 1994 and 1995 FFO per share multiples ("FFO multiples") for
the comparable companies. Based on stock prices at the close of June 16,
1994, HEP traded at the lowest FFO multiple (8.9x projected 1994 FFO) and
the highest dividend yield (10.1% based on the indicated annual dividend)
among the selected publicly traded health care REIT comparable companies,
including Omega.
3. Historical and Projected Funds from Operations and Dividends. Bear
Stearns reviewed HEP's and Omega's historical and projected FFO and
dividend information. Bear Stearns developed an adjusted projected pro
forma FFO per share analysis based upon a certain set of assumptions
regarding the combined entity in order to determine if the Merger was
accretive or dilutive to the existing shareholders of Omega versus Omega's
projected FFO per share on a stand-alone basis. Based on an adjusted
projected consolidated pro forma FFO per share in 1994 and 1995, the
transaction was accretive to Omega as compared to its projected FFO per
share on a stand-alone basis over such period.
Should Omega increase its dividend by 8% in 1994, as was the case in
1993, a dividend of $2.25 per share would lower the pro forma payout ratio
to 85% based upon the adjusted projected pro forma combined FFO per share.
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4. Pro Forma Contribution Analysis. Bear Stearns compared HEP's and
Omega's financial contribution to the combined entity, both on a historical
and projected pro forma basis. On a pro forma basis, Omega shareholders are
retaining 62% of the ownership of the combined company while contributing
49% of the FFO and 51% of the revenues for the last twelve months ended
March 31, 1994. In 1994, Omega is projected to contribute 56% of the
projected pro forma FFO and 63% of the projected pro forma revenues.
Additionally, on a pro forma basis, no single lessee will account for more
than 15% of the combined company's total revenues.
The summary set forth above of the analyses prepared by Bear Stearns does
not purport to be a complete description of Bear Stearns' analyses. Bear Stearns
believes that its analyses must be considered as a whole and that selecting
portions of the factors considered and analyses performed by it, without
considering all factors and analyses, could create an incomplete view of the
processes underlying its analyses and fairness opinion. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. In its analyses, Bear Stearns made
numerous assumptions with respect to Omega's industry, general business and
economic conditions and other matters, many of which are beyond HEP's and
Omega's control. Any estimates contained in Bear Stearns' analysis are not
necessarily indicative of actual value, which may be significantly more or less
favorable than as set forth therein. Estimates of values of HEP and Omega do not
purport to be appraisals or necessarily reflect the prices at which companies
may actually be sold. Because such estimates are inherently subject to
uncertainty, Bear Stearns assumes no responsibility for their accuracy.
Bear Stearns is an internationally recognized investment banking firm which
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions. The Omega Board chose Bear Stearns as
its financial advisor based upon Bear Stearns' qualifications, expertise and
reputation as well as Bear Stearns' investment banking relationship and
familiarity with Omega. Bear Stearns has acted as lead manager of Omega's
initial public offering in August 1992 and a secondary offering of Omega Common
Stock in March 1994. Bear Stearns also was the sole manager of a private
placement of debt for Omega in August 1993.
For its services as financial advisor to the Board of Directors, Omega has
agreed to pay Bear Stearns a fee of $200,000, with an additional fee of $50,000
should Bear Stearns testify in proceedings related to its opinion. Omega has
also agreed to indemnify Bear Stearns against certain liabilities and to
reimburse Bear Stearns for its reasonable out-of-pocket expenses (including the
reasonable fees and expenses of its counsel). As of August 18, 1994 Bear Stearns
owned 86,500 shares of Omega Common Stock for its own account, all of which were
restricted until August 7, 1994. See "Description of Omega Capital Stock --
Common Stock -- Restricted Securities." In addition, as of August 18, 1994, Bear
Stearns did not own any shares of HEP Common Stock for its own account. In the
ordinary course of its business, Bear Stearns may actively trade in securities
of HEP or Omega for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, Omega retained NatWest Markets as a financial advisor in
connection with the Merger. For its services as financial advisor to the Board
of Directors, Omega has agreed to pay NatWest Markets a fee, payable upon
consummation of the Merger, equal to .75% of the Consideration (as defined
below) paid by Omega with respect to the Merger. For purposes of the fee payable
to NatWest Markets, the term "Consideration" means the total value of the Omega
Common Stock to be delivered to HEP Shareholders and the total amount of all
cash paid and payable with respect to the Merger, including all amounts paid or
payable to HEP, its shareholders and employees in respect of covenants not to
compete, employment contracts, employee benefit plans and other arrangements, or
to holders of any convertible securities, warrants, options, stock purchase or
stock appreciation rights and other interests in HEP and also including the
liabilities (as defined by generally accepted accounting procedures) of HEP at
the time of the Merger and any liabilities paid by HEP in connection with or in
anticipation of the Merger.
HEP. HEP retained Equitable Securities to act as exclusive financial
advisor in connection with the proposed merger of HEP and Omega and to render an
opinion as to the fairness, from a financial point of view, to shareholders of
HEP of the consideration to be received by such shareholders pursuant to the
Merger
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Agreement. On June 16, 1994, Equitable Securities delivered its oral opinion to
the Board of Directors of HEP to the effect that, as of such date, the
consideration to be received by the holders of HEP Common Stock pursuant to the
Merger Agreement was fair, from a financial point of view. Equitable Securities'
opinion was confirmed in writing on June 17, 1994, the date that the Merger
Agreement was entered into, and updated orally on August 2, 1994, and updated in
writing on August 22, 1994 at the request of HEP's Board of Directors. Equitable
Securities' opinion has been necessarily based on economic, market and other
conditions as they existed and could be evaluated on the dates referred to
above, the information made available to Equitable Securities as of such dates
and the review and analysis conducted by Equitable Securities as of such dates.
The full text of Equitable Securities' opinion dated August 22, 1994 is
attached as Annex III to this Joint Proxy Statement and Prospectus. HEP's
shareholders are urged to read the opinion in its entirety for assumptions made,
matters considered, procedures followed and limits of the review by Equitable
Securities. The summary of the opinion of Equitable Securities set forth in this
Joint Proxy Statement and Prospectus is qualified in its entirety by reference
to the full text of such opinion. Equitable Securities' opinion was prepared for
the Board of Directors of HEP, is directed only to the fairness to the holders
of HEP Common Stock as of June 17, 1994, August 2, 1994 and as of dated August
22, 1994 from a financial point of view of the consideration to be received
pursuant to the Merger Agreement, and does not constitute a recommendation to
any holders of HEP Common Stock as to how to vote at the HEP Special Meeting.
In arriving at its opinion, Equitable Securities reviewed the Merger
Agreement, business and financial information relating to HEP and Omega that was
publicly available, and certain other information, including financial forecasts
and other internal financial analyses, furnished to Equitable Securities by HEP
and Omega. Equitable Securities also met with the managements of HEP and Omega
to discuss the businesses of HEP and Omega. In addition, Equitable Securities
reviewed the reported price and trading activity for the HEP Common Stock and
the Omega Common Stock, compared certain financial and stock market information
for HEP and Omega with certain other comparable companies whose securities are
publicly traded and performed such other studies and analyses as Equitable
Securities considered appropriate for purposes of its opinion.
In rendering its opinion, Equitable Securities relied, without independent
verification, upon the accuracy and completeness of all of the information that
was available to it from public sources and that was provided to it by HEP and
Omega. With respect to financial projections used in its analyses, Equitable
Securities assumed that such projections had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective senior managements of HEP and Omega as to the likely future financial
performance of their respective companies. Neither the projections nor Equitable
Securities' use of them in connection with its opinion implies any assurance as
to the future performance of HEP or Omega. Equitable Securities did not make any
independent valuation or appraisal of the assets of HEP or Omega and Equitable
Securities did not verify any of the information reviewed by it.
The following is a summary of certain financial analyses performed by
Equitable Securities in arriving at its opinion dated June 17, 1994, and updated
on August 2, 1994 and on August 22, 1994 and discussed with the Board of
Directors of HEP which has been provided by Equitable Securities for inclusion
in this Joint Proxy Statement and Prospectus.
1. Stock Trading History. Equitable Securities reviewed the historical
market prices and trading volumes for the HEP Common Stock and the Omega
Common Stock and determined that the average per share prices for HEP
Common Stock and Omega Common Stock for (i) the ten trading days ended
August 19, 1994, were $9.53 and $25.34, respectively, (ii) the 15 trading
days ended August 19, 1994, were $9.48 and $25.23, respectively, and (iii)
the 30 trading days ended August 19, 1994, were $9.42 and $25.19,
respectively. Based on the narrow variance in the market price of HEP
Common Stock over such trading periods and the fact that the Merger
involves a stock-for-stock exchange, Equitable Securities determined that
the Exchange Ratio results in a transaction price per share approximately
equal to the 10-, 15-, and 30-day average per share prices for the HEP
Common Stock.
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2. Comparable Public Companies Analysis. Equitable Securities compared
certain financial information for HEP and Omega with corresponding
multiples, ratios and data for the following publicly-traded health care
REITs: American Health Properties, Inc.; Health Care Property Investors,
Inc.; Health Care REIT, Inc.; Healthcare Realty Trust Incorporated; Health
& Rehabilitation Property Trust; LTC Properties, Inc.; Meditrust; National
Health Investors, Inc.; Nationwide Health Properties, Inc.; and Universal
Health Realty Income Trust. Equitable Securities examined various public
market valuation indicators, including the indicated dividend yield, the
price-to-trailing 12 months' FFO per share multiple, and the price to 1994
estimated FFO per share multiple. This analysis revealed that, on August
19, 1994, the multiples of stock price-to-trailing 12 months' FFO per share
for Omega and HEP were 11.0x and 9.0x, respectively, while the average
multiple for Equitable Securities' health care REIT comparables, including
Omega and HEP, was 10.7x. The multiples of stock price-to-1994 estimated
FFO per share for Omega and HEP were 10.2x and 8.8x, respectively, while
the average multiple for Equitable Securities' health care REIT
comparables, including Omega and HEP, was 10.6x. Utilizing the closing
stock prices on August 19, 1994, the indicated dividend yields for Omega
and HEP were approximately 8.6% and 10.3%, respectively, versus the average
dividend yield for Equitable Securities' health care REIT comparables,
including Omega and HEP, of 8.5%.
3. Pro Forma Contribution Analysis. Equitable Securities reviewed
certain historical and estimated future operating and financial information
for HEP and Omega and the pro forma combined company. Based on such review,
Equitable Securities analyzed the contribution of each of HEP and Omega to
the pro forma combined company assuming the terms and conditions described
in the Merger Agreement. Shareholders of HEP, as a result of the Merger,
would have an ownership interest of approximately 37.2% in the pro forma
combined entity assuming no exercise of all outstanding stock options,
convertible debentures and other rights to purchase HEP Common Stock. Such
analysis indicated that, for each of the twelve months ended June 30, 1994
and December 31, 1993, HEP would have contributed 45.3% and 39.8%,
respectively, of revenues, 39.4% and 40.7%, respectively, of net income and
48.2% and 44.2%, respectively, of FFO. The results of this contribution
analysis are not necessarily indicative of the contributions that the
respective businesses might have in the future. In addition, the pro forma
contribution percentages for net income do not take into account purchase
accounting adjustments that may impact the financial statements of the
combined company.
4. Pro Forma Merger Analysis. Equitable Securities analyzed the
financial impact resulting exclusively from the Merger on the pro forma
combined company's FFO for the year ending December 31, 1994 based on the
projected financial information for HEP and Omega. Such analysis indicated
that funds from operations for the pro forma combined company would
experience accretion to the forecasted funds from operations for Omega as a
stand-alone entity. The results of the pro forma combination analysis are
not necessarily indicative of future operating results or financial
position. In addition, expenses of the Merger were not taken into account
in connection with this pro forma merger analysis.
5. Comparable Merger Analysis. Equitable Securities reviewed publicly
available financial and structural information on recent mergers and
acquisitions of similar size to the Merger and involving REITs engaged in
the financing of real property that it deemed relevant. It determined,
however, that there have been no transactions comparable to the Merger
involving REITs exclusively engaged in financing health care related
properties and that a comparison to transactions not involving health care
REITs would not be meaningful.
6. Discounted Cash Flow Analysis. Equitable Securities also performed
a discounted cash flow analysis on HEP and Omega. In conducting its
analysis, Equitable Securities relied on the completeness of the
projections provided by HEP and Omega and did not make any adjustments to
such projections for purposes of its discounted cash flow analysis. For
each of HEP and Omega, Equitable Securities first determined the projected
cash available for distribution ("CAFD") through the year ending December
31, 1996 for the holders of HEP Common Stock and Omega Common Stock,
respectively, and discounted these projections to June 30, 1994 in order to
determine the present value of the forecasted CAFDs. Equitable Securities
then calculated the terminal value (the "Terminal Value") of each of HEP
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<PAGE> 51
and Omega for the year ending December 31, 1996 (the "Terminal Year"),
based on CAFD multiples for such year ranging from 8.0x to 11.0x the CAFD
for the Terminal Year. The Terminal Value was then discounted to June 30,
1994 and added to the present value of the forecasted CAFDs through
December 31, 1996 in order to determine the total valuation for each of HEP
and Omega. The terminal multiples applied represent Equitable Securities'
best judgment of the multiple at which a reasonable investor would value
the CAFD in perpetuity of HEP or Omega, as the case may be. The projections
for Omega assume that additional equity capital will be raised in 1995,
thereby diluting the percentage owned by current holders of Omega Common
Stock. Equitable Securities used discount rates ranging from 11.0% to 14.0%
which were determined using financial and other assumptions which Equitable
Securities deemed to be appropriate. Based on this analysis, Equitable
Securities calculated per share equity values of HEP ranging from $8.59 to
$11.52 and of Omega ranging from $27.37 to $37.34.
The summary set forth above does not purport to be a complete description
of the analyses performed by Equitable Securities. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors summarized above, Equitable Securities believes that its analyses must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering the analyses and factors as a
whole, could create an incomplete or misleading view of the evaluation process
underlying its opinion.
The analyses performed by Equitable Securities are not necessarily
indicative of actual values of future results, which may be significantly more
or less favorable than those suggested by such analyses. In addition, analyses
relating to the value of businesses do not purport to be appraisals or to
reflect the prices at which a business may actually be sold. Equitable
Securities is not opining as to the future trading value of HEP Common Stock or
Omega Common Stock.
Pursuant to an engagement letter dated May 31, 1994, as amended on July 21,
1994, between Equitable Securities and HEP, HEP has agreed to pay to Equitable
Securities fees totaling approximately $950,000, $250,000 of which is payable
for Equitable Securities' opinion delivered to the Board of Directors of HEP on
June 17, 1994, $200,000 of which is payable for Equitable Securities' oral
confirmation of its opinion on August 2, 1994 and written confirmation of its
opinion on August 22, 1994 and the remaining $500,000 of which is payable upon
consummation of the Merger in connection with Equitable Securities' acting as
exclusive financial advisor to HEP. HEP has agreed to reimburse Equitable
Securities for its out-of-pocket expenses (up to a maximum of $25,000 without
HEP's prior written consent), including the reasonable fees and expenses of its
legal counsel, and to indemnify Equitable Securities against certain
liabilities, including liabilities under the federal securities laws, arising
out of or in connection with the services rendered by Equitable Securities under
the engagement. The terms of the fee arrangement with Equitable Securities,
which are customary in transactions of this nature, were negotiated at arm's
length between Equitable Securities and HEP, and the HEP Board of Directors
approved such arrangement.
Equitable Securities is a nationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. Equitable
Securities has not performed investment banking or other services for HEP or
Omega in the past. While Equitable Securities regularly publishes research
reports regarding the health care industry and the businesses and securities of
publicly owned companies in that industry, including certain publicly owned
REITs that are exclusively engaged in the financing of health care related
properties, it does not publish research reports on HEP or Omega. As of the date
hereof, Equitable Securities did not hold any shares of HEP Common Stock or
Omega Common Stock. In the ordinary course of its business, Equitable may trade
in securities of HEP or Omega for its own account and for the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Stock Options. Executive officers of HEP have been granted options to
purchase 206,066 shares of HEP Common Stock ("Options") under HEP's Third
Amended and Restated 1989 Nonqualified Stock Option Plan (the "HEP Stock Plan"),
which includes Options to purchase HEP Common Stock as follows: William G.
Benton, 87,439 shares; G.L. Clark, Jr., 46,680 shares; Susan L. Christiansen,
45,032 shares; and Deborah O. Robinson, 26,915 shares. Each Option remaining
unexercised immediately prior to the Effective Time of the Merger will be
cancelled in exchange for a cash payment in an amount determined by multiplying
the number of shares of HEP Common Stock represented by the Option (the "Option
Shares") by the excess of $9.791 over the exercise price of each Option Share.
As a result, directors and executive officers of HEP will receive $221,864 in
the aggregate for cancellation of their unexercised Options. In addition, THE
Bonus Plan Limited Partnership ("THE"), a limited partnership established for
investing employee bonuses of HEP and entities affiliated with Taylor House
Enterprises, Limited ("Taylor House"), which is controlled by William G. Benton,
will receive $155,090 in the aggregate for cancellation of 126,219 unexercised
Options. Mr. Benton, Mr. Clark, Ms. Christiansen and Ms. Robinson will receive
12.5%, 16.5%, 7.4% and 9.5%, respectively, of the amount distributed to THE.
Sale of HEP Common Stock by Executive Officers and THE. Following the
Effective Time, Messrs. Benton and Clark, Ms. Christiansen and THE intend to
sell all shares of Omega Common Stock received by them in the Merger in exchange
for shares of HEP Common Stock beneficially owned by them immediately prior to
the Effective Time, excluding shares of HEP Common Stock issued pursuant to
HEP's Employee Stock Purchase Plan. As of the date hereof, such shares of HEP
Common Stock beneficially owned by these executive officers is as follows:
William G. Benton, 260,197 shares (including 254,211 shares owned by Taylor
House); G.L. Clark, Jr., 3,300 shares; Susan L. Christiansen, 550 shares; and
THE 16,950 shares. Mr. Benton, Mr. Clark, Ms. Christiansen and Ms. Robinson will
receive 12.5%, 16.5%, 7.4% and 9.5%, respectively, of the amount received by THE
upon the sale of the Omega Common Stock received by THE as a result of the
Merger.
Change in Control Severance Contracts for Executive Officers. Each of the
employment agreements entered into by HEP with Messrs. Benton and Clark and Ms.
Christiansen provides for severance payments upon termination of the agreement
by HEP for a "fundamental change," as defined in the agreement. The Merger will
constitute a "fundamental change" and HEP will terminate the employment
agreements immediately prior to the Effective Time of the Merger. As a result,
Mr. Benton will be entitled, at his option, to severance pay in an amount equal
to either (i) three times his average annual base salary for the preceding five
years (or period of employment by HEP, if shorter), less $1.00, or (ii) five
times his highest gross annual compensation amount (including cash and non-cash
compensation) for any of the preceding five years. Mr. Benton has elected to
receive the first of the aforementioned alternatives, which will equal
approximately $535,397. Each of Mr. Clark and Ms. Christiansen will be entitled
to severance in an amount equal to three times their average annual base salary
for the period of employment by HEP (which will be less than five years if the
Merger is consummated) less $1.00, or $255,357 and $292,225, respectively.
Consulting and Noncompetition Agreement. Omega will enter into a five-year
Consulting and Noncompetition Agreement (the "Consulting Agreement") with
Residential Properties Management, Inc. ("RPM"), a wholly-owned subsidiary of
Taylor House, pursuant to which RPM will agree to provide consulting services to
Omega and to refrain from engaging in the ownership, leasing and financing of
long-term health care facilities (the "Competitive Activities") other than
assisted living facilities. In consideration for RPM's agreement, Omega will
advance $4,982,269 evidenced by a promissory note (the "Note") which will be
forgiven in equal annual increments over the term of the Consulting Agreement.
Simultaneously with the execution and delivery of the Consulting Agreement, RPM
will enter into substantially similar agreements with each of Messrs. Benton and
Clark and Ms. Christiansen (the "Consultants") pursuant to which the Consultants
will agree to provide consulting services to Omega and to refrain from engaging
in the Competitive Activities. Each agreement between RPM and the Consultants
will state that Omega is a third party beneficiary and the Consulting Agreement
will contain an assignment by RPM to Omega of RPM's rights to enforce its
agreements with the Consultants in an event of default under the Note except
upon the occurrence and continuance of certain bankruptcy events of Omega.
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In the event of any breach by RPM with respect to its Competitive
Activities covenant under the Consulting Agreement or obligation to provide
consulting services through June 30, 1995, or action by any of Messrs. Benton or
Clark or Ms. Christiansen which would constitute a breach of any of their
Competitive Activities covenants or obligations to provide consulting services
through June 30, 1995, the then remaining principal amount outstanding under the
Note, together with any interest accrued thereon, will be accelerated and become
immediately due and payable. The Consultants will each personally guarantee
RPM's obligations under the Note in an event of default thereunder.
Taylor House Fee. Pursuant to HEP's shared expense arrangement with Taylor
House, HEP will pay $750,000 to Taylor House immediately prior to the
consummation of the Merger for services rendered in connection with the Merger,
including real estate, marketing, accounting and legal expertise provided in
structuring the Merger and reviewing the Merger Agreement.
THE MERGER AGREEMENT
The Merger Agreement provides that, at the Effective Time, each outstanding
share of HEP Common Stock, other than shares owned by Omega or its subsidiaries,
will be converted into the right to receive .393 of a share of Omega Common
Stock. In the event that, at any time prior to the tenth business day before the
date of the HEP Special Meeting, the average closing sale price of Omega Common
Stock on the NYSE for 30 consecutive trading days is less than $19.00 per share,
Omega and HEP are obligated to renegotiate the Exchange Ratio. Outstanding stock
options under the HEP Stock Option Plan will be cancelled immediately prior to
the Effective Time in exchange for a cash payment. See "--Stock Options and
Rights to Acquire HEP Common Stock."
None of the shares of Omega Common Stock will be converted or otherwise
modified in the Merger and all of such shares will continue to be outstanding
capital stock of Omega after the Effective Time.
Promptly after the Effective Time, the Exchange Agent will mail transmittal
instructions and a form of letter of transmittal to each holder of HEP Common
Stock to be used in forwarding his or her HEP Certificates for surrender and
exchange for Omega Certificates and, if applicable, cash in lieu of a fractional
share of Omega Common Stock. After receipt of such transmittal instructions and
form of transmittal letter, each holder of HEP Common Stock should surrender his
or her HEP Certificates to the Exchange Agent in accordance with the transmittal
instructions, and each such holder will receive in exchange therefor Omega
Certificates and any cash that may be payable in lieu of a fractional share of
Omega Common Stock. See "-- No Fractional Shares."
After the Effective Time, each HEP Certificate, until so surrendered and
exchanged, will be deemed to evidence the right to receive the number of shares
of Omega Common Stock that the holder of HEP Common Stock is entitled to receive
pursuant to the Merger Agreement and the right to receive any cash payment in
lieu of a fractional share of Omega Common Stock. The holder of such unexchanged
certificate will not be entitled to receive any dividends or other distributions
payable by Omega until the certificate is surrendered. Subject to applicable
laws, any such dividends and distributions after the Merger is consummated, if
any, will be accumulated and, at the time of such surrender, all such accrued
and unpaid dividends and distributions, together with any cash payment in lieu
of a fractional share of Omega Common Stock, will be paid without interest.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of Omega and HEP relating to, among other things:
(i) due organization, power, standing and similar corporate matters, (ii)
capital structure, (iii) subsidiaries, (iv) authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters, (v)
absence of conflicts under charters or bylaws, violations of any instruments or
law and required governmental or regulatory authorizations, consents or
approvals, (vi) documents filed with the Securities and Exchange Commission
("SEC") and the accuracy of the information contained or incorporated therein,
including, without limitation the preparation of the financial statements
contained therein in accordance with generally accepted accounting principles
applied on a consistent basis, (vii) absence of undisclosed liabilities, (viii)
absence of certain material adverse events or changes, (ix) litigation, (x)
accuracy of the information provided by Omega and HEP with respect to the
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Registration Statement, filed with the SEC on Form S-4 (together with any
amendments thereto, the "Registration Statement") of which this Joint Proxy
Statement and Prospectus is a part, (xi) taxes, (xii) retirement and other
employee benefit plans, (xiii) employment agreements, change-in-control
provisions and agreements with affiliates, (xiv) labor matters, (xv) accuracy of
books and records and related accounting matters, (xvi) receipt of fairness
opinions, (xvii) ownership of the capital stock of the other, (xviii) listing of
securities on the NYSE, (xix) status of material contracts, (xx) intellectual
property, (xxi) accuracy of the information contained in the Merger Agreement
and schedules thereto, (xxii) brokers' and finders' fees with respect to the
Merger, (xxiii) REIT qualification, (xxiv) inapplicability of the Investment
Company Act of 1940, as amended, and (xxv) ownership of properties of Omega and
HEP, including title, insurance, environmental matters, financing, defects,
condemnation, taxes, assessments, leases and mortgages relating thereto.
Certain Covenants and Agreements. Pursuant to the Merger Agreement, each of
Omega and HEP has agreed that, during the period from the date of the Merger
Agreement until the Closing or the earlier termination of the Merger Agreement,
it will, among other things (except as permitted by the Merger Agreement or as
consented to in writing by the other party): (i) conduct its business in the
ordinary and usual course and consistent with past practice, (ii) not amend or
propose to amend its articles of incorporation or bylaws, (iii) not split,
combine or reclassify its outstanding capital stock or declare, set aside or pay
any dividend or distribution, except regular quarterly dividends on Omega Common
Stock in an amount not to exceed $.54 per share, and on HEP Common Stock, in an
amount not to exceed $.245 per share (except that HEP may not declare a dividend
for the third quarter of 1994 unless the Effective Time shall not have occurred
on or prior to November 1, 1994), (iv) not take any action which would
jeopardize its status as a REIT, (v) use reasonable efforts to preserve its
business organization and goodwill, keep available the services of its present
officers and key employees, preserve the goodwill and business relationships
with its lessees, operators, suppliers, distributors, customers and others, and
not engage in any action, directly or indirectly, with the intent to affect
adversely the transactions contemplated by the Merger Agreement, (vi) confer
with one or more representatives of the other when requested to report on
material operational matters and the general status of ongoing operations of its
business and provide full access to all of its properties, books, contracts,
commitments and records, as appropriate, (vii) file its Quarterly Report on Form
10-Q for the quarter ended June 30, 1994 on or before the date prescribed
therefor pursuant to and in compliance with the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (viii) maintain, in full force and effect, with
all premiums due thereon paid, policies of insurance covering all of its
insurable tangible assets and businesses in amounts and as to foreseeable risks
usually insured against by persons operating similar businesses under valid and
enforceable policies of insurance issued by insurers of recognized
responsibility, (ix) furnish promptly to the other a copy of each report,
schedule and other document filed or received pursuant to the requirements of
federal or state securities laws or filed with the SEC in connection with the
transactions contemplated by the Merger Agreement or which may have a material
effect on its business, properties or personnel, (x) promptly advise the other
in writing of any change or the occurrence of any event having, or which,
insofar as can reasonably be foreseen, in the future may have, any material
adverse affect on its business, operations, properties, assets, condition
(financial or other), results of operations or prospects, (xi) promptly take
such action as is necessary to obtain shareholder approval of the Merger
Agreement and the transactions contemplated thereby, and (xii) cooperate and use
its best efforts to take all actions, make all filings, registrations and
submissions, and do all things necessary and advisable to consummate the Merger,
including, but not limited to, obtaining all required consents, waivers and
approvals from the SEC, the Federal Trade Commission, the Department of Justice
and any other applicable government entity.
In addition, pursuant to the Merger Agreement, HEP has agreed that, during
the period from the date of the Merger Agreement until the closing of the
transactions contemplated by the Merger Agreement or the earlier termination of
the Merger Agreement, HEP will, among other things (except as permitted by the
Merger Agreement or as consented to in writing by Omega): (i) not issue, sell,
pledge, or dispose of any shares of its capital stock (or related rights) or
agree to do so, or amend or modify the terms and conditions of any of the
foregoing, except upon the exercise of certain options, warrants and other
contractual rights in the ordinary course of business, (ii) not incur or become
contingently liable with respect to any indebtedness for borrowed money, (iii)
not redeem, purchase, acquire or offer to purchase or acquire any shares of its
capital
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stock, other than as required by the governing terms of such securities, (iv)
not make any acquisition or sale of any assets or businesses, (v) not enter into
or amend any employment, severance, special pay arrangement with respect to
termination of employment or other similar arrangements or agreements with any
directors, officers, employees or other representatives, or agree to do so,
except that HEP will amend all existing employment, severance and similar
agreements or arrangements to provide that HEP will not be obligated to
reimburse any employees for any excise or other taxes that may become payable by
any such employees as a result of any payments made pursuant to such agreement
or arrangement, (vi) not, other than in accordance with established compensation
adjustment policies and as contemplated by the Merger Agreement, increase the
rate of remuneration payable to any of its directors, officers, employees or
other representatives, or agree to do so, (vii) not adopt, enter into or amend
any employee benefit plan, agreement, trust, fund or arrangement for the benefit
or welfare of any employee or retiree, except as required to comply with changes
in applicable law or as contemplated by the Merger Agreement, and (viii) use its
best efforts to obtain and deliver to Omega certain letters from its principal
executive officers, directors and "affiliates" as defined under Rule 145 under
the Securities Act of 1933, as amended (the "Securities Act"), agreeing to
certain restrictions on resale of Omega Common Stock received in the Merger in
exchange for HEP Common Stock.
Pursuant to the Merger Agreement, HEP has also agreed that, without cost to
Omega, HEP will amend any and all leases pertaining to HEP's use of office space
and office equipment to provide that, from and after the Effective Time, (i) the
term of all such leases shall be month-to-month, (ii) Omega shall be permitted
to use such space and equipment, assuming compliance with the terms of the
leases by Omega, and (iii) all such leases may be terminated by either party
thereto at any time without penalty upon 60 days' prior written notice.
Immediately prior to the Effective Time, Omega will enter into the
Consulting Agreement, pursuant to which RPM will agree, for a period of five
years, to provide consulting services to Omega and to refrain from engaging in
Competitive Activities. Simultaneously with the execution of the Consulting
Agreement, RPM will enter into substantially similar agreements with each of the
Consultants pursuant to which the Consultants will agree to refrain from
engaging in Competitive Activities. See "-- Interests of Certain Persons in the
Merger."
No Solicitation of Other Transactions. The Merger Agreement provides that,
prior to the Effective Time or earlier termination of the Merger Agreement, HEP
will not, unless Omega consents in writing, initiate, solicit, negotiate or
encourage, or except as otherwise provided below, provide any confidential
information to facilitate any proposal or offer to acquire all or any
substantial part of the business and properties or capital stock of HEP, whether
by merger, purchase of assets, tender offer or otherwise (an "Acquisition
Transaction"). HEP also has agreed to cause its officers, directors and
employees, and any attorney, accountant, investment banker or other agent
retained by it to refrain from such activities.
Pursuant to the Merger Agreement, HEP may furnish information concerning
its business, properties or assets to a potential acquiror if the HEP Board: (i)
receives from its financial advisor advice that such person can reasonably be
expected to possess the financial wherewithal to consummate an Acquisition
Transaction that would yield a higher value to HEP's shareholders than the
Merger; (ii) determines that such person is likely to submit a bona fide offer
with a higher value to HEP's shareholders if such information is provided to the
potential acquiror, and (iii) determines, based upon the written opinion of its
special counsel, that the failure to deliver such information would be
inconsistent with the proper discharge by the HEP Board of its fiduciary duty to
HEP's shareholders. After receipt of a bona fide offer satisfying the terms of
clauses (i) and (ii) above, HEP may negotiate such bona fide offer if its
special counsel delivers its written opinion to the HEP Board that failure to
negotiate would be inconsistent with the proper discharge by the HEP Board of
its fiduciary duty to the HEP shareholders. HEP must give prompt notice to Omega
that HEP has provided information to a potential acquiror or that it has
received an offer from a potential acquiror and upon receipt of such notice,
Omega may, at its option, terminate the Merger Agreement. See "-- Termination."
In addition, HEP must identify the recipient of any information and describe the
material terms of the offer. HEP may enter into a definitive agreement with a
potential acquiror that meets the requirements described in clause (i) of this
paragraph provided that HEP furnishes to Omega a description of the material
terms of such agreement at least five business days prior to the execution
thereof by HEP. Concurrently with HEP's
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execution of such definitive agreement, Omega or HEP may terminate the Merger
Agreement. See "-- Termination."
Conditions to the Merger. The respective obligations of Omega and HEP to
effect the Merger are subject to a number of conditions, including among others:
(i) the Merger Agreement and the transactions contemplated thereby shall have
been approved and adopted by the shareholders of each of Omega and HEP; (ii) the
Registration Statement shall have become effective and no stop order suspending
such effectiveness shall have been issued and remain in effect; (iii) no
preliminary or permanent injunction or other order or decree by any federal or
state court which prevents the consummation of the Merger shall have been issued
or taken and remain in effect (each party agreeing to use its best efforts to
have any such injunction, order or decree lifted); (iv) all governmental
consents, orders and approvals legally required for the consummation of the
Merger and the transactions contemplated thereby, shall have been obtained and
be in effect at the Effective Time, and such consents, orders and approvals
shall have become final orders; and (v) each party shall have received an
opinion from its respective counsel to the effect that the Merger will qualify
as a reorganization under Section 368 of the Code and that no income or gain
will be recognized by Omega or HEP as a result thereof.
In addition to the conditions set forth above, the obligations of HEP to
effect the Merger are subject to the following conditions: (i) Omega shall have
performed in all material respects its agreements contained in the Merger
Agreement required to be performed on or prior to the Closing and all
representations and warranties of Omega contained in the Merger Agreement, with
certain exceptions, shall be true and correct in all material respects on and as
of the date made and the date of the Closing (the "Closing Date"); (ii) the
receipt of written legal opinions from Argue Pearson Harbison & Myers, general
counsel to Omega, and from Jones, Day, Reavis & Pogue, special counsel to Omega,
as to certain legal matters, including REIT qualification, (iii) the receipt of
"comfort" letters from Ernst & Young LLP, Omega's certified public accountants,
dated the date of this Joint Proxy Statement and Prospectus, the effective date
of the Registration Statement and the Closing Date, with respect to Omega's
financial statements and other Omega financial information included in the
Registration Statement; (iv) the Omega Common Stock to be issued in connection
with the Merger shall have been authorized for listing on the NYSE upon official
notice of issuance; (v) HEP shall have tendered the payments required pursuant
to the cancellation of all stock options outstanding immediately prior to the
Effective Time under the HEP Stock Option Plan; (vi) HEP and/or Omega shall have
tendered the severance and other payments, less any applicable withholding
taxes, with respect to consulting, employment, incentive stock plans and similar
agreements to which HEP or any of its subsidiaries is a party; (vii) Omega shall
have advanced the funds contemplated by the Consulting Agreement; (viii) no
governmental consent, order or approval legally required to consummate the
Merger shall have any terms which, in the reasonable judgment of HEP, when taken
together with the terms of all such consents, orders or approvals, would
materially impair the value of the Omega Common Stock to be received in the
Merger, and (ix) no governmental authority shall have promulgated any statement,
rule or regulation which, when taken together with all such promulgations, would
materially impair the value of the Omega Common Stock to be received in the
Merger.
In addition to the conditions set forth in the first paragraph of this
subsection, the obligations of Omega to effect the Merger are subject to the
following conditions: (i) HEP shall have performed in all material respects its
agreements contained in the Merger Agreement required to be performed on or
prior to the Closing Date and all representations and warranties of HEP
contained in the Merger Agreement, with certain exceptions, shall be true and
correct in all material respects on and as of the date made and the Closing
Date; (ii) the receipt of written legal opinions from Stroock & Stroock & Lavan,
special counsel to HEP, as to certain legal matters including REIT
qualification; (iii) the receipt of "comfort" letters from Coopers & Lybrand,
HEP's certified public accountants, dated the date of this Joint Proxy Statement
and Prospectus, the effective date of the Registration Statement and the Closing
Date, with respect to HEP's financial statements and other HEP financial
information included in the Registration Statement; (iv) the receipt by Omega of
letters from affiliates of HEP relating to the restrictions on the
transferability of the shares of Omega Common Stock to be received in the Merger
pursuant to Rule 145 promulgated under the Securities Act of 1933, as amended;
(v) no governmental consent, order or approval legally required for consummation
of the Merger
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and the transactions contemplated thereby shall have any terms which, in the
reasonable judgment of Omega, when taken together with the terms of all such
consents, orders or approvals, would materially impair the value of HEP to
Omega; (vi) no governmental authority shall have promulgated any statute, rule
or regulation which, when taken together with all such promulgations, would
materially impair the value of HEP to Omega; (vii) the holders of ten percent
(10%) or less of the outstanding HEP Common Stock shall have qualified as
dissenting shareholders; (viii) the performance of the Merger Agreement shall
not jeopardize the status of Omega or HEP as a REIT; and (ix) the consulting and
noncompetition arrangements referred to above shall have been implemented.
Stock Options and Rights to Acquire HEP Common Stock. The Merger Agreement
provides that HEP shall adjust all Options granted pursuant to the HEP Stock
Option Plan so that, as of immediately prior to the Effective Time, each Option
will be cancelled in exchange for a cash payment, for each share of HEP Common
Stock subject to such Option, of an amount equal to the excess of $9.791 over
the per share exercise price of such Option, less all applicable withholding
taxes. All shares of HEP Common Stock allocated as of the Effective Time to the
various participants in HEP's Stock Purchase Plan (the "HEP Stock Purchase
Plan") will be converted into shares of Omega Common Stock at the Exchange
Ratio. With respect to the Stock Purchase Plan, HEP will: (i) as soon as
practicable after the Effective Time, cause all amounts deferred through payroll
deductions between June 30, 1994 and the Effective Time to be returned, without
interest, to the participants who have deferred such amounts; (ii) treat all
other amounts deferred through payroll deductions prior to June 30, 1994 and not
used to purchase HEP Common Stock pursuant to the terms of the Stock Purchase
Plan as if such amounts were used to purchase HEP Common Stock at a purchase
price per share equal to $7.96875, representing eighty-five percent (85%) of the
lower of the closing sale price per share of the HEP Common Stock on January 3,
1994 or the closing sale price per share of the HEP Common Stock on the trading
date last preceding the date of the Merger Agreement as reported on the NYSE;
and (iii) pay each participant thereunder an amount equal to the product of (A)
the number of shares deemed purchased by such participant pursuant to subsection
(ii) above multiplied by (B) $9.791, less applicable withholding taxes. Pursuant
to the Merger Agreement, HEP has terminated the HEP Stock Purchase Plan
effective as of June 30, 1994, subject to the consummation of the Merger.
Omega has agreed to assume the obligations of HEP with respect to (i) up to
$900,000 outstanding aggregate principal amount (See "Information Concerning HEP
- -- Recent Developments") of HEP's 14% Convertible Debentures due 2000 (the "HEP
Debentures"), presently convertible at $5.50 per share of HEP Common Stock and
(ii) the outstanding right of the seller of HEP's Facility located in Melbourne,
Florida to acquire shares of HEP Common Stock having a market value of $250,000,
with the number of shares to be determined based on the market price of HEP
Common Stock as of the date that the lessee of the Melbourne, Florida facility
meets certain performance criteria for a five month period, which outstanding
right arose in connection with HEP's acquisition of such facility (together with
the HEP Debentures, the "Other Rights"). Pursuant to the Merger Agreement, a
holder of Other Rights would receive (upon vesting, exercise or conversion of
such Other Rights and compliance with the terms thereof) such number of shares
of Omega Common Stock as would constitute the economic equivalent of the HEP
Common Stock such holder would have received prior to the Effective Time upon
the vesting and exercise of such Other Rights, converted into Omega Common Stock
at the Exchange Ratio. Omega intends to negotiate with the seller of HEP's
Facility located in Melbourne, Florida to amend the arrangement to provide for a
cash payment in lieu of stock upon the attainment of the performance criteria.
However, no assurance can be given that such negotiations will be successful.
Except as set forth above, each option, warrant or other right to acquire
HEP Common Stock not exercised prior to the Effective Time will be cancelled
immediately prior to the Effective Time.
Termination. The Merger Agreement may be terminated at any time prior to
the Closing Date (i) by mutual consent of Omega and HEP, (ii) by either Omega or
HEP after December 31, 1994, if the Merger has not been consummated on or before
such date (so long as the party terminating has not breached its obligations
under the Merger Agreement except for such breaches that are clearly
immaterial), (iii) unilaterally by either Omega or HEP if (A) the other party
fails to perform any covenant or agreement in the Merger Agreement in any
material respect and does not cure such failure in all material respects within
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15 business days after receipt of written notice of the alleged failure from the
other party, (B) the other party fails to fulfill or complete a condition to the
obligations of that party (which condition is not waived) by reason of a breach
by that party of its obligations in the Merger Agreement, (C) any condition to
the obligations of the other party is not satisfied (other than by reason of a
breach by that party of its obligations under the Merger Agreement), and it
reasonably appears that the condition cannot be satisfied prior to December 31,
1994, (D) the parties are unable to reach a mutual agreement as to an adjusted
Exchange Ratio in the event that, at any time commencing on June 17, 1994 and
ending on the tenth business day before the date of the HEP Special Meeting, the
average closing sale price of Omega Common Stock on the NYSE for 30 consecutive
trading days is less than $19.00 per share, (E) HEP executes a definitive
agreement with a potential acquiror as described above under "-- No Solicitation
of Other Transactions," or (F) Omega executes a definitive agreement with any
third party pursuant to which all or substantially all of the business and
properties or capital stock of Omega will be sold, whether by merger, purchase
of assets, tender offer or otherwise or (iv) unilaterally by Omega if (X) the
HEP Board in the exercise of its fiduciary duties fails to recommend that its
shareholders approve the Merger Agreement and the transactions contemplated
thereby or withdraws such recommendation, (Y) the holders of more than ten
percent (10%) of the outstanding HEP Common Stock shall have qualified as
dissenting shareholders, or (Z) HEP notifies Omega that it has determined to
provide confidential information to a potential acquiror or has received an
offer relating to a potential acquisition of all or any substantial part of the
business and properties or capital stock of HEP as described above under "-- No
Solicitation of Other Transactions."
In the event of termination of the Merger Agreement by either Omega or HEP
as provided above, the Merger Agreement will become void and there will be no
further obligation on the part of either Omega or HEP or their respective
officers and directors (except as set forth in certain provisions of the Merger
Agreement, including the expense reimbursement and termination fees described
under "-- Expenses" and "-- Termination Fee").
Termination Fee. The Merger Agreement provides that, upon the occurrence of
certain events, HEP will pay to Omega a termination fee in the amount equal to
$3.75 million. The termination fee is payable to Omega upon the occurrence of
any of the following events: (i) Omega terminates the Merger Agreement (A) after
a breach of any covenant or agreement in any material respect by HEP which is
not cured within 15 business days after delivery of written notice from Omega of
such failure, (B) as a result of HEP's failure to fulfill or complete a
condition to HEP's obligations by reason of a breach by HEP of its obligations
under the Merger Agreement, or (C) if the HEP Board fails to recommend or
withdraws its recommendation that the shareholders of HEP approve the Merger;
(ii) either Omega or HEP terminate the Merger Agreement following the execution
by HEP of a definitive agreement with a third party providing for the
acquisition of all or any substantial part of the business and properties or
capital stock of HEP; (iii) prior to the Merger, any person or "group" (as
defined in Section 13(d) of the Exchange Act) other than Omega or any of its
affiliates becomes the "beneficial owner" (as defined in Section 13(d) of the
Exchange Act) of more than twenty percent (20%) of the then outstanding HEP
Common Stock; or (iv) HEP's shareholders have not approved the Merger by
December 31, 1994, or less than the requisite number of shares of HEP Common
Stock are voted in favor of the Merger.
The Merger Agreement further provides that, upon the occurrence of certain
other events, Omega will pay to HEP a termination fee in an amount equal to
$3.75 million. The termination fee is payable to HEP upon the occurrence of any
of the following events: (i) HEP terminates the Merger Agreement (A) after a
breach of any covenant or agreement by Omega which is not cured within 15
business days after delivery of written notice from HEP of such failure or (B)
as a result of Omega's failure to fulfill or complete a condition to Omega's
obligations by reason of a breach by Omega of its obligations under the Merger
Agreement; (ii) either HEP or Omega terminates the Merger Agreement after Omega
executes a definitive agreement with a third party pursuant to which all or
substantially all of the business and properties or capital stock of Omega will
be acquired, whether by merger, purchase of assets, tender offer or otherwise,
and the terms of such definitive agreement expressly provide that the completion
of such transaction is conditioned upon the prior termination of the Merger
Agreement; (iii) prior to the Merger, any person or "group" (as defined in
Section 13(d) of the Exchange Act) other than HEP or any of its affiliates
becomes the "beneficial owner"
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(as defined in Section 13(d) of the Exchange Act) of more than twenty percent
(20%) of the then outstanding shares of Omega Common Stock; or (iv) Omega's
shareholders have not approved the Merger by December 31, 1994, or less than the
requisite number of shares of Omega Common Stock are voted in favor of the
Merger.
Amendment and Waiver. At any time prior to the Effective Time, Omega and
HEP may (i) extend the time for the performance of any of the obligations or
other acts to be performed by the other party pursuant to the Merger Agreement,
(ii) waive any inaccuracies in the representations and warranties by the other
party contained in the Merger Agreement or in any document delivered pursuant to
the Merger Agreement and (iii) waive compliance with any of the agreements or
conditions of the other party contained in the Merger Agreement.
Subject to applicable law, the Merger Agreement may be amended by the
written agreement of Omega and HEP. Under applicable law, neither Omega nor HEP
may amend the Merger Agreement subsequent to obtaining approval of their
respective shareholders if such amendments would (i) alter or change the amount
or kind of shares, securities, cash, property and/or rights to be received in
exchange for shares of such corporation, (ii) alter or change any term of the
Omega Articles of Incorporation as the surviving corporation following the
Merger or (iii) alter or change any of the terms or conditions of the Merger
Agreement if such alteration or change would adversely affect the shareholders
of such corporation.
REGULATORY FILINGS AND APPROVALS
A subsidiary of HEP holds the health care license (together with the lessee
and the manager) for one facility located in Kansas. Since the Merger will
constitute a change in ownership with respect to such license, the Merger is
subject to review and approval by the Kansas Department of Health and
Environment. Five additional subsidiaries of HEP each own a single facility
financed with a mortgage provided by or through the Department of Housing and
Urban Development ("HUD"). The Merger is also subject to HUD review and approval
in order to retain the HUD mortgages. HEP and Omega have commenced preparation
of the applications and related documentation required to obtain such approvals.
The Merger is not subject to the premerger notification and filing requirements
of Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as a result
of the status of Omega and HEP as REITs.
RESTRICTIONS ON SALES BY AFFILIATES
The shares of Omega Common Stock to be issued in the Merger will have been
registered under the Securities Act. Such shares will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed to be an affiliate (as such term is defined for purposes of Rule 145
under the Securities Act, an "Affiliate") of HEP or Omega. Affiliates may not
sell their shares of Omega Common Stock acquired in connection with the Merger
except pursuant to (i) an effective registration statement under the Securities
Act covering such shares, (ii) paragraph (d) of Rule 145 or (iii) any other
applicable exemption under the Securities Act. HEP has agreed to use its best
efforts to procure written agreements ("Affiliate Agreements") from executive
officers, directors and other Affiliates of HEP containing appropriate
representations and commitments intended to ensure compliance with the
Securities Act. It is a condition of Omega's obligations to consummate the
Merger that Omega shall have received such Affiliate Agreements from each
affiliate of HEP.
ACCOUNTING TREATMENT
The transactions to be accomplished as a result of the Merger will be
accounted for under the purchase method of accounting in accordance with
generally accepted accounting principles.
LISTING ON NEW YORK STOCK EXCHANGE
Omega has agreed to use its best efforts to list the shares of Omega Common
Stock to be issued in the Merger on the NYSE. The obligations of the parties to
the Merger Agreement to consummate the Merger are subject to authorization for
listing by the NYSE upon notice of issuance of such shares. See "-- The Merger
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Agreement -- Conditions to the Merger." If the Merger is consummated, the HEP
Common Stock will be delisted from the NYSE and will be deregistered under the
Exchange Act.
EXPENSES
The Merger Agreement provides that, whether or not the Merger is
consummated, all expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses, except that expenses incurred in connection with printing and
distributing this Joint Proxy Statement and Prospectus will be shared equally by
Omega and HEP. See "Expenses of Solicitation."
DISSENTERS' RIGHTS
The following is a summary of certain provisions of the North Carolina
Business Corporation Act ("NCBCA") relating to dissenters' rights. This summary
does not purport to be complete and is qualified in its entirety by reference to
Sections 55-13-01 through 55-13-31 of the NCBCA, which are attached to this
Joint Proxy Statement and Prospectus as Annex IV and are incorporated by
reference herein.
Any shareholder of HEP has the right to receive payment of the fair value
of his shares of HEP Common Stock upon compliance with Sections 55-13-03 through
55-13-30 of the NCBCA. A record shareholder of HEP may not dissent as to fewer
than all of the shares registered in his name unless he dissents with respect to
all shares beneficially owned by any one person and notifies HEP in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. A beneficial owner asserting dissenters' rights with respect to shares
of HEP Common Stock held on his behalf must submit to HEP the record
shareholder's written consent to such dissent not later than the time the
beneficial owner asserts dissenters' rights and must exercise such rights with
respect to all shares he beneficially owns. Any shareholder of HEP intending to
assert dissenters' rights may not vote in favor of the Merger Agreement and the
transactions contemplated thereby and must file a written notice of intent to
demand payment for his shares (an "Objection Notice") with the corporate
secretary of HEP, which must be received before the vote is taken at the HEP
Special Meeting. The Objection Notice must state that the shareholder intends to
demand payment for his shares of HEP Common Stock if the Merger is effected. A
vote against approval of the Merger will not, in and of itself, constitute an
Objection Notice satisfying the requirements of Section 55-13-21 of the NCBCA.
If the Merger is approved by HEP's shareholders at the HEP Special Meeting, each
shareholder of HEP who has filed an Objection Notice will be notified in writing
by HEP (or, following the Effective Time, by Omega as the surviving corporation)
of such approval within ten days of the HEP Special Meeting (a "Dissenters'
Notice"). Each Dissenters' Notice will (i) state where dissenting shareholders
must (A) send the Payment Demand (as defined below) and (B) deposit their HEP
Certificates; (ii) be accompanied by a form for demanding payment; (iii) set a
date by which (A) the Payment Demand must be received, which may not be fewer
than 30 nor more than 60 days after the date the Dissenters' Notice is mailed
and (B) the HEP Certificates must be deposited as instructed in the Dissenters'
Notice; and (iv) be accompanied by a copy of Sections 55-13-01 through 55-13-31
of the NCBCA. Within the time prescribed in the Dissenters' Notice, a
shareholder electing to dissent must make a demand for payment (the "Payment
Demand"), and deposit his HEP Certificates in accordance with the terms of the
Dissenters' Notice. Upon filing the Payment Demand and depositing the HEP
Certificates in accordance with the Dissenters' Notice, the shareholder will
retain all other rights as a shareholder of HEP until these rights are cancelled
or modified by consummation of the Merger. FAILURE TO COMPLY WITH THESE
PROCEDURES WILL CAUSE THE SHAREHOLDER TO LOSE HIS DISSENTERS' RIGHTS TO PAYMENT
FOR THE SHARES. CONSEQUENTLY, ANY HEP SHAREHOLDER WHO DESIRES TO EXERCISE HIS
RIGHTS TO PAYMENT FOR HIS SHARES IS URGED TO CONSULT HIS LEGAL ADVISOR BEFORE
ATTEMPTING TO EXERCISE SUCH RIGHTS. North Carolina law provides that a
shareholder of HEP may not challenge the Merger unless it is unlawful or
fraudulent with respect to such shareholder or HEP.
As soon as the Merger is consummated, Omega, as the surviving corporation
of the Merger (or HEP upon receipt of a Payment Demand prior to the Effective
Time) shall offer to pay to each dissenting HEP shareholder who has complied
with the requirements of Section 55-13-23 of the NCBCA the amount that HEP
estimates to be the fair value of the shares of HEP Common Stock held by such
dissenting shareholders, plus accrued interest thereon to the date of payment,
and shall pay this amount to each dissenting shareholder
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who agrees to accept it in full satisfaction of his demand. Section 55-13-25 of
the NCBCA requires that each offer of payment by HEP be accompanied by (i)
certain of HEP's financial statements, (ii) a statement of Omega's (or HEP if
prior to the Effective Time) estimate of fair value of the HEP Common Stock and
explanation of how the accrued interest was calculated, (iii) notification of
rights to demand additional payment, and (iv) a copy of Sections 55-13-01
through 55-13-31 of the NCBCA.
If the Merger is not consummated within 60 days after the date set in the
Dissenters' Notice for demanding payment and depositing HEP Certificates, HEP
shall return the deposited HEP Certificates relating to shares of HEP Common
Stock. If, after returning deposited HEP Certificates, the Merger is
consummated, HEP must send a new Dissenters' Notice and repeat the payment
demand procedure.
If a dissenting shareholder believes that the amount offered to be paid by
Omega (or HEP if prior to the Effective Time) is less than the fair value of his
shares of HEP Common Stock, or that the interest due is calculated incorrectly,
or if Omega (or HEP if prior to the Effective Time) fails to make payment to a
shareholder who accepts its payment offer within 30 days of such dissenter's
acceptance (or, if the Merger has not been consummated, and Omega (or HEP if
prior to the Effective Time) does not return the deposited HEP Certificates
within 60 days after the date set in the Dissenters' Notice for receipt of the
Payment Demand), then a dissenting shareholder of HEP, may within 30 days after
(i) Omega (or HEP if prior to the Effective Time) offered payment for the shares
or failed to make timely payment for the shares or (ii) Omega (or HEP if prior
to the Effective Time) failed to return deposited HEP Certificates, either (a)
notify HEP in writing of his own estimate of the fair value of such shares
(including interest due) and demand payment of such estimate from Omega (or HEP
if prior to the Effective Time) (the "Counter Offer") or (b) reject the Seller's
offer of payment under Section 55-13-25 of the NCBCA and demand payment of the
fair value of his shares and interest due thereon. FAILURE TO NOTIFY OMEGA (OR
HEP IF PRIOR TO THE EFFECTIVE TIME) IN WRITING OF ANY DEMAND FOR ADDITIONAL
PAYMENT WITHIN 30 DAYS AFTER OMEGA (OR HEP IF PRIOR TO THE EFFECTIVE TIME)
OFFERED PAYMENT FOR SUCH SHARES OR FAILED TO PERFORM TIMELY WILL CONSTITUTE A
WAIVER OF THE RIGHT TO DEMAND PAYMENT FROM OMEGA (OR HEP IF PRIOR TO THE
EFFECTIVE TIME).
If HEP and a dissenting shareholder cannot agree on a fair price within 60
days after the date of the dissenting shareholder's Counter Offer to Omega (or
HEP if prior to the Effective Time), the NCBCA provides that the dissenting
shareholder may institute a judicial proceeding against the applicable
corporation in a North Carolina court of appropriate jurisdiction (the "Court")
to determine (i) the fair value of the shares and (ii) the accrued interest
thereon. Upon service upon it of the petition instituting such judicial
proceedings, Omega (or HEP if prior to the Effective Time) must pay to the
dissenting shareholder the amount offered by Omega (or HEP if prior to the
Effective Time) as the fair value of the dissenting shareholder's shares, plus
interest accrued to the date of payment. There is no right to a trial by jury in
such proceeding. In the proceeding, the Court may, in its discretion, appoint
one or more appraisers to receive evidence and recommend to the Court a decision
on the question of fair value. The Court is required to issue a judgment for the
amount, if any, by which the fair value of the shares, as determined by the
Court, plus interest, exceeds the amount paid by Omega (or HEP if prior to the
Effective Time) to the dissenting shareholder upon service of the petition. The
"fair value" of the HEP Common Stock could be more than, the same as, or less
than that produced by the Exchange Ratio. At the conclusion of the proceeding,
the Court will assess the costs and expenses of such proceeding (including
reasonable compensation for and the expenses of appraisers and may assess the
fees and expenses of counsel and experts) in amounts the Court finds equitable:
(i) against Omega and in favor of all dissenting shareholders of HEP if the
Court finds Omega (or HEP if prior to the Effective Time) did not substantially
comply with the requirements of Sections 55-13-20 through 55-13-28 of the NCBCA,
or (ii) against either the corporation or any dissenting shareholder of HEP, if
the Court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously or not in good faith with respect to the rights
provided by Sections 55-13-01 through 55-13-31 of the NCBCA.
If a dissenting shareholder of HEP, after making a Payment Demand, does not
institute a judicial proceeding against Omega (or HEP if prior to the Effective
Time) within the aforesaid 60 day period, he shall have an additional 30 days to
either (i) accept in writing the payment offer of Omega (or HEP if prior to the
Effective Time) upon receipt of which Omega (or HEP if prior to the Effective
Time) shall pay such amount to the dissenting shareholder in full satisfaction
of his Payment Demand, or (ii) withdraw his Payment
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Demand and resume the status of a nondissenting shareholder. If the dissenting
shareholder takes no action during this 30 day period, he will be deemed to have
withdrawn his Payment Demand and his dissent.
Following the Effective Time, any notices to be given to, or any actions to
be taken by, HEP shall be given to or taken by Omega as the surviving
corporation of the Merger.
For discussion of certain tax consequences in connection with the
perfection of dissenters' rights, see "Certain Federal Income Tax
Considerations."
Holders of Omega Common Stock will not be entitled to dissenters' rights
under Maryland law in connection with the Merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the Effective Time, the business and operations of Omega will
continue to be managed under the direction of the current Omega Board,
consisting of Messrs. Robert L. Parker, Chairman of the Board, Essel W. Bailey,
Jr., James C. Cowles, James E. Eden, Thomas F. Franke, Harold J. Kloosterman and
Bernard J. Korman. Messrs. Robert L. Parker, Chairman of the Board, Essel W.
Bailey, President, Chief Executive Officer and Secretary, and each of Omega's
current executive officers are expected to continue in office following the
Effective Time, with the exception of Neill R. Schmeichel, who is expected to
retire from his position as Vice-President and Chief Financial Officer and be
replaced by a newly hired individual. Mr. Schmeichel will continue as a Senior
Consultant to Omega.
Omega does not currently anticipate any material changes in its investment
strategies or policies or dividend policy in connection with the Merger. Omega's
current quarterly dividend rate has been $.54 ($2.16 on an annual basis) per
share of Omega Common Stock since the third quarter of 1993. The declaration of
dividends is in the discretion of the Omega Board and depends on Omega's
distributable funds, financial requirements, tax considerations and other
factors which may be affected by the Merger. See "Information Concerning Omega"
and "Comparative Per Share Prices and Dividends of Omega Common Stock and HEP
Common Stock."
Neither Omega nor HEP has any present plans for dispositions of material
assets.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS
Prior to the Effective Time of the Merger, Omega and HEP will receive
opinions from their respective counsel, Argue Pearson Harbison & Myers ("Omega
Counsel"), as to matters affecting Omega or its shareholders, and Stroock &
Stroock & Lavan ("HEP Special Counsel"), as to matters affecting HEP or its
shareholders, substantially to the effect that the federal income tax
consequences of the Merger will be as follows:
1. The Merger will qualify as a reorganization under Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code");
2. No gain or loss will be recognized by either Omega or HEP as a
result of the consummation of the Merger;
3. No gain or loss will be recognized by a holder of HEP Common Stock
upon the exchange of shares of HEP Common Stock for shares of Omega Common
Stock pursuant to the Merger, except that gain or loss will be recognized
by a holder of HEP Common Stock on receipt of cash in lieu of a fractional
share interest in Omega Common Stock;
4. The aggregate adjusted tax basis of the Omega Common Stock received
by a holder of HEP Common Stock pursuant to the Merger will be the same as
the aggregate adjusted tax basis of the shares of HEP Common Stock
surrendered in exchange therefor, decreased by the adjusted tax basis of
the
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shares of HEP Common Stock allocable to any fractional share interest in
Omega Common Stock for which cash is received;
5. The holding period of the Omega Common Stock received by a holder
of HEP Common Stock as a result of the Merger will include the holding
period of the shares of HEP Common Stock surrendered in exchange therefor,
provided that such HEP Common Stock is held as a capital asset at the
Effective Time;
6. A holder of HEP Common Stock who receives cash in lieu of a
fractional interest in Omega Common Stock will be treated as if the
fractional share were distributed as part of the exchange and then as
having received a cash distribution in redemption of such fractional share,
resulting in gain or loss (or in certain circumstances, ordinary income)
upon receipt of such cash taxed as provided in Section 302 of the Code; and
7. A holder of HEP Common Stock who perfects his dissenters' rights
under the laws of North Carolina and who receives payment for the "fair
value" of his shares of HEP Common Stock will be treated as having received
the payment in redemption of the shares, and the redemption will be subject
to the conditions and limitations of Section 302 of the Code.
Such opinions will be based on various assumptions and will be conditioned
in part upon certain representations of the managements of Omega and HEP as to
certain facts and circumstances regarding the Merger to the effect that:
(i) The management of HEP has no knowledge of any plan or intention
by HEP shareholders to sell, exchange or otherwise dispose of a number of
shares of HEP Common Stock held prior to the Merger or Omega Common Stock
received in the Merger which would cause the HEP shareholders to own Omega
Common Stock having a value, as of the date of the Merger, of less than 50
percent of the value of all of the formerly outstanding HEP Common Stock as
of such date (including for purposes of this calculation HEP Common Stock
surrendered by dissenters, or exchanged for cash in lieu of fractional
shares);
(ii) Omega has no plan or intention to reacquire any of its stock
issued in the transaction;
(iii) Omega has no plan or intention to sell or otherwise dispose of
any of the assets of HEP acquired in the transaction, except for
dispositions made in the ordinary course of business or transfers described
in Section 368(a)(2)(C) of the Code;
(iv) Following the Merger, Omega will continue the historic business
of HEP or will use a significant portion of HEP's historic business assets
in a business;
(v) The assumption by Omega of the liabilities of HEP pursuant to
the Merger is for a bona fide business purpose and the principal purpose of
such assumption is not the avoidance of federal income tax on the transfer
of assets of HEP to Omega pursuant to the Merger;
(vi) Any liabilities of HEP to be assumed by Omega (or liabilities to
which the transferred assets of HEP are taken subject to) will be
liabilities incurred by HEP in the ordinary course of business;
(vii) There is no intercorporate indebtedness existing between Omega
and HEP that was issued, acquired, or will be settled at a discount;
(viii) On the date of the Merger, the fair market value of the assets
of HEP will exceed the sum of its liabilities (including any liabilities to
which its assets are subject);
(ix) The payment of cash in lieu of fractional shares of HEP Common
Stock will be made for the purpose of saving Omega the expense and
inconvenience of issuing fractional shares; and
(x) None of the compensation received by any shareholder-employee of
HEP pursuant to any employment, consulting or similar arrangement is
consideration for, or allocable to, any of his shares of HEP Common Stock.
None of the shares of Omega Common Stock received by any shareholder-
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employee of HEP pursuant to the Merger are or will be separate
consideration for, or allocable to, any such employment, consulting or
similar arrangement.
THE FOREGOING IS A SUMMARY DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER WITHOUT CONSIDERATION OF THE PARTICULAR FACTS AND
CIRCUMSTANCES OF ANY HOLDER OF SHARES OF HEP COMMON STOCK. EACH HOLDER OF SHARES
OF HEP COMMON STOCK IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, AND ALSO AS TO ANY
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES.
TAXATION OF OMEGA AFTER THE MERGER
The following summary of material Federal income tax considerations is
based on current law, is for general information only and is not tax advice.
This discussion does not purport to deal with all aspects of taxation that may
be relevant to particular shareholders in light of their personal investment or
tax circumstances, or to certain types of shareholders (including insurance
companies, financial institutions or broker-dealers, tax-exempt organizations,
foreign corporations and persons who are not citizens or residents of the United
States, except to the extent discussed under the heading "-- Tax-Exempt
Shareholders" and "-- Taxation of Non-U.S. Shareholders") subject to special
treatment under the federal income tax laws.
EACH INVESTOR IS ADVISED TO CONSULT HIS OWN TAX ADVISOR, REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND SALE OF THE
COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
The sections of the Code governing REITs are highly technical and complex.
The following sets forth the material aspects of the sections that govern the
Federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
General. Both Omega and HEP have elected to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Omega
elected to be taxed as a REIT commencing with its taxable year ended December
31, 1992, and HEP elected to be taxed as a REIT commencing with its taxable year
ended December 31, 1988. Omega believes that commencing with its taxable year
ended December 31, 1992, it has been organized and has operated in such a manner
as to qualify for taxation as a REIT under the Code. As a condition to the
Merger, Omega Counsel will render an opinion at the Effective Time to the effect
that Omega is and at all times during its existence has been organized and has
operated in a manner that qualifies it as a REIT under the Code and the rules
and regulations thereunder and that the Merger will not jeopardize the status of
Omega as a REIT under the Code and the rules and regulations thereunder. This
opinion will be based on various assumptions and is conditioned upon certain
representations made by Omega relating to the nature of Omega's income, the
character of Omega's assets, compliance with certain procedural requirements and
as to factual matters. In addition, this opinion is based upon certain factual
representations of Omega concerning its business and properties as set forth in
this Prospectus and the business and properties of HEP set forth in this Joint
Proxy Statement and Prospectus. After the Merger, Omega intends to continue to
operate in such a manner, but no assurance can be given that it will operate in
a manner so as to qualify or remain qualified.
HEP believes that commencing with its taxable year ended December 31, 1988,
it has been organized and has operated in such manner as to qualify for taxation
as a REIT under the Code. As a condition to the Merger, HEP Special Counsel will
render an opinion at the Effective Time to the effect that HEP has qualified as
a REIT for all taxable years beginning with its taxable year ended December 31,
1988 through the Effective Time, and that HEP qualifies as a REIT under the Code
for its taxable year which ends on the date the Merger is consummated. This
opinion will be based on various assumptions and is conditioned upon certain
representations made by HEP and its representatives relating to the nature of
HEP's income, the
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character of HEP's assets, compliance with certain procedural requirements and
as to certain factual matters. Opinions of counsel are not binding on the IRS
and if it were subsequently determined that HEP had failed to qualify as a REIT
at the time of the Merger, additional federal income tax liability relating to
pre-Merger years may arise and the Built-In-Gain Asset rules, discussed below,
may apply to the HEP assets acquired by Omega as a result of the Merger.
Qualification and taxation of Omega as a REIT after the Merger depends upon
Omega's ability to meet, through actual annual operating results, distribution
levels and diversity of stock ownership, and the various qualification tests
imposed under the Code discussed below. Accordingly, no assurance can be given
that the actual results of Omega's operations for any particular taxable year
after the Merger will satisfy such requirements. Moreover, such requirements may
be changed, perhaps retroactively, by legislative or administrative actions at
any time. See "-- Failure to Qualify as a REIT." In the opinion of Omega
Counsel, which is based in part on the assumption that HEP has been taxable as a
REIT for its year ended December 31, 1988 and every year thereafter through the
date of the Merger, the Merger will not affect Omega's status as a REIT.
Assuming Omega qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, Omega will be subject to Federal income
tax as follows: First, Omega will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, Omega may be subject to the "alternative
minimum tax" on its items of tax preference. Third, if Omega has (i) net income
from the sale or other disposition of "foreclosure property" which is held
primarily for sale to customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, if Omega has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be subject
to a 100% tax. Fifth, if Omega should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which Omega fails the 75% or
95% test multiplied by (b) a fraction intended to reflect Omega's profitability.
Sixth, if Omega should fail to distribute during each calendar year at least the
sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, Omega would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, with respect to any asset (a "Built-In Gain Asset") acquired by Omega
from a corporation which is or has been a C corporation (i.e., generally a
corporation subject to full corporate-level tax) in certain transactions in
which the basis of the Built-In Gain Asset in the hands of Omega is determined
by reference to the basis of the asset in the hands of the C corporation, if
Omega recognizes gain on the disposition of such asset during the ten-year
period (the "Recognition Period") beginning on the date on which such asset was
acquired by Omega, then, to the extent of the Built-In Gain (i.e., the excess of
(a) the fair market value of such asset over (b) Omega's adjusted basis in such
asset, determined as of the beginning of the Recognition Period), such gain will
be subject to tax at the highest regular corporate tax pursuant to Internal
Revenue Service ("IRS") guidelines which have not yet been promulgated as
regulations. The results described above with respect to the recognition of
Built-In Gain assume that Omega will make an election pursuant to IRS Notice
88-19. A "Built-In Gain Asset" for these purposes likely includes an asset of
HEP acquired by HEP in the manner described above.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the
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outstanding stock of which is owned, directly or constructively, by five or
fewer individuals (as defined in the Code to included certain entities); and (7)
which meets certain other tests, described below, regarding the nature of its
income and assets and the amount of its annual distributions to shareholders.
The Code provides that conditions (1) to (4), inclusive, must be met during the
entire taxable year and that condition (5) must be met during at least 335 days
of a taxable year of twelve months, or during a proportionate part of a taxable
year of less than twelve months.
Omega's Articles of Incorporation will continue to provide for restrictions
regarding ownership and transfer of shares, which restrictions are intended to
assist Omega in continuing to satisfy the share ownership requirements described
in (5) and (6) above. Such ownership and transfer restrictions are described
under the heading "Description of Omega Capital Stock -- Common Stock --
Redemption and Business Combination Provisions."
Income Tests. In order to maintain qualification as a REIT, Omega annually
must satisfy three gross income requirements. First, at least 75% of Omega's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of Omega's gross income (excluding
gross income from prohibited transactions) for each taxable year must be derived
from such real property investments, dividends, interest and gain from the sale
or disposition of stock or securities (or from any combination of the
foregoing). Third, short-term gain from the sale or other disposition of stock
or securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of Omega's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by Omega will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue.
The REIT may, however, directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant" of the property.
Omega does not and after the Merger will not (i) charge rent for any property
that is based in whole or in part on the income or profits of any person (except
by reason of being based on a percentage of receipts or sales, as described
above), (ii) rent any property to a Related Party Tenant, (iii) derive a
material amount of rental income attributable to personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease), or
(iv) perform services considered to be rendered to the occupant of the property,
other than through an independent contractor from whom Omega derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Omega does not and will not receive interest income that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a percentage of receipts or sales, as described above).
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If Omega fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if Omega's failure to meet such tests was
due to reasonable cause and not due to willful neglect, Omega attaches a
schedule of the sources of its income to its return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances Omega would be
entitled to the benefit of these relief provisions. As discussed above even if
these relief provisions apply, a tax would be imposed with respect to the excess
net income.
Asset Tests. Omega, at the close of each quarter of its taxable year, must
also satisfy three tests relating to the nature of its assets. First, at least
75% of the value of Omega's total assets must be represented by real estate
assets (including (i) its allocable share of real estate assets held by
partnerships in which Omega owns an interest and (ii) stock or debt instruments
held for not more than one year purchased with the proceeds of a stock offering
or long-term (at least five years) debt offering of Omega), cash, cash items and
government securities. Second, not more than 25% of Omega's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by Omega may not exceed 5% of the value of Omega's total assets
and Omega may not own more than 10% of any one issuer's outstanding voting
securities. If the failure to satisfy the asset tests results from an
acquisition of securities or other property during a quarter, the failure can be
cured by disposition of sufficient non-qualifying assets within 30 days after
the close of that quarter. Omega intends to take such action within 30 days
after the close of any quarter as may be required to cure any noncompliance.
Treatment of the Mortgages. Subject to the discussion below, Omega believes
that each of Omega's Convertible Participating Mortgages and its Participating
Mortgages (collectively, the "Mortgages") qualify as real estate assets for
purposes of the 75% asset test described above, and the interest income
therefrom will be considered as interest derived from obligations secured by
mortgages on real property for purposes of the income tests described above.
Omega and HEP believe that HEP's existing loans, as well as loans resulting from
its commitment to lend $2,890,000 to Complete Care (collectively the "Loans")
(see "Information Concerning HEP -- Recent Developments") will constitute real
estate assets for purposes of Omega's satisfying the 75% asset test after the
Merger and that the interest therefrom will constitute interest derived from
obligations secured by mortgages on real property.
For purposes of the 75% income test, if a loan is secured by both real
property and other property, the interest income may have to be apportioned
between those categories. If, however, the "loan value" (as defined in the
Treasury Regulations) of the real property equals or exceeds the amount of the
loan, then all of the interest income from such loan is apportioned to the real
property. Based upon appraisals, a small portion of the interest income from
some of the Mortgages may be attributable to personal property, and therefore
may not qualify as interest income derived from obligations secured by Mortgages
on real property for purposes of the 75% income test. Omega believes that this
interest income will not cause Omega to fail the REIT gross income tests
described above. It is not clear if apportionment of a loan is required for
purposes of the asset test, or how such apportionment should be accomplished. In
the absence of guidance, Omega believes that the asset apportionment should be
accomplished in the same manner as under the 75% income test. Omega believes
that apportionment in this manner will not adversely affect Omega's ability to
satisfy the 75% asset test.
Omega believes that each of the Mortgages and Loans constitute debt, rather
than equity, for federal income tax purposes. If the IRS were to successfully
assert that one or more of the Mortgages or Loans constituted a lease or other
equity ownership interest in property or an equity interest in the borrower, it
is possible that Omega would fail one or more of the asset or income tests
described above and, as a result, could fail to qualify as a REIT.
See "--Failure to Qualify as a REIT." In such a case, even if Omega retained its
qualification as a REIT, the repayment of the loan by the borrower could cause
Omega to recognize taxable income, which taxable income would be required to be
distributed to shareholders or would be subject to tax.
Annual Distribution Requirements. In order to qualify as a REIT, Omega is
required to distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (A) the sum of
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(i) 95% of Omega's "REIT taxable income" (computed without regard to the
dividends paid deduction and Omega's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of noncash income. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
Omega timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. In addition, such
distributions are required to be made pro rata, with no preference to any share
of stock as compared with other shares of the same class, and with no preference
to one class of stock as compared with another class except to the extent that
such class is entitled to such a preference ("preferential dividend"). To the
extent that Omega does not distribute all of its net capital gain or distributes
at least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. Furthermore, if Omega should fail to distribute for each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year, plus (iii) any
undistributed taxable income from prior periods, Omega will be subject to a 4%
excise tax on the excess of such required distribution over the amounts actually
distributed. Omega intends to make timely distributions sufficient to satisfy
these annual distribution requirements.
If the foregoing dividend requirements are not met in any taxable year,
Omega can elect, under certain circumstances, to pay a "deficiency dividend" in
order to satisfy the REIT distribution requirements and maintain its tax status
as a REIT. In such a case, Omega could be required to pay interest (at the
statutorily prescribed rate which is presently 8%) based on the length of time
that had elapsed before such deficiency dividend was paid, and possibly a 4%
excise tax per annum to the IRS based on the amount of the deficiency dividend.
Any such deficiency dividend would be paid to shareholders of Omega as of the
record date for such dividend. In 1992, Bear Stearns and the founders of Omega
entered into an agreement with Omega subordinating the receipt of dividends with
respect to their shares of Omega Common Stock for a period extending through
June 30, 1994. Under Treasury Regulations, the subordination could be
interpreted as causing a preferential dividend to be paid by Omega to the public
shareholders in those years causing Omega to fail to satisfy the distribution
requirements. Although there is no definitive authority, Omega's tax counsel and
Omega believe under analogous authority that any such interpretation is
incorrect. However, in any event, Omega could utilize the "deficiency dividend"
procedure discussed above and pay a deficiency dividend of approximately
$1,450,000 with respect to 1992 and an additional deficiency dividend of
approximately $8,750,000 with respect to 1993 (as well as paying the 4% excise
tax plus required interest thereon). The dividend would be fully taxable to the
Omega shareholders. Although Omega and Omega Counsel believe that no such
additional dividend will be required, Omega does have sufficient liquidity to
pay such dividend, interest and additional amounts.
It is possible that Omega, from time to time, may not have sufficient cash
or other liquid assets to meet the distribution requirements described above due
to timing differences between (i) the actual receipt of income and actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at taxable income of Omega. In the event
that such timing differences occur, in order to meet the distribution
requirements, Omega may find it necessary to arrange for short-term, or possibly
long-term, borrowing or to pay dividends in the form of taxable stock dividends.
The availability to Omega of, among other things, depreciation deductions
with respect to its owned facilities depends upon the treatment of Omega as the
owner of such facilities for federal income tax purposes, and the classification
of the leases with respect to such facilities as "true leases" rather than
financing arrangements for federal income tax purposes. The questions of whether
a taxpayer is the owner of such facilities and whether the leases are true
leases for federal tax purposes are essentially factual matters. Omega, and
Omega Counsel believe that Omega will be treated as the owner of each of the
facilities that it leases immediately after the Merger, and that such leases
will be treated as true leases for federal income tax purposes.
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FAILURE TO QUALIFY AS A REIT
If Omega fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, Omega will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to shareholders in any year in which Omega fails to qualify
will not be required and, if made, will not be deductible by Omega. In such
event, to the extent of Omega's then current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary income
and, subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, Omega will also be disqualified from taxation as
a REIT for the four taxable years following the year during which qualification
was lost. It is not possible to state whether in all circumstances Omega would
be entitled to such statutory relief.
OTHER ORGANIZATIONAL REQUIREMENTS
In addition to the qualification requirements set forth above, Omega must
meet certain procedural requirements. Among other things, a REIT is required to
maintain records regarding the actual and constructive ownership of its shares
and certain other information, and is required to demand statements from persons
owning above a specified percentage of its outstanding shares regarding their
stock ownership. Omega has maintained the records and demand statements as
required by the Treasury Regulations, and will continue to do so.
To monitor compliance with the stock ownership tests, Omega tracks
transfers of its stock. Also, the stock of Omega is subject to certain automatic
repurchase and transfer restrictions. See "Description of Omega Capital Stock --
Common Stock -- Redemption and Business Combination Provisions." However, there
can be no assurance that the actual ownership of Omega's stock will satisfy
these stock ownership tests.
TAXATION OF OMEGA SHAREHOLDERS
U.S. Shareholders. As long as Omega qualifies as a REIT, distributions made
to Omega's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are properly designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed Omega's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held its stock.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of current
and accumulated earnings and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's shares,
but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a shareholder's shares they will
be included in income as long-term capital gain (or short-term capital gain if
the shares have been held for one year or less) assuming the shares are a
capital asset in the hands of the shareholder. In addition, any dividend
declared by Omega in October, November or December of any year payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by Omega and received by the shareholder on December 31 of such year,
provided that the dividend is actually paid by Omega during January of the
following calendar year. Shareholders may not include in their individual income
tax returns any net operating losses or capital losses of Omega.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less (after applying certain holding
period rules), will be treated as a long-term capital loss to the extent of
distributions from Omega required to be treated by such shareholder as long-term
capital gain.
Backup Withholding. Omega will report to its U.S. shareholders and the IRS
the amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding
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rules. A shareholder that does not provide Omega with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, Omega may be required to withhold a portion
of capital gain distributions to any shareholders who fail to certify their
non-foreign status to Omega.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to non-U.S. Shareholders. See "-- Non-U.S.
Shareholders." Non U.S. Shareholders should consult their tax advisors with
respect to such information, reporting and backup withholding requirements.
Tax-Exempt Shareholders. The IRS has ruled that amounts distributed as
dividends by a qualified REIT to a tax-exempt employees' pension trust do not
constitute unrelated business taxable income ("UBTI"). Revenue Rulings are
interpretive in nature and are subject to revocation or modification by the IRS.
Based on that ruling, provided that a tax-exempt shareholder (except certain
tax-exempt shareholders described below) has not held its Shares as "debt
financed property" within the meaning of the Code and the shares are not
otherwise used in a trade or business, the dividend income from Omega will not
be UBTI to a tax-exempt shareholder. Similarly, income from the sale of shares
will not constitute UBTI unless such tax-exempt shareholder has held such shares
as "debt financed property" within the meaning of the Code or has used the
Shares in trade or business.
Special rules apply to tax-exempt pension funds that own more than 10%
(measured by value) of a "pension held REIT" at any time during a taxable year
beginning after December 31, 1993. Such a pension fund must treat a certain
percentage of all dividends received from the REIT during the year as unrelated
business taxable income. The percentage is equal to the ratio of the REIT's
gross income (less direct expenses related thereto) derived from the conduct of
unrelated trades or businesses determined as if the REIT were a tax-exempt
pension fund, to the REIT's gross income (less direct expenses related thereto)
from all sources. The special rules will not apply to require a pension fund to
recharacterize a portion of its dividends as unrelated business taxable income
unless the percentage computed is at least 5%.
A REIT will be treated as a "pension held REIT" if the REIT is
predominantly held by tax-exempt pension funds and if the REIT would otherwise
fail to satisfy the "five or fewer" ownership requirements discussed above, if
the stock of the REIT held by such tax-exempt pension funds were not treated as
held directly by their respective beneficiaries. A REIT is predominantly held by
tax-exempt pension funds if at least one tax-exempt pension fund holds more than
25% (measured by value) of the REIT's stock, or if one or more tax-exempt
pension funds (each of which owns more than 10% (measured by value) of the
REIT's stock) own in the aggregate more than 50% (measured by value) of the
REIT's stock.
Non-U.S. Shareholders. The rules governing United States Federal income
taxation of the ownership and disposition of stock by persons that are, for
purposes of such taxation, nonresident alien individuals, foreign corporations,
foreign partnerships or foreign estates or trusts (collectively, "Non-U.S.
Shareholders") are complex, and no attempt is made herein to provide more than a
brief summary of such rules. Accordingly, the discussion does not address all
aspects of United States Federal income tax and does not address state, local or
foreign tax consequences that may be relevant to a Non-U.S. Shareholder in light
of its particular circumstances. In addition this discussion is based on current
law, which is subject to change, and assumes that Omega qualifies for taxation
as a REIT. Non-U.S. Shareholders of HEP should consult with their own tax
advisors to determine the impact of Federal, state, local and foreign income tax
laws with regard to an investment in stocks, including any reporting
requirements.
Distributions by Omega to a Non-U.S. Shareholder that are neither
attributable to gain from sales or exchanges by Omega of United States real
property interests nor designated by Omega as capital gains dividends will be
treated as dividends of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of Omega. Such distributions
ordinarily will be subject to withholding of United States Federal income tax on
a gross basis (that is, without allowance of deductions) at a 30% rate or such
lower rate as may be specified by an applicable income tax treaty, unless the
dividends are treated as effectively connected with the conduct by the Non-U.S.
Shareholder of a United States trade or business. Dividends that are effectively
connected with such a trade or business will be subject to tax on a net basis
(that is, after allowance of deductions) at graduated rates, in the same manner
as domestic shareholders are taxed
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<PAGE> 71
with respect to such dividends and are generally not subject to withholding. Any
such dividends received by a Non-U.S. Shareholder that is a corporation may also
be subject to an additional branch profits tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty.
Distributions in excess of current or accumulated earnings and profits of
Omega will not be taxable to a Non-U.S. Shareholder to extent that they do not
exceed the adjusted basis of the shareholders's stocks, but rather will reduce
the adjusted basis of such stocks. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's stocks, they will give rise to
gain from the sale or exchange of his stocks, the tax treatment of which is
described below. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current or accumulated
earnings and profits, the distribution will generally be treated as a dividend
for withholding purposes. However, amounts thus withheld are generally
refundable if it is subsequently determined that such distribution was, in fact,
in excess of current or accumulated earnings and profits of Omega.
Distributions to a Non-U.S. Shareholder that are designated by Omega at the
time of distribution as capital gains dividends (other than those arising from
the disposition of a United States real property interest) generally will not be
subject to United States Federal income taxation, unless (i) investment in the
stocks is effectively connected with the Non-U.S. Shareholder's United States
trade or business, in which case the Non-U.S. Shareholder will be subject to the
same treatment as domestic shareholders with respect to such gain (except that a
shareholder that is a foreign corporation may also be subject to the 30% branch
profits tax, as discussed above), or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by Omega of United States real property interests will cause
the Non-U.S. Shareholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Shareholders would thus generally be taxed at the same rates applicable to
domestic shareholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Shareholder that is a corporation,
as discussed above. Omega is required to withhold 35% of any such distribution.
That amount is creditable against the Non-U.S. Shareholder's United States
Federal income tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale or other disposition
of stock generally will not be subject to United States Federal income tax,
unless (i) Omega is not a "domestically controlled REIT," or (ii) investment in
the stock is effectively connected with the Non-U.S. Shareholder's United States
trade or business or (iii) in the case of a Non-U.S. Shareholder who is a
nonresident alien individual, the individual is present in the United States for
183 days or more during the taxable year and has a "tax home" in the United
States. A domestically controlled REIT is defined generally as a REIT in which
at all times during a specified testing period less than 50% in value of the
stock was held directly or indirectly by foreign persons. It is currently
anticipated that Omega will be a domestically controlled REIT. In the
circumstances described above in clauses (i) and (ii), the Non-U.S. Shareholders
will generally be subject to the same treatment as domestic shareholders with
respect to such gain (subject to a special alternative minimum tax in the case
of nonresident alien individuals in the circumstances described above in clause
(i) and, in the case of foreign corporations, subject to the possible
application of the 30% branch profits tax, as discussed above). In the
circumstances described above in clause (iii), the nonresident alien individual
will be subject to a 30% tax on the individual's capital gain.
Backup withholding tax (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements) and
information reporting will generally not apply to distributions paid to Non-U.S.
Shareholders outside the United States that are treated as (i) dividends subject
to the 30% (or lower treaty rate) withholding tax discussed above, or (ii)
capital gains dividends or (iii) distributions attributable to gain from the
sale or exchange by Omega of United States real property interests. As a general
matter, backup withholding and information reporting will not apply to a payment
of the proceeds of a sale of stocks by or
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<PAGE> 72
through a foreign office of a foreign broker. Information reporting (but not
backup withholding) will apply, however, to a payment of the proceeds of a sale
of stocks by a foreign office of a broker that (a) is a United States person, or
(b) derives 50% or more of its gross income for certain periods from the conduct
of a trade or business in the United States or (c) is a "controlled foreign
corporation" (generally, a foreign corporation controlled by United States
shareholders) for United States tax purposes, unless the broker has documentary
evidence in its records that the holder is a Non-U.S. Shareholder and certain
other conditions are met, or the shareholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of the proceeds of sale
of stocks is subject to both backup withholding and information reporting unless
the shareholder certifies under penalties of perjury that the shareholder is a
Non-U.S. Shareholder, or otherwise establishes an exemption. A Non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
The backup withholding and information reporting rules are under review by
the United States Treasury, and their application to the stocks could be changed
prospectively by future Treasury regulations.
OTHER TAX MATTERS
Omega and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Omega and its
shareholders may not conform to the Federal income tax consequences discussed
above. Consequently, HEP shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in Omega.
INFORMATION CONCERNING OMEGA
Omega was incorporated in the State of Maryland on March 31, 1992. It is a
self administered REIT which invests in income producing health care facilities,
principally long-term health care facilities. As of June 30, 1994, Omega's total
property portfolio consisted of 87 health care facilities. Omega owns and leases
36 long-term health care facilities, provides convertible participating
mortgages on ten long-term health care facilities and provides participating
mortgage financing on 38 long-term health care facilities. Omega also owns and
leases three medical office buildings. The Omega Facilities are located in 14
states and operated by 11 unaffiliated operators. For a description of Omega's
investments subsequent to June 30, 1994, see "-- Recent Developments."
The investment objectives of Omega are to pay regular cash dividends to
shareholders; to provide the opportunity for increased dividends from annual
increases in rental and interest income, revenue participations and portfolio
growth; to preserve and protect shareholders' capital; and to provide the
opportunity to realize capital growth resulting from appreciation, if any, in
the value of its investments. Omega intends to make and manage its investments
(including the sale or disposition of property or other investments) in such a
manner as to be consistent with the requirements of the Code (or regulations
thereunder) to qualify as a REIT, unless, because of changes in circumstances or
changes in the Code (or regulations thereunder), the Omega Board determines that
it is no longer in the best interests of Omega to qualify as a REIT.
The executive offices of Omega are located at 905 West Eisenhower Circle,
Suite 110, Ann Arbor, Michigan 48103. Its telephone number is (313) 747-9790.
Additional information concerning Omega is contained in Omega's Annual Report on
Form 10-K for the year ended December 31, 1993 and its Quarterly Reports on Form
10-Q for the periods ended March 31, 1994 (as amended) and June 30, 1994, and
its other public filings. See "Available Information" and "Incorporation by
Reference."
RECENT DEVELOPMENTS
On May 16, 1994, Omega entered into a merger agreement with Sterling Health
Care Centers, Inc. (Ashland, KY) ("Sterling") pursuant to which Sterling will be
merged into a subsidiary of Omega, contingent upon satisfaction of certain
conditions, including the transfer of operations of the nursing homes to a new
licensed operator. The Omega consideration for the merger, valued in the
aggregate at $19,740,000, and
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<PAGE> 73
the capital stock of Sterling were placed in escrow on July 11, 1994 and
resulted in the acquisition of six nursing homes with 629 licensed beds. The
Omega consideration consists of a combination of cash, Omega Common Stock, and
assumption of indebtedness. Omega will also acquire four additional nursing home
facilities with 340 licensed beds, presently in various stages of construction,
for approximately $12,000,000 from an affiliate of Sterling. The nursing homes
are located in the states of Kentucky, Ohio and West Virginia. The Sterling
merger will be formally completed upon receipt of all necessary regulatory
approvals. During the escrow period, Omega is receiving revenues on its
investment at the approximate annual rate of 11%. At June 30, 1994 Omega had
temporarily advanced $9,993,000 to retire Sterling debt owed to third parties.
These advances were secured by mortgages on long-term care facilities. In August
1994, a letter of intent was executed with Evergreen Healthcare, Inc.
("Evergreen"), a NYSE-listed company (Symbol "EHI"), whereby Evergreen agreed,
based on arms' length negotiations, to enter into operating leases for six of
the Sterling properties with an option to lease and operate the other four
properties upon completion of their construction or renovation. The terms of
these operating leases are subject to the execution of definitive documentation.
Two directors of Omega are also directors of Evergreen and directors of Omega
own an aggregate of approximately 19% of the outstanding common stock of
Evergreen.
Including the Sterling merger, Omega's portfolio includes 93 health care
facilities (excluding the four facilities to be acquired from an affiliate of
Sterling), with 9807 licensed beds, located in 17 states and operated by 12
unaffiliated operators.
INVESTMENT STRATEGIES AND POLICIES
In evaluating potential investments, Omega considers such factors as: (i)
the quality and experience of management and the creditworthiness of the
operator of the facility; (ii) the facility's historical, current and forecasted
cash flow and the adequacy of the facility to meet operational needs, capital
expenditures and lease or debt service obligations, while providing a
competitive return on investment to Omega; (iii) the construction quality,
condition and design of the facility; (iv) the geographic area and type of
facility; (v) the tax, growth, regulatory and reimbursement environment of the
community in which the facility is located; (vi) the occupancy and demand for
similar health care facilities in the same or nearby communities; and (vii) the
payor mix of private, Medicare and Medicaid patients.
In making investments, Omega generally seeks established, creditworthy,
"middle market" health care operators which meet Omega's standards for quality
and experience of management. Although Omega has emphasized long-term care
investments, it may diversify prudently into other types of health care
investments. Omega actively seeks to diversify its investments in terms of
geographic location, operators and facility types. A fundamental investment
strategy of Omega is to obtain contractual rent escalations under long-term,
non-cancelable "triple net" leases and revenue participations through
participating mortgage loans, and to obtain substantial liquidity deposits. As
of June 30, 1994, liquidity deposits and letters of credit from lessees and
participating mortgagors totalled approximately $13,870,000, and represented
approximately six months of rental and mortgage interest revenue. Additional
security is typically provided by covenants regarding minimum working capital
and net worth, liens on accounts receivable and other operating assets, and
various provisions for cross default, cross collateralization and
personal/corporate guarantees, when appropriate. Omega may also participate in
mortgage loans through ownership of collateralized mortgage obligations or other
securitization of mortgages.
There are no limitations on the amount or percentage of Omega's total
assets that may be invested in any one property. Additionally, no limits have
been set by Omega on the concentration of investments in any one location,
operator or facility type. One of Omega's credit agreements contains certain
restrictions on the concentration of Omega's investments, none of which
restrictions are considered material.
Omega may determine to finance acquisitions through the exchange of
properties or the issuance of shares of its capital stock to others, if such
transactions otherwise satisfy Omega's investment criteria. Omega also has
authority to repurchase or otherwise reacquire Omega Common Stock or any other
securities and may determine to do so in the future.
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<PAGE> 74
To the extent that Omega's Board of Directors determines to obtain
additional capital, Omega may raise such capital through additional equity
offerings, debt financings or retention of cash flow (subject to provisions of
the Code concerning the taxability of undistributed income of "real estate
investment trusts"), or a combination of these methods. See "-- Borrowing
Policies" for further information concerning Omega's policies regarding debt
financing and "Description of Omega Capital Stock -- Shelf Registration." Under
Omega's Bylaws, Omega is prohibited from underwriting the securities of other
issuers. Omega does not intend to invest in the securities of others for the
purpose of exercising control except to the extent consistent with Omega's
investment objectives. See "-- Restricted Investment Activities."
The Bylaws of Omega permit the Omega Board, without the approval of the
shareholders, to alter Omega's investment policies if they determine in the
future that such a change is in the best interests of Omega and its
shareholders. The methods of implementing Omega's investment policies may vary
as new investments and financing techniques are developed or otherwise employed.
BUSINESS AND PROPERTIES
Omega prefers to invest in equity ownership of properties. Due to
regulatory, tax or other considerations affecting Omega's customers, Omega
sometimes pursues alternative investment structures that achieve comparable
returns to equity investments. The three structures currently used by Omega are:
Purchase/Leaseback. Omega's owned properties are leased under "triple
net" leases for terms ranging from 10 to 17 years, plus renewal options.
The leases generally provide for minimum annual rentals which are subject
to annual increases based upon increases in the Consumer Price Index
("CPI") or increases in the revenues of the underlying properties, with
certain maximum limits. Generally, the operator holds an option to
repurchase at set dates at formula prices.
Convertible Participating Mortgage. Convertible Participating
Mortgages are secured by first mortgage liens on the underlying real estate
and personal property of the mortgagor. Interest rates are usually subject
to annual increases based upon increases in the CPI or increases in
revenues of the underlying long-term care facilities, with certain maximum
limits. Convertible Participating Mortgages afford Omega an option to
convert its mortgage into direct ownership of the property, generally at a
point six to nine years from inception; they are then subject to a
leaseback to the operator for the balance of the original agreed term and
original agreed participations in revenues or CPI adjustments. This
provides the operator a mortgage under local Medicaid regulations and
enables Omega to capture a portion of the potential appreciation in value
of the real estate and the facilities. The operator has the right to buy
out Omega's option at formula prices.
Participating Mortgage. Omega's participating mortgages are also
secured by first mortgage liens on the underlying real estate and personal
property of the mortgagor. Interest rates are usually subject to annual
increases based upon increases in the CPI or increases in revenues of the
underlying long-term care facilities, with certain maximum limits.
In the future, Omega may also seek other types of structures for its
investments such as real estate mortgage investment conduits ("REMICs") or
securitization type transactions meeting Omega's standards for yield and quality
of credit. These investments will continue Omega's focus on long-term care
facilities and investment objectives. See "--Investment Strategies and
Policies."
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<PAGE> 75
The following tables set forth certain information regarding Omega's real
estate properties, their locations, Omega's investments, and the types of
structures as of June 30, 1994:
INVESTMENTS BY STRUCTURE AND STATE
JUNE 30, 1994
<TABLE>
<CAPTION>
INVESTMENTS AT COST(1) ANNUALIZED
------------------------------- REVENUES(2)
NUMBER OF NUMBER OF DOLLAR AMOUNT PERCENTAGE OF -----------
INVESTMENT STRUCTURE STATE FACILITIES LICENSED BEDS -------------- TOTAL
- ---------------------------- -------------- --------- ------------- (000) -------------- (000)
<S> <C> <C> <C> <C> <C> <C>
Purchase/Leaseback
Properties................ Arkansas 12 1,214 $ 37,888 13.7% $ 4,550
Pennsylvania 3 --(3) 30,031 10.8 3,497
Indiana 9(4) 709 20,233 7.3 2,405
Alabama 4 521 11,639 4.2 1,398
Tennessee 3 347 9,542 3.4 1,146
Texas 3 312 9,250 3.3 1,040
Missouri 1 300 9,000 3.3 1,026
Florida 1 300 8,150 2.9 972
North Carolina 2 311 6,750 2.4 793
Colorado 1 56 750 .3 88
-- ------ -------------- ------ -----------
39 4,070 143,233 51.6 16,915
Convertible Participating
Mortgages................. Texas 8 1,007 14,760 5.3 1,686
Tennessee 2 288 11,000 4.0 1,293
-- ------ -------------- ------ -----------
Combined Purchase/Leaseback
Properties and Convertible
Participating Mortgages... 49 5,365 168,993 60.9 19,894
-- ------ -------------- ------ -----------
17
Participating Mortgages..... Michigan 11 2,469 58,800 21.2 7,338
Maine 3 619 24,386 8.8 2,622
Florida 1 317 7,031 2.5 842
Massachusetts 1 33 2,114 .8 227
California 5 75 460 .2 62
Missouri 300 5,600 2.0 641
-- ------ -------------- ------ -----------
38 3,813 98,391 35.5 11,732
-- ------ -------------- ------ -----------
87 9,178 267,384 96.4% 31,626
Advance Funding
Mortgages................. -- -- 9,993(5) 3.6 1,099
-- ------ -------------- ------ -----------
Total................. 87 9,178 $277,377 100.0% $32,725
========== ============ ============== ============= ===========
</TABLE>
- -------------------------
(1) Represents investments as of June 30, 1994, before depreciation. See "--
Recent Developments."
(2) Annualized revenues are computed based on June 1994 rents and mortgage
payments, including payments on participation interests. Such annualization
does not necessarily represent the results of a full year of operation.
(3) Medical office buildings only.
(4) These investments are also secured by leasehold interests in four additional
facilities in Indiana (408 beds).
(5) Includes $1,399,000 of construction advances. See " -- Recent Developments."
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<PAGE> 76
INVESTMENTS IN CHRONOLOGICAL ORDER
JUNE 30, 1994
<TABLE>
<CAPTION>
INVESTMENTS
DATE AT COST(1)
FUNDED OPERATOR FACILITY DETAILS STATES (000) STRUCTURE
- --------- ---------------------- ------------------------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C>
8/14/92 GranCare, Inc. ....... 17 Nursing Homes MI $ 58,800 Participating
(2,469 Beds) Mortgage
8/14/92 Advocat, Inc.
(Diversicare
Corporation
of America, Inc.)..... 19 Nursing Homes AR 59,069 Purchase/
(2,082 Beds) and TN Leaseback
59 Retirement Apartments AL
3 Nursing Homes FL 7,031 Participating
(317 Beds) Mortgage
12/24/92 BritWill Healthcare
Company............... 8 Nursing Homes IN 18,070 Purchase/
(634 Beds) Leaseback
3/6/93 BritWill Healthcare
Company............... 1 Nursing Home IN 1,690 Purchase/
(60 Beds) Leaseback
4/1/93 BritWill Healthcare
Company............... 2 Nursing Homes TX 4,560 Convertible
(240 Beds) Participating
Mortgage
8/20/93 Woodbine Associates... 1 Nursing Home MO 9,000 Purchase/
(300 Beds) and 60 Leaseback
Unit Retirement
Complex
9/14/93 North Country
Associates............ 12 Nursing Homes ME 26,500 Participating
(652 Beds) MA Mortgage
10/21/93 Graduate Hospital..... 3 Medical Office PA 30,031 Purchase/
Buildings and related Leaseback
Parking Garage
12/1/93 BritWill Healthcare
Company............... 5 Nursing Homes TX 7,600 Convertible
(647 Beds) Participating
Mortgage(2)
3 Nursing Homes TX 9,250 Purchase/
(312 Beds) Leaseback
1/6/94 Crestwood
Properties............ 1 Nursing Home CA 460 Mortgage(3)
(75 Beds)
1/12/94 BritWill Healthcare
Company............... 1 Nursing Home TX 2,600 Convertible
(120 Beds) Participating
Mortgage
2/18/94 Lakeland Healthcare
Center, Inc. ......... 1 Nursing Home FL 8,150 Purchase/
(300 Beds) Leaseback
</TABLE>
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<PAGE> 77
<TABLE>
<CAPTION>
INVESTMENTS
DATE AT COST(1)
FUNDED OPERATOR FACILITY DETAILS STATES (000) STRUCTURE
- --------- ---------------------- ------------------------- ------ ----------- --------------
<S> <C> <C> <C> <C> <C>
4/1/94 BritWill Healthcare
Company............... Nursing Home IN 473 Purchase/
Construction Leaseback
(15 Beds)
6/30/94 Tiffany Care Centers,
Inc. ................. 5 Nursing Homes MO 5,600 Mortgage(3)
(300 Beds) and 30
Assisted Living Beds
6/30/94 Liberty Healthcare,
Limited Partnership... 2 Nursing Homes TN 11,000 Convertible
(288 Beds) Participating
Mortgage
2 Nursing Homes NC 6,750 Purchase/
(311 Beds) Leaseback
6/30/94 Tutera Management
Company............... 1 Nursing Home CO 750 Purchase/
(56 Beds) Leaseback
-----------
267,384
5-6/94 Sterling Health Care
Centers, Inc.(4) ..... Advance on Merger 8,594 Advance
Funding
Mortgages
Construction Advance 1,399 Advance
Funding
Mortgages
-----------
$ 277,377
============
</TABLE>
- -------------------------
(1) Represents investments as of June 30 1994, before depreciation. See "--
Recent Developments."
(2) Includes 3 leasehold mortgages.
(3) Fixed rate mortgages that represent a return equivalent to a participating
mortgage.
(4) See " -- Recent Developments."
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<PAGE> 78
INVESTMENT BY OPERATOR
JUNE 30, 1994
($000)
<TABLE>
<CAPTION>
ANNUALIZED
REVENUES(1) INVESTMENT AT COST(2)
--------------------- ----------------------
DOLLAR PERCENTAGE DOLLAR PERCENTAGE
OPERATOR AMOUNT OF TOTAL AMOUNT OF TOTAL
- ------------------------------------------------- ------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Advocat, Inc..................................... $7,936 24.2% $ 66,100 23.8%
GranCare, Inc. .................................. 7,338 22.4 58,800 21.2
BritWill Healthcare Company...................... 5,131 15.7 44,243 16.0
Graduate Hospital................................ 3,497 10.7 30,031 10.8
North Country Associates......................... 2,849 8.7 26,500 9.6
Woodbine Associates.............................. 1,026 3.1 9,000 3.2
Crestwood Properties............................. 62 .2 460 .2
Lakeland Healthcare Center, Inc. ................ 972 3.0 8,150 2.9
Liberty Healthcare, Limited Partnership.......... 2,086 6.4 17,750 6.4
Tutera Management Company........................ 88 .3 750 .3
Tiffany Care Centers, Inc. ...................... 641 1.9 5,600 2.0
------- ---------- -------- ----------
31,626 96.6% 267,384 96.4%
Sterling Health Care Centers, Inc.(3) ........... 1,099 3.4 9,993 3.6
------- ---------- -------- ----------
Totals...................................... $32,725 100.0% $277,377 100.0%
======= ========= ======== =========
</TABLE>
- -------------------------
(1) Annualized revenues are computed based on June 1994 rents and mortgage
payments, including payments on participation interests. Such annualization
does not necessarily represent the results of a full year of operation.
(2) Represents investments as of June 30, 1994 before depreciation. See "--
Recent Developments."
(3) See " -- Recent Developments."
MORTGAGE INDEBTEDNESS
As of June 30, 1994, $49,430,000 aggregate principal amount of Omega's
7.11% Senior Mortgage Collateralized Notes due July 15, 2000 (the "7.11% Notes")
and $36,000,000 aggregate principal amount of Omega's 9.88% Senior Subordinated
Mortgage Collateralized Accrual Notes due July 15, 2000 (the "9.88% Notes", and
collectively with the 7.11% Notes, the "Senior Mortgage Notes") were
outstanding. Interest on the 9.88% Notes accrues over the term thereof and is
not payable until maturity. Interest and principal on the 7.11% Notes are
payable quarterly and, for the first four years, principal payments
approximately equal the deferred interest accruals on the 9.88% Notes. In
subsequent years, principal payments will exceed these deferrals and it is
anticipated that funds for the excess will be provided from working capital or
proceeds from new capital. Prepayment of the Senior Mortgage Notes is permitted
subject to a yield maintenance provision based on comparable treasury securities
plus 50 basis points. The Omega Facilities encumbered by the Senior Mortgage
Notes include facilities operated by Advocat, GranCare, Inc. ("GranCare") and
two Texas facilities of Britwill Healthcare Company ("Britwill").
Omega has a new acquisition line-of-credit agreement with a group of
financial institutions totalling $60 million. There is currently no outstanding
balance under this line-of-credit. Availability under this credit line is
subject to Omega meeting certain conditions. The acquisition credit line is to
be secured by assets of Omega, subject to a 50% advance rate, and will bear
interest at the London Interbank Offered Rate ("LIBOR") plus 200 basis points or
the prime rate, at the election of Omega.
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<PAGE> 79
DESCRIPTION OF LESSEES AND OPERATORS
Set forth below is a description of Omega's lessees and operators as of
June 30, 1994. See also "-- Recent Developments."
Advocat, Inc. ("Advocat"), a publicly traded company, manages all of
the properties previously leased to or mortgaged from Diversicare
Corporation of America, Inc. by Omega. In a transaction which closed May
18, 1994, a wholly owned subsidiary of Advocat became the assignee of the
Diversicare leases and the lessee of the three mortgaged properties.
Advocat operates 71 facilities containing 6,118 licensed nursing beds and
1,988 retirement living units located in the southeastern United States and
Canada.
GranCare (Culver City, California) is a publicly traded company (GC:
NYSE) and one of the significant operators of long-term care facilities in
the United States. It operates 80 nursing homes containing 10,800 licensed
beds in six states, of which Omega has financed 17 facilities. GranCare
provides ancillary services and supplies to long-term skilled care
facilities, primarily through its institutional pharmacy operators.
BritWill (Dallas, Texas) operated 28 facilities with 2,928 licensed
beds in Texas and Indiana of which Omega has provided financing for 20
facilities. Experienced management and evolving focus upon ancillary
services and sub-acute care characterize this private company.
North Country Associates (Lewiston, Maine) is a private firm which is
the second largest operator of long-term care facilities in the state of
Maine. Omega has provided financing for all 12 of its facilities, with 652
beds, 11 of which are in Maine and one of which is in Massachusetts.
Graduate Hospital and Graduate Healthcare System (collectively
"Graduate") are located in Philadelphia, Pennsylvania. Omega has purchased
and leased back three medical office buildings and an adjacent parking
garage on the hospital campus. Graduate's indebtedness is rated investment
grade by national rating agencies. Graduate Health System and Independence
Blue Cross of Philadelphia recently publicly announced their intent to
merge Graduate and the for-profit operations of Independence Blue Cross
into a new managed care subsidiary under Independence Blue Cross.
Woodbine Associates (Rosemont, Illinois), is an affiliate of First
Healthcare Associates, a second generation family firm and an operator of
seven long-term care facilities containing approximately 1,800 beds in
Illinois and Missouri.
Crestwood Properties (Stockton, California), is a privately held
company that owns and leases one facility in Sylmar, California.
Lakeland Health Care Center, Inc. (Sarasota, Florida) is a privately
held company that leases and operates one facility containing 300 beds in
Lakeland, Florida.
Liberty Healthcare, Limited Partnership (Atlanta, Georgia) ("Liberty")
operates 18 long-term care facilities in North Carolina and Tennessee.
Tutera Management Company (Kansas City, Missouri) operates 35
long-term care facilities in seven states.
Tiffany Care Centers, Inc. (Mound City, Missouri) is a Missouri health
care provider which operates 822 licensed beds and provides home health
care services in the 13 communities which it serves.
BORROWING POLICIES
Omega may incur additional indebtedness, and anticipates attaining and then
maintaining a debt-to-equity ratio modestly in excess of 1 to 1. Omega's
acquisition line-of-credit agreement currently provides that Omega's
consolidated leverage ratio not exceed 1 to 1, except under certain
circumstances for a single period not to exceed 180 days. Omega intends to
review periodically its policy with respect to its debt-to-equity ratio
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<PAGE> 80
and to adapt such policy as its management deems prudent in light of prevailing
market conditions. It will be a strategy of Omega generally to match the
maturity of its indebtedness with the maturity of its assets, and to employ long
term, fixed rate debt to the extent practicable.
Omega will use the proceeds of any additional indebtedness to make
investments in additional health care facilities and for other corporate
purposes. Omega may obtain either secured or unsecured indebtedness, which may
be convertible into capital stock or accompanied by warrants to purchase capital
stock. Where debt financing is present on terms deemed favorable, Omega may
invest in properties subject to existing loans, secured by mortgages, deeds of
trust or similar liens on the properties.
The Bylaws of Omega permit the Omega Board, without the approval of the
shareholders, to alter Omega's borrowing policies if they determine in the
future that such a change is in the best interests of Omega and its
shareholders. The methods of implementing Omega's borrowing policies may vary as
new financing techniques are developed or otherwise employed.
RESTRICTED INVESTMENT ACTIVITIES
The Bylaws of Omega contain restrictions on certain investment activities,
including the following:
(i) investing in any junior mortgage loans unless by appraisal or
other method, Omega's Board determines that (A) capital invested in any
such loan is adequately secured on the basis of the borrower's equity in
the property underlying such investment and the borrower's ability to repay
the loan or (B) such loan is a financing device entered into by Omega to
establish the priority of its capital investment over the capital invested
by others investing with it in a real estate project;
(ii) investing in commodities or commodity future contracts (other
than interest rate futures, when used solely for hedging purposes);
(iii) investing more than 1% of Omega's total assets in contracts for
the sale of real estate unless such contracts are recordable in the chain
of title;
(iv) holding equity investments in unimproved, non-income producing
real property, except such properties undergoing development or presently
intended to be developed within one year, together with mortgage loans on
such property (other than first mortgage development loans), aggregating
more than 10% of Omega's assets;
(v) engaging in trading (as compared with investment activities) or
engaging in the underwriting of or distributing as agent the securities
issued by others;
(vi) making secured and unsecured borrowings which in the aggregate
exceed 300% of the net assets of Omega;
(vii) undertaking any activity that would disqualify Omega as a REIT
under the Code as long as a REIT is accorded substantially the same
treatment or benefits under the United States tax laws from time to time in
effect as under Sections 856-860 of the Code at the date of adoption of
Omega's Bylaws; and
(viii) acquiring any real property unless the consideration paid for
such real property is based on the fair market value of the property as
determined by a majority of Omega's Board.
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INFORMATION CONCERNING HEP
HEP is a REIT which invests primarily in income-producing, long-term health
care facilities. It owns 76 facilities comprised of 73 nursing homes and three
personal care facilities which are operated by eight third party operators. The
HEP Facilities are geographically diversified in seven states in the midwestern
and southern regions of the United States, including Indiana, Illinois, North
Carolina, Tennessee and Kentucky. Each HEP Property is a fully operational
nursing home or personal care facility offering long-term care.
The executive offices of HEP are located at 915 West Fourth Street,
Winston-Salem, North Carolina 27101 and its telephone number is (910) 723-7580.
Additional information concerning the HEP is contained in HEP's Annual Report on
Form 10-K for the year ended December 31, 1993, its Quarterly Reports on Form
10-Q for the periods ended March 31, 1994 and June 30, 1994, and its other
public filings. See "Available Information" and "Incorporation by Reference."
RECENT DEVELOPMENTS
HEP recently entered into separate agreements with two of its lessees,
Complete Care, Inc. ("Complete Care") and Liberty Healthcare Limited Partnership
("Liberty Healthcare"), with respect to loans for renovations at HEP's Tates
Creek facility and High Country Healthcare facility. Pursuant to its agreement
with Complete Care, HEP has agreed to loan up to $166,957 to Complete Care for
renovations. During the renovation period, Complete Care will pay interest on
the outstanding loan at a rate of 12.25%. Once the renovations are complete,
base rent payments for the property will increase by approximately $20,400 per
year. With respect to the High Country Health Care Center, HEP has agreed to
advance $441,102 to Liberty Healthcare for renovations in exchange for an
approximately $61,800 increase in annual base rent.
HEP also recently committed to lend an aggregate of $2,890,000 to Complete
Care under two separate loan commitments. The first loan in the amount of
$1,510,000 will be secured by a first mortgage on Complete Care's Heartland of
Elizabeth facility which is a 67 bed nursing home in Elizabeth, Kentucky. The
second loan in the amount of $1,380,000 will be secured by a first mortgage on
Complete Care's Heartland of Lexington facility which is a nursing home in
Lexington, Kentucky. Both loans will accrue interest at a rate of 11.63% per
annum and will have a term of 25 years. HEP will also receive additional
interest to the extent that gross revenues exceed gross revenues for a defined
base year in an amount equal to seven percent of such increase. While it is
anticipated that the loans will close in the third quarter of 1994, HEP's
commitments are subject to satisfactory documentation.
HEP has recently obtained a three year line of credit for $5,000,000 from a
bank. The line of credit has an annual interest rate of prime plus one-half
percent and is secured by first liens on two HEP Facilities located in North
Carolina. No funds have been drawn on the line of credit as of the date hereof.
On June 27, 1994, 80,000 shares of HEP Common Stock were issued upon the
conversion of $440,000 aggregate principal amount of the HEP Debentures.
PROPERTIES
All of the HEP Facilities are leased to third parties for operation
pursuant to triple-net leases which require the lessee to pay the operating
expenses, taxes, repairs and maintenance and insurance. The leases also provide
for payment by the lessee of a fixed amount of base rent per month, together
with any additional rent.
Additional rent may become payable at different times during the initial
term of leases for 73 of the HEP Facilities and during the renewal terms of
leases for three of the HEP Facilities. With respect to leases for 62 of the HEP
Facilities, additional rent is generally tied to the Consumer Price Index and is
based on a percentage (ranging from 5.5% to 7%) of the increases in gross
revenues over a defined base year. While leases for another four properties
provide that additional rent is determined in the aforementioned manner for
revenues derived from private payors, additional rent from revenues derived from
third party payors, such as Medicaid, is equal to 7% of the increase in third
party payor revenues over such revenues for the prior year. Pursuant to leases
for seven HEP Facilities, additional rent is determined by multiplying base rent
by the Cost of Living Index, but such additional rent may not exceed three
percent of total rent paid for the prior year.
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<PAGE> 82
With respect to leases for the remaining three properties, base rent increases
six percent annually in lieu of additional rent.
The HEP Facilities are operated by the following eight operators:
subsidiaries of Beverly Enterprises Incorporated (collectively "Beverly");
subsidiaries of Alden Management Services, Inc. (collectively "Alden");
Res-Care; Liberty Healthcare and its affiliate Liberty Assisted Living Centers
Limited (collectively, "Liberty"); Complete Care; Southeastern Personal Care
Centers, Inc. ("Southeastern"); The Waverley Group, Inc. ("Waverley"); and
Meadowbrook Manor of Wichita Limited Partnership ("Meadowbrook"). For the year
ended December 31, 1993, HEP received a substantial amount of its rental income
(base rent and additional rent) from Beverly (41.0%), Alden (24.2%), Res-Care
(11.3%) and Liberty (10.1%).
Each of the HEP Facilities is subject to a purchase option which has been
granted by HEP to the lessee, except for the HEP Facilities leased by Alden and
Southeastern and the James A. Johnson Nursing Center leased by Liberty. The
purchase options are exercisable at any time, subject to certain notice
procedures, except with respect to the HEP Facilities leased by Waverley and
certain properties leased by Res-Care which are exercisable at the end of the
initial lease term. Alden, Beverly and Waverley have rights of first refusal
with respect to sales of HEP Facilities subject to their leases with HEP.
All of the HEP Facilities are nursing homes, except for two HEP Facilities
operated by Southeastern and one HEP Property operated by Liberty, which are
personal care facilities. Unless otherwise indicated, the following table sets
forth certain information relating to the HEP Facilities as of June 30, 1994:
<TABLE>
<CAPTION>
NUMBER REVENUES
TOTAL OF FROM
NUMBER OF LICENSED AVERAGE ANNUAL BASE ADDITIONAL PUBLIC
OPERATOR STATES PROPERTIES BEDS OCCUPANCY(1) RENT RENT(2) PAYORS(3)
- ----------------------- ---------- --------- -------- ------------ ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Alden(4)............... Illinois 4 870 92% $ 3,180,185 $ 252,679 96%
Beverly(5)............. Illinois, 48 2,016 78% 6,384,450 1,266,126 85%
Indiana
Complete Care(6)....... Kentucky 2 278 94% 984,000 -- 92%
Liberty(7)............. Florida, 5 667 93% 2,225,478 -- 80%
North
Carolina,
Tennessee
Meadowbrook(8)......... Kansas 1 173 65% 215,000 -- 92%
Res-Care(9)............ Indiana, 8 596 92% 2,319,428 91,997 99%
Kentucky
Southeastern(10)....... North 2 192 68% 860,484 -- 18%
Carolina
Waverley(11)........... Indiana 6 240 82% 770,270 140,225 83%
-- ------ ---------- ---------
All Operators........ 76 5,032 84% $16,939,295 $1,751,027 87%
======== ====== ========== =========
</TABLE>
- -------------------------
(1) Occupancy figures are weighted averages for the period from January 1, 1994
through June 30, 1994 and are based on information provided by the
operators. Total average occupancy rate excludes the 40-bed Rainbow Haven
facility, which is not in operation at this time. Beverly, the operator,
continues to pay rent to HEP on such facility.
(2) Additional rent is calculated as of December 31, 1993 and is paid to HEP by
certain operators under the terms of their leases. No assurance can be
given regarding the amount of additional rent, if any, to be received in
the future.
(3) Percent of facility revenues funded by public programs, such as Medicare
and Medicaid, based on information provided by the operators.
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<PAGE> 83
(4) Leases relating to three of the HEP Facilities leased by Alden expire
October 31, 1996 and are subject to three five-year renewal options, none
of which have been exercised. The lease relating to the remaining HEP
Facility leased by Alden expires October 31, 2006 and is subject to six
five-year renewal options, none of which has been exercised.
(5) All leases with Beverly expire July 31, 1996 and have three five-year
renewal options, none of which has been exercised.
(6) All leases with Complete Care expire September 14, 2003 and do not have
renewal options.
(7) Leases relating to two of the HEP Facilities leased by Liberty expire June
30, 2003 and are subject to one three-year renewal option and four
five-year renewal options. Two of the four five-year renewal options for
each such facility have been exercised. The lease relating to a third HEP
Facility leased by Liberty expires June 30, 1998 and is subject to one
three-year renewal option and four five-year renewal options. One of the
four five-year renewal options for such facility has been exercised. The
lease relating to another HEP Facility leased by Liberty expires December
31, 2003 and is subject to four five-year options, none of which has been
exercised. The remaining HEP Property leased by Liberty expires May 30,
2003 and is subject to two five-year options, none of which has been
exercised.
(8) The lease relating to the HEP Facility leased by Meadowbrook expires
November 10, 2002 and is subject to two five-year renewal options, none of
which has been exercised.
(9) Leases relating to three of the HEP Facilities operated by Res-Care expire
July 31, 1996 and are subject to three five-year renewal options, none of
which has been exercised. The lease relating to the remaining HEP
Facilities operated by Res-Care expires August 31, 1999 and is subject to
one ten-year renewal option which has not been exercised.
(10) All of the leases with Southeastern expire February 28, 2003 and are
subject to two five-year renewal options, none of which has been exercised.
(11) All of the leases with Waverley expire July 31, 1996 and are subject to
three five-year renewal options, none of which has been exercised.
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<PAGE> 84
INDEBTEDNESS
As of June 30, 1994, HEP had $26,262,776 aggregate principal amount of
mortgage indebtedness outstanding. All of such mortgage debt is secured by first
liens on certain of the HEP Facilities and is non-recourse to HEP. The following
table sets forth information regarding HEP's mortgage indebtedness as of June
30, 1994:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT INTEREST RATE
OUTSTANDING PER ANNUM MATURITY DATE HEP PROPERTY SECURING INDEBTEDNESS
- ---------------- ------------- ------------- -----------------------------------------------------
<S> <C> <C> <C>
$4,783,107(1) 7.50% 10/01/2022 Wentworth Nursing Center
4,123,059(1) 9.25% 2/28/2003 Catalina Gardens
3,825,000(2) 9.75% 11/01/2016 Mountain View Nursing Home
2,943,130(3) 8.25% 3/01/2034 Meadowbrook Terrace (Greensboro)
2,581,186(4) 12.00% 1/01/2005 Warren Park Nursing Home, Winamac Nursing Home, Ken-
tland Nursing Home, Birchwood Manor, Columbia City
Nursing Home, Rainbow Haven, Mayflower Nursing Home,
Rochester Nursing Home, Highland Nursing Home, West
Haven Nursing Home, Peru Nursing Home, South Street
Health Care, Hammond Nursing Home, Huntington Nursing
Home, Northwood Nursing Home, Greentree Nursing Home,
Crystal Valley Nursing Home, Angola Nursing Home,
Fort Wayne ADL Center.(5)
2,508,980(3) 8.25% 3/01/2034 Meadowbrook Terrace (Clemmons)
2,197,527(1) 7.50% 6/01/2020 Heather Manor Nursing Center
1,915,787(2) 8.25% 8/01/2017 Ora G. Morrow Nursing Center
1,385,000(2) 9.50% 5/01/2014 Wariota Health Care Center
</TABLE>
- -------------------------
(1) Prepayments may be made at any time without penalty.
(2) Prepayment penalties ranging from 1% to 3% of the outstanding principal
amount apply. With respect to the mortgage secured by (i) Mountain View, no
prepayment penalties apply after 11/1/94, (ii) Wariota Health Care Center,
no prepayment penalties apply after 10/31/2002, and (iii) Ora G. Morrow
Nursing Center, no prepayment penalties apply if less than 15% of the
$2,166,900 original principal amount remains outstanding.
(3) No prepayment may be made until 4/28/2004. Thereafter, prepayments may be
made at any time without penalty.
(4) Commencing September 1 in each fiscal year that the mortgage is outstanding,
HEP may prepay up to $1,500,000 of the outstanding principal amount without
penalty. Additional amounts may be prepaid but a prepayment penalty of 1% of
the prepayment amount applies.
(5) Mortgage is cross-collateralized on the listed properties. HEP may, at its
option, release six of the listed properties from the mortgage lien.
HEP also has $900,000 aggregate principal amount outstanding under its 14%
Senior Subordinated Convertible Redeemable Debentures Due 2000 (the
"Debentures"). Interest payments are made semiannually and the Debentures are
redeemable at par, except that through August 1, 1998 prepayment penalties
apply. The Debentures are convertible into HEP Common Stock, initially at the
conversion price of $5.50 per share, subject to adjustment.
INVESTMENT AND FINANCING POLICIES
Investment Policies. HEP's policy is to acquire nursing homes and personal
care facilities which it leases to third party operators primarily for
generation of current income. See "--General." Its investment objectives
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<PAGE> 85
are to (i) achieve cash flow available for distributions through investments in
its facilities, (ii) increase cash flow by purchasing additional properties or
by improving rental income through additional rent, and (iii) realize capital
growth resulting from appreciation, if any, in the residual value of its
facilities.
There is no limit on the amount or percentage of assets which may be
invested by HEP in any one property. However, a majority of HEP's Board,
including a majority of its independent directors, must determine that the
consideration to be paid for such property is not greater than its fair market
value as determined by a qualified independent real estate appraiser selected by
HEP's Board, including a majority of its independent directors. While properties
owned by HEP are nursing homes or personal care facilities, HEP may invest in
other health care facilities, although no such investments are contemplated
prior to the Merger.
There are no limitations on investments with respect to geographic
location. In addition, HEP may expand and improve, lease or sell all or a
portion of its properties when circumstances warrant. HEP may also participate
with other entities in property ownership through joint ventures or other types
of co-ownership; however, HEP is not a party to and does not intend to enter
into any such participations prior to the Merger.
Except as described below, HEP may, in its discretion, invest in mortgages
and other real estate interests consistent with its qualification as a REIT. HEP
has committed to lend an aggregate of $2,890,000 to Complete Care which will be
secured by first mortgage loans on two of Complete Care's nursing homes. See "--
Recent Developments." These commitments will be HEP's only mortgage investments
and HEP does not intend to invest in any other mortgages or real estate
interests prior to the Merger. HEP may also invest in securities of other
entities engaged in real estate activities or securities of other issuers,
subject to the percentage of ownership limitations and gross income and asset
tests necessary for REIT qualification. To date, HEP has not invested in such
securities and does not intend to make such investments prior to the Merger.
The Board of Directors of HEP may, with the consent of a majority of the
independent directors, change HEP's investment policies without the approval of
HEP's shareholders, if such change is determined by the Board to be in the best
interests of the Company.
Financing Policies. HEP may incur indebtedness for working capital purposes
or to finance the acquisition of additional health care facilities. Although HEP
may borrow to fund the payment of dividends, it has never done so. HEP's
organizational documents limit the aggregate amount of indebtedness (secured and
unsecured) that HEP may incur to 300% of its net assets, although HEP may exceed
this limit if approved by a majority of HEP's directors, including a majority of
its independent directors. HEP has not established any limit on the number or
amount of mortgages that may be placed on any single property or on its
portfolio as a whole. HEP currently has no intention or expectation that it will
incur any additional indebtedness prior to the Merger.
Restricted Investment Activities. The By-Laws of HEP contain restrictions
on certain investment activities, including the following:
(i) investing in junior mortgage loans, unless the independent
directors of HEP's Board determine, by appraisal or otherwise, that (A) the
capital to be invested by HEP is adequately secured on the basis of the
borrower's equity in the property and the borrower's ability to repay the
loan or (B) the loan is a financing vehicle created to establish the
priority of HEP's capital investment in a project involving real property
over the capital invested by others in the project;
(ii) investing any assets in contracts for the purchase of real
property, unless such contracts are recordable in the chain of title;
(iii) investing equity in unimproved, non-income producing real
property, except such properties undergoing development or presently
intended to be developed within one year from the date of such investment,
together with mortgage loans on such real property (other than first
mortgage development loans) aggregating more than 10% of its assets;
(iv) investing in commodities or commodity futures contracts (other
than interest rate futures, when used solely for hedging purposes);
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<PAGE> 86
(v) acquiring any real property unless the consideration paid for such
real property is based on the value of such property as determined by a
majority of HEP's directors;
(vi) holding property primarily for sale to customers in the ordinary
course of business;
(vii) undertaking any activity that would disqualify HEP as a REIT
under the Code; and
(viii) investing in any REIT which holds investments or engages in
activities which HEP is prohibited by its charter or By-Laws from engaging
in.
COMPETITION
Long term health care facilities supplement services provided by general
hospitals. Patients and their families are more often involved in the selection
of a particular nursing home facility than they are in the choice of a general
hospital. Some significant competitive factors for placing patients in nursing
homes include quality of care, reputation, location, physical appearance of
facilities, services offered, family preferences, physician services and price.
The HEP Facilities compete with other regional and local facilities for the
support of the medical community, including physicians and hospitals, as well as
the general public. The demand for nursing home care generally is high and the
management of HEP currently does not consider competition to be a significant
risk affecting the value of the HEP Facilities.
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<PAGE> 87
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
OF OMEGA COMMON STOCK AND HEP COMMON STOCK
Both Omega Common Stock and HEP Common Stock are traded on the NYSE. The
following table sets forth, for the periods indicated, the high and low sales
prices of Omega Common Stock and HEP Common Stock, as reported on the NYSE
Composite Tape, and the quarterly dividends paid on each non-subordinated share
of Omega Common Stock and each share of HEP Common Stock.
<TABLE>
<CAPTION>
PER SHARE OF COMMON STOCK
--------------------------------------------------------
OMEGA HEP
---------------------------- ------------------------
HIGH LOW DIVIDENDS(1) HIGH LOW DIVIDENDS
---- ---- ------------ ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1992:
First Quarter.......................... -- -- -- $ 10 $8 7/8 $.23
Second Quarter......................... -- -- -- 9 3/8 8 1/2 .235
Third Quarter(2)....................... $ 21 $18 5/8 $.26 9 7/8 8 3/4 .24
Fourth Quarter......................... 21 18 3/4 .50 9 3/4 7 7/8 .245
1993:
First Quarter.......................... 21 1/8 19 3/4 .50 10 1/8 8 1/4 .245
Second Quarter......................... 22 5/8 20 1/2 .50 9 1/2 8 7/8 .245
Third Quarter.......................... 24 3/4 26 3/4 .54 9 7/8 8 7/8 .245
Fourth Quarter......................... 25 1/2 24 1/8 .54 10 1/4 9 .245
1994:
First Quarter.......................... 26 1/2 22 3/8 .54 9 3/4 9 1/4 .245
Second Quarter......................... 26 22 3/4 .54 9 7/8 9 .245
Third Quarter (through August 22)...... 25 3/4 24 1/2 -- 9 3/4 9 --
</TABLE>
- -------------------------
(1) Dividends on subordinated shares were as indicated except for the third and
fourth quarters of 1992 and the third quarter of 1993 when no dividends
were paid on subordinated shares, and for the first quarter of 1993 when
$.20 per subordinated share was paid. See "Description of Omega Capital
Stock -- Common Stock -- Restricted Securities."
(2) Omega Common Stock commenced trading on the NYSE on August 7, 1992 and the
amounts shown represent the high and low sales prices of Omega Common Stock
from August 7, 1992 through the end of the third quarter of 1992.
Omega's quarterly dividend rate since and including the third quarter of
1993 has been $.54 per share ($2.16 per share on an annualized basis). The
declaration of dividends is discretionary with the Board of Directors and
depends upon Omega's distributable funds, financial requirements, tax
considerations and other factors. In order to maintain its status as a REIT,
Omega must meet certain annual distribution requirements. See "Certain Federal
Income Tax Considerations." Decisions with respect to the distribution of
capital gains are made on a case-by-case basis. For federal income tax purposes,
Omega's distributions to shareholders may consist of ordinary income, capital
gain income, return of capital, or a combination thereof. Omega annually
provides its shareholders a statement as to its designation of the taxability of
its dividends. No portion of either the 1992 or 1993 dividends constituted
capital gain income or return of capital.
On June 16, 1994 (the last trading day prior to the public announcement
that Omega and HEP had entered into the Merger Agreement), the high and low
sales prices of Omega Common Stock, as reported on the NYSE Composite Tape, were
$25 1/4 and $25, respectively, and the high and low sales prices of HEP Common
Stock, as reported on the NYSE Composite Tape, were $9 3/4 and $9 5/8,
respectively. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
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<PAGE> 88
DESCRIPTION OF OMEGA CAPITAL STOCK
The authorized capital stock of Omega currently consists of 50,000,000
shares of Omega Common Stock, par value $.10 per share, and 10,000,000 shares of
Omega Preferred Stock, par value $1.00 per share ("Omega Preferred Stock"). As
of June 3, 1994, Omega had 9,655,315 shares of its Common Stock outstanding.
Omega Common Stock is listed on the NYSE. No shares of Omega Preferred Stock are
outstanding.
COMMON STOCK
Except for certain restricted securities (see "Restricted Securities"), all
shares of Omega Common Stock participate equally in dividends payable to holders
of Omega Common Stock when and as declared by the Omega Board and in net assets
available for distribution to holders of Omega Common Stock on liquidation or
dissolution, have one vote per share on all matters submitted to a vote of the
shareholders, and do not have cumulative voting rights in the election of
directors. All outstanding shares of Omega Common Stock are, and Omega Common
Stock offered hereby will be upon issuance, validly issued, fully paid and
nonassessable. Holders of Omega Common Stock do not have preference, conversion,
exchange or preemptive rights. Omega Common Stock is listed on the New York
Stock Exchange (NYSE symbol "OHI").
Restricted Securities. In connection with the organization of Omega, an
aggregate of 250,000 shares of common stock (the "Founders' Shares") were issued
on March 31, 1992 for $250,000 in cash to Essel W. Bailey, Jr., Thomas Franke,
Harold J. Kloosterman, Robert L. Parker, William G. Petty, Jr. and Neill R.
Schmeichel, and/or to family members or entities beneficially owned by them
(collectively the "Founding Shareholders"). The Founders' Shares became eligible
for sale under Rule 144 promulgated under the Securities Act on March 31, 1994;
however, the Founding Shareholders entered into an agreement in connection with
the initial public offering of Omega's shares (the "Initial Offering"),
restricting the sale of such shares until after August 7, 1994.
In connection with the Initial Offering, Omega caused 86,500 shares of
Omega Common Stock (the "Bear Stearns Shares") to be issued to Bear Stearns.
Bear Stearns has entered into an agreement with Omega restricting the sale of
the Bear Stearns Shares until August 7, 1994.
In connection with the acquisition of certain contractual rights to provide
secured loans in the aggregate amount of $26,500,000 and to purchase certain
properties for an aggregate purchase price of $29,725,000, Omega issued 10,000
shares to MEDIQ Incorporated, and 2,500 shares to F. Scott Kellman
(collectively, the "Contractual Rights Shares"). The owners of such shares have
entered into an agreement with Omega restricting the sale of the Contractual
Rights Shares until December 14, 1995.
Holders of the Founders' Shares, the Bear Stearns Shares, and the
Contractual Rights Shares agreed to subordinate dividends payable with respect
to their respective shares through the quarter ended June 30, 1994, and to
subordinate their rights to participate in proceeds from the liquidation or
dissolution of Omega during that period.
Redemption and Business Combination Provisions. If the Omega Board shall,
at any time and in good faith, be of the opinion that direct or indirect
ownership of at least 9.9% or more of the voting shares of capital stock has or
may become concentrated in the hands of one beneficial owner, the Omega Board
shall have the power (i) by lot or other means deemed equitable by it to call
for the purchase from any shareholder of Omega a number of voting shares
sufficient, in the opinion of the Omega Board, to maintain or bring the direct
or indirect ownership of voting shares of capital stock of such beneficial owner
to a level of no more than 9.9% of the outstanding voting shares of Omega's
capital stock, and (ii) to refuse to transfer or issue voting shares of capital
stock to any person whose acquisition of such voting shares would, in the
opinion of the Omega Board, result in the direct or indirect ownership by that
person of more than 9.9% of the outstanding voting shares of capital stock of
Omega. Further, any transfer of shares, options, warrants, or other securities
convertible into voting shares that would create a beneficial owner of more than
9.9% of the outstanding voting shares shall be deemed void ab initio and the
intended transferee shall be deemed never to have had an interest therein. The
purchase price for any voting shares of capital stock so redeemed shall be equal
to the fair market value of the shares reflected in the closing sales prices for
the shares, if then listed on a national securities exchange, or the
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<PAGE> 89
average of the closing sales prices for the shares if then listed on more than
one national securities exchange, or if the shares are not then listed on a
national securities exchange, the latest bid quotation for the shares if then
traded over-the-counter, on the last business day immediately preceding the day
on which notices of such acquisitions are sent by Omega, or, if no such closing
sales prices or quotations are available, then the purchase price shall be equal
to the net asset value of such stock as determined by the Omega Board in
accordance with the provisions of applicable law. From and after the date fixed
for purchase by the Omega Board, the holder of any shares so called for purchase
shall cease to be entitled to distributions, voting rights and other benefits
with respect to such shares, except the right to payment of the purchase price
for the shares.
The Omega Articles of Incorporation require that, except in certain
circumstances, Business Combinations (as defined in the Omega Articles of
Incorporation) between Omega and a beneficial holder of 10% or more of Omega's
outstanding voting stock (a "Related Person") be approved by the affirmative
vote of at least 80% of the outstanding voting shares of Omega.
A Business Combination is defined in the Omega Articles of Incorporation as
(a) any merger or consolidation of Omega with or into a Related Person, (b) any
sale, lease, exchange, transfer or other disposition, including without
limitation a mortgage or any other security device, of all or any "Substantial
Part" (as defined) of the assets of Omega (including without limitation any
voting securities of a subsidiary) to a Related Person, (c) any merger or
consolidation of a Related Person with or into Omega, (d) any sale, lease,
exchange, transfer or other disposition of all or any Substantial Part of the
assets of a Related Person to Omega, (e) the issuance of any securities (other
than by way of pro rata distribution to all shareholders) of Omega to a Related
Person, and (f) any agreement, contract or other arrangement providing for any
of the transactions described in the definition of Business Combination. The
term "Substantial Part" shall mean more than 10% of the book value of the total
assets of Omega as of the end of its most recent fiscal year ending prior to the
time the determination is being made.
Pursuant to the Omega Articles of Incorporation, the Omega Board is
classified into three classes. Each class of directors serves for a term of
three years, with one class being elected each year. As of the date hereof,
there are seven directors, two in each of two classes of directors, and three in
one class.
The foregoing provisions of the Omega Articles of Incorporation and certain
other matters may not be amended without the affirmative vote of at least 80% of
the outstanding voting shares of Omega.
The foregoing provisions may have the effect of discouraging unilateral
tender offers or other takeover proposals which certain shareholders might deem
in their interests or in which they might receive a substantial premium. The
Omega Board's authority to issue and establish the terms of currently authorized
Omega Preferred Stock, without shareholder approval, may also have the effect of
discouraging takeover attempts. See "-- Omega Preferred Stock." These provisions
could also have the effect of insulating current management against the
possibility of removal and could, by possibly reducing temporary fluctuations in
market price caused by accumulation of shares, deprive shareholders of
opportunities to sell at a temporarily higher market price caused by
accumulations of shares. However, the Omega Board believes that inclusion of the
Business Combination provisions in the Omega Articles of Incorporation may help
assure fair treatment of shareholders and preserve the assets of Omega.
The foregoing summary of certain provisions of the Omega Articles of
Incorporation does not purport to be complete or to give effect to provisions of
statutory or common law. The foregoing summary is subject to, and qualified in
its entirety by reference to, the provisions of applicable law and the Omega
Articles of Incorporation, a copy of which is incorporated by reference as an
exhibit to the Registration Statement of which this Joint Proxy Statement and
Prospectus is a part.
Transfer Agent and Registrar. First Interstate Bank of California, Los
Angeles, California, is the transfer agent and registrar of Omega Common Stock.
OMEGA PREFERRED STOCK
Under the Omega Articles of Incorporation, the Omega Board is authorized
without further shareholder action to provide for the issuance of up to
10,000,000 shares of preferred stock of Omega, in one or more
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series, with such designations, preferences, powers and relative participating,
optional or other special rights and qualifications, limitations or restrictions
thereon, including, but not limited to, dividend rights, dividend rate or rates,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), the redemption price or prices, and the liquidation
preferences as shall be stated in the resolution providing for the issue of a
series of such stock, and in articles supplementary filed with the state of
Maryland, which resolutions and articles may be approved, at any time or from
time to time prior to issuance, by the Omega Board.
As of the date hereof, no Omega Preferred Stock is outstanding nor has the
Omega Board designated any series of Omega Preferred Stock.
SHELF REGISTRATION
Omega currently has a "shelf" registration statement in effect (the "Shelf
Registration") pursuant to which it may offer to the public one or more of the
following categories of its securities: (i) shares of Omega Common Stock; (ii)
shares of Omega Preferred Stock, in one or more series; (iii) debt securities,
in one or more series; (iv) warrants to purchase Omega Common Stock; (v)
warrants to purchase debt securities; (v) warrants to purchase Omega Preferred
Stock and (vii) any combination of the foregoing, either individually or as
units consisting of one or more of the types of securities described in clauses
(i) through (vi). The terms of any specific offering of securities pursuant to
the Shelf Registration, including the terms of any units offered, will be set
forth in a prospectus supplement relating to such offering.
COMPARISON OF RIGHTS OF HOLDERS
OF HEP COMMON STOCK AND OMEGA COMMON STOCK
The rights of holders of HEP Common Stock are governed by the laws of North
Carolina, the state in which HEP is incorporated, and by the HEP Articles of
Incorporation and Bylaws. The rights of holders of HEP Common Stock who receive
Omega Common Stock in the Merger will be governed after the Effective Time by
the laws of Maryland, the state in which Omega is incorporated, and by the Omega
Articles of Incorporation and Bylaws.
The rights of HEP shareholders differ in some respects from the rights they
would have as shareholders of Omega. A summary of these differences is set forth
below. The following summary does not purport to be a complete statement of the
rights of holders of shares of Omega Common Stock under applicable Maryland law,
the Omega Articles of Incorporation and Bylaws or a comprehensive comparison
with the rights of the holders of shares of HEP Common Stock under applicable
North Carolina law, the HEP Articles of Incorporation and HEP Bylaws, or a
complete description of the specific provisions referred to herein. The
identification of specific differences is not meant to indicate that other
equally or more significant differences do not exist. This summary is qualified
in its entirety by reference to the Maryland General Corporation Law ("MGCL")
and the governing corporate instruments of Omega, and to the NCBCA and the
governing corporate instruments of HEP, to which holders of shares of HEP Common
Stock are referred.
RESTRICTIONS ON TRANSFER AND REDEMPTION OF SHARES
Both the Omega and HEP Articles of Incorporation contain provisions
governing the number of shares that each of its shareholders may beneficially
own. While these provisions are included in order to allow the corporations to
more effectively maintain their status as REITs under the Code, they may also
have the effect of making an attempted takeover of the corporations more
difficult for an acquiror. The Omega Articles of Incorporation provide that if
at any time the Omega Board in good faith believes that direct or indirect
ownership of at least 9.9% of the voting shares of Omega may become concentrated
in the hands of one beneficial owner, then the Omega Board may require any
shareholder of Omega to redeem that number of shares necessary in order to
ensure that the beneficial owner owns no more than 9.9% of the outstanding
voting stock of Omega. The Omega Board may also refuse to transfer or issue
voting shares of stock of Omega to any person if the transfer would, in the
opinion of the Omega Board, result in that person's owning more than 9.9% of the
outstanding voting stock of Omega. The HEP Articles of Incorporation limit the
number of shares that
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any shareholder may own to 9.8%. The shareholders of HEP are obligated to
disclose to the HEP Board such information on ownership as is necessary for the
HEP Board to comply with the provisions of the Code with respect to maintaining
HEP's status as a REIT. If a shareholder desires to transfer shares and the HEP
Board believes that such transfer may jeopardize the status of HEP as a REIT,
then the HEP Board may cause HEP to not transfer such shares. All transfers
resulting in beneficial ownership in excess of 9.8% of HEP are not valid with
respect to the number of shares in excess of 9.8%. Holders of excess shares are
permitted to transfer the excess shares to holders whose beneficial ownership of
shares will not be in excess of 9.8%.
VOTE REQUIRED FOR MERGERS
The NCBCA requires that in order to approve a plan of merger, the board of
directors must first adopt a plan of merger and must then recommend the plan of
merger to the shareholders. The shareholders must then approve the plan by the
affirmative vote of a majority of shares entitled to vote thereon unless a
higher threshold is specified in the company's articles of incorporation or
bylaws. The HEP Articles of Incorporation do not require a higher threshold.
The MGCL provides that in order to effectuate a merger, the board of
directors must adopt a resolution declaring that the merger is advisable and
directing that the proposed transaction be submitted to the shareholders for
approval. With certain exceptions, the affirmative vote of two-thirds of the
shareholders entitled to vote on a merger, consolidation or share exchange is
necessary in order to effectuate the transaction. The MGCL, however, permits a
Maryland corporation's articles of incorporation to contain a provision
specifying a lesser proportion of required votes than that specified in the
MGCL. The Omega Articles of Incorporation contain a provision lowering the
two-thirds requirement specified in the MGCL to the affirmative vote of a
majority of the outstanding shares entitled to vote on the matter in order to
approve a merger, consolidation or share exchange.
BUSINESS COMBINATIONS
Both the NCBCA and the MGCL contain control share acquisition statutes
limiting the ability of others to make tender offers for the shares of companies
incorporated in these states. Under these statutes, if "control shares" are
acquired in "control share acquisitions," then the "control shares" acquired
have no voting rights unless allowed by the affirmative vote of the shareholders
by two-thirds vote in Maryland, and by majority vote in North Carolina, of all
shares entitled to be cast on the issue, excluding the interested shares.
"Control shares" are shares which, when aggregated with other shares already
owned, give a person a certain threshold of voting power. "Control share
acquisitions" are acquisitions in which control shares are acquired. The NCBCA
and MGCL further provide that in the event that the shareholders elect to give
voting rights to the control shares, then, in certain instances, the other
holders of a corporation's stock have the right to require that corporation to
redeem their shares. The MGCL further provides that in certain instances, a
corporation may redeem any control shares. Omega and HEP have specifically
waived the protections of these statutes in their articles of incorporation;
however, the Omega Articles of Incorporation provide that the Omega Board may
elect by resolution the protections of this statute at any time.
Both the MGCL and NCBCA also contain prohibitions on business combinations
with interested shareholders. The MGCL generally prohibits certain "business
combinations" with interested shareholders for a period of five years from the
date on which the person became an interested shareholder unless the business
combination is recommended by the board of directors and approved by the
affirmative vote of 80% of the votes entitled to be cast on the matter and by
the affirmative vote of two-thirds of the votes held by holders other than the
interested shareholder entitled to be cast on the matter. An interested
shareholder is a shareholder that beneficially owns, directly or indirectly, 10%
or more of the voting power of the outstanding voting stock of a corporation or
is or was an affiliate or associate of a corporation and at any time during the
two-year period prior to the date in question owned 10% or more of the voting
power of the outstanding voting stock of the corporation. The "business
combinations" that are prohibited include: (i) any merger, consolidation or
share exchange with an interested shareholder or affiliate; (ii) any sale,
lease, transfer or other disposition of the corporation's assets to an
interested shareholder or affiliate; (iii) the issuance or transfer of any
equity securities of the corporation representing 5% or more of the total market
value of the corporation's
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outstanding stock to an interested shareholder or affiliate; (iv) the adoption
of a plan of liquidation of the corporation where an interested shareholder or
affiliate receives anything other than cash; (v) certain transactions that would
have the effect of increasing by 5% or more the proportionate amount of shares
held by an interested shareholder or affiliate; and (vi) the receipt by an
interested shareholder or affiliate of certain direct or indirect benefits from
the corporation.
The restrictions on business combinations under the NCBCA are similar to
those under the MGCL. The NCBCA prohibits mergers with, and asset sales or
leases to, any person that beneficially owns 20% of the corporation's voting
shares without the affirmative vote of the holders of 95% of the corporation's
voting shares entitled to vote on the matter.
Certain "Fair Price" exemptions from the special voting requirements are
available under both statutes based on the amount of consideration to be paid to
the holders of the shares being acquired. Generally, the exemptions provide that
the amount paid for the corporation's stock in the business combination must be
in excess of a statutorily prescribed amount based on preset formulas involving
the highest per share price paid by the acquiror during a defined period. Omega
and HEP have specifically waived the protections of these statutes in their
Articles of Incorporation.
The Omega Articles of Incorporation contain their own restrictions on
affiliated transactions that prohibit certain transactions, such as mergers
with, or asset sales to, "Related Persons" without the affirmative vote of 80%
of the outstanding voting stock of the corporation unless the Omega Board
unanimously approved in advance the acquisition of the shares that made the
person a "Related Person." A "Related Person" is an entity that beneficially
owns 10% or more of the outstanding voting stock of Omega and any affiliate or
associate of Omega. These restrictions do not apply to the Merger because HEP
does not beneficially own 10% or more of the outstanding voting stock of Omega.
Similarly, the HEP Articles of Incorporation prohibit HEP from entering
into certain business arrangements with "interested shareholders" without the
affirmative vote of 80% of HEP's shares entitled to vote thereon. An interested
shareholder is an entity that beneficially owns, directly or indirectly, more
than 20% of the voting shares of HEP. The prohibited business combinations
include transactions such as mergers and asset sales with the interested
shareholder. The affirmative vote of 80% of the shareholders is not required,
however, if, in connection with the business combination, the shareholders
receive cash in exchange for their shares equal to the highest per-share price
paid by the interested shareholder in acquiring any of his holdings or if the
business combination is approved by a majority of HEP's disinterested directors.
These restrictions do not apply to the Merger because Omega does not
beneficially own, directly or indirectly, 20% or more of the voting shares of
HEP.
DISSENTERS' RIGHTS
Under the MGCL and NCBCA, holders of shares have the right, in certain
circumstances, to dissent from certain corporate reorganizations by demanding
payment in cash for their shares equal to the fair value (excluding any
appreciation or depreciation as a consequence or in expectation of the
transaction) of such shares. Under the MGCL, the amount to be received by the
dissenters for their stock may be determined by agreement between the dissenters
and the corporation or, if the corporation and the dissenters are unable to
agree, the corporation or the dissenters may petition a court for an appraisal
of the fair value of the stock. The NCBCA contains similar provisions except
only the dissenters may petition a court to determine the fair value of the
stock.
Both the MGCL and the NCBCA afford dissenters' rights upon certain mergers,
share exchanges, transfers of assets or amendments of the corporate charter that
substantially abridge the contractual rights of the shareholders (unless, in the
case of the MGCL, the right to so amend the charter is reserved by the charter
of the corporation). Except in certain circumstances, the MGCL does not grant
dissenters' rights to holders of stock if: (i) the stock is listed on a national
securities exchange or is designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.; or (ii) the stock is that of the successor in a merger, unless the stock
is to be changed or converted in whole or in part in the merger into something
other than stock in the successor, cash, scrip or other rights or interests
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arising from fractional shares. The Omega Common Stock is listed on the New York
Stock Exchange. See "The Proposed Merger -- Dissenters' Rights."
AMENDMENTS TO THE ARTICLES OF INCORPORATION
Except for certain specified matters, the NCBCA requires shareholder
approval in order to amend a corporation's articles of incorporation. The NCBCA
requires the board of directors to recommend the proposed amendment to the
shareholders. The proposed amendment must then be approved by the affirmative
vote of the holders of a majority of the shares entitled to vote on the matter
unless a greater number of shares are specified in the articles of incorporation
or the NCBCA. The HEP Articles of Incorporation require the affirmative vote of
80% of the voting stock issued and outstanding in order to amend the provisions
regarding business combinations with interested shareholders if an interested
shareholder exists on the record date for determining shareholders entitled to
vote on such amendment (a majority of the voting stock if an interested
shareholder does not exist on such date).
Except for certain specified matters, the MGCL provides that an amendment
or change to a corporation's articles of incorporation must be authorized by the
board of directors in a resolution setting forth the amendment, declaring that
it is advisable, and directing that it be submitted to the shareholders for
approval. The Omega Articles of Incorporation reserve to Omega the right to
amend, alter or repeal any of its provisions in the manner prescribed by
statute. The Omega Articles of Incorporation provide that the amendment must
then be approved by the shareholders by the affirmative vote of a majority of
the total number of votes entitled to be cast on the matter. The Omega Articles
of Incorporation further provide that certain of its provisions cannot be
amended without 80% of the voting stock of Omega voting in favor of the matter.
Such provisions include those regarding business combinations with interested
shareholders, the composition of the Omega Board and the total number of shares
that any shareholder may own in Omega.
AMENDMENTS TO THE BYLAWS
The NCBCA provides that bylaws may be adopted, amended or repealed by
either the board of directors or the shareholders of a corporation. The power of
the board of directors to adopt, amend and repeal the bylaws may be limited in
the articles of incorporation or in a bylaw adopted by the shareholders. The
board of directors may not readopt, amend or repeal any bylaw that has been
adopted, amended or repealed by the shareholders unless so authorized in the
articles of incorporation or a bylaw adopted by the shareholders. Special
requirements apply to bylaws increasing quorum or voting requirements for
directors. The HEP Articles of Incorporation and Bylaws provide that the Bylaws
may be adopted, amended or repealed by majority vote of the directors except
that the HEP Board shall have no power to adopt a Bylaw that: (i) requires more
than a majority of the voting shares for a quorum at shareholder meetings or
more than a majority of the votes cast to constitute action by the shareholders,
except where higher percentages are required by law; (ii) provides for the
management of HEP other than by the HEP Board or its committees; (iii) increases
or decreases the number of directors beyond the range set forth in the Articles
of Incorporation and Bylaws; or (iv) classifies or staggers the election of
directors other than as set forth in the Articles of Incorporation and Bylaws.
The MGCL provides that after the organizational meeting of directors, only
the shareholders have the power to amend the bylaws, except to the extent that
the articles of incorporation or bylaws vest this power in the board of
directors. The Omega Bylaws provide that Bylaws may be adopted, amended or
repealed by either the written consent or vote of the holders of a majority of
the outstanding shares entitled to vote or by the Omega Board. A higher
threshold of shareholder votes may be specified with respect to the adoption,
amendment or repeal of a particular Bylaw, although none currently are so
specified. The Omega Board may only adopt, amend or repeal Bylaws with respect
to the authorized number of directors within the limits specified in the
Articles of Incorporation and Bylaws.
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DIRECTORS
The HEP Articles of Incorporation and Bylaws provide that the HEP Board
shall consist of a minimum of nine directors and a maximum of twelve directors.
The HEP Board has the authority to determine the actual number of directors
within this range by resolution. The HEP Articles of Incorporation and Bylaws
provide for a Board of Directors classified into three classes, with each class
of directors coming up for reelection in the third year following their
election. Election to the Board requires the affirmative vote of a plurality of
the votes cast by the shares entitled to vote at a meeting where a quorum is
present. The HEP Board has currently fixed the number of directors at nine,
classified into three classes of three directors each. The HEP Bylaws further
require the majority of the Board of Directors to consist of "independent
directors," or directors who are not affiliated in any way with HEP other than
through their service as a director, and prohibit the Board of Directors from
increasing or decreasing the total number of directors during any 12-month
period by more than 30%.
The Omega Articles of Incorporation provide for a Board divided into three
classes, with each class of directors coming up for reelection in the third year
following their election. Currently, the Omega Articles and Bylaws provide for a
Board consisting of between five and nine directors, with the Omega Board having
the authority to increase and decrease the size of the Board within this range.
Omega's Board currently consists of seven directors, staggered into one class of
three directors and two classes of two directors.
REMOVAL OF DIRECTORS
Under the NCBCA, directors may be removed by the shareholders with or
without cause unless the articles of incorporation provide that they may be
removed only for cause. The HEP Articles of Incorporation are silent as to the
removal of directors. The HEP Bylaws allow shareholders to remove directors with
or without cause provided that the number of votes in favor of removal exceed
the number of votes cast against such removal.
The MGCL also provides that directors may be removed with or without cause
by the shareholders by the affirmative vote of a majority of all votes entitled
to be cast on the election of directors unless the articles of incorporation
provide otherwise. The Omega Bylaws permit the removal by the shareholders of
any or all of the directors with or without cause at a meeting expressly called
for such purpose by the affirmative vote of two-thirds of the votes entitled to
be cast thereon.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
The NCBCA provides that unless the articles of incorporation provide
otherwise, vacancies on the board of directors may be filled by the shareholders
or the board of directors.
The MGCL provides that unless the articles of incorporation or bylaws
provide otherwise, newly created directorships resulting from an increase in the
number of directors are to be filled by a majority of the board of directors and
vacancies on the board that result from any other cause may be filled by a
majority of the remaining directors. Vacancies on the board resulting from the
removal of a director by the shareholders may also be filled by the
shareholders. The Omega Articles of Incorporation provide that vacancies
resulting from an increase in the size of the Omega Board or from the removal of
a director may be filled by a majority of the entire Omega Board or by the
shareholders by the affirmative vote of a majority of the votes entitled to be
voted thereon. All other vacancies are to be filled by the remaining directors.
LIMITATION ON LIABILITY
The NCBCA allows a corporation's articles of incorporation to contain a
provision limiting a director's personal liability to the corporation and its
shareholders for monetary damages. No such provision may limit a director's
liability for: (i) acts or omissions known by the director to conflict with the
best interests of the corporation; (ii) liability for unlawful distributions;
(iii) any transaction from which the director received an improper personal
benefit; or (iv) acts or omissions occurring prior to the effective date of such
provision of
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the articles of incorporation. The HEP Articles of Incorporation limit the
personal liability of its directors for monetary damages to the fullest extent
permitted by the NCBCA.
The MGCL also allows a corporation's articles of incorporation to contain a
provision limiting a director's or an officer's personal liability to the
corporation and its shareholders for damages for breaches of duty in such
capacity. No such provision may eliminate or limit the liability of a director
or officer to the corporation to the extent that: (i) it is proved that the
individual received an improper benefit or profit, to the extent of such benefit
or profit; or (ii) a judgment or other final adjudication adverse to the
individual is entered in a proceeding based on a finding in the proceeding that
the individual's action or failure to act was the result of active and
deliberate dishonesty that was material to the cause of action. The Omega
Articles of Incorporation limit the liability of its directors and officers to
the fullest extent permitted by the MGCL.
INDEMNIFICATION
Both the MGCL and NCBCA contain provisions setting forth conditions under
which a corporation may indemnify its directors, officers, employees and agents
from any liability incurred in their activities on behalf of the corporation.
The MGCL permits indemnification unless the act or omission was material to the
matter giving rise to the proceeding and was committed in bad faith, was the
result of active and deliberate dishonesty, allowed the party seeking
indemnification to receive an improper personal benefit or, in the case of
criminal prosecutions, the party seeking indemnification had reasonable cause to
believe that the act or omission was unlawful. The NCBCA permits indemnification
unless, in connection with a proceeding by or in the right of the corporation,
the person seeking indemnification is adjudged liable to the corporation or, in
connection with a proceeding charging the receipt of an improper personal
benefit, the person seeking indemnification is adjudged to have improperly
received a benefit.
The HEP Articles of Incorporation provide for the indemnification of
directors and officers to the fullest extent permitted by the NCBCA. The Omega
Articles of Incorporation and Bylaws provide for the indemnification of
directors and officers to the fullest extent permitted by the MGCL and permits
the Omega Board to make further provision for indemnifying directors, officers
and employees.
LOANS TO DIRECTORS AND OFFICERS
The NCBCA prohibits corporations from making loans to or guarantees on
behalf of directors of a corporation unless: (i) the loan or guarantee is
approved by the affirmative vote of a majority of the corporation's voting
shares, other than those shares held or whose votes are controlled by the
interested director, or (ii) the board determines that the loan or guarantee
benefits the corporation and approves the loan or guarantee or a general plan
authorizing loans and guarantees. The MGCL provides that a corporation may lend
to or guarantee the obligation of an officer or employee if the board of
directors expects the loan to benefit the corporation or if the loan is advanced
against later indemnification.
SPECIAL MEETINGS
The NCBCA provides that special meetings of the shareholders may be called
by the board of directors or the persons authorized to call such a meeting in
the articles of incorporation or bylaws. Special meetings may also be called by
the secretary of the corporation upon the written request of the holders of 10%
of the votes entitled to be cast at the meeting specifying the purpose for which
the meeting will be held. This right of the shareholders to call special
meetings, however, is not available to the shareholders of a public corporation
unless it is provided for in the corporation's articles of incorporation or
bylaws. The HEP Bylaws specify that special meetings may be called at any time
only by the President, Secretary or the HEP Board. The notice of the special
meeting must set forth the purpose for which the meeting is called.
The MGCL provides that special meetings of the shareholders may be called
by the president, the board of directors or any other person specified in the
articles of incorporation or bylaws. Special meeting may also be called by the
secretary upon the written request of the holders of 25% of the votes entitled
to be cast at the meeting setting forth the purpose for which the meeting is
being called. The Omega Bylaws give (i) the Chairman of the Board, (ii) the
Chief Executive Officer, (iii) the President, (iv) the majority of the Omega
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Board and (v) an officer of Omega, upon the request of the holders of 10% of the
shares entitled to be voted at the meeting, the power to call a special meeting
of the shareholders. The notice of the meeting must set forth the nature of the
business to be transacted and no other business may be considered at the meeting
unless there is unanimous consent of all the holders entitled to vote at the
meeting.
LEGAL MATTERS
The validity of the shares of Omega Common Stock offered to holders of HEP
Common Stock by this Joint Proxy Statement and Prospectus will be passed upon
for Omega by Argue Pearson Harbison & Myers, Los Angeles, California. An opinion
as to the tax aspects of the Merger as they relate to Omega will be rendered for
Omega by Argue Pearson Harbison & Myers. An opinion as to the tax aspects of the
Merger as they relate to holders of HEP Common Stock will be rendered for HEP by
Stroock & Stroock & Lavan.
EXPERTS
The financial statements and schedules of Omega as of December 31, 1993 and
1992 included in or incorporated by reference to Omega's Annual Report on Form
10-K for the year ended December 31, 1993, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
The financial statements of the Diversicare Corporation of America
Facilities as of December 31, 1991, 1992 and 1993 incorporated by reference to
Omega's Annual Report on Form 10-K for the period ended December 31, 1993 have
been audited by Arthur Andersen & Co., independent public accountants, and are
included therein and incorporated herein by reference in reliance upon the
authority of such firm as experts in giving such reports.
The financial statements of Professional Health Care Management, Inc. as of
December 31, 1993 incorporated by reference to Omega's Annual Report on Form
10-K for the fiscal year ended December 31, 1993, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report included therein
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
The balance sheets of Professional Health Care Management, Inc. as of
September 30, 1992 and 1991, and the related statements of earnings, equity
(deficit), and cash flows for the three years ended September 30, 1992,
incorporated by reference to Omega's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, have been examined by Grant Thornton, certified
public accountants, as set forth in their report included therein and
incorporated herein by reference in reliance upon the authority of such firm as
experts in giving such reports.
The financial statements of Liberty Healthcare Limited Partnership as of
September 30, 1993 and 1992, included in Omega's Report on Form 8-K filed on
July 26, 1994, which are incorporated by reference in this Joint Proxy Statement
and Prospectus, have been audited by Goodman & Company, independent public
accountants, as indicated in their report with respect thereto and are
incorporated herein in reliance upon the authority of such firm as experts in
giving such reports.
The consolidated financial statements of Sterling Health Care Centers,
Inc., and Subsidiaries as of December 31, 1993 included in Omega's Report on
Form 8-K filed on July 26, 1994, have been audited by Ernst & Young LLP,
independent auditors as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements and schedules of HEP as of December 31, 1993, 1992
and 1991 included or incorporated by reference to HEP's Annual Report on Form
10-K for the years ended December 31, 1993, which are incorporated by reference
in this Joint Proxy Statement and Prospectus, have been audited by Coopers &
Lybrand L.L.P., independent public accountants, as indicated in their reports
with respect thereto
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and are incorporated herein in reliance upon the authority of such firm as
experts in giving such reports. It is expected that representatives of Coopers &
Lybrand L.L.P., will be present at the HEP Special Meeting and will be available
to respond to questions. They will be given an opportunity to make a statement
at the HEP Special Meeting if they so desire.
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
OF OMEGA SHAREHOLDERS
Proposals of shareholders must be received by Omega at its principal
executive offices located at 905 West Eisenhower Circle, Suite 110, Ann Arbor,
Michigan 48103 by November 18, 1994 for inclusion in Omega's proxy statement and
form of proxy relating to Omega's 1995 annual meeting of shareholders.
EXPENSES OF SOLICITATION
Omega and HEP will share equally the expenses in connection with printing
and distributing this Joint Proxy Statement and Prospectus. The costs of
solicitation of proxies will be borne by the respective company incurring such
costs. Each of the respective companies will reimburse brokers, fiduciaries,
custodians and other nominees for reasonable out-of-pocket expenses incurred in
sending this Joint Proxy Statement and Prospectus and other proxy materials to,
and obtaining instructions relating to such materials from, beneficial owners of
stock. Omega and HEP shareholder proxies may be solicited by directors, officers
or regular employees of Omega and HEP, respectively, in person, by letter or by
telephone or telegram. In addition, Omega and HEP have retained Georgeson &
Company, New York, New York, to assist in the solicitation of proxies. It is
estimated that their fees for services to Omega and HEP will not exceed $8,000
and $6,500 plus expenses, respectively.
Omega and HEP will also reimburse custodians, nominees and fiduciaries for
forwarding proxies and proxy materials to the beneficial owners of their stock
in accordance with regulations of the SEC and NYSE.
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ANNEX I
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AMENDED AND RESTATED
MERGER AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF JUNE 17, 1994
BY AND BETWEEN
OMEGA HEALTHCARE INVESTORS, INC.
AND
HEALTH EQUITY PROPERTIES INCORPORATED
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.1 The Merger....................................................... I-6
SECTION 1.2 Effective Time of the Merger..................................... I-6
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 Articles of Incorporation........................................ I-7
SECTION 2.2 Bylaws........................................................... I-7
SECTION 2.3 Directors........................................................ I-7
SECTION 2.4 Officers......................................................... I-7
SECTION 2.5 Further Action................................................... I-7
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Shares in the Merger....................... I-7
SECTION 3.2 No Modification of Purchaser Securities.......................... I-9
SECTION 3.3 Exchange of Certificates......................................... I-9
SECTION 3.4 No Fractional Securities......................................... I-10
SECTION 3.5 Dissenting Stockholders.......................................... I-10
SECTION 3.6 Closing.......................................................... I-11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.1 Organization and Qualification................................... I-11
SECTION 4.2 Capitalization................................................... I-11
SECTION 4.3 Subsidiaries..................................................... I-12
SECTION 4.4 Authority; Non-Contravention; Approvals.......................... I-12
SECTION 4.5 Reports and Financial Statements................................. I-13
SECTION 4.6 Absence of Undisclosed Liabilities............................... I-14
SECTION 4.7 Absence of Certain Changes or Events............................. I-14
SECTION 4.8 Litigation....................................................... I-14
SECTION 4.9 Registration Statement and Proxy Statement....................... I-14
SECTION 4.10 No Violation of Law.............................................. I-15
SECTION 4.11 Compliance with Agreements....................................... I-16
SECTION 4.12 Taxes............................................................ I-16
SECTION 4.13 Employee Benefit Plans; ERISA.................................... I-17
SECTION 4.14 Certain Agreements............................................... I-18
SECTION 4.15 Labor Controversies.............................................. I-18
SECTION 4.16 Books, Records and Accounts...................................... I-19
SECTION 4.17 Opinion of Financial Advisor..................................... I-19
SECTION 4.18 Company Ownership of the Purchaser Common Stock.................. I-19
SECTION 4.19 NYSE............................................................. I-19
SECTION 4.20 Contracts, Etc. ................................................. I-19
SECTION 4.21 Intellectual Property............................................ I-20
SECTION 4.22 Disclosure....................................................... I-20
SECTION 4.23 Brokers and Finders.............................................. I-20
SECTION 4.24 REIT Qualification............................................... I-20
SECTION 4.25 Title to Properties.............................................. I-20
SECTION 4.26 Title Insurance.................................................. I-21
SECTION 4.27 Environmental Matters............................................ I-21
SECTION 4.28 Over Financing................................................... I-21
SECTION 4.29 Defects.......................................................... I-21
SECTION 4.30 Condemnation..................................................... I-21
SECTION 4.31 Taxes and Assessments on Company Properties...................... I-21
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SECTION 4.32 Properties and Leases............................................ I-22
SECTION 4.33 Mortgages........................................................ I-22
SECTION 4.34 Company Mortgage Loans........................................... I-23
SECTION 4.35 Investment Company Act........................................... I-24
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.1 Organization and Qualification................................... I-24
SECTION 5.2 Capitalization................................................... I-25
SECTION 5.3 Subsidiaries..................................................... I-25
SECTION 5.4 Authority; Non-Contravention; Approvals.......................... I-25
SECTION 5.5 Reports and Financial Statements................................. I-26
SECTION 5.6 Absence of Undisclosed Liabilities............................... I-27
SECTION 5.7 Absence of Certain Changes or Events............................. I-27
SECTION 5.8 Litigation....................................................... I-27
SECTION 5.9 Registration Statement and Proxy Statement....................... I-27
SECTION 5.10 No Violation of Law.............................................. I-28
SECTION 5.11 Compliance with Agreements....................................... I-28
SECTION 5.12 Taxes............................................................ I-29
SECTION 5.13 Employee Benefit Plans; ERISA.................................... I-29
SECTION 5.14 Certain Agreements............................................... I-30
SECTION 5.15 Labor Controversies.............................................. I-31
SECTION 5.16 Books, Records and Accounts...................................... I-31
SECTION 5.17 Opinion of Financial Advisor..................................... I-31
SECTION 5.18 Purchaser Ownership of the Company Common Stock.................. I-31
SECTION 5.19 Contracts, Etc. ................................................. I-31
SECTION 5.20 Intellectual Property............................................ I-32
SECTION 5.21 Disclosure....................................................... I-32
SECTION 5.22 Brokers and Finders.............................................. I-32
SECTION 5.23 REIT Qualification............................................... I-32
SECTION 5.24 Title to Properties.............................................. I-33
SECTION 5.25 Title Insurance.................................................. I-33
SECTION 5.26 Environmental Matters............................................ I-33
SECTION 5.27 Over Financing................................................... I-33
SECTION 5.28 Defects.......................................................... I-33
SECTION 5.29 Condemnation..................................................... I-33
SECTION 5.30 Taxes and Assessments on Properties.............................. I-33
SECTION 5.31 Properties and Leases............................................ I-34
SECTION 5.32 Mortgages........................................................ I-34
SECTION 5.33 Purchaser Mortgage Loans......................................... I-35
SECTION 5.34 Investment Company Act........................................... I-36
SECTION 5.35 NYSE Listing..................................................... I-36
ARTICLE VI
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger............ I-36
SECTION 6.2 Conduct of Business by the Purchaser Pending the Merger.......... I-37
SECTION 6.3 Acquisition Transactions......................................... I-38
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information............................................ I-39
SECTION 7.2 Registration Statement and Proxy Statement....................... I-39
SECTION 7.3 Stockholders' Approval........................................... I-40
SECTION 7.4 Compliance with the Securities Act............................... I-40
SECTION 7.5 NYSE............................................................. I-40
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SECTION 7.6 Expenses......................................................... I-40
SECTION 7.7 Agreement to Cooperate........................................... I-40
SECTION 7.8 Public Statements................................................ I-40
SECTION 7.9 Corrections to the Proxy Statement/Prospectus and Registration I-40
Statement........................................................
SECTION 7.10 Amendment of Company Leases...................................... I-41
SECTION 7.11 Continued Qualification as a Real Estate Investment Trust........ I-41
SECTION 7.12 Consulting and Noncompetition Agreements......................... I-41
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger....... I-41
SECTION 8.2 Conditions to Obligation of the Company to Effect the Merger..... I-42
SECTION 8.3 Conditions to Obligation of the Purchaser to Effect the Merger... I-43
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination...................................................... I-43
SECTION 9.2 Effect of Termination............................................ I-44
SECTION 9.3 Amendment........................................................ I-44
SECTION 9.4 Waiver........................................................... I-44
SECTION 9.5 Expense Reimbursement; Liquidated Damages........................ I-44
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations and Warranties................... I-45
SECTION 10.2 Notices.......................................................... I-45
SECTION 10.3 Interpretation................................................... I-46
SECTION 10.4 Miscellaneous.................................................... I-46
SECTION 10.5 Counterparts..................................................... I-46
SECTION 10.6 Parties In Interest.............................................. I-46
EXHIBITS
Exhibit I: Articles of Merger -- Maryland
Exhibit II: Articles of Merger -- North Carolina
Exhibit III: Opinion of Argue Pearson Harbison & Myers
Exhibit IV: Opinion of Jones, Day, Reavis & Pogue
Exhibit V: Opinion of Stroock & Stroock & Lavan
Exhibit VI: Opinion of Stroock & Stroock & Lavan
SCHEDULES
Schedule 3.1(a)(iii) Other Rights to Purchase or Acquire Company Common Stock
Schedule 4.2(b) Company Capitalization
Schedule 4.3 Company Subsidiaries
Schedule 4.4(b) Company Authority; Non-contravention; Approvals (Generally)
Schedule 4.5(b) Company Non-ordinary Course of Business Transactions and
Receivables
Schedule 4.6 Absence of Undisclosed Liabilities by Company
Schedule 4.8 Company Litigation
Schedule 4.10 No Violation of Law/Compliance by Company
Schedule 4.11 Company's Compliance With Agreements
Schedule 4.12(a) Company Taxes
Schedule 4.12(c) Company Combined Tax Returns
Schedule 4.13(a) Company Employee Benefit Plans; ERISA -- Multi-employer Plans,
Multiple Employer Plans
Schedule 4.13(b) Company Employee Benefit Plans; ERISA-prohibited Transactions
Schedule 4.14(a) Company Employment and Other Agreements Affected by Transaction
Schedule 4.14(b) Certain Agreements of Company -- Agreements with Affiliates
Schedule 4.15 Company Labor Controversies
Schedule 4.16 Company Books, Records and Accounts
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Schedule 4.20(a) Company Contracts
Schedule 4.21 Company Intellectual Property
Schedule 4.25 Company Title to Property
Schedule 4.26(a) Company Title Insurance
Schedule 4.27 Company Environmental Matters
Schedule 4.28 Company Over Financing
Schedule 4.29 Company Defects
Schedule 4.32 Company Properties and Leases
Schedule 4.33 Company Mortgages
Schedule 4.34 Company Mortgage Loans
Schedule 5.2(b) Purchaser Capitalization
Schedule 5.3 Purchaser Subsidiaries
Schedule 5.4(b) Purchaser Authority; Non-contravention; Approvals (Generally)
Schedule 5.4(c) Purchaser Authority; Non-contravention; Approvals (Statutory
Approvals -- Environmental)
Schedule 5.5(b) Purchaser Non-ordinary Course of Business Transactions and
Receivables
Schedule 5.6 Purchaser Absence of Undisclosed Liabilities
Schedule 5.8 Purchaser Litigation
Schedule 5.10 No Violation of Law/Licenses by Purchaser
Schedule 5.11 Purchaser Compliance with Agreements
Schedule 5.12
and 5.12(c) Purchaser Taxes
Schedule 5.13(a) Purchaser Employee Benefit Plans; ERISA -- Multi-employer Plans,
Multiple Employer Plans
Schedule 5.13(b) Purchaser Employee Benefit Plans; ERISA-prohibited Transactions
Schedule 5.14(a) Purchaser Employment and Other Agreements Affected by Transaction
Schedule 5.14(b) Certain Agreements of Purchaser -- Agreements with Affiliates
Schedule 5.15 Purchaser Labor Controversies
Schedule 5.16 Purchaser Books, Records and Accounts
Schedule 5.19(a) Purchaser Contracts
Schedule 5.20 Purchaser Intellectual Property
Schedule 5.24 Purchaser Title to Property
Schedule 5.25 Purchaser Environmental Matters
Schedule 5.26 Purchaser Over Financing
Schedule 5.27 Purchaser Defects
Schedule 5.30 Purchaser Properties and Leases
Schedule 5.31 Purchaser Mortgages
Schedule 5.32 Mortgage Loans by Purchaser
Schedule 5.33 Purchaser Title Insurance
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AMENDED AND RESTATED
MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED MERGER AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement"), is entered into as of June 17, 1994 by and between Omega
Healthcare Investors, Inc., a Maryland corporation ("Purchaser"), and Health
Equity Properties Incorporated, a North Carolina corporation (the "Company").
WHEREAS, the Boards of Directors of the Purchaser and the Company have
approved the merger of the Company with and into the Purchaser or, at the option
of the Purchaser, a wholly owned subsidiary of the Purchaser, pursuant to this
Agreement (the "Merger") and the transactions contemplated hereby upon the terms
and subject to the conditions set forth herein;
WHEREAS, it is intended that Purchaser and the Company and their respective
stockholders (except to the extent such stockholders receive cash in lieu of
fractional shares or upon the exercise of dissenters' rights) will recognize no
gain or loss for federal income tax purposes as a result of the consummation of
the Merger; and
WHEREAS, the Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as hereinafter defined) the Company shall
be merged with and into the Purchaser or, at the option of the Purchaser, a
wholly owned subsidiary of the Purchaser, in accordance with the provisions of
(i) Section 3-105 of the Maryland General Corporation Law (the "MGCL") and with
the effect provided in Section 3-114 of the MGCL and (ii) Section 55-11-05 of
the North Carolina Business Corporation Act (the "NCBCA") and with the effect
provided in Section 55-11-06 of the NCBCA, and the separate existence of the
Company shall thereupon cease. The Purchaser or such wholly owned subsidiary
shall be the surviving corporation in the Merger (hereinafter sometimes referred
to as the "Surviving Corporation") and shall continue to be governed by the laws
of the State of Maryland and the name of the Surviving Corporation shall remain
"Omega Healthcare Investors, Inc." In the event the Company is merged with and
into a wholly owned subsidiary of the Purchaser, the name of the Surviving
Corporation shall be as set forth in the Merger Filing (as hereinafter defined).
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time of the Merger, (a) the Surviving Corporation shall possess all
assets and property of every description, and every interest therein, wherever
located, and the rights, privileges, immunities, powers, franchises and
authority, of a public as well as of a private nature, of each of the Purchaser
and the Company, (b) all obligations belonging to or due each of the Purchaser
and the Company shall be vested in, and become the obligations of, the Surviving
Corporation without further act or deed, (c) title to any real estate or any
interest therein vested in either of the Purchaser and the Company shall not
revert or in any way be impaired by reason of the Merger, (d) all rights of
creditors and all liens upon any property of any of the Purchaser and the
Company shall be preserved unimpaired and (e) the Surviving Corporation shall be
liable for all of the obligations of each of the Purchaser and the Company and
any claim existing, or action or proceeding pending, by or against either of the
Purchaser or the Company may be prosecuted to judgment with right of appeal, as
if the Merger had not taken place.
SECTION 1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
at such time (the "Effective Time") as the Articles of Merger, in the form set
forth as Exhibit I hereto, are filed with the Secretary of State of the State of
Maryland and the Articles of Merger, in the form set forth as Exhibit II
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hereto, are filed with the Secretary of State of the State of North Carolina
(the "Merger Filing") or such later date and time as may be specified in the
Articles of Merger; such filings shall be made simultaneously with or as soon as
practicable after the closing of the transactions contemplated by this Agreement
in accordance with Section 3.6.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of the
Surviving Corporation as in effect immediately prior to the Effective Time shall
be the Articles of Incorporation of the Surviving Corporation after the
Effective Time, until duly amended in accordance with the terms thereof and
applicable law.
SECTION 2.2 BYLAWS. The Bylaws of the Surviving Corporation as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation after the Effective Time, and thereafter may be amended in
accordance with their terms and as provided by the Articles of Incorporation of
the Surviving Corporation and applicable law.
SECTION 2.3 DIRECTORS. The directors of the Surviving Corporation at the
Effective Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and applicable law.
SECTION 2.4 OFFICERS. The officers of the Surviving Corporation at the
Effective Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
SECTION 2.5 FURTHER ACTION. If at any time after the Effective Time of the
Merger the Purchaser shall consider that any further deeds, assignments,
conveyances, agreements, documents, instruments or assurances in law or any
other things are necessary or desirable to vest, perfect, confirm or record in
the Surviving Corporation the title to any property, rights, privileges, powers
and franchises of the Company to be acquired by the Surviving Corporation by
reason of, or as a result of, the Merger, or otherwise to carry out the
provisions of this Agreement, the Board of Directors and officers of the Company
last in office shall, to the extent then permitted so to do by applicable law,
execute and deliver, upon the Purchaser's reasonable request, any and all deeds,
assignments, conveyances, agreements, documents, instruments or assurances in
law, and do all other things necessary or proper to vest, perfect, confirm or
record title to such property, rights, privileges, powers and franchises in the
Surviving Corporation, and otherwise to carry out the provisions of this
Agreement.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 CONVERSION OF COMPANY SHARES IN THE MERGER.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any capital stock of the Company:
(i) Each share of Common Stock, $.01 par value per share, of the
Company (the "Company Common Stock"), issued and outstanding at the
Effective Time, subject to the terms and conditions of this Agreement,
shall be converted (except as provided in clause (ii) of this Section
3.1(a)), without any further action, into the right to receive, and become
exchangeable for, 0.393 shares (the "Exchange Ratio") of fully paid and
non-assessable Common Stock, $0.10 par value per share, of the Purchaser
("Purchaser Common Stock"); provided, however, that the Exchange Ratio
shall be renegotiated by the parties hereto if, at any time prior to the
tenth business day before the date of the special meeting of
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stockholders of the Company called to obtain the Company Stockholders'
Approval, the average closing price of Purchaser Common Stock on the New
York Stock Exchange ("NYSE") for a period of 30 consecutive trading days
shall be less than $19.00 per share.
(ii) Each share of Company Common Stock, if any, owned by the
Purchaser or any subsidiary of the Purchaser or the Company or any
subsidiary of the Company immediately prior to the Effective Time shall be
cancelled and shall cease to exist from and after the Effective Time;
(iii) (a) Any option, warrant or right to purchase capital stock of
the Company outstanding on the date hereof shall be exercised or cancelled
prior to the Effective Time in accordance with the terms thereof except for
employee stock options granted pursuant to the Third Amended and Restated
1989 Nonqualified Stock Option Plan (the "Options") and except for such
other rights to purchase or acquire Company Common Stock as are listed on
Schedule 3.1(a)(iii) hereto (the "Other Rights"). The Purchaser shall
assume the obligations of the Company arising with respect to the Other
Rights such that the holder of such Other Rights shall receive, if and when
issued in accordance with the terms of such Other Rights, such amount of
Purchaser Common Stock as constitutes the economic equivalent of the
Company Common Stock such holder would have received prior to the Effective
Time upon the vesting and exercise of such Other Rights converted into
Purchaser Common Stock at the Exchange Ratio. Prior to the Effective Time,
the Board of Directors of the Company will adopt such resolutions, if any,
as are necessary to adjust the terms of all outstanding Options to provide
that each Option, whether or not exercisable or vested as of the date
hereof, will become fully exercisable and vested effective as of
immediately prior to the Effective Time. Effective as of immediately prior
to the Effective Time, each Option will be cancelled in exchange for a
payment in cash by the Surviving Corporation of an amount equal to the
product of (i) the total number of shares of Company Common Stock subject
to such Option multiplied by (ii) the excess of $9.791 over the exercise
price per share subject to such Option, less applicable withholding taxes.
The Company will, upon the request of the Purchaser, take all such action
as is necessary or appropriate to effect the provisions of this Section
3.1(a)(iii), including, without limitation, obtaining the written
acknowledgment of each employee holding an Option that the payment of the
amount of cash referred to hereinabove will satisfy and discharge in full
the Company's and the Surviving Corporation's obligation to each employee
pursuant to any such Option.
(b) The Company shall take such actions as are necessary to ensure that
from and after the Effective Time none of the Company, the Surviving Corporation
or any of their respective subsidiaries is or will be bound by any options,
warrants, rights or agreements (other than pursuant to the Other Rights) which
would entitle any person, other than Purchaser or its wholly owned subsidiaries,
to beneficially own, or receive any payments in respect of (other than as
otherwise contemplated by Section 3.5 hereof and this Section 3.1(a)(iii)), any
capital stock of the Company or the Surviving Corporation.
(iv) All shares of Company Common Stock allocated as of the Effective
Time to the various participants in the Company's Stock Purchase Plan (the
"Stock Purchase Plan") will be converted into shares of Purchaser Common
Stock at the Exchange Ratio, all in accordance with Section 3.1(a)(i). With
respect to the Stock Purchase Plan, the Company will: (i) immediately after
the date hereof, cause the Stock Purchase Plan to be terminated effective
as of June 30, 1994 but such termination shall be conditioned upon the
consummation of the Merger; (ii) as soon as practicable after the Effective
Time, cause all amounts deferred through payroll deductions between June
30, 1994 and the Effective Time to be returned, without interest, to the
participants who have deferred such amounts; (iii) treat all other amounts
deferred through payroll deductions prior to the date hereof and not yet
used to purchase Company Common Stock pursuant to the terms of the Stock
Purchase Plan as if such amounts were used to purchase Company Common Stock
at a purchase price per share equal to eighty-five percent (85%) of the
lower of the closing price per share of the Company Common Stock on January
1, 1994 or the closing price per share of the Company Common Stock on the
trading date last preceding the date of this Agreement, as such closing
price is reported on the NYSE; and (iv) pay each participant thereunder an
amount equal to the product of (A) the number of shares deemed purchased by
such participant pursuant to subsection (iii) above multiplied by (B)
$9.791, less applicable withholding taxes. The Company shall amend the
Stock Purchase Plan, if necessary, and terminate the Stock Purchase Plan
and
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take such other actions as are necessary to ensure that from and after the
Effective Time, neither the Company nor the Surviving Corporation is or
will be bound by any obligations, rights or agreements which would entitle
any participant to own beneficially, or receive any payments (other than as
otherwise contemplated by Section 3.5 hereof and this Section 3.1(a)(iv))
in respect of, any capital stock of the Company or the Surviving
Corporation. Promptly following the public announcement of the execution of
this Agreement, the Company shall inform the participants of the Stock
Purchase Plan of the provisions set forth in this Section 3.1(a)(iv).
(b) If, prior to the Effective Time, the Purchaser should split or combine
the Purchaser Common Stock, or pay a stock dividend or other stock distribution
in Purchaser Common Stock, or otherwise change the Purchaser Common Stock into
any other securities, then the Exchange Ratio will be appropriately adjusted to
reflect such split, combination, stock dividend or other distribution or change.
(c) If, prior to the Effective Time, the Company should establish a record
date for the payment of any cash dividend with respect to shares of Company
Common Stock other than a regular quarterly dividend paid in an amount and at
such time as is consistent with the Company's established practice, then the
Exchange Ratio will be appropriately reduced so as to reflect the per share
amount of such dividend.
SECTION 3.2 NO MODIFICATION OF PURCHASER SECURITIES. Each share of
Purchaser Common Stock issued and outstanding at the Effective Time shall remain
issued and outstanding thereupon and shall not be converted or the terms thereof
modified in the Merger.
SECTION 3.3 EXCHANGE OF CERTIFICATES.
(a) From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock ("Company Certificates") shall cease
to have any right as a stockholder of the Company, except as otherwise provided
in this Agreement or by applicable law, and each such holder shall be entitled
to receive in exchange for such holder's Company Certificates, upon surrender
thereof to an exchange agent selected by the Purchaser (the "Exchange Agent"), a
certificate or certificates representing the number of whole shares of Purchaser
Common Stock which such holder is entitled to receive pursuant to Section 3.1(a)
and cash for any fractional share of Purchaser Common Stock which such holder
may be entitled to receive pursuant to Section 3.4 hereof. Notwithstanding any
other provision of this Agreement, (i) until holders or transferees of Company
Certificates theretofore representing shares of Company Common Stock have
surrendered such certificates for exchange as provided herein, (A) no dividends
shall be paid by the Company with respect to any shares represented by such
Company Certificates (other than such dividends as may be required to be paid by
the Company after the date hereof to comply with the requirements for continuing
qualification as a "real estate investment trust" under the Code (as hereinafter
defined) and the rules and regulations thereunder) and any dividends that may
become payable on Purchaser Common Stock subsequent to the Effective Time shall
be deposited with the Exchange Agent to be held for and paid to holders of
Company Common Stock upon surrender of Company Certificates in exchange for
shares of Purchaser Common Stock and (B) no payment for fractional shares shall
be made and (ii) without regard to when such Company Certificates are
surrendered for exchange as provided herein, no interest shall be paid on any
dividends or any payment for fractional shares. If any certificate for shares of
Purchaser Common Stock is to be issued in a name other than that in which the
Company Certificate surrendered in exchange therefor is registered, it shall be
a condition of such exchange that the person requesting such exchange shall pay
any transfer or other taxes required by reason of the issuance of certificates
for such shares of Purchaser Common Stock in a name other than that of the
registered holder of the Company Certificate so surrendered, or shall establish
to the satisfaction of the Purchaser that such tax has been paid or is not
applicable. No transfers of Company Common Stock shall be made on the stock
transfer books of the Company after the Effective Time.
(b) Promptly after the Effective Time, the Purchaser shall make available
to the Exchange Agent (i) a sufficient number of certificates representing
shares of Purchaser Common Stock required to effect the exchange referred to in
Section 3.3(a) and (ii) in the event that the Purchaser shall declare and pay
any dividends on Purchaser Common Stock subsequent to the Effective Time, cash
in an amount sufficient to
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enable the Exchange Agent to pay the appropriate dividends on any shares of
Purchaser Common Stock when issued in exchange for Company Common Stock.
(c) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record of a Company Certificate as of the Effective Time (i) a
form letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Company Certificates shall pass, only upon
actual delivery of the Company Certificates to the Exchange Agent) and (ii)
instructions for use in effecting the surrender of the Company Certificates in
exchange for certificates representing shares of Purchaser Common Stock. Upon
surrender of Company Certificates for cancellation to the Exchange Agent,
together with a duly executed letter of transmittal and such other documents as
the Exchange Agent shall reasonably require, the holder of such Company
Certificates shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Purchaser Common Stock into which
the shares of Company Common Stock theretofore represented by the Company
Certificates so surrendered shall have been converted pursuant to the provisions
of Section 3.1(a) and payment for any fractional share of Purchaser Common Stock
and any dividends that may have become payable with respect to the Purchaser
Common Stock, and the Company Certificates so surrendered shall forthwith be
cancelled. Until so surrendered, Company Certificates shall represent solely the
right to receive the number of whole shares of Purchaser Common Stock that shall
be issued in exchange for the Company Common Stock, any dividends on Purchaser
Common Stock that may have become payable during the period commencing on the
Effective Time and ending on the effective date of the exchange of Company
Certificates for Purchaser Common Stock and cash in lieu of a fractional share
of Purchaser Common Stock as contemplated by Section 3.4. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be liable to a
holder of shares of Company Common Stock for any shares of Purchaser Common
Stock or dividends or distributions thereon delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws. The Exchange
Agent shall not be entitled to vote or exercise any rights of ownership with
respect to the Purchaser Common Stock held by it from time to time hereunder.
(d) At any time following 180 days after the Effective Time of the Merger,
the Surviving Corporation shall be entitled to require the Exchange Agent to
deliver to the Surviving Corporation any Purchaser Common Stock and cash
deposited with the Exchange Agent to enable the Exchange Agent to pay for any
fractional shares of Purchaser Common Stock as well as any accrued dividends on
Purchaser Common Stock pursuant to Section 3.3(a) which had been made available
to the Exchange Agent by or on behalf of the Purchaser and which has not been
disbursed to holders of Company Certificates representing shares of Company
Common Stock, and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat or other similar
laws) only as general creditors thereof with respect to the consideration
payable upon due surrender of their certificates representing shares of Company
Common Stock.
SECTION 3.4 NO FRACTIONAL SECURITIES. Notwithstanding any other provision
of this Agreement, no certificates or scrip for fractional shares of Purchaser
Common Stock shall be issued in the Merger and no Purchaser Common Stock
dividend, stock split or interest shall be paid or have effect with respect to
any fractional interest in a share of Purchaser Common Stock, and such
fractional interests shall not entitle the owner thereof to vote or to any other
rights of a security holder. In lieu of any such fractional shares, each holder
of Company Common Stock who would otherwise have been entitled to receive a
fraction of a share of Purchaser Common Stock upon surrender of Company
Certificates for exchange pursuant to this Article III will receive a payment in
cash therefor (without interest) at a pro rata price based on the Exchange
Ratio.
SECTION 3.5 DISSENTING STOCKHOLDERS.
(a) For each outstanding share of Company Common Stock, the holder of which
has delivered to the Company a written demand for the fair value of such
holder's Company Common Stock in accordance with Section 55-13-21 of the NCBCA
and whose rights have not terminated under such Section (any shareholder duly
making such demand being hereinafter called a "Dissenting Stockholder"), such
shares of Company Common Stock shall not be converted into or represent a right
to receive Purchaser Common Stock hereunder. If any Dissenting Stockholder shall
in accordance with Section 55-13-21 of the NCBCA become
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entitled to receive payment of the fair value for his or her shares, such
payment shall be made by the Purchaser and the shares of Company Common Stock
held by such Dissenting Stockholder shall thereupon be cancelled; provided,
however, that the Purchaser may terminate this Agreement as more fully set forth
in Section 9.1 if the total number of shares of Company Common Stock as to which
all Dissenting Stockholders shall have become entitled to receive the fair value
thereof pursuant to Section 55-13-21 of the NCBCA exceeds 10% of the total
number of shares of Company Common Stock issued and outstanding as of the
Effective Time unless the Purchaser, in its sole discretion, elects to waive the
limitation contained in this proviso. If the rights of any Dissenting
Stockholder shall have terminated in accordance with Section 55-13-21 of the
NCBCA, such Dissenting Stockholder shall no longer be entitled to receive
payment of the fair value of his or her shares of Company Common Stock under
Section 55-13-21 of the NCBCA and such shares of Company Common Stock shall
thereupon be deemed as of the Effective Time of the Merger to have been
converted into and to have become exchangeable for Purchaser Common Stock,
together with payment for any fractional share of Purchaser Common Stock and any
dividends that may have become payable with respect to the Purchaser Common
Stock, without any interest thereon, all in accordance with Section 3.3(c) of
this Agreement.
(b) At all times prior to the Effective Time of the Merger, the Company
shall give the Purchaser prompt notice of any written demands for the fair value
of any shares of Company Common Stock, attempted withdrawals of such demands and
any other instruments served pursuant to the NCBCA and received by the Company
relating to stockholders' rights to receive fair value of shares of Company
Common Stock. The Company shall consult with the Purchaser regarding all
negotiations between the Company and holders of Company Common Stock with
respect to such demands. The Company shall not, except with the prior written
consent of the Purchaser, voluntarily make any payment with respect to any
demands for fair value of shares of Company Common Stock, or offer to settle or
settle any such demands or approve any withdrawal of any such demands.
SECTION 3.6 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Jones, Day,
Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, on the third
business day immediately following the date on which the last of the conditions
set forth in Article VIII hereof is fulfilled or waived, or at such other time
and place as the Purchaser and the Company shall mutually agree (the date on
which the Closing occurs being the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. The Company and each of the
Company Subsidiaries (as hereinafter defined) is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and each has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted and as proposed by the Company and each such Company
Subsidiary to be conducted. The Company and each Company Subsidiary is qualified
to do business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not have and would not reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the Company and the Company Subsidiaries, taken as a whole. True,
accurate and complete copies of the charter and bylaws of the Company and each
Company Subsidiary, in each case as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to the Purchaser.
SECTION 4.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 130 million
shares of Company Common Stock and 50 million shares of Preferred Stock, $0.01
par value per share. As of June 3, 1994,
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14,585,813 shares of the Company Common Stock were issued and outstanding and no
shares of any other class of capital stock of the Company were issued and
outstanding. All of the issued and outstanding shares of Company Common Stock
are validly issued and are fully paid, nonassessable and free of preemptive
rights. The authorized capital stock of each Company Subsidiary is owned 100% by
the Company and all of the issued and outstanding shares of each Company
Subsidiary are fully paid and nonassessable.
(b) Except as set forth in Schedule 4.2(b) hereto, as of June 3, 1994 there
were no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement, obligating the Company or any Company Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of the Company or any Company Subsidiary or obligating the
Company or any Company Subsidiary to grant, extend or enter into any such
agreement or commitment. There are no voting trusts, proxies or other agreements
or understandings to which the Company is a party or is bound with respect to
the voting of any shares of capital stock of the Company or any Company
Subsidiary. Subsequent to June 3, 1994, neither the Company nor any Company
Subsidiary has (i) issued any shares of Company Common Stock except upon
exercise or conversion of the above-described stock equivalents or (ii) issued
any additional stock equivalents.
SECTION 4.3 SUBSIDIARIES. The Company has no subsidiaries except as
disclosed on Schedule 4.3 hereto ("Company Subsidiaries"). Each Company
Subsidiary is a "qualified REIT subsidiary" under Section 856 of the Code.
Neither the Company nor any Company Subsidiary is a partner in any partnership
or joint venture and will not become one prior to the Effective Time.
SECTION 4.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to enter into this
Agreement and, subject to the Company Stockholders' Approval (as hereinafter
defined) and the Company Required Statutory Approvals (as hereinafter defined),
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement, and the consummation by the Company of the transactions
contemplated hereby, have been duly authorized by the Company's Board of
Directors and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated hereby, except for
the Company Stockholders' Approval and the obtaining of the Company Required
Statutory Approvals. This Agreement has been duly and validly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by the Purchaser, constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) Except as set forth in Schedule 4.4(b) hereto, the execution and
delivery of this Agreement by the Company do not, and the consummation by the
Company of the transactions contemplated hereby will not, violate, conflict with
or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Company Subsidiary under any of the
terms, conditions or provisions of (i) the Articles of Incorporation or Bylaws
of the Company or any Company Subsidiary, (ii) subject to obtaining the Company
Required Statutory Approvals and the receipt of the Company Stockholders'
Approval, any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to the Company or any Company Subsidiary or, to the
Company's best knowledge, any of their respective properties or assets, or (iii)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or any Company Subsidiary is now a party or by which
the Company or any Company Subsidiary or, to the Company's best knowledge, any
of their respective properties or assets may be bound or affected, excluding
from the foregoing clauses (ii) and (iii) such violations, conflicts, breaches,
defaults, terminations,
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accelerations or creations of liens, security interests, charges or encumbrances
that would not, in the aggregate, have, or be reasonably expected to have, a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries, taken as a whole.
(c) Except for (i) any filings by the Purchaser and the Company that may be
required by Title II of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the filing of the Proxy
Statement/Prospectus (as defined below) with the Securities and Exchange
Commission (the "SEC ") pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Securities Act of 1933, as amended (the
"Securities Act"), and the declaration of the effectiveness thereof by the SEC
and filings with various state blue sky authorities, (iii) the making of the
Merger Filing with the Secretary of State of the State of Maryland and the
Secretary of State of the State of North Carolina in connection with the Merger,
(iv) any required filings with or approvals from applicable state environmental
authorities and (v) any required filings with or approvals from applicable state
health care regulation and licensing authorities (the filings and approvals
referred to in clauses (i) through (v) are collectively referred to as the
"Company Required Statutory Approvals"), to the Company's best knowledge, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, other than
such declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the Company and the Company Subsidiaries, taken as a whole.
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS.
(a) The Company has filed with the SEC all forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto) required
to be filed by it under each of the Securities Act and the Exchange Act and the
respective rules and regulations thereunder, all of which complied in all
material respects with all applicable requirements of the appropriate federal
securities act and the rules and regulations thereunder. The Company has
previously delivered to the Purchaser copies of its (i) Annual Reports on Form
10-K for the fiscal year ended December 31, 1993 (the "Company 10-K") and for
all of the preceding fiscal years for which such reports were required to be
filed, as filed with the SEC, (ii) annual reports to stockholders for the three
most recent fiscal years in the form provided to stockholders, (iii) proxy and
information statements relating to (A) all meetings of its stockholders (whether
annual or special) and (B) actions by written consent in lieu of a stockholders'
meeting from January 1, 1991 until the date hereof, (iv) Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994 (the "Company 10-Q") and (v) all
other reports or registration statements filed by the Company with the SEC since
January 1, 1991 (other than Registration Statements filed on Form S-8) (the
documents referred to in clauses (i), (ii), (iii), (iv) and (v) are collectively
referred to as the "Company SEC Reports"). As of their respective dates, the
Company SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of the Company and the
Company Subsidiaries included in such reports (the "Company Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present the financial
position of the Company and the Company Subsidiaries on a consolidated basis as
of the dates thereof and the results of their operations and cash flows for the
periods then ended (except that the unaudited interim financial statements do
not contain any notes thereto and are subject to normal year-end audit
adjustments, which individually and in the aggregate, will not materially
adversely affect the unaudited interim financial statements).
(b) All of the accounts receivable of the Company and the Company
Subsidiaries included in the Company Financial Statements or otherwise,
including any transactions with related parties, reflect actual transactions and
will not be subject to offset or deduction and, except as disclosed on Schedule
4.5(b), have arisen in the ordinary course of business. Except as disclosed on
Schedule 4.5(b) hereto, all of such accounts receivable will be collected
(without recourse to any judicial proceedings) within one month of the Closing
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Date at the aggregate recorded amounts thereof net of any reserves established
in a manner consistent with past practices of the Company.
SECTION 4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on
Schedule 4.6 hereto, neither the Company nor any Company Subsidiary had, at
December 31, 1993, and has not incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature
(other than ordinary and recurring operating expenses), (a) except liabilities,
obligations or contingencies which are accrued or reserved against in the
Company Financial Statements or reflected in the notes thereto and (b) except
for any liabilities, obligations or contingencies which (i) would not, in the
aggregate, have, or be reasonably expected to have, a material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Company and the Company Subsidiaries,
taken as a whole or (ii) have been discharged or paid in full prior to the date
hereof.
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1993,
there has not been any material adverse change, or any event which would
reasonably be expected to result in a material adverse change, individually or
in the aggregate, in the business, operations, properties, assets, liabilities,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries, taken as a whole.
SECTION 4.8 LITIGATION.
(a) Except as disclosed on Schedule 4.8 hereto, there are no claims, suits,
actions or proceedings pending against, relating to or affecting the Company or
any Company Subsidiary or, to the best of the Company's knowledge without any
independent investigation, (i) any of the Company's properties or (ii) any of
the Company's or a Company Subsidiary's borrowers or lessees before or by any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator. Except as disclosed on Schedule 4.8 hereto, to the
best of the Company's knowledge without any independent investigation, there are
no claims, suits, actions or proceedings threatened against, relating to or
affecting the Company, any Company Subsidiary or any of their respective
properties or, any of the Company's borrowers or lessees, before or by any
court, governmental department, commission, agency, instrumentality, authority
or arbitrator that could reasonably be expected, either alone or in the
aggregate with all such claims, actions or proceedings, to affect materially and
adversely the business, operations, properties (including the present
maintenance, operation, occupancy or use of any such property), assets,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries, taken as a whole. Except as disclosed on
Schedule 4.8, neither the Company nor any Company Subsidiary is subject to any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would have any material adverse effect on the business, operations,
properties (including the present maintenance, operation, occupancy or use of
any such property), assets, condition (financial or other), results of
operations or prospects of the Company and the Company Subsidiaries, taken as a
whole.
(b) There is no litigation or governmental investigation pending or, to the
best of the Company's knowledge, threatened, nor is there any order, injunction
or decree, outstanding, existing or relating to the Company or any Company
Subsidiary, or, to the best of the Company's knowledge without any independent
investigation, any of their respective properties, that could have a material
adverse effect upon the present maintenance, operation, occupancy or use of such
Company Property.
SECTION 4.9 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by the Company for inclusion or incorporation by
reference in (a) the Registration Statement on Form S-4 to be filed under the
Securities Act with the SEC by the Purchaser in connection with the Merger for
the purpose of registering the shares of the Purchaser Common Stock to be issued
in the Merger (the "Registration Statement") or (b) the proxy or information
statement to be distributed in connection with the Company's and Purchaser's
meetings of their respective stockholders to vote upon this Agreement and the
transactions contemplated hereby (the "Proxy Statement" and, together with the
prospectus included in the Registration Statement, the "Proxy Statement/
Prospectus") will, in the case of the Proxy Statement/Prospectus or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement/Prospectus
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and any amendments or supplements thereto, and at the time of the meetings of
stockholders of the Company and Purchaser to be held in connection with the
transactions contemplated by this Agreement or, in the case of the Registration
Statement, as amended or supplemented, at the time it becomes effective and at
the time of such meetings of the stockholders of the Company and the Purchaser,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act (as applicable thereto) and the rules and
regulations promulgated thereunder, except that no representation is made by the
Company with respect to information supplied by the Purchaser or derived
therefrom for inclusion therein.
SECTION 4.10 NO VIOLATION OF LAW. Except as disclosed on Schedule 4.10
hereto, none of the Company, any Company Subsidiary or, to the best of the
Company's knowledge without any independent investigation, any of the Company's
borrowers or lessees is in violation of or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation or any applicable medical waste law, ordinance or
regulation) of any governmental or regulatory body or authority, except for
violations which, in the aggregate, do not have, and would not reasonably be
expected to have, a material adverse effect on the business, operations,
properties, assets, condition (financial or other), results of operations or
prospects of the Company and the Company Subsidiaries taken as a whole or of any
such borrower or lessee. Except as disclosed on Schedule 4.10 hereto, no
investigation or review of the Company, the Company Subsidiaries or, to the best
knowledge of the Company without any independent investigation, of any of the
Company's borrowers or lessees by any governmental or regulatory body or
authority is pending or, to the best knowledge of the Company without any
independent investigation, threatened, nor has any governmental or regulatory
body or authority indicated to the Company or any Company Subsidiary an
intention to conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, will not have, and would not
reasonably be expected to have, a material adverse effect on the business,
operations, properties (including the present maintenance, operation, occupancy
or use of any such property), assets, condition (financial or other), results of
operations or prospects of the Company and the Company Subsidiaries taken as a
whole or of any such borrower or lessee. Except as disclosed on Schedule 4.10
hereto, the Company, the Company Subsidiaries and, to the Company's best
knowledge without any independent investigation, each of their respective
borrowers and lessees, has all permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and approvals
necessary to conduct its business as presently conducted and as proposed by the
Company, such Company Subsidiary or such borrower or lessee to be conducted (the
foregoing hereinafter referred to collectively as the "Permits"), except for
permits, licenses, franchises, variances, exemptions, orders, authorizations,
consents and approvals the absence of which, alone or in the aggregate, would
not have a material adverse effect on the business, operations, properties
(including the present maintenance, operation, occupancy or use of any such
property), assets, condition (financial or other), results of operations or
prospects of the Company and the Company Subsidiaries taken as a whole or such
borrower or lessee. Except as set forth on Schedule 4.10, the Company, the
Company Subsidiaries and, to the best knowledge of the Company without any
independent investigation, each of the Company's borrowers and lessees, (a) has
duly and currently filed all reports and other information required to be filed
with any federal, state or local governmental or regulatory authority in
connection with the Permits, (b) is not in violation of the terms of any Permit,
except for delays in filing reports or violations which, alone or in the
aggregate, would not have a material adverse effect on the business, operations,
properties (including the present maintenance, operation, occupancy or use of
any such property), assets, condition (financial or other), results of
operations or prospects of the Company and the Company Subsidiaries taken as a
whole or such borrower or lessee and (c) is using and occupying each of the
Company Properties in a manner that complies with all applicable codes and
zoning laws and regulations except where the failure to so comply would not
have, or would not be reasonably expected to have a material adverse effect on
the business, operations, properties (including the present maintenance,
operation, occupancy or use of any such property), assets, condition (financial
or other), results of operations or prospects of the Company and the Company
Subsidiaries taken as a whole or such borrower or lessee.
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SECTION 4.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed on Schedule
4.11 hereto, neither the Company, any Company Subsidiary nor, to the best of the
Company's knowledge without any independent investigation, any other party is in
breach or violation of or in default in the performance or observance of any
term or provision of, and no event has occurred which, with lapse of time or
action by a third party, could result in a default under, (a) the Articles of
Incorporation or Bylaws of the Company or any Company Subsidiary or (b) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which the Company or any
Company Subsidiary is a party or by which it is bound or to which any of its
properties are subject, which breaches, violations and defaults, in the case of
clause (b) of this Section 4.11, would have, or be reasonably expected to have,
in the aggregate, a material adverse effect on the business, operations,
properties (including the present maintenance, operation, occupancy or use of
any such property), assets, condition (financial or other), results of
operations or prospects of the Company and the Company Subsidiaries taken as a
whole.
SECTION 4.12 TAXES.
(a) The Company has (i) duly filed with the appropriate governmental
authorities all Tax Returns (as hereinafter defined) required to be filed by it
for all periods ending on or prior to the Effective Time, has not filed for an
extension to file any Tax Returns not yet filed except with respect to such Tax
Returns as are listed on Schedule 4.12(a) hereto and such Tax Returns are true,
correct and complete in all material respects and (ii) duly paid in full or made
adequate provision for the payment of all Taxes (as hereinafter defined) for all
periods ending at or prior to the Effective Time (whether or not shown on any
Tax Return). Except as set forth in Schedule 4.12(a) hereto, the Tax Returns
referred to in clause (i) hereinabove have been examined by the United States
Internal Revenue Service ("IRS") or the appropriate governmental authority or
the period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, all deficiencies asserted or assessments made
as a result of such examinations have been paid in full and no issues that have
been raised by the relevant governmental authority in connection with the
examination of any of the Tax Returns referred to in clause (i) hereinabove are
currently pending. No claim has been made by any authority in a jurisdiction
where the Company or any Company Subsidiary does not file a Tax Return that the
Company or any Company Subsidiary is or may be subject to tax in such
jurisdiction. No waivers of statutes of limitation have been given by or
requested with respect to any Taxes of the Company. The Company has not agreed
to any extension of time with respect to any Tax deficiency. The liabilities and
reserves for Taxes reflected in the Company balance sheet as of December 31,
1993 contained in the Company 10-K (the "1993 Company Balance Sheet") are
adequate to cover all Taxes for all periods ending on or prior to December 31,
1993 and, to the best of the Company's knowledge without any independent
investigation, there are no liens for Taxes upon any property or asset of the
Company, except for liens for Taxes not yet due. The Company is not a party to
any agreement providing for the allocation or sharing of Taxes with any entity
except for certain of the Company Leases (as hereinafter defined) which provide
that the lessee thereunder shall pay all taxes assessed with respect to the
demised Company Property. The Company has not, with regard to any assets or
property held, acquired or to be acquired by it, filed a consent to the
application of Section 341(f) of the Internal Revenue Code of 1986, as amended,
and all regulations promulgated thereunder, as in effect from time to time (the
"Code"). Neither the Company nor any of its officers (including the employee
responsible for Tax matters) expect any authority to assess any additional Taxes
for any period for which Tax Returns have been filed. The Company has withheld
and paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditors,
stockholder, or other third party. The Company has or will have, by the
Effective Time, received cash sufficient to satisfy the requirements of Section
857(a) of the Code for the taxable years of the Company up to the Effective
Time.
(b) The Company has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Section
280G of the Code.
(c) Except as set forth on Schedule 4.12(c) hereto, the Company has not
been a member of any affiliated or combined group of companies that files a
consolidated, affiliated, or other combined group Tax
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Return and the Company has no liability for the Taxes of any person under
Treasury Regulations 1.1502-6 (or any similar provision of non-federal law) as a
transferee or successor, by contract, or otherwise.
(d) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, withholding, social security,
occupation, use, service, service use, license, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by the United States, or any state,
local or foreign government or subdivision or agency thereof whether computed on
a separate, consolidated, unitary, combined or any other basis; and such term
shall include any interest, fines, penalties or additional amounts attributable
or imposed or with respect to any such taxes, charges, fees, levies or other
assessments.
(e) For purposes of this Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
SECTION 4.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in Schedule 4.13(a) hereto, at the date hereof, the
Company does not maintain or contribute to, and is not a party to, any material
employee benefit plans, programs, arrangements and practices (such plans,
programs, arrangements and practices of the Company and its subsidiaries being
referred to as the "Company Plans"), including employee benefit plans within the
meaning set forth in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended, and all regulations promulgated thereunder, as in effect
from time to time ("ERISA"), or any written employment contracts which contracts
are not immediately terminable without penalty or further liability, or other
similar material arrangements for the provision of benefits (excluding any
"Multiemployer Plan" within the meaning of Section 3(37) of ERISA or any
"Multiple Employer Plan" within the meaning of Section 413(c) of the Code).
Schedule 4.13(a) hereto lists all Multiemployer Plans and Multiple Employer
Plans which the Company maintains or to which it makes contributions. The
Company does not have any obligation to create any additional such plan or to
amend any such plan so as to increase benefits thereunder, except as required
under the terms of the Company Plans, under existing collective bargaining
agreements or to comply with applicable law.
(b) Except as set forth in Schedule 4.13(b) hereto, (i) there have been no
prohibited transactions within the meaning of Section 406 or 407 of ERISA or
Section 4975 of the Code with respect to any of the Company Plans that could
result in penalties, taxes or liabilities which, singly or in the aggregate,
could have a material adverse effect on the business, operations, properties,
assets, condition (financial or other) results of operations or prospects of the
Company, (ii) there is no outstanding liability in excess of $10,000, whether
measured alone or in the aggregate, under Title IV of ERISA with respect to any
of the Company Plans except for premiums due, (iii) neither the Pension Benefit
Guaranty Corporation nor any plan administrator has instituted proceedings to
terminate any of the Company Plans subject to Title IV of ERISA other than in a
"standard termination" described in Section 4041(b) of ERISA, (iv) none of the
Company Plans has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of each of the Company Plans ended
prior to the date of this Agreement, (v) the current present value of all
projected benefit obligations under each of the Company Plans which is subject
to Title IV of ERISA did not, as of its latest valuation date, exceed the then
current value of the assets of such plan allocable to such benefit liabilities
(based upon reasonable actuarial assumptions currently utilized for such Company
Plan), (vi) each of the Company Plans has been operated and administered in all
material respects in accordance with applicable laws during the period of time
covered by the applicable statute of limitations, (vii) each of the Company
Plans which is intended to be "qualified" within the meaning of Section 401(a)
of the Code has been determined by the IRS to be so qualified and such
determination has not been modified, revoked or limited by failure to satisfy
any condition thereof or by a subsequent amendment thereto or a failure to
amend, except that it may be necessary to make additional amendments
retroactively to maintain the "qualified" status of such Company Plans, and the
period for making any such necessary retroactive amendments has not expired,
(viii) with respect to Multiemployer Plans, the Company has not, since January
1, 1988, made or suffered a "complete withdrawal" or a "partial withdrawal," as
such terms are respectively defined in Sections 4203, 4204 and 4205 of ERISA
and, to the best knowledge of the Company, no event has occurred or is expected
to occur which presents a
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material risk of a complete or partial withdrawal under said Sections 4203, 4204
and 4205, (ix) to the best knowledge of the Company, there are no material
pending, threatened or anticipated claims involving any of the Company Plans
other than claims for benefits in the ordinary course, and (x) the Company has
no current liability in excess of $10,000, whether measured alone or in the
aggregate, for plan termination or withdrawal (complete or partial) under Title
IV of ERISA based on any plan to which any entity that would be deemed one
employer with the Company under Section 4001 of ERISA or Section 414 of the Code
contributed during the period of time covered by the applicable statute of
limitations (the "Company Controlled Group Plans"), and the Company does not
reasonably anticipate that any such liability will be asserted against the
Company, none of the Company Controlled Group Plans has an "accumulated funding
deficiency" (as defined in Section 302 of ERISA and 412 of the Code), and no
Company Controlled Group Plan has an outstanding funding waiver which could
result in the imposition of liens, excise taxes or liability against the Company
in excess of $10,000 whether measured alone or in the aggregate.
SECTION 4.14 CERTAIN AGREEMENTS.
(a) Except as set forth on Schedule 4.14(a) hereto, as of the date hereof,
neither the Company nor any Company Subsidiary is a party to any oral or written
(i) consulting or similar agreement with any present or former director, officer
or employee or any entity controlled by any such person not terminable on 30
days' or less notice for a total cost not in excess of $5,000, (ii) agreement
with any executive officer or other key employee of the Company or any Company
Subsidiary the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
or any Company Subsidiary of the nature contemplated by this Agreement, (iii)
agreement with respect to the employment of any executive officer or other key
employee of the Company or any Company Subsidiary or (iv) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of the transactions
contemplated by this Agreement.
(b) Except as disclosed on Schedule 4.14(b) hereto, neither the Company nor
any Company Subsidiary is indebted for money borrowed, either directly or
indirectly, from any of its officers, directors, or any Affiliate (as defined
below), in any amount whatsoever; nor are any of its officers, directors, or
Affiliates indebted for money borrowed from the Company; nor are there any
transactions of a continuing nature between the Company or any Company
Subsidiary and any of its officers, directors, or Affiliates (other than by or
through the regular employment thereof by the Company) not subject to
cancellation which will continue beyond the time the Merger becomes effective,
including, without limitation, use of the Company's or any Company Subsidiary's
assets for personal benefit with or without adequate compensation. For purposes
of this Agreement, the term "Affiliate" shall mean any Person that, directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, the Person specified. As used in the foregoing
definition, the term (i) "control" shall mean the power through the ownership of
voting securities, contract, or otherwise to direct the affairs of another
Person and (ii) "Person" shall mean an individual, firm, trust, association,
corporation, partnership, government (whether federal, state, local or other
political subdivision, or any agency or bureau of any of them) or other entity.
SECTION 4.15 LABOR CONTROVERSIES. Except as set forth on Schedule 4.15
hereto, (a) neither the Company nor any Company Subsidiary is a party to any
collective bargaining agreements, (b) there are no controversies pending or, to
the best knowledge of the Company, threatened between the Company and any
representatives of any of its employees, (c) there are no material
organizational efforts presently being made involving any of the presently
unorganized employees of the Company or any Company Subsidiary, (d) the Company
and the Company Subsidiaries have complied in all material respects with all
laws relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, and the
payment of social security and similar taxes and (e) no person has asserted that
the Company or any Company Subsidiary is liable in any material amount for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
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SECTION 4.16 BOOKS, RECORDS AND ACCOUNTS. The Company's books, records and
accounts fairly and accurately reflect the transactions and dispositions of
assets of the Company and the Company Subsidiaries, and the Company's system of
internal accounting controls is sufficient to assure that: (i) transactions are
executed in accordance with management's authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles, and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. Except as disclosed
in Schedule 4.16 hereto, the Company has segregated all funds for security and
similar deposits received from its lessees and borrowers.
SECTION 4.17 OPINION OF FINANCIAL ADVISOR. The Company has received from a
financial advisor satisfactory to the Company's Board of Directors, an opinion
to the effect that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the Company's stockholders. Such opinion (a copy of
which has been delivered to the Purchaser) has not been withdrawn, revoked or
modified.
SECTION 4.18 COMPANY OWNERSHIP OF THE PURCHASER COMMON STOCK. The Company
is and, to the best of its knowledge, its "affiliates" and "associates"
collectively are, and as of the Effective Time will be, the "beneficial owner"
(as such terms are defined in rules and regulations under the Securities Act and
the Exchange Act) of, less than 1% of the outstanding shares of the Purchaser
Common Stock.
SECTION 4.19 NYSE. The Company Common Stock is, and immediately prior to
the Effective Time will be, listed on the NYSE.
SECTION 4.20 CONTRACTS, ETC.
(a) Schedule 4.20(a) consists of a true and complete list of all contracts,
agreements, commitments and other instruments (whether oral or written, and
including any and all amendments or modifications thereto) to which the Company
or any Company Subsidiary is a party that: (i) involve a receipt or an
expenditure or require the performance of services or delivery of goods to, by,
through, on behalf of or for the benefit of the Company or any Company
Subsidiary, which in each case relates to a contract, agreement, commitment or
instrument that either (A) requires payments or receipts in excess of $10,000
per year or (B) are not terminable by the Company or a Company Subsidiary on
notice of 30 days or less without penalty or the Company or a Company Subsidiary
being liable for damages; or (ii) involve an obligation for the performance of
services or delivery of goods by the Company or any Company Subsidiary that
cannot, or in reasonable probability will not, be performed within 45 days
subsequent to the date of this Agreement including, without limitation any of
the following which meet the aforementioned criteria:
(i) Any contracts, commitments or agreements, the lack of consummation
or performance of which would, either singly or in the aggregate, have an
adverse impact upon the business, operations or financial condition of the
Company and the Company Subsidiaries, taken as a whole, including, without
limitation, any contract or commitment which is outside of the normal,
ordinary and usual requirements of the Company's or any Company
Subsidiaries' business or at a price or prices in excess of those otherwise
available at the time such contract or commitment was entered into;
(ii) Any note receivable;
(iii) Any single contract or commitment, or sales or purchase order,
which involves future payments, performance of services or delivery of
goods and/or materials, to or by the Company or any Company Subsidiary with
an amount or value in the aggregate in excess of $10,000 per year (other
than trade accounts payable incurred in the ordinary course of business
with an amount or value of less than $10,000 per year);
(iv) Any contract or agreement with a creditor not made in the
ordinary course of business;
(v) Any contract, agreement, understanding or arrangement restricting
the Company or any Company Subsidiary from carrying on its business
anywhere in the world;
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(vi) Any instrument or arrangement evidencing or related to
indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of purchase money obligation, guaranty, subordination,
conditional sale, lease-purchase or otherwise; and
(vii) Any contract, agreement, understanding or arrangement between
the Company or any Company Subsidiary, and any Affiliate of the Company.
(b) All of the contracts, agreements or instruments described in Schedule
4.20(a) hereto are valid and binding upon the Company and the other parties
thereto and are in full force and effect and enforceable in accordance with
their terms, and neither the Company nor any Company Subsidiary that is a party
thereto nor, to the best of the Company's knowledge, any other party to any such
contract, commitment or arrangement has breached any provision of, or is in
default under, the terms thereof. Except for terms specifically described in
Schedule 4.20(a), neither the Company nor any Affiliate thereof has received any
payment from any contracting party in connection with or as an inducement for
entering into any contract, agreement or instrument except for payment for
actual services rendered or to be rendered by the Company or any Company
Subsidiary consistent with amounts historically charged for such services.
SECTION 4.21 INTELLECTUAL PROPERTY. Schedule 4.21 hereto sets forth a
complete and correct list and summary description of all trademarks, tradenames,
service marks, service names, brand names, copyrights and patents, registrations
thereof and applications therefor, applicable to or used in the business of the
Company or any Company Subsidiary, together with a complete list of all licenses
granted by or to the Company or any Company Subsidiary with respect to any of
the above. All such trademarks, tradenames, service marks, service names, brand
names, copyrights and patents are owned by the Company or a Company Subsidiary,
free and clear of all liens, claims, security interests and encumbrances of any
nature whatsoever. Except as set forth on Schedule 4.21 hereto, neither the
Company nor any Company Subsidiary is currently in receipt of any notice of any
violation or infringement of, and neither the Company nor any Company Subsidiary
is violating or infringing, the rights of others in any trademark, tradename,
service mark, copyright, patent, trade secret, know-how or other intangible
asset.
SECTION 4.22 DISCLOSURE. This Agreement and the Schedules hereto disclose
all facts material to the properties, assets, business or operations of the
Company and the Company Subsidiaries, taken as a whole, except for such facts
which, singly or in the aggregate, could not reasonably be expected to
materially and adversely affect the properties, assets, business, operations,
condition (financial or other), results of operations or prospects of the
Company and the Company Subsidiaries, taken as a whole. No statement contained
herein or in any certificate, schedule, list, exhibit or other instrument
furnished by the Company to the Purchaser pursuant to the provisions hereof
contains or will contain any untrue statement of any material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading. Matters disclosed on each Schedule
hereto shall be deemed disclosed only for purposes of the matters to be
disclosed on such Schedule and shall not be deemed to be disclosed for any other
purpose unless expressly provided therein.
SECTION 4.23 BROKERS AND FINDERS. The Company has not employed any broker,
finder or other intermediary in connection with the transactions contemplated by
this Agreement which would be entitled to any brokerage, finder's or similar fee
or commission in connection with this Agreement or the transactions contemplated
hereby.
SECTION 4.24 REIT QUALIFICATION. At all times during its existence, the
Company has been, and as of the Effective Time the Company will be, organized in
conformity with the requirements for qualification and, as of the date hereof
for all taxable periods has qualified, as a "real estate investment trust" under
the Code and the rules and regulations thereunder. The Company has at all times
during its existence (i) met the 75%, 95% and 30% income tests set forth in
Section 856 of the Code, (ii) met the 75% and 25% asset tests set forth in
Section 856 of the Code and (iii) distributed dividends to its stockholders at
least equal to the 95% requirements of Section 857 of the Code.
SECTION 4.25 TITLE TO PROPERTIES. The Company has good and marketable title
in fee simple to all real property owned by it (individually, a "Company
Property" and collectively, the "Company Properties"), and
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good and marketable title to all personal property owned by it which is material
to its business, in each case free and clear of all liens, encumbrances, claims,
security interests and defects, other than those disclosed on Schedule 4.25
hereto and those which would not, either individually or in the aggregate, have
a material adverse effect on any Company Property (including the present
maintenance, operation, occupancy or use of any such Company Property)
(collectively, the "Company Permitted Encumbrances").
SECTION 4.26 TITLE INSURANCE.
(a) Except as set forth on Schedule 4.26 hereto, an owner's policy of title
insurance issued by a nationally recognized title insurance company in a form
and containing coverages customarily approved and required by institutional
investors has been obtained for each Company Property. Except as set forth on
Schedule 4.26, each owner's policy of title insurance insures the fee simple
ownership interest of the Company or the appropriate Company Subsidiary in each
Company Property subject only to the Company Permitted Encumbrances and is in an
amount at least equal to the sum of (i) the cost of the acquisition of such
Company Property and (ii) any subsequent cost of the construction and
installation of the improvements made by the Company located on such Company
Property (measured at the time of such construction).
(b) Except as set forth on Schedule 4.26 hereto, a mortgagee's policy of
title insurance issued by a nationally recognized title insurance company in a
form and containing coverages customarily approved and required by institutional
investors and insuring title in the priority listed in Schedule 4.34 has been
obtained for each Company Mortgage Loan (as hereinafter defined). Each
mortgagee's policy of title insurance insures the mortgage interest of the
Company or the appropriate Company Subsidiary in the real property encumbered by
the Company Mortgage Loan and is in an amount at least equal to the debt of the
obligor secured by the Company Mortgage Loan.
SECTION 4.27 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 4.27
hereto, since January 1, 1989, all of the properties of the Company have been
the subject of preliminary environmental assessments in compliance with the
American Society for Testing and Materials standard for Phase I Environmental
Site Assessments, E-1528 (March 15, 1993), or other environmental assessments,
inspections or reviews more likely to reveal environmental liabilities. Except
as disclosed on Schedule 4.27 hereto, the Company has no knowledge of (i) the
unlawful presence of any hazardous substances, hazardous materials, toxic
substances or waste materials or bio-medical waste (collectively, "Hazardous
Materials") on any of the properties of the Company or (ii) any unlawful spills,
releases, discharges or disposal of Hazardous Materials that have occurred or
are presently occurring off any of the Company Properties as a result of any
construction on or operation and use of any of the Company Properties.
SECTION 4.28 OVER FINANCING. Except as set forth on Schedule 4.28 hereto,
the Company has not distributed to its stockholders the proceeds of any
financing of the Company's properties.
SECTION 4.29 DEFECTS. Except as set forth on Schedule 4.29 hereto, to the
best of the Company's knowledge without any independent investigation, there are
no material defects in the improvements located on a Company Property including,
without limitation, any defect in the foundation, structural systems, roof or
the electrical, plumbing, heating, ventilating or air conditioning systems
included within the improvements located on such Company Property and there are
no repairs or deferred maintenance required to be made thereto.
SECTION 4.30 CONDEMNATION. There is no pending or, to the best of the
Company's knowledge without any independent investigation, threatened public or
private condemnation or similar proceeding affecting a Company Property or any
part thereof which could have material adverse effect upon the present
maintenance, operation, occupancy or use of such Company Property.
SECTION 4.31 TAXES AND ASSESSMENTS ON COMPANY PROPERTIES. To the best of
the Company's knowledge without any independent investigation, there are no
material unpaid real estate property taxes or assessments due and payable
against a Company Property. Neither the Company nor any Company Subsidiary has
received any notice of assessment for public improvements with respect to or
relating to a Company Property.
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SECTION 4.32 PROPERTIES AND LEASES. Schedule 4.32 hereto sets forth a
complete and correct list of (i) all Company Properties and (ii) all leases of
the Company Properties or any part thereof in effect on the date hereof
(individually, a "Company Lease" and collectively, the "Company Leases") and
sets forth a complete and correct description of the following:
(a) The land, building and approximate square footage of the demised
premises under each Company Lease;
(b) the name of the tenant and any guarantor under each Company Lease;
(c) the date of each Company Lease and any amendment or modification
thereof, the commencement or amendment start date of each Company Lease and
the expiration date of the term of each Company Lease;
(d) the amount of annual or monthly base rent and additional rent due
under each Company Lease and the amount, or the basis of calculation
thereof, of any scheduled increase or other escalation in the annual and
monthly base rent or additional rent;
(e) any renewal, extension, expansion or cancellation right of the
tenant under each Company Lease;
(f) any option or first refusal purchase right of the tenant under
each Company Lease;
(g) any security deposit or outstanding rent concession or abatement
under each Company Lease;
There are no leases, tenancies, licenses or other rights of occupancy or use of
the Company Properties or any portion thereof except for the Company Leases and
except as set forth on Schedule 4.32 hereto. Each Company Lease is valid and
enforceable, is in full force and effect, has not been amended, modified or
supplemented except as set forth on Schedule 4.32 hereto, and the tenant
thereunder has accepted its demised premises, is in actual possession in the
normal course and has commenced payment of rent and additional rent, if
applicable, therefor. Except as set forth on Schedule 4.32 hereto, each Company
Lease provides that the tenant thereunder is required to pay all operating
expenses, repairs and maintenance, and taxes and insurance in connection with
the maintenance, ownership, use and occupancy of the Company Property demised
thereunder. Neither the Company nor any Company Subsidiary is in default in the
payment or performance of any obligation binding on the Company or a Company
Subsidiary under a Company Lease and neither the Company nor any Company
Subsidiary has given notice of default to a tenant (which default has not
previously been cured), nor does any condition or event exist which with the
giving of notice or the passage of time, or both, would constitute a default by
the Company or any Company Subsidiary or, to the best of the Company's knowledge
without any independent investigation, by a tenant under a Company Lease. The
Company does not have any knowledge of any claim, offset, right of recoupment or
defense available to a tenant under a Company Lease. There have been no material
waivers by the Company or any Company Subsidiary of any default under or breach
of a Company Lease by a tenant. Except for the Company Mortgages (as hereinafter
defined), neither the Company nor any Company Subsidiary has assigned, pledged,
hypothecated or otherwise encumbered any of its right, title or interest in and
to a Company Lease or any rents payable thereunder. No tenant has an option or
first refusal purchase right under a Company Lease except as set forth on
Schedule 4.32 hereto.
SECTION 4.33 MORTGAGES. Schedule 4.33 hereto sets forth a complete and
correct list of all mortgages, deeds of trust, deeds to secure debt and other
similar security interests encumbering the Company Properties or any part
thereof (individually, a "Company Mortgage" and collectively, the "Company
Mortgages") and sets forth a complete and correct description of the following:
(a) the Company Property encumbered by each Company Mortgage;
(b) the name of the obligor, guarantor and the holder of each Company
Mortgage;
(c) the priority of each Company Mortgage and any mortgage, deed of
trust or other similar instrument that is either prior to or subordinate to
each Company Mortgage;
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(d) the date of each Company Mortgage and any amendment or
modification thereof;
(e) the original principal amount of the debt secured by each Company
Mortgage, the current rate of interest thereunder and the current
outstanding principal balance thereof;
(f) the maturity date of the debt secured by each Company Mortgage,
the type of debt secured thereby and whether any balloon payment is due at
the maturity of the debt secured thereby;
(g) the amount of the current monthly payment of interest, principal
or other amounts due under each Company Mortgage and the amount of any
other mandatory principal or other payment due thereunder prior to the
maturity date of the debt secured thereby;
(h) any amount that has not been disbursed or advanced to the Company
by the holder of a Company Mortgage that such holder is obligated to
disburse or advance;
(i) any prepayment premiums with respect to the prepayment (full or
partial) of the debt secured by each Company Mortgage and the current
penalty payable in connection with any such prepayment; and
(j) the amount of any escrow deposits or other deposits or payments
held under each Company Mortgage by the holder of each Company Mortgage.
There are no mortgages, deeds of trusts, deeds to secure debt or other similar
instruments encumbering the Company Properties or any portion thereof except for
the Company Mortgages. Each Company Mortgage is valid and enforceable, is in
full force and effect, and has not been amended, modified or supplemented except
as set forth in Schedule 4.33 hereto. All payments, installments and charges due
and payable under a Company Mortgage have been paid in full. Neither the Company
nor any Company Subsidiary has received notice of default by the Company or any
Company Subsidiary (which default has not previously been cured) from the holder
of a Company Mortgage nor, to the best of the Company's knowledge, does any
condition or event exist which with the giving of notice or the passage of time,
or both, would constitute a default by the Company or any Company Subsidiary
under a Company Mortgage. Except as set forth on Schedule 4.33 hereto, the
occurrence of any of the transactions contemplated by this Agreement will not
require the consent or approval of the holder of a Company Mortgage and will not
violate, conflict with or constitute a default by the Company or any Company
Subsidiary under a Company Mortgage or result in a condition or event which with
the giving of notice or the passage of time, or both, would constitute a default
by the Company under a Company Mortgage.
SECTION 4.34 COMPANY MORTGAGE LOANS. Schedule 4.34 hereto sets forth a
complete and correct list of all loans made by the Company or any Company
Subsidiary to others secured by a mortgage, deed of trust, deed to secure debt
or other similar instrument encumbering real property and personalty related to
such real property (individually, a "Company Mortgage Loan" and collectively,
the "Company Mortgage Loans") and sets forth a complete and accurate description
of the following:
(a) the real property encumbered by each Company Mortgage Loan;
(b) the name of the obligor, guarantor and the holder of each Company
Mortgage Loan;
(c) the priority of each Company Mortgage Loan and any mortgage, deed
of trust, deed to secure debt or other similar instrument that is either
prior to or subordinate to each Company Mortgage Loan;
(d) the date of each Company Mortgage Loan and any amendment or
modification thereof;
(e) the original principal amount of the debt secured by each Company
Mortgage Loan, the current rate of interest thereunder and the current
outstanding principal thereof;
(f) the maturity date of the debt secured by each Company Mortgage
Loan, the type of debt secured thereby and whether any balloon payment is
due at the maturity of the debt secured thereby;
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(g) the amount of the current monthly payment of interest, principal
or other amounts due under each Company Mortgage Loan and the amount of any
other mandatory principal or other payment due thereunder prior to the
maturity date of the debt secured thereby;
(h) any amount that has not been disbursed or advanced to the obligor
under each Company Mortgage Loan by the Company or a Company Subsidiary
that the Company or a Company Subsidiary is obligated to disburse or
advance;
(i) any prepayment premiums with respect to the prepayment (full or
partial) of the debt secured by each Company Mortgage Loan and the current
penalty payable in connection with any such prepayment; and
(j) the amount of any escrow deposits or other deposits or payments
held under each Company Mortgage Loan by the Company or a Company
Subsidiary.
There are no loans made by the Company or any Company Subsidiary to others
secured by a mortgage, deeds of trust, deed to secure debt or other similar
instruments encumbering real property and personally related to such real
property except for the Company Mortgage Loans. Each Company Mortgage Loan is
valid and enforceable, is in full force and effect and has not been amended,
modified or supplemented except as set forth in Schedule 4.34 hereto. All
payments, installments and charges due and payable under each Company Mortgage
Loan have been paid in full. The Company is not in default in the payment or
performance of any obligation under a Company Mortgage Loan and has not given
any notice of default to an obligor under a Company Mortgage Loan (which default
has not previously been cured) nor, to the best of the Company's knowledge
without any independent investigation, does any condition or event exist which
with the giving of notice or the passage of time, or both, would constitute a
default by an obligor under a Company Mortgage Loan. No obligor under a Company
Mortgage Loan has a valid defense to the payment in full of the Company Mortgage
Loan nor is such Company Mortgage Loan subject to any valid right of rescission,
set-off, abatement, diminution, counterclaim or defense. There have been no
waivers by the Company or any Company Subsidiary of any default under or breach
of a Company Mortgage Loan by an obligor under a Company Mortgage Loan. The
occurrence of any of the transactions contemplated by this Agreement does not
require the consent or approval of the obligor under a Company Mortgage Loan and
will not violate, conflict with or constitute a default by the Company or any
Company Subsidiary under a Company Mortgage Loan or result in a condition or
event which with the giving of notice or the passage of time, or both, would
constitute a default by the Company or any Company Subsidiary under a Company
Mortgage Loan.
SECTION 4.35 INVESTMENT COMPANY ACT. The Company is not, and as of the
Effective Time will not be, an "investment company" or company "controlled" by
"an investment company" within the meaning of the Investment Company Act of
1940, as amended.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows (and for
the purpose of this Article V, all references to the "Purchaser" shall be deemed
to include all Purchaser Subsidiaries, as hereinafter defined, unless the
context otherwise requires):
SECTION 5.1 ORGANIZATION AND QUALIFICATION. The Purchaser and each of the
Purchaser Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and each has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted and as
proposed by the Purchaser to be conducted. The Purchaser and each Purchaser
Subsidiary is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not have,
and would not reasonably be expected to have, a material adverse effect on the
business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the
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Purchaser and the Purchaser Subsidiaries taken as a whole. True, accurate and
complete copies of each of the Articles of Incorporation and Bylaws of the
Purchaser and each Purchaser Subsidiary as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to the Company.
SECTION 5.2 CAPITALIZATION.
(a) The authorized capital stock of the Purchaser consists of 50,000,000
shares of Purchaser Common Stock of which 9,655,315 shares are issued and
outstanding as of June 3, 1994; and 10,000,000 shares of preferred stock, $1.00
par value per share of which no shares are issued and outstanding as of June 3,
1994. All of the issued and outstanding shares of Purchaser Common Stock are
validly issued and are fully paid, nonassessable and free of preemptive rights.
No subsidiary of the Purchaser holds any shares of capital stock of the
Purchaser. The authorized capital stock of each Purchaser Subsidiary is owned
100% by the Purchaser and all of the issued and outstanding shares of each
Purchaser Subsidiary are fully paid and nonassessable.
(b) Except as set forth in Schedule 5.2(b) hereto, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement that is presently exercisable obligating the Purchaser or any
Purchaser Subsidiary to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock of the Purchaser or any
Purchaser Subsidiary or obligating the Purchaser or any Purchaser Subsidiary to
grant, extend or enter into any such agreement or commitment. There are no
voting trusts, proxies or other agreements or understandings to which the
Purchaser is a party or is bound with respect to the voting of any shares of
capital stock of the Purchaser or any Purchaser Subsidiary. The shares of the
Purchaser Common Stock to be issued to stockholders of the Company in connection
with the Merger will be at the Effective Time duly authorized, validly issued,
fully paid and nonassessable and free of preemptive rights. The Purchaser Common
Stock to be issued in the Merger will be duly authorized and, when issued in
accordance with the terms of the Articles of Merger and this Agreement, will be
validly issued, fully paid and non-assessable and no stockholder of the
Purchaser will have any preemptive rights with respect thereto. The shares of
Purchaser Common Stock to be issued in the Merger will, when issued, be
registered under the Securities Act and the Exchange Act and registered or
exempt from registration under any applicable state securities laws.
SECTION 5.3 SUBSIDIARIES. The Purchaser has no subsidiaries except as
disclosed on Schedule 5.3 hereto ("Purchaser Subsidiaries"). Each Purchaser
Subsidiary is a "qualified REIT subsidiary" under Section 856 of the Code.
Neither the Purchaser nor any Purchaser Subsidiary is a partner in any
partnership or joint venture and will not become one prior to the Effective
Time.
SECTION 5.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Purchaser has full corporate power and authority to enter into this
Agreement and, subject to the Purchaser Stockholders' Approval (as hereinafter
defined) and the Purchaser Required Statutory Approvals (as hereinafter defined)
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement, and the consummation by the Purchaser of the transactions
contemplated hereby, have been duly authorized by the Purchaser's Board of
Directors and no other corporate proceedings on the part of the Purchaser are
necessary to authorize the execution and delivery of this Agreement and the
consummation by the Purchaser of the transactions contemplated hereby, except
for the Purchaser Stockholders' Approval and the obtaining of the Purchaser
Required Statutory Approvals. This Agreement has been duly and validly executed
and delivered by the Purchaser, and, assuming the due authorization, execution
and delivery hereof by the Company, constitutes a valid and binding agreement of
the Purchaser enforceable against the Purchaser in accordance with its terms,
except that such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) Except as set forth in Schedule 5.4(b) hereto, the execution and
delivery of this Agreement by the Purchaser do not, and the consummation by the
Purchaser of the transactions contemplated hereby will not, violate, conflict
with or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate
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the performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Purchaser under any of
the terms, conditions or provisions of (i) the Purchaser's Articles of
Incorporation or Bylaws, (ii) subject to obtaining the Purchaser Required
Statutory Approvals and the Purchaser Stockholders' Approval, any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to the Purchaser
or, to the best of the Purchaser's knowledge, any of its properties or assets,
or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument, obligation or agreement
of any kind to which the Purchaser is now a party or by which the Purchaser or
to the Purchaser's best knowledge any of its properties or assets may be bound,
excluding from the foregoing clauses (ii) and (iii) such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, have, or be
reasonably expected to have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Purchaser.
(c) Except for (i) any filings by the Purchaser and the Company that may be
required by the HSR Act, (ii) the filing of the Registration Statement,
including the Proxy Statement/Prospectus with the SEC pursuant to the Securities
Act and the Exchange Act, and the declaration of the effectiveness thereof by
the SEC and filings with various state blue sky authorities, (iii) the making of
the Merger Filing with the Secretary of State of the State of Maryland and the
Secretary of State of the State of North Carolina in connection with the Merger,
(iv) any required filings with or approvals from applicable state environmental
authorities and (v) any required filings with or approvals from applicable state
health care regulation and licensing authorities (the filings and approvals
referred to in clauses (i) through (v) are collectively referred to as the
"Purchaser Required Statutory Approvals"), to the Purchaser's best knowledge, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Purchaser or
the consummation by the Purchaser of the transactions contemplated hereby, other
than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other), results of
operations or prospects of the Purchaser.
SECTION 5.5 REPORTS AND FINANCIAL STATEMENTS.
(a) Since March 31, 1992, the Purchaser has filed with the SEC, all forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by it under each of the Securities Act
and the Exchange Act and the respective rules and regulations thereunder all of
which complied in all material respects with all applicable requirements of the
appropriate federal securities act and the rules and regulations thereunder. The
Purchaser has previously delivered to the Company copies of its (a) Annual
Reports on Form 10-K for the fiscal year ended December 31, 1993 ("Purchaser
10-K") and for the immediately preceding fiscal year, as filed with the SEC, (b)
annual reports to stockholders for the two most recent fiscal years in the form
provided to stockholders, (c) proxy and information statements relating to all
meetings of its stockholders (whether annual or special) from March 31, 1992,
until the date hereof, (d) Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994 (the "Purchaser 10-Q") and (e) all other reports or registration
statements filed by the Purchaser with the SEC since March 31, 1992 (other than
Registration Statements filed on Form S-8) (collectively, the "Purchaser SEC
Reports"). As of their respective dates, the Purchaser SEC Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements of the Purchaser included in such reports (the "Purchaser
Financial Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and fairly present the
financial position of the Purchaser as of the dates thereof and the results of
the Purchaser's operations and cash flows for the periods then ended (except
that the unaudited interim financial statements do not contain any notes thereto
and are subject to normal year-end audit adjustments, which individually and in
the aggregate, will not materially adversely affect the unaudited interim
financial statements).
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(b) All of the accounts receivable of the Purchaser included in the
Purchaser Financial Statements or otherwise, including any transactions with
related parties, reflect actual transactions and will not be subject to offset
or deduction and, except as disclosed on Schedule 5.5(b), have arisen in the
ordinary course of business. Except as disclosed on Schedule 5.5(b) hereto, all
of such accounts receivable will be collected (without recourse to any judicial
proceedings) within six months of the Closing Date at the aggregate recorded
amounts thereof net of any reserves established in a manner consistent with past
practices of the Company.
SECTION 5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed on
Schedule 5.6 hereto, the Purchaser did not have at December 31, 1993, and has
not incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature (other than ordinary and
recurring operating expenses), (a) except liabilities, obligations or
contingencies which are accrued or reserved against in the Purchaser Financial
Statements or reflected in the notes thereto and (b) except for any liabilities,
obligations or contingencies which (i) would not, in the aggregate, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other), results of operations or prospects of the
Purchaser or (ii) have been discharged or paid in full prior to the date hereof.
SECTION 5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1993,
there has not been any material adverse change or any event which would
reasonably be expected to result in a material adverse change, individually or
in the aggregate, in the business, operations, properties, assets, liabilities,
condition (financial or other), results of operations or prospects of the
Purchaser.
SECTION 5.8 LITIGATION.
(a) Except as disclosed on Schedule 5.8 hereto, there are no claims, suits,
actions or proceedings pending against, relating to or affecting the Purchaser
or any of its properties or, to the Purchaser's best knowledge without any
independent investigation, any of the Purchaser's borrowers or lessees, before
or by any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator. Except as disclosed on Schedule 5.8 hereto, to the
Purchaser's best knowledge without any independent investigation, there are no
claims, suits, actions or proceedings threatened against, relating to or
affecting the Purchaser or any of its properties, or, any of the Purchaser's
borrowers or lessees or any of such borrowers' or lessees' respective
properties, before or by any court, government department, commission, agency,
instrumentality or authority or any arbitrator which could reasonably be
expected, either alone or in the aggregate with all such claims, actions or
proceedings, to affect materially and adversely the business, operations,
properties (including the present maintenance, operation, occupancy or use of
any such property), assets, condition (financial or other), results of
operations or prospects of the Purchaser. Except as disclosed on Schedule 5.8,
the Purchaser is not subject to any judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator which prohibits or restricts the consummation of
the transactions contemplated hereby or would have any material adverse effect
on the business, operations, properties (including the present maintenance,
operation, occupancy or use of any such property), assets, condition (financial
or other), results of operations or prospects of the Purchaser.
(b) There is no litigation or governmental investigation pending or, to the
best of the Purchaser's knowledge, threatened, nor is there any order,
injunction or decree, outstanding, existing or relating to the Purchaser or, to
the best of the Purchaser's knowledge without any independent investigation, any
of its properties that could have a material adverse effect upon the present
maintenance, operation, occupancy or use of such property.
SECTION 5.9 REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by the Purchaser for inclusion or incorporation by
reference in (a) the Registration Statement or (b) the Proxy
Statement/Prospectus will, in the case of the Proxy Statement/Prospectus or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement/Prospectus and any amendments or supplements thereto, and at the
time of the meetings of stockholders of the Company and the Purchaser to be held
in connection with the transactions contemplated by this Agreement or, in the
case of the Registration Statement, as amended or supplemented, at the time it
becomes effective and at the time of such meeting of the stockholders of the
Company and the Purchaser, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in
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light of the circumstances under which they were made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with all
applicable laws, including the provisions of the Securities Act and the Exchange
Act (as applicable thereto) and the rules and regulations promulgated
thereunder, except that no representation is made by the Purchaser with respect
to information supplied by the Company or derived therefrom for inclusion
therein.
SECTION 5.10 NO VIOLATION OF LAW. Except as disclosed on Schedule 5.10
hereto, neither the Purchaser nor, to the Purchaser's best knowledge without any
independent investigation, any of the Purchaser's borrowers or lessees is in
violation of or has been given notice or been charged with any violation of, any
law, statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or regulation or any
applicable medical waste law, ordinance or regulation) of any governmental or
regulatory body or authority, except for violations which, in the aggregate, do
not have, and would not reasonably be expected to have, a material adverse
effect on the business, operations, properties, assets, condition (financial or
other), results of operations or prospects of the Purchaser or of any such
borrower or lessee. Except as disclosed on Schedule 5.10 hereto, no
investigation or review of the Purchaser or, to the best knowledge of the
Purchaser without any independent investigation, of any of the Purchaser's
borrowers or lessees by any governmental or regulatory body or authority is
pending or, to the best knowledge of the Purchaser without any independent
investigation, threatened, nor has any governmental or regulatory body or
authority indicated to the Purchaser an intention to conduct the same, other
than, in each case, those the outcome of which, as far as reasonably can be
foreseen, will not have, and would not reasonably be expected to have, a
material adverse effect on the business, operations, properties (including the
present maintenance, operation, occupancy or use of any such property), assets,
condition (financial or other), results of operations or prospects of the
Purchaser or of any such borrower or lessee. Except as disclosed on Schedule
5.10 hereto, the Purchaser and, to the Purchaser's best knowledge without any
independent investigation, each of the Purchaser's borrowers and lessees, has
all permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct its
business as presently conducted and as proposed by the Purchaser or such
borrower or lessee to be conducted, except for permits, licenses, franchises,
variances, exemptions, orders, authorizations, consents and approvals the
absence of which, alone or in the aggregate, would not have a material adverse
effect on the business, operations, properties (including the present
maintenance, operation, occupancy or use of any such property), assets,
condition (financial or other), results of operations or prospects of the
Purchaser or such borrower or lessee. The Purchaser and, to the best knowledge
of the Purchaser without any independent investigation, each of the Purchaser's
borrowers and lessees, (a) has duly and currently filed all reports and other
information required to be filed with any federal, state or local governmental
or regulatory authority in connection with the Permits, (b) is not in violation
of the terms of any Permit, except for delays in filing reports or violations
which, alone or in the aggregate, would not have a material adverse effect on
the business, operations, properties (including the present maintenance,
operation, occupancy or use of any such property), assets, condition (financial
or other), results of operations or prospects of the Purchaser or such borrower
or lessee and (c) is using and occupying each of the Purchaser Properties in a
manner that complies with all applicable codes and zoning laws and regulations
except where the failure to so comply would not have, or would not be reasonably
expected to have, a material adverse effect on the business, operations,
properties (including the present maintenance, operation, occupancy or use of
any such property), assets, condition (financial or other), results of
operations or prospects of the Purchaser or such borrower or lessee.
SECTION 5.11 COMPLIANCE WITH AGREEMENTS. Except as disclosed on Schedule
5.11 hereto, neither the Purchaser nor, to the best of the Purchaser's best
knowledge without any independent investigation, any other party is in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default under, (a) the Articles of Incorporation
or Bylaws of the Purchaser or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which the Purchaser is a party or by which it is bound or to
which any of its properties are subject, which breaches, violations and
defaults, in the case of clause (b) of this Section 5.11, would have, or be
reasonably expected to have, in the aggregate, a material adverse effect on the
business, operations, properties (including the present
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maintenance, operation, occupancy or use of any such property), assets,
condition (financial or other), results of operations or prospects of the
Purchaser.
SECTION 5.12 TAXES.
(a) The Purchaser has (i) duly filed with the appropriate governmental
authorities all Tax Returns required to be filed by it for all periods ending on
or prior to the Effective Time, has not filed for an extension to file any Tax
Returns except with respect to such Tax Returns as are listed on Schedule
5.12(a) hereto and such Tax Returns are true, correct and complete in all
material respects and (ii) duly paid in full or made adequate provision for the
payment of all Taxes for all periods ending at or prior to the Effective Time
(whether or not shown on any Tax Return). Except as set forth in Schedule
5.12(a) hereto, the Tax Returns referred to in clause (i) hereinabove have been
examined by the IRS or the appropriate governmental authority or the period for
assessment of the Taxes in respect of which such Tax Returns were required to be
filed has expired, all deficiencies asserted or assessments made as a result of
such examinations have been paid in full and no issues that have been raised by
the relevant governmental authority in connection with the examination of any of
the Tax Returns referred to in clause (i) hereinabove are currently pending. No
claim has been made by any authority in a jurisdiction where the Purchaser does
not file a Tax Return that the Purchaser is or may be subject to tax in such
jurisdiction. No waivers of statutes of limitation have been given by or
requested with respect to any Taxes of the Purchaser. The Purchaser has not
agreed to any extension of time with respect to any Tax deficiency. The
liabilities and reserves for Taxes reflected in the Purchaser balance sheet as
of December 31, 1993 contained in the Purchaser 10-K (the "1993 Purchaser
Balance Sheet") are adequate to cover all Taxes for all periods ending on or
prior to December 31, 1993, and to the best of the Purchaser's knowledge without
any independent investigation, there are no liens for Taxes upon any property or
asset of the Purchaser, except for liens for Taxes not yet due. The Purchaser is
not a party to any agreement providing for the allocation or sharing of Taxes
with any entity except for certain Purchaser Leases (as defined in Section 5.31
hereof) which provide that the lessee thereunder shall pay all taxes assessed
with respect to the demised property. The Purchaser has not, with regard to any
assets or property held, acquired or to be acquired by it, filed a consent to
the application of Section 341(f) of the Code regulations promulgated
thereunder, as in effect from time to time. Neither the Purchaser nor any of its
officers (including the employee responsible for Tax matters) expect any
authority to assess any additional Taxes for any period for which Tax Returns
have been filed. The Purchaser has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditors, stockholder, or other third party. The
Purchaser has or will have, by the Effective Time, received cash sufficient to
satisfy the requirements of Section 857(a) of the Code for the taxable years of
the Purchaser up to the Effective Time.
(b) The Purchaser has not made any payments, is not obligated to make any
payments, and is not a party to any agreement that under certain circumstances
could obligate it to make any payments that will not be deductible under Section
280G of the Code.
(c) Except as set forth on Schedule 5.12(c) hereto, the Purchaser has not
been a member of any affiliated or combined group of companies that files a
consolidated, affiliated, or other combined group Tax Return and the Purchaser
has no liability for the Taxes of any person under Treasury Regulations 1.1502-6
(or any similar provision of non-federal law) as a transferee or successor, by
contract, or otherwise.
SECTION 5.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in Schedule 5.13(a) hereto, at the date hereof, the
Purchaser does not maintain or contribute to, and is not a party to, any
material employee benefit plans, programs, arrangements and practices (such
plans, programs, arrangements and practices of the Purchaser and its
subsidiaries being referred to as the "Purchaser Plans"), including employee
benefit plans within the meaning set forth in Section 3(3) of ERISA, or any
written employment contracts which contracts are not immediately terminable
without penalty or further liability, or other similar material arrangements for
the provision of benefits (excluding any Multiemployer Plan or any Multiple
Employer Plan. Schedule 5.13(a) hereto lists all Multiemployer Plans and
Multiple Employer Plans which the Purchaser maintains or to which it makes
contributions. The Purchaser does not have any obligation to create any
additional such plan or to amend any
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such plan so as to increase benefits thereunder, except as required under the
terms of the Purchaser Plans, under existing collective bargaining agreements or
to comply with applicable law.
(b) Except as set forth in Schedule 5.13(b) hereto, (i) there have been no
prohibited transactions within the meaning of Section 406 or 407 of ERISA or
Section 4975 of the Code with respect to any of the Purchaser Plans that could
result in penalties, taxes or liabilities which, singly or in the aggregate,
could have a material adverse effect on the business, operations, properties,
assets, condition (financial or other) results of operations or prospects of the
Purchaser, (ii) there is no outstanding liability in excess of $10,000, whether
measured alone or in the aggregate, under Title IV of ERISA with respect to any
of the Purchaser Plans except for premiums due, (iii) neither the Pension
Benefit Guaranty Corporation nor any plan administrator has instituted
proceedings to terminate any of the Purchaser Plans subject to Title IV of ERISA
other than in a "standard termination" described in Section 4041(b) of ERISA,
(iv) none of the Purchaser Plans has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recent fiscal year of each
of the Purchaser Plans ended prior to the date of this Agreement, (v) the
current present value of all projected benefit obligations under each of the
Purchaser Plans which is subject to Title IV of ERISA did not, as of its latest
valuation date, exceed the then current value of the assets of such plan
allocable to such benefit liabilities (based upon reasonable actuarial
assumptions currently utilized for such Purchaser Plan), (vi) each of the
Purchaser Plans has been operated and administered in all material respects in
accordance with applicable laws during the period of time covered by the
applicable statute of limitations, (vii) each of the Purchaser Plans which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified and such determination has not
been modified, revoked or limited by failure to satisfy any condition thereof or
by a subsequent amendment thereto or a failure to amend, except that it may be
necessary to make additional amendments retroactively to maintain the
"qualified" status of such Purchaser Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to
Multiemployer Plans, the Purchaser has not, since March 31, 1992, made or
suffered a "complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203, 4204 and 4205 of ERISA and, to the best
knowledge of the Purchaser, no event has occurred or is expected to occur which
presents a material risk of a complete or partial withdrawal under said Sections
4203, 4204 and 4205, (ix) to the best knowledge of the Purchaser, there are no
material pending, threatened or anticipated claims involving any of the
Purchaser Plans other than claims for benefits in the ordinary course, and (x)
the Purchaser has no current liability in excess of $10,000, whether measured
alone or in the aggregate, for plan termination or withdrawal (complete or
partial) under Title IV of ERISA based on any plan to which any entity that
would be deemed one employer with the Purchaser under Section 4001 of ERISA or
Section 414 of the Code contributed during the period of time covered by the
applicable statute of limitations (the "Purchaser Controlled Group Plans"), and
the Purchaser does not reasonably anticipate that any such liability will be
asserted against the Purchaser, none of the Purchaser Controlled Group Plans has
an "accumulated funding deficiency" (as defined in Section 302 of ERISA and 412
of the Code), and no Purchaser Controlled Group Plan has an outstanding funding
waiver which could result in the imposition of liens, excise taxes or liability
against the Purchaser in excess of $10,000 whether measured alone or in the
aggregate.
SECTION 5.14 CERTAIN AGREEMENTS.
(a) Except as set forth on Schedule 5.14(a) hereto, as of the date hereof,
the Purchaser is not a party to any oral or written (i) consulting or similar
agreement with any present or former director, officer or employee or any entity
controlled by any such person not terminable on 30 days' or less notice for a
total cost not in excess of $5,000, (ii) agreement with any executive officer or
other key employee of the Purchaser the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Purchaser of the nature contemplated by this Agreement, (iii)
agreement with respect to the employment of any executive officer or other key
employee of the Purchaser, or (iv) agreement or plan, including any stock option
plan, stock appreciation right plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of the transactions contemplated by
this Agreement.
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(b) Except as disclosed on Schedule 5.14(b) hereto, the Purchaser is not
indebted for money borrowed, either directly or indirectly, from any of its
officers, directors, or any Affiliate, in any amount whatsoever; nor are any of
its officers, directors, or Affiliates indebted for money borrowed from the
Purchaser; nor are there any transactions of a continuing nature between the
Purchaser and any of its officers, directors, or Affiliates (other than by or
through the regular employment thereof by the Purchaser) not subject to
cancellation which will continue beyond the time the Merger becomes effective,
including, without limitation, use of the Purchaser's assets for personal
benefit with or without adequate compensation.
SECTION 5.15 LABOR CONTROVERSIES. Except as set forth on Schedule 5.15
hereto, (a) the Purchaser is not a party to any collective bargaining
agreements, (b) there are no controversies pending or, to the best knowledge of
the Purchaser, threatened between the Purchaser and any representatives of any
of its employees, (c) there are no material organizational efforts presently
being made involving any of the presently unorganized employees of the Purchaser
or its subsidiaries, (d) the Purchaser has complied in all material respects
with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes, and (e) no
person has asserted that the Purchaser is liable in any material amount for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
SECTION 5.16 BOOKS, RECORDS AND ACCOUNTS. The Purchaser's books, records
and accounts fairly and accurately reflect the Purchaser's transactions and
dispositions of assets, and the Purchaser's system of internal accounting
controls is sufficient to assure that: (i) transactions are executed in
accordance with management's authorization; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles, and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. Except as disclosed in Schedule 5.16 hereto, the
Purchaser has segregated all funds for security and similar deposits received
from its lessees and borrowers.
SECTION 5.17 OPINION OF FINANCIAL ADVISOR. The Purchaser has received from
a financial advisor satisfactory to the Purchaser's Board of Directors, an
opinion to the effect that, as of the date hereof, the Exchange Ratio is fair,
from a financial point of view, to the Purchaser's stockholders. Such opinion
has not been withdrawn, revoked or modified.
SECTION 5.18 PURCHASER OWNERSHIP OF THE COMPANY COMMON STOCK. The Purchaser
is and, to the best of its knowledge, its "affiliates" and "associates"
collectively are, and as of the Effective Time will be the beneficial owner of
less than 1% of the outstanding shares of the Company Common Stock.
SECTION 5.19 CONTRACTS, ETC.
(a) Schedule 5.19(a) consists of a true and complete list of all contracts,
agreements, commitments and other instruments (whether oral or written, and
including any and all amendments or modifications thereto) to which the
Purchaser is a party that: (i) involve a receipt or an expenditure by the
Purchaser require the performance of services or delivery of goods to, by,
through, on behalf of or for the benefit of the Purchaser, which in each case
relates to a contract, agreement, commitment or instrument that either (A)
requires payments or receipts in excess of $10,000 per year or (B) are not
terminable by the Purchaser on notice of 30 days or less without penalty or the
Purchaser being liable for damages; or (ii) involve an obligation for the
performance of services or delivery of goods by the Purchaser that cannot, or in
reasonable probability will not, be performed within 45 days subsequent to the
date of this Agreement including, without limitation any of the following which
meet the aforementioned criteria:
(i) Any contracts, commitments or agreements, the lack of consummation
or performance of which would, either singly or in the aggregate, have an
adverse impact upon the Purchaser's business, operations or financial
condition, including, without limitation, any contract or commitment which
is outside of the normal, ordinary and usual requirements of the
Purchaser's business or at a price or prices in excess of those otherwise
available at the time such contract or commitment was entered into;
(ii) Any note receivable;
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(iii) Any single contract or commitment, or sales or purchase order,
which involves future payments, performance of services or delivery of
goods and/or materials, to or by the Purchaser with an amount or value in
the aggregate in excess of $10,000 per year (other than trade accounts
payable incurred in the ordinary course of business with an amount or value
of less than $10,000 per year);
(iv) Any contract or agreement with a creditor not made in the
ordinary course of business;
(v) Any contract, agreement, understanding or arrangement restricting
the Purchaser from carrying on its business anywhere in the world;
(vi) Any instrument or arrangement evidencing or related to
indebtedness for money borrowed or to be borrowed, whether directly or
indirectly, by way of purchase money obligation, guaranty, subordination,
conditional sale, lease-purchase or otherwise; and
(vii) Any contract, agreement, understanding or arrangement between
the Purchaser and any Affiliate of the Purchaser.
(b) All of the contracts, agreements or instruments described in Schedule
5.19(a) hereto are valid and binding upon the Purchaser and the other parties
thereto and are in full force and effect and enforceable in accordance with
their terms, and neither the Purchaser nor, to the best of the Purchaser's
knowledge, any other party to any such contract, commitment or arrangement has
breached any provision of, or is in default under, the terms thereof. Except for
terms specifically described in Schedule 5.19(a), neither the Purchaser nor any
Affiliate thereof has received any payment from any contracting party in
connection with or as an inducement for entering into any contract, agreement or
instrument except for payment for actual services rendered or to be rendered by
the Purchaser consistent with amounts historically charged for such services.
SECTION 5.20 INTELLECTUAL PROPERTY. Schedule 5.20 hereto sets forth a
complete and correct list and summary description of all trademarks, tradenames,
service marks, service names, brand names, copyrights and patents, registrations
thereof and applications therefor, applicable to or used in the business of the
Purchaser, together with a complete list of all licenses granted by or to the
Purchaser with respect to any of the above. All such trademarks, tradenames,
service marks, service names, brand names, copyrights and patents are owned by
the Purchaser, free and clear of all liens, claims, security interests and
encumbrances of any nature whatsoever. Except as set forth on Schedule 5.20
hereto, the Purchaser is not currently in receipt of any notice of any violation
or infringement of, and the Purchaser is not violating or infringing, the rights
of others in any trademark, tradename, service mark, copyright, patent, trade
secret, know-how or other intangible asset.
SECTION 5.21 DISCLOSURE. This Agreement and the Schedules hereto disclose
all facts material to the properties, assets, business or operations of the
Purchaser except for such facts which, singly or in the aggregate, could not
reasonably be expected to materially and adversely affect the properties,
assets, business, operations, condition (financial or other), results of
operations or prospects of the Purchaser. No statement contained herein or in
any certificate, schedule, list, exhibit or other instrument furnished by the
Purchaser to the Company pursuant to the provisions hereof contains or will
contain any untrue statement of any material fact or omits or will omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading. Matters disclosed on each Schedule hereto shall be
deemed disclosed only for purposes of the matters to be disclosed on such
Schedule and shall not be deemed to be disclosed for any other purpose unless
expressly provided therein.
SECTION 5.22 BROKERS AND FINDERS. The Purchaser has not employed any
broker, finder or other intermediary in connection with the transactions
contemplated by this Agreement which would be entitled to any brokerage,
finder's or similar fee or commission in connection with this Agreement or the
transactions contemplated hereby.
SECTION 5.23 REIT QUALIFICATION. At all times during its existence, the
Purchaser has been, and as of the Effective Time the Purchaser will be,
organized in conformity with the requirements for qualification and, as of the
date hereof for all taxable periods has qualified, as a "real estate investment
trust" under the Code and the rules and regulations thereunder. The Purchaser
has at all times during its existence (i) met the 75%,
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95% and 30% income tests set forth in Section 856 of the Code, (ii) met the 75%
and 25% asset tests set forth in Section 856 of the Code and (iii) distributed
dividends to its stockholders at least equal to the 95% requirements of Section
857 of the Code.
SECTION 5.24 TITLE TO PROPERTIES. The Purchaser has good and marketable
title in fee simple to all real property owned by it (individually, a "Purchaser
Property" and collectively, the "Purchaser Properties"), and good and marketable
title to all personal property owned by it which is material to its business, in
each case free and clear of all liens, encumbrances, claims, security interests
and defects, other than those disclosed on Schedule 5.24 hereto and those which
would not, either individually or in the aggregate, have a material adverse
effect on any Purchaser Property (including the present maintenance, operation,
occupancy or use of any such Purchaser Property) (collectively, the "Purchaser
Permitted Encumbrances").
SECTION 5.25 TITLE INSURANCE.
(a) Except as set forth on Schedule 5.25 hereto, an owner's policy of title
insurance issued by a nationally recognized title insurance company in a form
and containing coverages customarily approved and required by institutional
investors has been obtained for each Purchaser Property. Each owner's policy of
title insurance insures the fee simple ownership interest of the Company in each
Purchaser Property subject only to the Purchaser Permitted Encumbrances and is
in an amount at least equal to the sum of (i) the cost of the acquisition of
such Purchaser Property and (ii) any subsequent cost of the construction and
installation of the improvements made by the Purchaser located on such Purchaser
Property (measured at the time of such construction).
(b) Except as set forth on Schedule 5.25 hereto, a mortgagee's policy of
title insurance issued by a nationally recognized title insurance company in a
form and containing coverages customarily approved and required by institutional
investors and insuring title in the priority listed in Schedule 5.33 has been
obtained for each Purchaser Mortgage Loan (as hereinafter defined). Each
mortgagee's policy of title insurance insures the mortgage interest of the
Purchaser in the real property encumbered by the Purchaser Mortgage Loan and is
in an amount at least equal to the debt of the obligor secured by the Purchaser
Mortgage Loan.
SECTION 5.26 ENVIRONMENTAL MATTERS. Except as disclosed on Schedule 5.26
hereto, all of the properties of the Purchaser have been the subject within the
past 24 months of preliminary environmental assessments in compliance with the
American Society for Testing and Materials standard for Phase I Environmental
Site Assessments, E-1528 (March 15, 1993), or other environmental assessments,
inspections or reviews more likely to reveal environmental liabilities. Except
as disclosed on Schedule 5.26 hereto, the Purchaser has no knowledge of (i) the
unlawful presence of any Hazardous Materials on any of the properties of the
Purchaser or (ii) any unlawful spills, releases, discharges or disposal of
Hazardous Materials that have occurred or are presently occurring off any of the
Purchaser Properties as a result of any construction on or operation and use of
any of the Purchaser Properties.
SECTION 5.27 OVER FINANCING. Except as set forth on Schedule 5.27 hereto,
the Purchaser has not distributed to its stockholders the proceeds of any
financing of the Purchaser's properties.
SECTION 5.28 DEFECTS. Except as set forth on Schedule 5.28 hereto, to the
Purchaser's best knowledge without any independent investigation there are no
material defects in the improvements located on a Purchaser Property including,
without limitation, any defect in the foundation, structural systems, roof or
the electrical, plumbing, heating, ventilating or air conditioning systems
included within the improvements located on such Purchaser Property and there
are no repairs or deferred maintenance required to be made thereto.
SECTION 5.29 CONDEMNATION. There is no pending or, to the Purchaser's best
knowledge without any independent investigation, threatened public or private
condemnation or similar proceeding affecting a Purchaser Property or any part
thereof which could have material adverse effect upon the present maintenance,
operation, occupancy or use of such Purchaser Property.
SECTION 5.30 TAXES AND ASSESSMENTS ON PROPERTIES. To the Purchaser's best
knowledge without any independent investigation, there are no material unpaid
real estate property taxes or assessments due and
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payable against a Purchaser Property and the Purchaser has not received any
notice of assessment for public improvements with respect to or relating to a
Purchaser Property.
SECTION 5.31 PROPERTIES AND LEASES. Schedule 5.31 hereto sets forth a
complete and correct list of (i) all Purchaser Properties and (ii) all leases of
the Purchaser Properties or any part thereof in effect on the date hereof
(individually, a "Purchaser Lease" and collectively, the "Purchaser Leases") and
sets forth a complete and correct description of the following:
(a) The land, building and approximate square footage of the demised
premises under each Purchaser Lease;
(b) the name of the tenant and any guarantor under each Purchaser
Lease;
(c) the date of each Purchaser Lease and any amendment or modification
thereof, the commencement or amendment start date of each Purchaser Lease
and the expiration date of the term of each Purchaser Lease;
(d) the amount of annual or monthly base rent and additional rent due
under each Purchaser Lease and the amount, or the basis of calculation
thereof, of any scheduled increase or other escalation in the annual and
monthly base rent or additional rent;
(e) any renewal, extension, expansion or cancellation right of the
tenant under each Purchaser Lease;
(f) any option or first refusal purchase right of the tenant under
each Purchaser Lease;
(g) any security deposit or outstanding rent concession or abatement
under each Purchaser Lease;
There are no leases, tenancies, licenses or other rights of occupancy or use of
the Purchaser Properties or any portion thereof except for the Purchaser Leases
and except as set forth on Schedule 5.31 hereto. Each Purchaser Lease is valid
and enforceable, is in full force and effect, has not been amended, modified or
supplemented except as set forth on Schedule 5.31 hereto, and the tenant
thereunder has accepted its demised premises, is in actual possession in the
normal course and has commenced payment of rent and additional rent, if
applicable, therefor. Except as set forth on Schedule 5.31 hereto, each
Purchaser Lease provides that the tenant thereunder is required to pay all
operating expenses, repairs and maintenance, and taxes and insurance in
connection with the maintenance, ownership, use and occupancy of the Purchaser
Property demised thereunder. The Purchaser is not in default in the payment or
performance of any obligation binding on the Purchaser under a Purchaser Lease
and the Purchaser has not given notice of default to a tenant under a Purchaser
Lease (which default has not previously been cured), nor does any condition or
event exist which with the giving of notice or the passage of time, or both,
would constitute a default by the Purchaser or, to the best of the Purchaser's
knowledge without any independent investigation, by a tenant under a Purchaser
Lease. The Purchaser does not have any knowledge of any claim, offset, right of
recoupment or defense available to a tenant under a Purchaser Lease. There have
been no material waivers by the Purchaser of any default under or breach of a
Purchaser Lease by a tenant. Except for the Purchaser Mortgages (as hereinafter
defined), the Purchaser has not assigned, pledged, hypothecated or otherwise
encumbered any of its right, title or interest in and to a Purchaser Lease or
any rents payable thereunder. No tenant has an option or first refusal purchase
right under a Purchaser Lease except as set forth on Schedule 5.31 hereto.
SECTION 5.32 MORTGAGES. Schedule 5.32 hereto sets forth a complete and
correct list of all mortgages, deeds of trust, deeds to secure debt and other
similar security interests encumbering the Purchaser Properties or any part
thereof (individually, a "Mortgage" and collectively, the "Purchaser Mortgages")
and sets forth a complete and correct description of the following:
(a) the Purchaser Property encumbered by each Purchaser Mortgage;
(b) the name of the obligor, guarantor and the holder of each
Purchaser Mortgage;
(c) the priority of each Purchaser Mortgage and any mortgage, deed of
trust or other similar instrument that is either prior to or subordinate to
each Purchaser Mortgage;
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(d) the date of each Purchaser Mortgage and any amendment or
modification thereof;
(e) the original principal amount of the debt secured by each
Purchaser Mortgage, the current rate of interest thereunder and the current
outstanding principal balance thereof;
(f) the maturity date of the debt secured by each Purchaser Mortgage,
the type of debt secured thereby and whether any balloon payment is due at
the maturity of the debt secured thereby;
(g) the amount of the current monthly payment of interest, principal
or other amounts due under each Purchaser Mortgage and the amount of any
other mandatory principal or other payment due thereunder prior to the
maturity date of the debt secured thereby;
(h) any amount that has not been disbursed or advanced to the
Purchaser by the holder of a Purchaser Mortgage that such holder is
obligated to disburse or advance;
(i) any prepayment premiums with respect to the prepayment (full or
partial) of the debt secured by each Purchaser Mortgage and the current
penalty payable in connection with any such prepayment; and
(j) the amount of any escrow deposits or other deposits or payments
held under each Purchaser Mortgage by the holder of each Purchaser
Mortgage.
Except as set forth in Schedule 5.32, there are no mortgages, deeds of trusts,
deeds to secure debt or other similar instruments encumbering the Purchaser
Properties or any portion thereof except for the Purchaser Mortgages. Each
Purchaser Mortgage is valid and enforceable, is in full force and effect, and
has not been amended, modified or supplemented except as set forth in Schedule
5.32 hereto. All payments, installments and charges due and payable under a
Purchaser Mortgage have been paid in full. The Purchaser has not received notice
of default by the Purchaser (which default has not previously been cured) from
the holder of a Purchaser Mortgage nor, to the best of the Purchaser's
knowledge, does any condition or event exist which with the giving of notice or
the passage of time, or both, would constitute a default by the Purchaser under
a Purchaser Mortgage. The occurrence of any of the transactions contemplated by
this Agreement will not require the consent or approval of the holder of a
Purchaser Mortgage and will not violate, conflict with or constitute a default
by the Purchaser under a Purchaser Mortgage or result in a condition or event
which with the giving of notice or the passage of time, or both, would
constitute a default by the Purchaser under a Purchaser Mortgage.
SECTION 5.33 PURCHASER MORTGAGE LOANS. Schedule 5.33 hereto sets forth a
complete and correct list of all loans made by the Purchaser to others secured
by a mortgage, deed of trust, deed to secure debt or other similar instrument
encumbering real property and personalty related to such real property
(individually, a "Purchaser Mortgage Loan" and collectively, the "Purchaser
Mortgage Loans") and sets forth a complete and accurate description of the
following:
(a) the real property encumbered by each Purchaser Mortgage Loan;
(b) the name of the obligor, guarantor and the holder of each
Purchaser Mortgage Loan;
(c) the priority of each Purchaser Mortgage Loan and any mortgage,
deed of trust, deed to secure debt or other similar instrument that is
either prior to or subordinate to each Purchaser Mortgage Loan;
(d) the date of each Purchaser Mortgage Loan and any amendment or
modification thereof;
(e) the original principal amount of the debt secured by each
Purchaser Mortgage Loan, the current rate of interest thereunder and the
current outstanding principal thereof;
(f) the maturity date of the debt secured by each Purchaser Mortgage
Loan, the type of debt secured thereby and whether any balloon payment is
due at the maturity of the debt secured thereby;
(g) the amount of the current monthly payment of interest, principal
or other amounts due under each Purchaser Mortgage Loan and the amount of
any other mandatory principal or other payment due thereunder prior to the
maturity date of the debt secured thereby;
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(h) any amount that has not been disbursed or advanced to the obligor
under each Purchaser Mortgage Loan by the Purchaser that the Purchaser is
obligated to disburse or advance;
(i) any prepayment premiums with respect to the prepayment (full or
partial) of the debt secured by each Purchaser Mortgage Loan and the
current penalty payable in connection with any such prepayment; and
(j) the amount of any escrow deposits or other deposits or payments
held under each Purchaser Mortgage Loan by the Purchaser.
There are no loans made by the Purchaser to others secured by a mortgage, deeds
of trust, deed to secure debt or other similar instruments encumbering real
property and personally related to such real property except for the Purchaser
Mortgage Loans. Each Purchaser Mortgage Loan is valid and enforceable, is in
full force and effect and has not been amended, modified or supplemented except
as set forth in Schedule 5.33 hereto. All payments, installments and charges due
and payable under each Purchaser Mortgage Loan have been paid in full. The
Purchaser is not in default in the payment or performance of any obligation
under a Purchaser Mortgage Loan and has not given notice of default by an
obligor (which default has not previously been cured) to an obligor under a
Purchaser Mortgage Loan nor does any condition or event exist which with the
giving of notice or the passage of time, or both, would constitute a default by
an obligor under a Purchaser Mortgage Loan. No obligor under a Purchaser
Mortgage Loan has a valid defense to the payment in full of the Purchaser
Mortgage Loan nor is such Purchaser Mortgage Loan subject to any valid right of
rescission, set-off, abatement, diminution, counterclaim or defense. There have
been no waivers by the Purchaser of any default under or breach of a Purchaser
Mortgage Loan by an obligor under a Purchaser Mortgage Loan. The occurrence of
any of the transactions contemplated by this Agreement does not require the
consent or approval of the obligor under a Purchaser Mortgage Loan and will not
violate, conflict with or constitute a default by the Purchaser under a
Purchaser Mortgage Loan or result in a condition or event which with the giving
of notice or the passage of time, or both, would constitute a default by the
Purchaser under a Purchaser Mortgage Loan.
SECTION 5.34 INVESTMENT COMPANY ACT. The Purchaser is not, and as of the
Effective Time will not be, an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
SECTION 5.35 NYSE LISTING. The Purchaser Common Stock is, and as of the
Effective Time will be, listed on the NYSE.
ARTICLE VI
CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. After
the date hereof and prior to the Closing Date or earlier termination of this
Agreement, unless the Purchaser shall otherwise agree in writing or as may be
otherwise specifically contemplated by this Agreement, the Company shall:
(a) conduct its business in the ordinary and usual course of business
and consistent with past practice;
(b) not (i) amend or propose to amend its Articles of Incorporation or
Bylaws, or (ii) split, combine or reclassify its outstanding capital stock
or declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise; provided, however, that the Company may
declare and pay a regular quarterly dividend for the second quarter of 1994
on Company Common Stock in an amount not to exceed $0.245 per share of
Company Common Stock, and, in the event the Effective Time shall not have
occurred on or prior to November 1, 1994, the Company may thereafter
declare and pay a regular quarterly dividend for the third quarter of 1994
on Company Common Stock in an amount not to exceed $0.245 per share of
Company Common Stock;
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(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of the Company's capital stock of
any class or any debt or equity securities convertible into or exchangeable
for such capital stock or amend or modify the terms and conditions of any
of the foregoing, except that in the ordinary course of its business and
consistent with its past practices, the Company may issue shares upon
exercise of outstanding options or warrants to purchase Company Common
Stock and in connection with the exercise of the rights to acquire Company
Common Stock as are listed on Schedule 3.1(a)(iii), in all events in
accordance with the terms thereof;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money, (ii) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock, other than as required
by the governing terms of such securities, (iii) take any action which
would jeopardize the Company's status as a real estate investment trust,
(iv) make any acquisition of any assets or businesses except for the
consummation of the matters set forth on Schedule 4.20(a) hereto, (v) sell
any assets or businesses, or (vi) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing, except as
contemplated by Schedule 4.20(a)) hereto;
(e) use reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with all lessees, operators, suppliers, distributors,
customers, and others having business relationships with the Company and
not engage in any action, directly or indirectly, with the intent to
adversely impact the transactions contemplated by this Agreement;
(f) confer with one or more representatives of the Purchaser when
requested, to report on material operational matters and the general status
of ongoing operations of the Company's business;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers, employees or other
representatives, or agree to do so except that the Company shall amend all
existing employment, severance and similar agreements or arrangements to
provide that the Company will not be obligated to reimburse any employees
for any excise or other taxes that may become payable by any such employees
as a result of any payments made pursuant to such agreement or arrangement;
(h) not, other than in accordance with established compensation
adjustment policies and as contemplated by this Agreement, increase the
rate of remuneration payable to any of its directors, officers, employees
or other representatives, or agree to do so;
(i) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
health care, employment or other employee benefit plan, agreement, trust,
fund or arrangement for the benefit or welfare of any employee or retiree,
except as required to comply with changes in applicable law or as
contemplated by this Agreement;
(j) file, if the Merger is not previously consummated, its Quarterly
Report on Form 10-Q for the quarter ending June 30, 1994 on or before the
date prescribed therefor pursuant to the Exchange Act and such report shall
comply with all of the requirements of the Exchange Act; and
(k) maintain, in full force and effect, with all premiums due thereon
paid, policies of insurance covering all of the insurable tangible assets
and businesses of the Company and the Company Subsidiaries in amounts and
as to foreseeable risks usually insured against by persons operating
similar businesses under valid and enforceable policies of insurance issued
by insurers of recognized responsibility.
SECTION 6.2 CONDUCT OF BUSINESS BY THE PURCHASER PENDING THE MERGER. After
the date hereof and prior to the Closing Date or earlier termination of this
Agreement, unless the Company shall otherwise agree in writing or as may be
otherwise specifically contemplated by this Agreement, the Purchaser shall:
(a) conduct its business in the ordinary and usual course of business
and consistent with past practice;
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(b) not (i) amend or propose to amend its Articles of Incorporation or
Bylaws, or (ii) split, combine or reclassify its outstanding capital stock
or declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise other than regular quarterly dividends on
Purchaser Common Stock in an amount not to exceed $0.54 per share of
Purchaser Common Stock;
(c) not take any action which would jeopardize the Purchaser's status
as a real estate investment trust;
(d) use reasonable efforts to preserve intact its business
organization and goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with all lessees, operators, suppliers, distributors,
customers, and others having business relationships with the Purchaser and
not engage in any action, directly or indirectly, with the intent to
adversely impact the transactions contemplated by this Agreement;
(e) confer with one or more representatives of the Company when
requested to report on material operational matters and the general status
of ongoing operations of the Purchaser's business;
(f) file its Quarterly Report on Form 10-Q for the quarter ending June
30, 1994 on or before the date prescribed therefor pursuant to the Exchange
Act and such report shall comply with all of the requirements of the
Exchange Act; and
(g) maintain, in full force and effect, with all premiums due thereon
paid, policies of insurance covering all of the insurable tangible assets
and businesses of the Purchaser in amounts and as to foreseeable risks
usually insured against by persons operating similar businesses under valid
and enforceable policies of insurance issued by insurers of recognized
responsibility.
SECTION 6.3 ACQUISITION TRANSACTIONS. After the date hereof and prior to
the Effective Time or earlier termination of this Agreement, unless the
Purchaser shall otherwise agree in writing, the Company shall not initiate,
solicit, negotiate, encourage, or provide confidential information to
facilitate, and the Company shall cause any officer, director or employee of, or
any attorney, accountant, investment banker or other agent retained by the
Company not to initiate, solicit, negotiate, encourage, or provide confidential
information to facilitate, any proposal or offer to acquire all or any
substantial part of the business and properties of the Company, or capital stock
of the Company, whether by merger, purchase of assets, tender offer or
otherwise, whether for cash, securities or any other consideration or
combination thereof (such transactions being referred to herein as "Acquisition
Transactions"); provided, however, that the Company may furnish (on terms,
including confidentiality terms, substantially similar to those set forth in the
Confidentiality Agreement dated May 26, 1994 by and among the Purchaser, the
Company and the other entities named therein as parties, hereinafter the
"Confidentiality Agreement") information concerning its business, properties or
assets to a corporation, partnership, person or other entity or group (a
"Potential Acquiror") if (i) the Company's Board of Directors is advised by its
financial advisor that such Potential Acquiror can reasonably be expected to
possess the financial wherewithal to consummate an Acquisition Transaction that
would yield a higher value to the Company's stockholders than will the Merger,
(ii) the Company's Board of Directors determines that such Potential Acquiror is
likely to submit a bona fide offer to consummate an Acquisition Transaction on
terms that would yield such a higher value to the Company's stockholders if
provided with confidential information about the Company, and (iii) based upon
the written opinion of special counsel to the Board of Directors of the Company
to such effect addressed and delivered to the Board of Directors of the Company
(a copy of which shall have been furnished by the Company to the Purchaser), the
Company's Board of Directors determines that the failure to provide such
confidential information would be inconsistent with the proper discharge by the
Company's Board of Directors of its fiduciary duty to stockholders of the
Company. Following receipt of a bona fide offer from a Potential Acquiror
proposing an Acquisition Transaction, which offer the Board of Directors of the
Company determines would likely yield a higher value to the Company's
stockholders than will the Merger, the Company may, with respect to such
Potential Acquiror, negotiate and take any of the actions otherwise prohibited
by this Section 6.3 if, in the written opinion of special counsel to the Board
of Directors of the Company addressed and delivered to the Board of Directors of
the Company (a copy of which shall have been furnished by the Company to the
Purchaser), the failure to negotiate with such Potential Acquiror would be
inconsistent with the proper discharge by the Company's Board of Directors of
its
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fiduciary duty to the stockholders of the Company. In the event the Company
shall determine to provide any information as described above, or shall receive
any offer relating to an Acquisition Transaction, it shall promptly notify the
Purchaser (a "Notice of Proposal") as to the fact that information is to be
provided or that an offer relating to an Acquisition Transaction has been
received and shall furnish to the Purchaser the identity of the recipient of
such information or the proponent of such Acquisition Transaction if applicable,
and, if an offer or proposal regarding an Acquisition Transaction has been
received, a description of the material terms thereof, and the Purchaser may
elect to terminate this Agreement in accordance with Article IX hereof. The
Company may enter into a definitive agreement for an Acquisition Transaction
meeting the requirements of clause (i) above with a Potential Acquiror with
which it is permitted to negotiate pursuant to this Section 6.3, provided that
at least five business days prior to the Company's execution thereof the Company
shall have notified the Purchaser in writing indicating the Company's intent to
enter into such agreement and describing all of the material terms of such
agreement. Concurrently with the execution of such a definitive agreement, the
Purchaser or the Company may terminate this Agreement in accordance with Article
IX hereof.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS TO INFORMATION. The Company shall afford to the
Purchaser and its accountants, counsel, financial advisors and other
representatives (the "Purchaser Representatives") and the Purchaser shall afford
to the Company and its accountants, counsel, financial advisors and other
representatives (the "Company Representatives") full access during normal
business hours throughout the period prior to the Effective Time to all of
properties, books, contracts, commitments and records (including, but not
limited to, Tax Returns) of the Company and the Purchaser, as appropriate, and,
during such period, each shall furnish promptly to the other (i) a copy of each
report, schedule and other document filed or received pursuant to the
requirements of federal or state securities laws or filed with the SEC in
connection with the transactions contemplated by this Agreement or which may
have a material effect on the Company's or the Purchaser's business, Properties
or personnel, as appropriate, and (ii) such other information concerning their
respective businesses, Properties and personnel as shall be reasonably
requested; provided that no investigation pursuant to this Section 7.1 shall
affect any representation or warranty made herein or the conditions to the
obligations of the respective parties hereto to consummate the Merger. All
non-public documents and information furnished to the Purchaser or to the
Company, as the case may be, in connection with the transactions contemplated by
this Agreement shall be deemed to have been received pursuant to and shall be
subject to the provisions of the Confidentiality Agreement except that the
Purchaser and the Company may disclose such information as may be necessary in
connection with seeking the Purchaser Required Statutory Approvals, the Company
Required Statutory Approvals, the Purchaser Stockholders' Approval and the
Company Stockholders' Approval. The Company shall promptly advise the Purchaser
and the Purchaser shall promptly advise the Company in writing of any change or
the occurrence of any event after the date of this Agreement having, or which,
insofar as can reasonably be foreseen, in the future may have, any material
adverse effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of the Company and the
Company Subsidiaries taken as a whole or the Purchaser and the Purchaser
Subsidiaries taken as a whole, as the case may be.
SECTION 7.2 REGISTRATION STATEMENT AND PROXY STATEMENT. The Purchaser and
the Company shall file with the SEC as soon as is reasonably practicable after
the date hereof the Proxy Statement/Prospectus and shall use all reasonable
efforts to have the Registration Statement declared effective by the SEC as
promptly as practicable. The Purchaser shall also take any action required to be
taken under applicable state blue sky or securities laws in connection with the
issuance of Purchaser Common Stock. The Purchaser and the Company shall promptly
furnish to each other all information, and take such other actions, as may
reasonably be requested in connection with any action by any of them in
connection with the preceding sentence and shall cooperate with one another and
use their respective best efforts to facilitate the expeditious consummation of
the transactions contemplated by the Agreement.
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SECTION 7.3 STOCKHOLDERS' APPROVAL. The Purchaser and the Company shall
each promptly take such action as may be required by their respective Articles
of Incorporation and applicable law to obtain the requisite stockholder approval
of this Agreement and the transactions contemplated hereby (the "Purchaser
Stockholders' Approval" and "Company Stockholders' Approval," as appropriate),
and shall use their respective best efforts to obtain stockholder approval and
adoption of this Agreement and the transactions contemplated hereby as soon as
practicable following the date upon which the Registration Statement is declared
effective by the SEC. Subject to the fiduciary duties of the Board of Directors
of the Purchaser and the Company under applicable law, the Purchaser and the
Company shall, through their respective Boards of Directors, recommend to their
respective stockholders the approval of this Agreement and of the transactions
contemplated by this Agreement.
SECTION 7.4 COMPLIANCE WITH THE SECURITIES ACT. The Company shall use its
best efforts to cause each principal executive officer, each director and each
other person who is an "affiliate," as that term is used in paragraphs (c) and
(d) of Rule 145 under the Securities Act, of the Company to deliver to the
Purchaser on or prior to the Effective Time a written agreement (an "Affiliate
Agreement") to the effect that such person will not offer to sell, sell or
otherwise dispose of any shares of Purchaser Common Stock issued in the Merger,
except, in each case, pursuant to an effective registration statement or in
compliance with Rule 145, as amended from time to time, or in a transaction
which, in the opinion of legal counsel satisfactory to the Purchaser, is exempt
from the registration requirements of the Securities Act.
SECTION 7.5 NYSE. The Purchaser shall use its best efforts to effect, at or
before the Effective Time, authorization for listing on the NYSE upon official
notice of issuance, of the shares of Purchaser Common Stock to be issued
pursuant to the Merger.
SECTION 7.6 EXPENSES. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses, except that those expenses incurred in connection
with printing and distributing the Proxy Statement/Prospectus shall be shared
equally by the Purchaser and the Company.
SECTION 7.7 AGREEMENT TO COOPERATE. Subject to the terms and conditions
herein provided, each of the parties hereto shall cooperate and use their
respective best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its best efforts to identify and
obtain all necessary or appropriate waivers, consents and approvals to effect
all necessary registrations, filings and submissions (including, but not limited
to, the Company Required Statutory Approvals, the Purchaser Required Statutory
Approvals, any filings under federal and state securities laws and, if
necessary, the HSR Act and any submissions requested by the Federal Trade
Commission or Department of Justice in connection therewith) and to lift any
injunction or other legal bar to the Merger (and, in such case, to proceed with
the Merger as expeditiously as possible), subject, however, to obtaining the
necessary approvals by the stockholders of each of the Purchaser and the Company
of this Agreement and the transactions contemplated hereby subject at all times
to the fiduciary duties of the Boards of Directors of each of the Company and
the Purchaser.
SECTION 7.8 PUBLIC STATEMENTS. The parties shall consult with each other
prior to issuing any press release or any written public statement with respect
to this Agreement or the transactions contemplated hereby and shall not issue
any such press release or written public statement prior to review and approval
by the other party, except that prior review and approval shall not be required
if, in the reasonable judgment of the party seeking to issue such release or
public statement, prior review and approval would prevent the timely
dissemination of such release or announcement in violation of any applicable
law, rule, regulation or policy of the NYSE.
SECTION 7.9 CORRECTIONS TO THE PROXY STATEMENT/PROSPECTUS AND REGISTRATION
STATEMENT. Prior to the date of approval of this Agreement and the transactions
contemplated hereby by the stockholders of each of the Purchaser and the
Company, each of the Purchaser and the Company shall correct promptly any
information provided by it to be used specifically in the Proxy
Statement/Prospectus and Registration Statement or relating to it and
incorporated by reference into the Proxy Statement/Prospectus and
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Registration Statement that shall have become false or misleading in any
material respect and shall take all steps necessary to file with the SEC and
have declared effective or cleared by the SEC any amendment or supplement to the
Proxy Statement/Prospectus or the Registration Statement so as to correct the
same and to cause the Proxy Statement/Prospectus as so corrected to be
disseminated to the stockholders of the Company, in each case to the extent
required by applicable law.
SECTION 7.10 AMENDMENT OF COMPANY LEASES. The Company will, without any
cost to the Purchaser, amend any and all leases pertaining to the Company's use
of office space and office equipment to provide that from and after the
Effective Time, (i) the expressed term of all such leases shall be
month-to-month, (ii) the Purchaser shall be permitted to use such space and
equipment (assuming compliance by the Purchaser with the terms of such leases)
and (iii) all such leases may be terminated by either party thereto at any time
without penalty upon the giving of 60 days' prior written notice of intent to
terminate.
SECTION 7.11 CONTINUED QUALIFICATION AS A REAL ESTATE INVESTMENT
TRUST. From and after the date hereof through the Effective Time, the Company
and the Purchaser will maintain their respective qualifications as "real estate
investment trusts" under the Code and the rules and regulations thereunder. The
Company will make dividend distributions during the Company's final taxable
period sufficient to satisfy the requirement of Section 857 of the Code.
SECTION 7.12 CONSULTING AND NONCOMPETITION AGREEMENTS.
(a) Prior to the Effective Time, the Purchaser shall enter into Consulting
and Noncompetition Agreements, directly or indirectly, with W. G. Benton, G. L.
Clark, Jr. and S. L. Christiansen (the "Consultants") pursuant to which the
Consultants shall agree, for a period of five years, to provide certain
consulting services to Purchaser and to refrain from engaging in activities that
compete with the business of the Purchaser in (i) owning and leasing and (ii)
providing mortgage financing secured by income producing health care facilities,
with a principal focus on long-term care facilities, all as presently conducted
and as contemplated to be conducted immediately following the Effective Time;
provided, however, that the provisions of such agreements will not preclude the
Consultants from owning, operating, managing, financing or otherwise investing
in assisted living facilities.
(b) At the Effective Time, the Purchaser shall advance to each Consultant
the aggregate amount payable pursuant to such Consultant's Consulting and
Noncompetition Agreement over the term thereof; provided that such Consultant
shall execute a note, in a form satisfactory to the Purchaser, providing that
(i) the principal of (and any interest accrued thereon) shall be forgiven in
equal annual increments over the term of such Consulting and Noncompetition
Agreement and (ii) upon any breach by a Consultant of his or her Consulting and
Noncompetition Agreement, the then remaining outstanding principal balance of
such note (and any interest accrued thereon) shall be accelerated and become
immediately due and payable.
ARTICLE VIII
CONDITIONS
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The Company shall have obtained the necessary approval by the
Company's stockholders of this Agreement and the transactions contemplated
hereby;
(b) The Purchaser shall have obtained the necessary approval by the
Purchaser's stockholders of this Agreement and the transactions
contemplated hereby;
(c) The waiting period applicable to the consummation of the Merger
under the HSR Act, if applicable, shall have expired or been terminated;
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(d) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect;
(e) No preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use its
best efforts to have any such injunction, order or decree lifted);
(f) All governmental consents, orders and approvals legally required
for the consummation of the Merger and the transactions contemplated
hereby; including, without limitation the Company Required Statutory
Approvals and the Purchaser Required Statutory Approvals shall have been
obtained and be in effect at the Effective Time, and all consents, orders
and approvals legally required for the consummation of the Merger and the
transactions contemplated hereby shall have become final orders; and
(g) The Company and the Purchaser shall each have received an opinion
from their respective counsel to the effect that the Merger will qualify as
a reorganization under Section 368 of the Code and that no income or gain
will be recognized by the Company or the Purchaser as a result of the
Merger.
SECTION 8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) The Purchaser shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Purchaser
contained in this Agreement shall be true and correct in all material
respects on and as of (i) the date made and (ii) the Closing Date (except
in the case of representations and warranties expressly made solely with
reference to a particular date which shall be true and correct as of the
date specified); and the Company shall have received a certificate of an
officer of the Purchaser to that effect;
(b) The Company shall have received an opinion from (i) Argue Pearson
Harbison & Myers, general counsel to the Purchaser, dated the Closing Date,
substantially in the form set forth in Exhibit III hereto and (ii) Jones,
Day, Reavis & Pogue, special counsel to the Purchaser, dated the Closing
Date, substantially in the form set forth in Exhibit IV hereto;
(c) The Company shall have received "comfort" letters in customary
form from Ernst & Young, certified public accountants for the Purchaser,
dated the date of the Proxy Statement/Prospectus, the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to the Company) with respect to certain financial statements and
other financial information included in the Registration Statement;
(d) The Registration Statement to be filed by the Purchaser subsequent
to the date hereof with the SEC covering the offering and issuance to the
stockholders of the Company of the shares of Purchaser Common Stock into
which all of the issued and outstanding shares of Company Common Stock are
to be converted as provided in the Agreement, shall have become effective
under the Securities Act and the Purchaser Common Stock to be issued in
connection with the Merger shall have been authorized for listing on the
NYSE upon official notice of issuance;
(e) The Company shall have tendered the payments contemplated by
Section 3.1(a)(iii) to each holder of Options outstanding immediately prior
to the Effective Time;
(f) The Company and/or the Purchaser shall have tendered the severance
and related payments described on Schedule 4.14(a), less any applicable
withholding taxes;
(g) The Purchaser shall have advanced the funds contemplated by
Section 7.12 to each Consultant who has executed a note as contemplated by
Section 7.12; and
(h) No governmental consent, order or approval legally required for
the consummation of the Merger and the transactions contemplated hereby
shall have any terms which in the reasonable judgment
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of the Company, when taken together with the terms of all such consents,
orders or approvals, would materially impair the value of the Purchaser
Common Stock to be received by stockholders of the Company as a result of
the Merger, and no governmental authority shall have promulgated any
statement, rule or regulation which, when taken together with all such
promulgations, would materially impair the value of the Purchaser Common
Stock to be received by stockholders of the Company as a result of the
Merger.
SECTION 8.3 CONDITIONS TO OBLIGATION OF THE PURCHASER TO EFFECT THE
MERGER. Unless waived by the Purchaser, the obligation of the Purchaser to
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the additional following conditions:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of (i) the date made and (ii) the Closing Date (except
in the case of representations and warranties expressly made solely with
reference to a particular date which shall be true and correct as of the
date specified); and the Purchaser shall have received a Certificate of the
President and Chief Executive Officer of the Company to that effect;
(b) The Purchaser shall have received opinions from Stroock & Stroock
& Lavan, counsel to the Company dated the Closing Date, substantially in
the form set forth in Exhibit V and Exhibit VI hereto;
(c) The Purchaser shall have received "comfort" letters in customary
form from Coopers & Lybrand, certified public accountants for the Company,
dated the date of the Proxy Statement/Prospectus, the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to the Purchaser) with respect to certain financial statements
and other financial information included in the Registration Statement;
(d) The Affiliate Agreements required to be delivered to the Purchaser
pursuant to Section 7.4 hereof shall have been furnished as required by
Section 7.4;
(e) No governmental consent, order or approval legally required for
the consummation of the Merger and the transactions contemplated hereby
shall have any terms which in the reasonable judgment of the Purchaser,
when taken together with the terms of all such consents, orders or
approvals, would materially impair the value of the Company to the
Purchaser, and no governmental authority shall have promulgated any
statute, rule or regulation which, when taken together with all such
promulgations, would materially impair the value of the Company to the
Purchaser;
(f) The holders of 10% or less of the outstanding Company Common Stock
shall have qualified as Dissenting Stockholders;
(g) The performance of this Agreement will not jeopardize the status
of the Purchaser or the Company as a "real estate investment trust" under
the Code and the rules and regulations thereunder; and
(h) Each Consultant shall have executed a Consulting and
Noncompetition Agreement in form and substance satisfactory to Purchaser.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date, whether before or after approval by the stockholders of the
Purchaser and the Company:
(a) by mutual consent of each of the Purchaser and the Company;
(b) by either the Purchaser or the Company, so long as such party has
not breached any of its obligations hereunder (except for such breaches as
are clearly immaterial), if the Merger shall not have been consummated on
or before December 31, 1994 (the "Termination Date");
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(c) unilaterally by the Purchaser or the Company (i) if the other (A)
fails to perform any covenant or agreement in this Agreement in any
material respect, and does not cure the failure, in all material respects
within 15 business days after the terminating party delivers written notice
of the alleged failure or (B) fails to fulfill or complete a condition to
the obligations of that party (which condition is not waived) by reason of
a breach by that party of its obligations hereunder, (ii) if any condition
to the obligations of that party is not satisfied (other than by reason of
a breach by that party of its obligations hereunder), and it reasonably
appears that the condition cannot be satisfied prior to the Termination
Date or (iii) if the parties are unable to reach mutual agreement as to the
Exchange Ratio that may be required to be negotiated pursuant to the
proviso contained in Section 3.1(a)(i);
(d) unilaterally by the Purchaser if (i) the Company, through its
Board of Directors in the exercise of its fiduciary duties to its
stockholders, either fails to recommend to the Company's stockholders the
approval of this Agreement and the transactions contemplated hereby or
withdraws such recommendation or (ii) the holders of more than 10% of the
outstanding Company Common Stock shall have qualified as Dissenting
Stockholders;
(e) unilaterally by the Purchaser at any time following the issuance
of a Notice of Proposal or upon the occurrence of any event that requires
the Company to issue a Notice of Proposal to the Purchaser;
(f) unilaterally by either the Purchaser or the Company upon execution
of a definitive agreement between the Company and a Potential Acquiror as
set forth in Section 6.3; and
(g) unilaterally by either the Purchaser or the Company upon execution
of a definitive agreement between the Purchaser and any corporation,
partnership, person or other entity or group (a "Purchaser Acquiror")
pursuant to which the Purchaser Acquiror shall acquire all or substantially
all of the business and properties of the Purchaser, or capital stock of
the Purchaser, whether by merger, purchase of assets, tender offer or
otherwise, whether for cash, securities or any other consideration or
combination thereof (any of the foregoing hereinafter referred to as
"Purchaser Acquisition Transaction").
SECTION 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Purchaser or the Company, as provided in Section 9.1,
this Agreement shall forthwith become void and there shall be no further
obligation on the part of either the Purchaser, the Company or their respective
officers or directors (except as set forth in this Section 9.2 and in Sections
7.6, and 9.5 which shall survive such termination). Nothing in this Section 9.2
shall relieve any party from liability for any breach of this Agreement.
SECTION 9.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto and in
compliance with applicable law.
SECTION 9.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
SECTION 9.5 EXPENSE REIMBURSEMENT; LIQUIDATED DAMAGES.
(a) In the event (i) the Purchaser terminates this Agreement pursuant to
Section 9.1(c)(i), (d)(i) or (f) hereof, (ii) the Company terminates this
Agreement pursuant to Section 9.1(f) hereof, (iii) prior to the termination of
this Agreement any person, corporation, partnership or other entity or "group"
(as defined in Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder), other than the Purchaser or any of its Affiliates or a
group of which any of the Purchaser or any of its Affiliates is a member,
becomes the "beneficial owner" (as defined in Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder) of more than twenty
percent of the then outstanding shares of Company Common Stock, or (iv) the
Company's stockholders shall not have approved the Merger by December 31, 1994,
or holders of less than the requisite number of shares of Company Common Stock
vote in favor of the
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approval of the Merger, then the Company shall promptly pay the Purchaser a
termination fee in the amount of $3,750,000.
(b) In the event (i) the Company terminates this Agreement pursuant to
Sections 9.1(c)(i) or (g), (ii) the Purchaser terminates this Agreement pursuant
to Section 9.1(g) hereof, (iii) prior to the termination of this Agreement any
person, corporation, partnership or other entity or "group," other than the
Company or any of its Affiliates or a group of which any of the Company or any
of its Affiliates is a member, becomes the beneficial owner of more than twenty
percent of the then outstanding shares of Purchaser Common Stock, or (iv) the
Purchaser's stockholders shall not have approved the Merger by December 31,
1994, or holders of less than the requisite number of shares of Purchaser Common
Stock vote in favor of the approval of the Merger, then the Purchaser shall
promptly pay the Company a termination fee in the amount of $3,750,000;
provided, however, that upon a termination by the Company or the Purchaser
pursuant to Section 9.1(g) hereof, such termination fee will only be payable by
the Purchaser if the terms of the Purchaser Acquisition Transaction expressly
provide that the completion of such transaction is conditioned upon the prior
termination of this Agreement.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties in this Agreement shall not survive the Merger.
SECTION 10.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, sent via a
recognized overnight courier with delivery confirmed in writing or sent via
facsimile to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) If to the Purchaser to:
Omega Healthcare Investors, Inc.
905 W. Eisenhower Circle, Suite 110
Ann Arbor, Michigan 48103
Attention: Essel W. Bailey, Jr.
Fax: (313) 996-0020
with copies to:
Jones, Day, Reavis & Pogue
One Peachtree Center
Suite 3500
303 Peachtree Street
Atlanta, Georgia 30308-3242
Attention: Richard H. Miller, Esq.
Fax: (404) 581-8689
and:
Argue Pearson Harbison & Myers
801 South Flower Street
Suite 500
Los Angeles, California 90017
Attention: Don M. Pearson, Esq.
Fax: (213) 622-7575
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(b) If to the Company, to:
Health Equity Properties Incorporated
915 West Fourth Street
Winston-Salem, North Carolina 27102
Attention: William G. Benton
Fax: (910) 724-6765
with a copy to:
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
Attention: James R. Tanenbaum, Esq.
Fax: (212) 806-6006
SECTION 10.3 INTERPRETATION. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.4 MISCELLANEOUS. This Agreement (including the documents and
instruments referred to herein) and the Confidentiality Agreement (which shall
survive the termination of this Agreement) (i) constitute the entire agreement
and supersede all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof; (ii) shall not be assigned by operation of law or otherwise;
and (iii) shall be governed in all respects, including validity, interpretation
and effect, by the laws of the State of Maryland (without giving effect to the
provisions thereof relating to conflicts of law).
SECTION 10.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 10.6 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, the Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
ATTEST:
/s/ NEILL R. SCHMEICHEL
- ------------------------------------------------------
Name: Neill R. Schmeichel
Title: Chief Financial Officer
ATTEST:
/s/ SUSAN L. CHRISTIANSEN
- ------------------------------------------------------
Name: Susan L. Christiansen
Title: General Counsel
OMEGA HEALTHCARE INVESTORS, INC.
By: /s/ ESSEL W. BAILEY, JR.
- -------------------------------------------------
Name: Essel W. Bailey, Jr.
Title: Chief Executive Officer
HEALTH EQUITY PROPERTIES
INCORPORATED
By: /s/ WILLIAM G. BENTON
- -------------------------------------------------
Name: William G. Benton
Title: Chairman of the Board
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GLOSSARY OF DEFINED TERMS
The following terms, when used in this Merger Agreement, have the meanings
ascribed to them in the corresponding sections of this Merger Agreement listed
below.
<TABLE>
<S> <C> <C>
"Acquisition Transactions"............................................ -- Section 6.3.
"Affiliate"........................................................... -- Section 4.14(b).
"Affiliate Agreement"................................................. -- Section 7.4.
"Agreement"........................................................... -- Preamble.
"Closing"............................................................. -- Section 3.6.
"Closing Date"........................................................ -- Section 3.6.
"Code"................................................................ -- Section 4.12(a).
"Company"............................................................. -- Preamble.
"Company Certificates"................................................ -- Section 3.3(a).
"Company Common Stock"................................................ -- Section 3.1(a).
"Company Controlled Group Plans"...................................... -- Section 4.13(b).
"Company Financial Statements"........................................ -- Section 4.5(a).
"Company Lease"....................................................... -- Section 4.32.
"Company Mortgage".................................................... -- Section 4.33.
"Company Mortgage Loan"............................................... -- Section 4.34.
"Company Permitted Encumbrances"...................................... -- Section 4.25.
"Company Plans"....................................................... -- Section 4.13(a).
"Company Property".................................................... -- Section 4.25.
"Company Representatives"............................................. -- Section 7.1.
"Company Required Statutory Approvals"................................ -- Section 4.4(c).
"Company SEC Reports"................................................. -- Section 4.5(a).
"Company Stockholders' Approval"...................................... -- Section 7.3.
"Company Subsidiaries"................................................ -- Section 4.3.
"Company 10-K"........................................................ -- Section 4.5(a).
"Company 10-Q"........................................................ -- Section 4.5(a).
"Confidentiality Agreement"........................................... -- Section 6.3.
"Consultants"......................................................... -- Section 7.12.
"Control"............................................................. -- Section 4.14(b).
"Dissenting Stockholder".............................................. -- Section 3.5.
"Effective Time"...................................................... -- Section 1.2.
"ERISA"............................................................... -- Section 4.13(a).
"Exchange Act"........................................................ -- Section 4.4(c).
"Exchange Agent"...................................................... -- Section 3.3(a).
"Exchange Ratio"...................................................... -- Section 3.1(a).
"HSR Act"............................................................. -- Section 4.4(c).
"Hazardous Materials"................................................. -- Section 4.27.
"IRS"................................................................. -- Section 4.12(a).
"Material"............................................................ -- Section 4.4(d).
"Merger".............................................................. -- Preamble.
"Merger Filing"....................................................... -- Section 1.2.
"MGCL"................................................................ -- Section 1.1.
"Multiemployer Plan".................................................. -- Section 4.13(a).
"Multiple Employer Plan".............................................. -- Section 4.13(a).
"NCBCA"............................................................... -- Section 1.1.
"Notice of Proposal".................................................. -- Section 6.3.
"NYSE"................................................................ -- Section 3.1(a).
"Options"............................................................. -- Section 3.1(a).
"Other Rights"........................................................ -- Section 3.1(a).
</TABLE>
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<TABLE>
<S> <C> <C>
"Permits"............................................................. -- Section 4.10.
"Person".............................................................. -- Section 4.14(b).
"Potential Acquiror".................................................. -- Section 6.3.
"Proxy Statement"..................................................... -- Section 4.9.
"Proxy Statement/Prospectus".......................................... -- Section 4.9.
"Purchaser"........................................................... -- Preamble.
"Purchaser Acquiror".................................................. -- Section 9.1(g).
"Purchaser Acquisition Transaction"................................... -- Section 9.1(g).
"Purchaser Common Stock".............................................. -- Section 3.1(a).
"Purchaser Controlled Group Plans".................................... -- Section 5.13(b).
"Purchaser Financial Statements"...................................... -- Section 5.5.
"Purchaser Lease"..................................................... -- Section 5.31.
"Purchaser Mortgage".................................................. -- Section 5.32.
"Purchaser Mortgage Loan"............................................. -- Section 5.33.
"Purchaser Permitted Encumbrances".................................... -- Section 5.24.
"Purchaser Plans"..................................................... -- Section 5.13.
"Purchaser Property".................................................. -- Section 5.24.
"Purchaser Representatives"........................................... -- Section 7.1.
"Purchaser Required Statutory Approvals".............................. -- Section 5.4(c).
"Purchaser SEC Reports"............................................... -- Section 5.5.
"Purchaser Stockholders' Approval".................................... -- Section 7.3.
"Purchaser 10-K"...................................................... -- Section 5.5.
"Purchaser 10-Q"...................................................... -- Section 5.5.
"Registration Statement".............................................. -- Section 4.9.
"SEC"................................................................. -- Section 4.4(c).
"Securities Act"...................................................... -- Section 4.4(c).
"Stock Purchase Plan"................................................. -- Section 3.1(a).
"Surviving Corporation"............................................... -- Section 1.1.
"Tax Return".......................................................... -- Section 4.12(e).
"Taxes"............................................................... -- Section 4.12(d).
"Termination Date".................................................... -- Section 9.1(b).
"1993 Company Balance Sheet".......................................... -- Section 4.12(a).
"1993 Purchaser Balance Sheet"........................................ -- Section 5.12(a).
</TABLE>
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<PAGE> 146
ANNEX II
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
August 24, 1994
Board of Directors
Omega Healthcare Investors, Inc.
905 West Eisenhower Circle, Suite 110
Ann Arbor, MI 48103
Dear Sirs:
Omega Healthcare Investors, Inc. ("Omega") and Health Equity Properties
Incorporated ("Health Equity") have entered into an amended and restated Merger
Agreement and Plan of Reorganization dated as of June 17, 1994 (the "Merger
Agreement"), pursuant to which, among other things, Health Equity will be merged
into Omega (the "Merger"), and each share of Common Stock of Health Equity (the
"Health Equity Common Stock") will be converted into the right to receive 0.393
shares of Common Stock of Omega (the "Omega Common Stock"). You have provided us
with the Joint Proxy Statement and Prospectus for the special meetings of
shareholders of Omega and Health Equity in substantially the form to be
distributed to shareholders (the "Proxy Statement") which includes the Merger
Agreement.
You have asked us to render our opinion as to whether the Merger is fair,
from a financial point of view, to the shareholders of Omega.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Proxy Statement;
2. reviewed Omega's Annual Reports to Shareholders and Annual Reports
on Form 10-K for the fiscal years ended December 31, 1992 and 1993,
and its Quarterly Reports on Form 10-Q for the periods ended March
31 (as amended) and June 30, 1994;
3. reviewed Health Equity's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended December 31, 1991
through 1993, and its Quarterly Reports on Form 10-Q for the
periods ended March 31 and June 30, 1994;
4. reviewed certain operating and financial information, including
projections, provided to us by Omega and Health Equity relating to
their respective businesses and prospects;
5. interviewed the senior managements of Omega and Health Equity to
discuss their respective operations, historical financial
statements and future prospects;
6. reviewed the historical stock prices and trading volume of Omega
Common Stock and of Health Equity Common Stock;
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7. reviewed publicly available financial data and stock market
performance data of public companies which we deemed generally
comparable to Omega and Health Equity; and
8. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information provided to us by the managements of Omega and Health Equity,
and we have further relied upon the assurances of these managements that they
are unaware of any facts that would make the information provided to us
incomplete or misleading. In arriving at our opinion, we have not performed or
obtained any independent appraisal of the assets of Omega or Health Equity.
Based on the foregoing, it is our opinion that the Merger is fair, from a
financial point of view, to the shareholders of Omega.
Bear, Stearns & Co. Inc. has in the past provided advisory and financing
services to Omega and has received fees for rendering such services. As of
August 18, 1994, we own, for our own account, 86,500 shares of Omega Common
Stock.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Gilbert E. Matthews
------------------------
Managing Director
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<PAGE> 148
ANNEX III
EQUITABLE SECURITIES CORPORATION
800 NASHVILLE CITY CENTER
NASHVILLE, TENNESSEE 37219-1743
STRICTLY CONFIDENTIAL
August 22, 1994
Board of Directors
Health Equity Properties Incorporated
915 West Fourth Street
Winston-Salem, North Carolina 27102-0348
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness to the common
stockholders of Health Equity Properties Incorporated (the "Company"), from a
financial point of view, of the consideration to be received by them pursuant to
the Merger Agreement and Plan of Reorganization dated as of June 17, 1994 (the
"Agreement"), by and between the Company and Omega Healthcare Investors, Inc.
("Omega"). Under the terms of the Agreement, the Company will merge with and
into Omega or, at the option of Omega, a wholly-owned subsidiary of Omega (any
such transaction being hereinafter referred to as the "Merger"). Pursuant to the
Merger, each outstanding share of common stock of the Company will be converted
into 0.3930 shares of common stock of Omega. Omega, or its wholly-owned
subsidiary, shall be the surviving corporation in the Merger. The Merger is
expected to be tax-free to the Company's stockholders and will be accounted for
as a purchase.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and Omega. We have
reviewed certain other information, including financial forecasts and other
internal financial analyses, provided to us by the Company and Omega, and we
have met with the managements of both the Company and Omega to discuss the
business prospects of their respective companies and the joint prospects of a
combined company. In addition, we have: (i) reviewed the reported price and
trading activity for the common stock of the Company and Omega; (ii) compared
certain financial and stock market information for the Company and Omega with
similar information for certain other comparable companies whose securities are
publicly traded; and (iii) performed such other studies and analyses as we
considered appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections used in our analyses, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective senior
managements of the Company and Omega as to the likely future financial
performance of their respective companies. In addition, we have not made an
independent valuation or appraisal of the assets of the Company or Omega. Our
opinion is based on market, economic, and other conditions as they exist and can
be evaluated as of the date of this letter.
Equitable Securities Corporation has acted as financial advisor to the
Company in connection with the Merger and has received a fee for rendering this
opinion; however, our fee for rendering this opinion was not contingent upon the
consummation of the Merger. We also will receive a fee for providing financial
advisory services to the Company regarding this transaction, with such
additional fee being contingent upon the consummation of the Merger. Although
Equitable Securities Corporation regularly publishes research reports regarding
the health care industry and the businesses and securities of publicly-owned
companies in that industry, including certain publicly-owned Real Estate
Investment Trusts that are engaged exclusively in the
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financing of health care related properties, we do not publish research reports
on either the Company or Omega.
Based on the analysis described above and subject to the foregoing
limitations and qualifications, it is our opinion that, as of the date hereof,
the consideration to be received by the common stockholders of the Company
pursuant to the Agreement is fair from a financial point of view.
It is understood that this letter is for the information of the Board of
Directors of the Company only and is not to be quoted or referred to, in whole
or in part, without our written consent; provided, however, that we hereby
consent to the inclusion of this opinion in any registration or proxy statement
used in connection with the Merger, so long as the opinion is quoted in full in
such registration or proxy statement.
Very truly yours,
EQUITABLE SECURITIES CORPORATION
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<PAGE> 150
ANNEX IV
NORTH CAROLINA BUSINESS CORPORATION
ACT
ARTICLE 13.
DISSENTERS' RIGHTS.
PART 1. RIGHT TO DISSENT AND OBTAIN
PAYMENT FOR SHARES.
SEC. 55-13-01. DEFINITIONS.
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and
in the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances, giving due consideration to the rate currently
paid by the corporation on its principal bank loans, if any, but not less
than the rate provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 55-13-02. RIGHT TO DISSENT.
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party
unless (i) approval by the shareholders of that corporation is not required
under G.S. 55-11-03(g) or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be received in exchange
for such shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than as permitted by G.S.
55-12-01, including a sale in dissolution, but not including a sale
pursuant to court order or a sale pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed in
cash to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking
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fund for the redemption or repurchase, of the shares; (iii) alters or
abolishes a preemptive right of the holder of the shares to acquire shares
or other securities; (iv) excludes or limits the right of the shares to
vote on any matter, or to cumulate votes; (v) reduces the number of shares
owned by the shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under G.S. 55-6-04; or (vi) changes
the corporation into a nonprofit corporation or cooperative organization;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in exchange
for cash or other property, unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
SEC. 55-13-03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
SEC.SEC. 55-13-04 TO 55-13-19: Reserved for future codification purposes.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
SEC. 55-13-20. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
SEC. 55-13-21. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
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(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this Article.
SEC. 55-13-22. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent and where and when
certificated shares must be deposited;
(2) Inform holders of uncertified shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
SEC. 55-13-23. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must
demand payment and deposit his share certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
SEC. 55-13-24. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
SEC. 55-13-25. OFFER OF PAYMENT.
(a) As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to pay each dissenter who complied
with G.S. 55-13-23 the amount the corporation estimates to be the fair value of
his shares, plus interest accrued to the date of payment, and shall pay this
amount to each dissenter who agrees in writing to accept it in full satisfaction
of his demand.
(b) The offer of payment must be accompanied by:
(1) The corporation's most recent available balance sheet as of the
end of a fiscal year ending not more than 16 months before the date of
offer of payment, an income statement for that year, a statement of cash
flows for that year, and the latest available interim financial statements,
if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
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(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
SEC. 55-13-26. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
SEC. 55-13-27: Reserved for future codification purposes.
SEC. 55-13-28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S OFFER OR
FAILURE TO PERFORM.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate or reject the corporation's offer under G.S. 55-13-25 and demand
payment of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under G.S. 55-13-25
is less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment to a dissenter who accepts
the corporation's offer under G.S. 55-13-25 within 30 days after the
dissenter's acceptance; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation offered payment for his
shares or (ii) under subdivisions (a)(2) and (a)(3) within 30 days after the
corporation has failed to perform timely. A dissenter who fails to notify the
corporation of his demand under subsection (a) within such 30-day period shall
be deemed to have withdrawn his dissent and demand for payment.
SEC. 55-13-29: Reserved for future codification purposes.
PART 3. JUDICIAL APPRAISAL OF SHARES.
SEC. 55-13-30. COURT ACTION.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the date of his payment
demand under G.S. 55-13-28 and petition the court to determine the fair value of
the shares and accrued interests. Upon service upon it of the petition filed
with the court, the corporation shall pay to the dissenter the amount offered by
the corporation under G.S. 55-13-25.
(a1) If the dissenter does not commence the proceeding within the 60-day
period, the dissenter shall have an additional 30 days to either (i) accept in
writing the amount offered by the corporation under G.S. 55-13-25, upon which
the corporation shall pay such amount to the dissenter in full satisfaction of
his demand, or (ii) withdraw his demand for payment and resume the status of a
nondissenting shareholder. A dissenter who takes no action within such 30-day
period shall be deemed to have withdrawn his dissent and demand for payment.
(b) Reserved for future codification purposes.
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(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The parties are entitled to the same discovery
rights as parties in other civil proceedings. However, in a proceeding by a
dissenter in a public corporation, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
SEC. 55-13-31. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall assess
the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation and Bylaws of the Registrant provide for
indemnification of directors and officers to the full extent permitted by
Maryland law.
Section 2-418 of the General Corporation Law of the State of Maryland
generally permits indemnification of any director or officer with respect to any
proceeding unless it is established that: (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding and
was either committed in bad faith or the result of active or deliberate
dishonesty; (b) the director or officer actually received an improper personal
benefit in money, property or services; or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. Indemnification may be against judgments, penalties,
fines, settlements, and reasonable expenses actually incurred by the director or
officer in connection with the proceeding; provided, however, that if the
proceeding is one by, or in the right of, the corporation, indemnification is
permitted only for reasonable expenses and not with respect to any proceeding in
which the director or officer shall have been adjudged to be liable to the
corporation. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the director or officer did not meet the
requisite standard of conduct required for permitted indemnification. The
termination of any proceeding by conviction, or plea of nolo contendere or its
equivalent, or an entry of an order of probation prior to judgment, creates a
rebuttable presumption that the director or officer did not meet that standard
of conduct.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 is permitted to directors and officers of the Registrant pursuant to the
above-described provisions, the Registrant understands that the Securities and
Exchange Commission is of the opinion that such indemnification contravenes
federal public policy as expressed in said Act and therefore is unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
2.1 Amended and Restated Merger Agreement and Plan of Reorganization dated as of June
17, 1994, by and between Registrant and HEP (included as Annex I to the Joint Proxy
Statement and Prospectus which is a part of this Registration Statement). The
exhibits and schedules to the Amended and Restated Merger Agreement and Plan of
Reorganization have been omitted from Annex I to the Joint Proxy Statement and
Prospectus. Registrant undertakes to furnish supplementally such exhibits and
schedules to the Commission upon request.
4.1 Articles of Incorporation of the Registrant (filed as Exhibit No. 3.1 to the
Registrant's Registration Statement on Form S-11 (File No. 33-48268), effective
August 7, 1992 and incorporated herein by reference).
4.2 Amended and Restated Bylaws of the Registrant, as amended August 17, 1993 (filed as
Exhibit No. 3.2 to the Registrant's Registration Statement on Form S-4 (File No.
33-70612), effective November 10, 1993 and incorporated herein by reference).
5.1 Opinion of Argue Pearson Harbison & Myers regarding legality.
8.1 Opinion of Argue Pearson Harbison & Myers regarding tax consequences.
8.2 Opinion of Stroock & Stroock & Lavan regarding certain tax consequences.
23.1 Consent of Argue Pearson Harbison & Myers (included in Exhibits 5.1 and 8.1).
23.2 Consent of Stroock & Stroock & Lavan (included in Exhibit 8.2).
23.3 Consent of Ernst & Young LLP regarding financial statements and schedules of the
Registrant.
</TABLE>
II-1
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
23.4 Consent of Ernst & Young LLP regarding the financial statements of Professional
Health Care Management, Inc.
23.5 Consent of Ernst & Young LLP regarding the consolidated financial statements of
Sterling Health Care Centers, Inc., and Subsidiaries.
23.6 Consent of Arthur Andersen & Co.
23.7 Consent of Grant Thornton.
23.8 Consent of Coopers & Lybrand L.L.P.
23.9 Consent of Goodman & Company.
24.1 Power of Attorney (set forth on signature page hereto).
99.1 Form of Proxy to be used by Registrant.
99.2 Form of Proxy to be used by Health Equity Properties Incorporated.
99.3 Form of Consulting and Noncompetition Agreement by and between Residential
Properties Management, Inc. and Registrant.
99.4 Form of Individual Consulting and Noncompetition Agreement by and between
Residential Properties Management, Inc. and each Consultant (included as Exhibit A
to Exhibit 99.3).
99.5 Form of Promissory Note by Residential Properties Management, Inc. in favor of
Registrant (included as Exhibit B to Exhibit 99.3).
99.6 Form of Guaranty of Payment to the Promissory Note (included as Exhibit C to Exhibit
99.3).
</TABLE>
- ---------------
(b) Not Applicable.
(c) The opinions of Bear, Stearns & Co. Inc. and Equitable Securities
Corporation are furnished as Annex II and Annex III, respectively, to the
Joint Proxy Statement and Prospectus which is a part of this Registration
Statement.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt
II-2
<PAGE> 157
means. This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
[Balance of page intentionally left blank]
II-3
<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ann Arbor, State of
Michigan, on the 24th day of August, 1994.
OMEGA HEALTHCARE INVESTORS, INC.
By: /s/ ESSEL W. BAILEY, JR.
------------------------------------
Essel W. Bailey, Jr.
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Essel W. Bailey, Jr. and Robert L. Parker, and
each or any of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ----------------------------------- ----------------
<C> <S> <C>
/s/ ROBERT L. PARKER Chairman and Director August 24, 1994
- ---------------------------------------
Robert L. Parker
/s/ ESSEL W. BAILEY, JR. President, Chief Executive Officer, August 24, 1994
- --------------------------------------- Secretary and Director (principal
Essel W. Bailey, Jr. executive officer)
/s/ NEILL R. SCHMEICHEL Vice President, Chief Financial August 24, 1994
- --------------------------------------- Officer (principal financial and
Neill R. Schmeichel accounting officer)
/s/ JAMES C. COWLES Director August 24, 1994
- ---------------------------------------
James C. Cowles
/s/ JAMES E. EDEN Director August 24, 1994
- ---------------------------------------
James E. Eden
/s/ THOMAS F. FRANKE Director August 24, 1994
- ---------------------------------------
Thomas F. Franke
/s/ HAROLD J. KLOOSTERMAN Director August 24, 1994
- ---------------------------------------
Harold J. Kloosterman
/s/ BERNARD J. KORMAN Director August 24, 1994
- ---------------------------------------
Bernard J. Korman
</TABLE>
II-4
<PAGE> 159
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBITS PAGE
- ------- ----------------------------------------------------------------------- ------------
<C> <C> <S> <C>
2.1 -- Amended and Restated Merger Agreement and Plan of Reorganization dated
as of June 17, 1994, by and between Registrant and HEP (included as
Annex I to the Joint Proxy Statement and Prospectus which is a part of
this Registration Statement). The exhibits and schedules to the Amended
and Restated Merger Agreement and Plan of Reorganization have been
omitted from Annex I to the Joint Proxy Statement and Prospectus.
Registrant undertakes to furnish supplementally such exhibits and
schedules to the Commission upon request. .............................
4.1 -- Articles of Incorporation of the Registrant (filed as Exhibit No. 3.1
to the Registrant's Registration Statement on Form S-11 (File No.
33-48268), effective August 7, 1992 and incorporated herein by
reference). ...........................................................
4.2 -- Amended and Restated Bylaws of the Registrant, as amended August 17,
1993 (filed as Exhibit No. 3.2 to the Registrant's Registration
Statement on Form S-4 (File No. 33-70612), effective November 10, 1993
and incorporated herein by reference). ................................
5.1 -- Opinion of Argue Pearson Harbison & Myers regarding legality. .........
8.1 -- Opinion of Argue Pearson Harbison & Myers regarding tax
consequences. .........................................................
8.2 -- Opinion of Stroock & Stroock & Lavan regarding certain tax
consequences. .........................................................
23.1 -- Consent of Argue Pearson Harbison & Myers (included in Exhibits 5.1 and
8.1). .................................................................
23.2 -- Consent of Stroock & Stroock & Lavan (included in Exhibit 8.2). .......
23.3 -- Consent of Ernst & Young LLP regarding financial statements and
schedules of the Registrant. ..........................................
23.4 -- Consent of Ernst & Young LLP regarding the financial statements of
Professional Health Care Management, Inc. .............................
23.5 -- Consent of Ernst & Young LLP regarding the consolidated financial
statements of Sterling Health Care Centers, Inc., and Subsidiaries. ...
23.6 -- Consent of Arthur Andersen & Co. ......................................
23.7 -- Consent of Grant Thornton. ............................................
23.8 -- Consent of Coopers & Lybrand L.L.P. ...................................
23.9 -- Consent of Goodman & Company. .........................................
24.1 -- Power of Attorney (set forth on signature page hereto). ...............
99.1 -- Form of Proxy to be used by Registrant. ...............................
99.2 -- Form of Proxy to be used by Health Equity Properties Incorporated. ....
99.3 -- Form of Consulting and Noncompetition Agreement by and between
Residential Properties Management, Inc. and Registrant. ...............
99.4 -- Form of Individual Consulting and Noncompetition Agreement by and
between Residential Properties Management, Inc. and each Consultant
(included as Exhibit A to Exhibit 99.3). ..............................
</TABLE>
<PAGE> 160
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION OF EXHIBITS PAGE
- ------- ----------------------------------------------------------------------- ------------
<C> <C> <S> <C>
99.5 -- Form of Promissory Note by Residential Properties Management, Inc. in
favor of Registrant (included as Exhibit B to Exhibit 99.3). ..........
99.6 -- Form of Guaranty to the Promissory Note (included as Exhibit C to
Exhibit 99.3). ........................................................
</TABLE>
- ---------------
(b) Not Applicable.
(c) The opinions of Bear, Stearns & Co. Inc. and Equitable Securities
Corporation are furnished as Annex II and Annex III, respectively, to the
Joint Proxy Statement and Prospectus which is a part of this Registration
Statement.
<PAGE> 1
EXHIBIT 5.1
ARGUE PEARSON HARBISON & MYERS
801 SOUTH FLOWER STREET, SUITE 500
LOS ANGELES, CALIFORNIA 90017
August 24, 1994
7173
Omega Healthcare Investors, Inc.
905 West Eisenhower Circle
Suite 110
Ann Arbor, MI 48103
Re: Health Equity Properties Incorporated Merger into Omega
Healthcare Investors, Inc.
Gentlemen:
We have examined the Registration Statement dated August 24, 1994,
which you have filed with the Securities and Exchange Commission in connection
with the registration under the Securities Act of 1933, as amended, of
5,885,958 shares of your Common Stock, par value $.10 (the "Stock"), as
contemplated by the Amended and Restated Merger Agreement and Plan of
Reorganization dated as of June 17, 1994 (the "Merger Agreement") by and
between Omega Healthcare Investors, Inc. ("Omega") and Health Equity Properties
Incorporated ("HEP"). We have also examined the Merger Agreement proceedings
heretofore taken, and are familiar with the additional proceedings proposed to
be taken by you, in connection with the authorization and issuance of the
Stock.
It is our opinion that, subject to the effectiveness of the
Registration Statement under the Securities Act of 1933, as amended, the Stock
will, upon issuance thereof in the manner described in the Registration
Statement and in accordance with the provisions of the Merger Agreement
(including but not limited to obtaining shareholder approval and completing the
necessary filings intended to effect the Merger of HEP with and into Omega
under the laws of Maryland and North Carolina), be legally issued, fully paid
and nonassessable.
<PAGE> 2
Omega Healthcare Investors, Inc.
August 23, 1994
Page 2
We consent to the use of this opinion as an exhibit to said
Registration Statement, and we further consent to the reference to our firm
under the caption "Legal Matters" in the Prospectus which is a part thereof.
Very truly yours,
ARGUE PEARSON HARBISON & MYERS
<PAGE> 1
EXHIBIT 8.1
ARGUE PEARSON HARBISON & MYERS
801 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90017-4699
August 24, 1994
7173
Omega Healthcare Investors, Inc.
905 West Eisenhower Circle, Suite 110
Ann Arbor, Michigan 48103
RE: Merger with Health Equity Properties Incorporated
Gentlemen:
You have requested our opinion concerning certain of the federal income tax
matters pertaining to the merger of Health Equity Properties Incorporated
("HEP") with and into Omega Healthcare Investors, Inc. (the "Company"). This
opinion is based on various assumptions, and is conditioned upon the accuracy
of factual representations of the Company and HEP concerning their respective
businesses and properties as set forth in the Joint Proxy Statement and
Prospectus dated August 24, 1994 (the "Proxy Materials").
As counsel for the Company, we have made such legal and factual examinations
and inquiries, including an examination of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for purposes
of this opinion.
We are rendering our opinions herein as to the effect on the subject
transaction only of the federal income tax laws of the United States and we
express no opinion with respect to the applicability thereto, or the effect
thereon, of other federal laws, the laws of any other jurisdiction or as to any
matters of municipal law or the laws of any other local agencies within any
state.
Based on such facts, assumptions and representations, and our review of the
statements in the Proxy Materials set forth under the caption "Certain Federal
Income Tax Considerations," to the extent such information constitutes matters
of law, summaries of legal matters, or legal conclusions, it is our opinion
that such information presents a fair summary of the matters
<PAGE> 2
Omega Healthcare Investors, Inc.
August 24, 1994
Page 2
described therein, accurately reflects our view of such matters and is based on
reasonable interpretations of the laws described therein. No opinion is
expressed as to any matter not discussed herein.
This opinion is based on various statutory provisions, regulations promulgated
thereunder and interpretations thereof by the Internal Revenue Service and the
courts having jurisdiction over such matters, all of which are subject to
change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the representations in the
Proxy Materials may affect the conclusions stated herein.
This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be
relied upon by you for any other purpose, or furnished to, quoted to, or relied
upon by any other person, firm or corporation for any purpose, without our
prior written consent.
We consent to the use of this opinion as an exhibit to said Proxy Materials,
and we further consent to the reference to our firm under the caption "Legal
Matters" in the Prospectus which is a part thereof.
Very truly yours,
ARGUE PEARSON HARBISON & MYERS
AMV:mss
<PAGE> 1
EXHIBIT 8.2
STROOCK & STROOCK & LAVAN
SEVEN HANOVER SQUARE
NEW YORK, NEW YORK 10004
August 24, 1994
Health Equity Properties Incorporated
915 West Fourth Street
Winston-Salem, NC 27101
Re: Registration Statement on Form S-4:
Ladies and Gentlemen:
You have requested our opinion as to certain Federal income tax
consequences of the proposed merger of Health Equity Properties Incorporated, a
North Carolina corporation ("HEP"), with and into Omega Healthcare Investors,
Inc., a Maryland corporation ("Omega"), as contemplated by the Amended and
Restated Merger Agreement and Plan of Reorganization dated as of June 17, 1994
(the "Agreement"), substantially in the form included as Annex I to the
Registration Statement on Form S-4 filed on the date hereof (the "Registration
Statement"), initially filed as a Joint Proxy Statement and Prospectus with the
Securities and Exchange Commission on August 3, 1994.
In rendering this opinion, we have examined HEP's Articles of
Incorporation, as amended, the Agreement and Prospectus incorporated by
reference in the Registration Statement, the fairness opinion rendered by
Equitable Securities Corporation included as Annex III to the Registration
Statement, the fairness opinion rendered by Bear, Stearns & Co. Inc. included as
Annex II to the Registration Statement and such other documents as we have
deemed necessary or relevant for the purpose of this opinion. As to various
questions of fact material to this opinion, where relevant facts were not
independently established by us, we have relied upon statements of employees of
HEP. We have also examined such matters of law as we have deemed necessary or
appropriate for the purpose of this opinion.
In rendering the opinion set forth herein, we have made the following
assumptions, all of which we assume to be true and accurate on the date hereof
and will continue to be true and accurate through and including the Closing
Date:
1. There is no plan or intention on the part of the shareholders of
HEP to sell, exchange, or otherwise dispose of a number of shares of HEP
stock held prior to the Merger or Omega Common Stock received pursuant to
the Merger which would cause HEP shareholders to own Omega Common Stock
having a value as of the date of the Merger, of less than fifty percent
(50%) of the value of all of the formerly outstanding stock of HEP as of
the same date (including for purposes of this calculation HEP stock
surrendered by dissenters, or exchanged for cash in lieu of fractional
shares).
2. Each of HEP and Omega has qualified and will qualify as a real
estate investment trust within the meaning of Subchapter M of Chapter 1 of
the Internal Revenue Code of 1986, as amended (the "Code"), for each of its
taxable years ending on or before or including the Closing Date.
3. Omega has no plan or intention to reacquire any of its stock issued
in the transaction.
4. Omega has no plan or intention to sell or otherwise dispose of any
of the assets of HEP acquired in the transaction, except for dispositions
made in the ordinary course of business or transfers described in section
368(a)(2)(C) of the Code.
<PAGE> 2
5. Following the Merger, Omega will continue the historic business of
HEP or will use a significant portion of HEP's historic business assets in
a business.
6. The assumption by Omega of the liabilities of HEP pursuant to the
Merger is for a bona fide business purpose and the principal purpose of
such assumption is not the avoidance of federal income tax on the transfer
of assets of HEP to Omega pursuant to the Merger.
7. Any liabilities of HEP to be assumed by Omega (or liabilities to
which the transferred assets of HEP are taken subject to) will be
liabilities incurred by HEP in the ordinary course of business. No
liabilities of any person other than HEP will be assumed by Omega in the
Merger, and none of the shares of HEP to be surrendered in exchange for
Omega Common Stock in the Merger will be subject to any liabilities.
8. There is no intercorporate indebtedness existing between Omega and
HEP that was issued, acquired, or will be settled at a discount.
9. On the date of the Merger, the fair market value of the assets of
HEP will exceed the sum of its liabilities (including any liabilities to
which its assets are subject).
10. The payment of cash in lieu of fractional shares of stock of HEP
will be made for the purpose of saving Omega the expense and inconvenience
of issuing fractional shares.
11. None of the compensation received by any shareholder-employee of
HEP pursuant to any employment, consulting or similar arrangement will be
separate consideration for, or allocable to, any of his shares of HEP
Common Stock. None of the shares of Omega Common Stock received by any
shareholder-employee of HEP pursuant to the Merger will be separate
consideration for, or allocable to, any such employment, consulting or
similar arrangement.
We have also assumed (i) the genuineness of all signatures on documents we
have examined, (ii) the authenticity of all documents submitted to us as
originals, (iii) the conformity to the original documents of all documents
submitted to us as copies, (iv) the authority and capacity of the individual or
individuals who executed any such documents on behalf of any person, (v) the
accuracy and completeness of all records made available to us, (vi) the factual
accuracy of all representations, warranties and other statements made by all
parties, (vii) that HEP has been operated in accordance with applicable laws and
the terms and conditions of applicable documents, and (viii) that all documents,
certificates, representations, warranties and covenants on which we have relied
in rendering the opinion set forth below and that were given or dated earlier
than the date of this letter continue to remain accurate, insofar as relevant to
the opinion set forth herein, from such earlier date through and including the
date of this letter.
We note that our opinion is based on our review of the documents described
above, the statements and representations referred to above and in the
Registration Statement and the Agreement, the provisions of the Code, the
regulations, published rulings and announcements thereunder, and the judicial
interpretations thereof currently in effect. Any change, after the date hereof,
in applicable law or any of the facts and circumstances described in the
Registration Statement, or inaccuracy of any statements or representations on
which we have relied, may affect the continuing validity of our opinion.
Capitalized terms not defined herein have the respective meanings given
such terms in the Agreement.
Based on the foregoing, it is our opinion that for Federal income tax
purposes:
1. The Merger will qualify as a reorganization under Section
368(a)(1)(A) of the Code;
2. No gain or loss will be recognized by HEP as a result of the
consummation of the Merger, Section 361(a) of the Code;
3. No gain or loss will be recognized by a holder of HEP Common Stock
upon the exchange of shares of HEP Common Stock for shares of Omega Common
Stock pursuant to the Merger, except that gain or loss will be recognized
by a holder of HEP Common Stock on receipt of cash in lieu of a fractional
share interest in Omega Common Stock, Section 354(a) of the Code;
2
<PAGE> 3
4. The aggregate adjusted tax basis of the Omega Common Stock received
by a holder of HEP Common Stock pursuant to the Merger will be the same as
the aggregate adjusted tax basis of the shares of HEP Common Stock
surrendered in exchange therefor, decreased by the adjusted tax basis of
the shares of HEP Common Stock allocable to any fractional share interest
in Omega Common Stock for which cash is received, Section 358(a) of the
Code;
5. The holding period of the Omega Common Stock received by a holder
of HEP Common Stock as a result of the Merger will include the holding
period of the shares of HEP Common Stock surrendered in exchange therefor,
provided that such HEP Common Stock is held as a capital asset at the
Effective Time, Section 1223(1) of the Code;
6. A holder of HEP Common Stock who receives cash in lieu of a
fractional interest in Omega Common Stock will be treated as if the
fractional share were distributed as part of the exchange and then as
having received a cash distribution in redemption of such fractional share,
resulting in gain or loss (or in certain circumstances, ordinary income)
upon receipt of such cash taxed as provided in Section 302 of the Code; and
7. A holder of HEP Common Stock who perfects his dissenters' rights
under the laws of North Carolina and who receives payment for the "fair
value" of his shares of HEP Common Stock will be treated as having received
the payment in redemption of the shares, and the redemption will be subject
to the conditions and limitations of Section 302 of the Code.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Joint Proxy Statement
and Prospectus included in the Registration Statement. In giving such
permission, we do not admit hereby that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ STROOCK & STROOCK & LAVAN
-----------------------------
STROOCK & STROOCK & LAVAN
3
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, dated August 23, 1994) and related Joint
Proxy Statement and Prospectus of Omega Healthcare Investors, Inc. and Health
Equity Properties Incorporated and to the incorporation by reference therein of
our report dated February 18, 1994, with respect to the financial statements of
Professional Health Care Management, Inc. as of December 31, 1993 and for the
fifteen months then ended December 31, 1993, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Milwaukee, Wisconsin
August 22, 1994
<PAGE> 1
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, dated August 23, 1994) and related Joint
Proxy Statement and Prospectus of Omega Healthcare Investors, Inc. and Health
Equity Properties Incorporated for the proposed merger of Health Equity
Properties Incorporated with and into Omega Healthcare Investors, Inc. and to
the incorporation by reference therein of our report dated March 29, 1994, with
respect to the financial statements of Omega Healthcare Investors, Inc.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1993 and the related financial statement schedules included
therein, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Detroit, Michigan
August 22, 1994
<PAGE> 1
EXHIBIT 23.5
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4, dated August 23, 1994) and related Joint
Proxy Statement and Prospectus of Omega Healthcare Investors, Inc. and Health
Equity Properties Incorporated and to the incorporation by reference therein of
our report dated May 12, 1994, with respect to the consolidated financial
statements of Sterling Health Care Centers, Inc. and subsidiaries as of
December 31, 1993 and the six-months then ended included in Omega Healthcare
Investors, Inc. Current Report on Form 8-K dated July 26, 1994, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Charleston, West Virginia
August 22, 1994
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the incorporation
by reference in the Omega Healthcare Investors, Inc. registration statement on
Form S-4 of our report covering the Diversicare Corporation of America
Facilities special purpose financial statements dated February 4, 1994.
ARTHUR ANDERSEN & CO.
Nashville, Tennessee
August 22, 1994
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated November 6, 1992, accompanying the consolidated
financial statements of Professional Health Care Management, Inc. included in
the Annual Report of Omega Healthcare Investors, Inc. on Form 10-K for the year
ended December 31, 1993. We hereby consent to the incorporation by reference
of the said report in the Registration Statement of Omega Healthcare Investors,
Inc. on Form S-4 (filed on or about August 23, 1994).
Grant Thornton
/s/ Grant Thornton
Chicago, Illinois
August 22, 1994
<PAGE> 1
EXHIBIT 23.8
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to incorporation by reference in this Registration Statement
on Form S-4 of Omega Healthcare Investors, Inc. of our report dated January 21,
1994, on our audits of the consolidated financial statements and financial
statement schedules of Health Equity Properties Incorporated and Subsidiaries
as of December 31, 1993 and 1992, and for the years ended December 31, 1993,
1992 and 1991, which report appears in the December 31, 1993 annual report on
Form 10-K of Health Equity Properties Incorporated and incorporated by
reference in this Form S-4. We also consent to the reference to our firm under
the caption "Experts".
/s/ Coopers & Lybrand L.L.P
-----------------------
Coopers & Lybrand L.L.P
August 19, 1994
<PAGE> 1
EXHIBIT 23.9
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Directors and Stockholders
Omega Healthcare Investors, Inc.
Ann Arbor, Michigan
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our opinion, dated December 23, 1993, appearing in
your Current Report on Form 8-K filed on July 26, 1994, and the reference to us
under the heading "Experts" in the Joint Proxy Statement and Prospectus, which
is part of this Registration Statement.
/s/ Goodman & Company
- ---------------------
GOODMAN & COMPANY
Norfolk, Virginia
August 22, 1994
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
OMEGA HEALTHCARE INVESTORS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The Special Meeting of Shareholders (the "Special Meeting") of
Omega Healthcare Investors, Inc. ("Omega") will be held at 905 W.
Eisenhower Circle, Suite 110, Ann Arbor, Michigan, on Wednesday,
September 28, 1994, beginning at 2:00 P.M., local time. The
undersigned hereby acknowledges receipt of the related Notice of
Special Meeting of Shareholders (the "Notice of Special Meeting") and
Joint Proxy Statement and Prospectus dated August 24, 1994, (the
"Joint Proxy Statement and Prospectus") accompanying this Proxy.
The undersigned hereby appoints and constitutes Robert L. Parker,
Neill R. Schmeichel, and Don M. Pearson, or any of them, with several
power of substitution or resubstitution, as proxies and attorneys to
vote all the shares of Common Stock, par value $0.10 per share, of
Omega ("Omega Common Stock") owned of record by the undersigned on
August 22, 1994 and otherwise to act on behalf of the undersigned at
the Special Meeting and any adjournment or postponement thereof, with
respect to the following proposal:
1. Proposal to approve the Amended and Restated Merger Agreement and
Plan of Reorganization dated as of June 17, 1994 (the "Merger
Agreement") by and between Omega and Health Equity Properties
Incorporated, a North Carolina corporation ("HEP"), pursuant to
which, among other matters, (i) HEP would be merged with and into
Omega, and (ii) each share of Common Stock, par value $0.01 per
share, of HEP will be converted into the right to receive .393 of a
share of Omega Common Stock, all as more fully described in the
accompanying Joint Proxy Statement and Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
The undersigned further gives the above-named proxies and attorneys
the authority to vote in their discretion upon such other business
as may properly come before the Special Meeting or any adjournment
or postponement thereof, including, without limitation, any vote to
adjourn the Special Meeting to a later date.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED. IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" APPROVAL OF THE
MERGER AGREEMENT. IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL
MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR
BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF OMEGA.
Please sign your name exactly as it appears below. If shares are
held jointly, all joint owners should sign. If shares are held by a
corporation, please sign the full corporate name by the president or
any other authorized corporate officer. If shares are held by a
partnership, please sign the full partnership name by an authorized
person. If you are signing as an attorney, executor, administrator,
trustee or guardian, please set forth your full title as such.
The undersigned acknowledges receipt from Omega of the Notice of
Special Meeting and the Joint Proxy Statement and Prospectus prior to
the execution of this Proxy.
<TABLE>
<S> <C>
................................................
Print Name of Shareholder
................................................
Signature of Shareholder
................................................
Print Name of Shareholder
................................................
Signature of Shareholder
Date: ...................................., 1994
</TABLE>
PLEASE COMPLETE, DATE, SIGN
AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. RETURNING YOUR PROXY
DOES NOT DEPRIVE YOU OF YOUR
RIGHT TO ATTEND AND VOTE AT THE
SPECIAL MEETING.
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.2
- --------------------------------------------------------------------------------
HEALTH EQUITY PROPERTIES INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The Special Meeting of Shareholders (the "Special Meeting") of
Health Equity Properties Incorporated ("HEP") will be held at The
Adams Mark Winston Plaza located at 425 N. Cherry Street,
Winston-Salem, North Carolina 27101, on Wednesday, September 28, 1994,
beginning at 10:00 A.M., local time. The undersigned hereby
acknowledges receipt of the related Notice of Special Meeting of
Shareholders (the "Notice of Special Meeting") and Joint Proxy
Statement and Prospectus dated August 24, 1994, (the "Joint Proxy
Statement and Prospectus") accompanying this Proxy.
The undersigned hereby appoints and constitutes William G. Benton,
Susan L. Christiansen, G.L. Clark, Jr., and David Weil, or any of
them, with several power of substitution or resubstitution, as proxies
and attorneys to vote all the shares of Common Stock, par value $0.01
per share, of HEP ("HEP Common Stock") owned of record by the
undersigned on August 22, 1994 and otherwise to act on behalf of the
undersigned at the Special Meeting and any adjournment or postponement
thereof, with respect to the following proposal:
1. Proposal to approve the Amended and Restated Merger Agreement and
Plan of Reorganization dated as of June 17, 1994 (the "Merger
Agreement") by and between HEP and Omega Healthcare Investors,
Inc., a Maryland corporation ("Omega"), pursuant to which, among
other matters, (i) HEP would be merged with and into Omega, and
(ii) each share of HEP Common Stock will be converted into the
right to receive .393 of a share of Common Stock, par value $0.10
per share, of Omega, all as more fully described in the
accompanying Joint Proxy Statement and Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
The undersigned further gives the above-named proxies and attorneys
the authority to vote in their discretion upon such other business
as may properly come before the Special Meeting or any adjournment
or postponement thereof, including, without limitation, any vote to
adjourn the Special Meeting to a later date.
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED. IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" APPROVAL OF
THE MERGER AGREEMENT. IF ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL
MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN
THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF HEP.
Please sign your name exactly as it appears below. If shares are
held jointly, all joint owners should sign. If shares are held by a
corporation, please sign the full corporate name by the president or
any other authorized corporate officer. If shares are held by a
partnership, please sign the full partnership name by an authorized
person. If you are signing as an attorney, executor, administrator,
trustee or guardian, please set forth your full title as such.
The undersigned acknowledges receipt from HEP of the Notice of
Special Meeting and the Joint Proxy Statement and Prospectus prior to
the execution of this Proxy.
<TABLE>
<S> <C>
................................................ ................................................
Print Name of Shareholder Signature of Shareholder
................................................ ................................................
Print Name of Shareholder Signature of Shareholder
Date: ...................................., 1994
</TABLE>
PLEASE COMPLETE, DATE, SIGN
AND RETURN THIS PROXY PROMPTLY
IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. RETURNING YOUR PROXY
DOES NOT DEPRIVE YOU OF YOUR
RIGHT TO ATTEND AND VOTE AT THE
SPECIAL MEETING.
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.3
CONSULTING AND NONCOMPETITION AGREEMENT
THIS CONSULTING AND NONCOMPETITION AGREEMENT (this "Agreement"), dated
as of the ______ day of ____________, 1994, by and between Residential
Properties Management, Inc. ("Consulting Company"), a North Carolina
corporation and a wholly owned subsidiary of Taylor House Enterprises, Limited
("Taylor House"), a North Carolina corporation, and Omega Healthcare Investors,
Inc. ("Purchaser"), a Maryland corporation, is executed and delivered in
connection with the merger by Omega with Health Equity Properties Incorporated
("Acquired Company"), a North Carolina corporation, pursuant to that certain
Amended and Restated Merger Agreement and Plan of Reorganization dated as of
June 17, 1994, by and between Purchaser and Acquired Company (the "Merger
Agreement"). Capitalized terms used herein, but not otherwise defined herein,
shall have the meanings ascribed to them in the Merger Agreement.
In consideration of the mutual covenants and agreements and subject to
the terms and conditions hereinafter set forth and to induce Purchaser to
consummate the Merger, the parties hereto agree as follows:
1. CONSULTING SERVICES. (a) During the period commencing on the
date hereof and expiring five years from the Effective Time of the Merger (the
"Term of this Agreement"), Consulting Company will provide consulting services
on the terms
<PAGE> 2
set forth below, including consulting services by any of William G. Benton,
G.L. Clark, Jr. and Susan L. Christiansen (individually a "Consultant" and
collectively the "Consultants"), at such times and places as may be mutually
convenient to Purchaser and Consulting Company with due regard for Consultants'
other employment and vacation arrangements, which consulting services (the
"Consulting Services") shall be limited to the provision of such business
consulting and advisory services as may be reasonably requested by Purchaser
from time to time with respect to Purchaser's business of (i) owning and
leasing and (ii) providing mortgage financing secured by, in either case,
income producing health care properties, with a principal focus on long-term
care facilities (the "Business"), including, without limitation, consulting and
advisory services regarding the business and properties of Acquired Company.
(b) Commencing with the first full calendar week following the
Effective Time and continuing through the fourth full calendar week following
the Effective Time (the "Initial Consulting Period"), Consulting Company will
make each Consultant available for the provision of Consulting Services for up
to 50% of the aggregate time of each Consultant reasonably available during the
Initial Consulting Period for the pursuit of professional activities, it being
expressly acknowledged that 40 hours per calendar week shall constitute a
reasonable aggregate period of time to expend on professional activities in any
calendar week. As a result of the foregoing, Consulting Company
2
<PAGE> 3
will make each Consultant available to provide up to 80 hours of Consulting
Services during the Initial Consulting Period.
(c) Commencing with the fifth full calendar week following the
Effective Time and continuing through the eighth full calendar week following
the Effective Time (the "Second Consulting Period"), Consulting Company will
make each Consultant available for the provision of Consulting Services for up
to 40% of the aggregate time of each Consultant reasonably available during the
Second Consulting Period and as a result, Consulting Company will make each
Consultant available to provide up to 64 hours of Consulting Services during
the Second Consulting Period.
(d) Commencing with the ninth full calendar week following the
Effective Time and continuing through the twelfth full calendar week following
the Effective Time (the "Third Consulting Period"), Consulting Company will
make each Consultant available for the provision of Consulting Services for up
to 30% of the aggregate time of each Consultant reasonably available during the
Third Consulting Period and as a result, Consulting Company will make each
Consultant available to provide up to 48 hours of Consulting Services during
the Third Consulting Period.
(e) Commencing with the thirteenth full calendar week following the
Effective Time and continuing through the sixteenth full calendar week
following the Effective Time (the "Fourth Consulting Period"), Consulting
Company will make each Consultant available for the provision of Consulting
Services for up to 20% of the aggregate time of each Consultant reasonably
available during the Fourth Consulting Period and as a result, Consulting
3
<PAGE> 4
Company will make each Consultant available to provide up to 32 hours of
Consulting Services during the Fourth Consulting Period.
(f) Commencing with the seventeenth full calendar week following the
Effective Time and extending through June 30, 1995 (the "Final Consulting
Period"), Consulting Company will make each Consultant available for up to 10%
of the aggregate time of each Consultant reasonably available during each
calendar week comprising the Final Consulting Period and as a result,
Consulting Company will make each Consultant available to provide up to 4 hours
of Consulting Services during each full calendar week comprising the Final
Consulting Period.
(g) Subsequent to June 30, 1995, Consulting Company will provide such
Consulting Services as Purchaser may, from time to time, reasonably request and
as to which Consulting Company may agree to provide. The Purchaser expressly
acknowledges that the failure of Consulting Company to provide any Consulting
Services subsequent to June 30, 1995 will not constitute a breach of this
Agreement.
(h) The Consulting Services are to be provided by Consulting Company
as an independent contractor and not as an employee of Purchaser. All
reasonable out-of-pocket expenses including, without limitation, travel, meals
and lodging expenses, as well as the direct cost actually incurred by
Consulting Company or any of the Consultants for telephone, telefax, photocopy
and similar expenses incurred by Consulting Company or any of the Consultants
in connection with the provision of Consulting Services including, without
limitation,
4
<PAGE> 5
the cost and/or expense of any equipment which the Consulting Company or any of
the Consultants must lease or purchase in connection with the provision of
Consulting Services, shall be reimbursed by the Purchaser within 30 days
following receipt of supporting documentation for all such expenses in excess
of $25.00; provided, however, that any lease or purchase of equipment shall be
approved in writing by Purchaser in advance.
2. NONCOMPETITION. (a) Consulting Company covenants that during
the Term of this Agreement, without the prior written approval of Purchaser,
none of Consulting Company, the Consultants or Taylor House will, directly or
indirectly, either alone or in conjunction with any person, firm, corporation,
association, or other entity, whether as officer, director, principal, agent,
shareholder (except as the beneficial owner (as defined in Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) of less than
a 5% interest in a corporation or other entity whose shares or other securities
are actively traded on a national securities exchange or quoted on an automated
interdealer quotation system), consultant, or in any other capacity whatsoever:
(1) carry on, engage in, represent, advise, be concerned with or otherwise
interested in, directly or indirectly, any business, enterprise, or undertaking
which is in whole or in part in any way competitive with the Business within
the continental United States; (2) attempt to direct or discourage any lessee,
operator, mortgagor, or other supplier or customer of Acquired Company from
doing business with Purchaser, or offer, solicit or accept any business for the
5
<PAGE> 6
provision of financial products or services competitive with the financial
products or services offered or rendered by the Purchaser in the ordinary
course of conducting the Business following the Effective Time of the Merger;
(3) solicit or attempt to solicit any employee of the Purchaser to leave his or
her employment and accept employment elsewhere or solicit any person who was an
employee of Purchaser to accept employment elsewhere within three months of the
termination of such employee's employment with Purchaser; or (4) take any
action as a result of which the relations between Acquired Company or Purchaser
and any of their respective lessees, operators, mortgagors or other suppliers
or customers is adversely affected; provided, however, that the provisions of
this Agreement shall not preclude (i) Consulting Company or Consultants from
owning, operating, managing, financing or otherwise investing in assisted
living facilities, (ii) any of the Consultants from being on the Board of
Directors of any not-for-profit entity engaged in the Business or (iii) any of
the Consultants from providing legal or accounting advice to the operators of
income producing health care properties with a principal focus on long-term
care as long as such advice is rendered pursuant to the Consultant's regular
full-time employment with a legal or accounting firm, which employment
contemplates the rendering of such advice as a part of the professional
services rendered by a licensed attorney or accountant affiliated with such a
firm.
(b) Consulting Company further covenants and agrees that during the
Term of this Agreement, Consulting Company will
6
<PAGE> 7
notify each officer, director, employee, affiliate, agent or consultant of the
Consulting Company prior to their election, appointment, employment or
engagement, as appropriate, of the existence of this Agreement and will provide
a copy of this Agreement to such person and simultaneously with the execution
and delivery of this Agreement, Consulting Company will enter into a consulting
and noncompetition agreement with each of the Consultants in the form attached
hereto as Exhibit A (the "Individual Consulting and Noncompetition
Agreements").
3. NONCOMPETE AND CONSULTING SERVICES FEE. (a) In consideration
of Consulting Company's covenants and agreements pursuant to this Agreement,
Purchaser will pay to Consulting Company a fee in the amount of $4,982,269 (the
"Noncompete and Consulting Fee"), which will be earned by Consulting Company
over the Term of this Agreement as hereinafter provided. The Noncompete and
Consulting Fee is not additional consideration payable by Purchaser for the
purchase of the shares of Company Common Stock held by Consulting Company or
any of its affiliates, but instead is payable by Purchaser in consideration of
the covenants and agreements of Consulting Company contained herein.
(b) At the Effective Time of the Merger, Purchaser will advance the
Noncompete and Consulting Fee to Consulting Company provided that as a
condition to the obligation of Purchaser to advance the Noncompete and
Consulting Fee (i) Consulting Company will execute a note (the "Note"), in the
form attached hereto as Exhibit B; and (ii) each Consultant will execute the
Guaranty of Payment, in the form attached hereto as Exhibit C.
7
<PAGE> 8
4. EQUITABLE RELIEF. Consulting Company acknowledges that Consulting
Company's expertise in the Business (obtained by reason of Consulting Company's
access to the services of the Consultants) is of a special, unique, unusual,
extraordinary and intellectual character, which gives said expertise a peculiar
value, that a breach by Consulting Company or any of the Consultants or Taylor
House of any of the provisions of this Agreement that constitutes an Event of
Default (as defined in the Note) under the terms of the Note that is not cured
in accordance with the terms thereof, cannot reasonably or adequately be
compensated with monetary damages in an action at law and that such a breach
will cause the Purchaser irreparable injury and damage. Consulting Company
further acknowledges that Consulting Company possesses unique skills, knowledge
and ability (obtained by reason of Consulting Company's access to the services
of the Consultants) and that competition in violation of this Agreement or any
other breach of the provisions of this Agreement by Consulting Company or any
of the Consultants or Taylor House would be extremely detrimental to the
Purchaser. By reason thereof, Consulting Company expressly acknowledges and
agrees that the Purchaser shall be entitled, in addition to any other remedies
it may have under this Agreement or otherwise, to temporary, preliminary and
permanent injunctive and other equitable relief to prevent or curtail any
breach or threatened breach of this Agreement by Consulting Company; provided,
however, that no specification in this Agreement of a specific legal or
equitable remedy shall be construed as a waiver or
8
<PAGE> 9
prohibition against pursuing other legal or equitable remedies in the event of
a breach of the terms hereof. In the event Purchaser brings any action to
enforce any provisions hereof, to secure specific performance hereof or to
collect damages of any kind for any breach hereof, Purchaser shall be entitled
to all court costs, all expenses arising out of or incurred by reason of such
action, and reasonable attorneys' fees expended or incurred in any such action,
and all such costs and expenses shall be included in any final judgment;
provided, however, that Purchaser shall reimburse Consulting Company and
Consultants for such costs and expenses incurred by Consulting Company and any
Consultants in the event any such action brought by Purchaser is unsuccessful.
Consulting Company further agrees that it will use its best efforts to enforce
the terms and conditions of this Agreement and the Individual Consulting and
Noncompetition Agreements, including, but not limited to, seeking injunctive
relief against the Consultants or Taylor House to protect against breach of
this Agreement or the Individual Consulting and Noncompetition Agreements.
5. RELIANCE BY PURCHASER. Consulting Company acknowledges that
each of the covenants contained in Sections 1 and 2 hereof or Sections 1 and 2
of the Individual Consulting and Noncompetition Agreements are a material
inducement for Purchaser to complete the transactions contemplated by the
Merger Agreement and that Purchaser is relying upon such covenants in
connection therewith.
9
<PAGE> 10
6. SEVERABILITY AND JUDICIAL MODIFICATION. If the scope of any
restriction contained in Section 2 hereof is too broad to permit enforcement of
such restriction to its full extent, then such restriction shall be enforced to
the maximum extent then permitted by applicable law, and Consulting Company
hereby consents and agrees that such scope may be judicially modified
accordingly in the proceeding brought to enforce such restriction; provided,
however, that any judicial modification shall not expand the scope of any
restriction contained in Section 2 hereof.
7. AMENDMENTS. This Agreement may be amended only by a writing
executed by each of the parties hereto.
8. ENTIRE AGREEMENT. This Agreement and the other agreements
expressly referred to herein set forth the entire understanding of the parties
hereto concerning the subject matter hereof and supersede all prior contracts,
agreements, arrangements, communications, discussions, representations and
warranties, whether oral or written, between the parties.
9. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of North
Carolina.
10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
11. WAIVERS. Any waiver by any party of any violation of, breach
of or default under any provision of this Agreement by
10
<PAGE> 11
the other party shall be effective only if in writing and no such waiver shall
be construed as, or constitute, a continuing waiver of such provision, or
waiver of any other violation of, breach of or default under any other
provision of this Agreement.
12. ASSIGNMENT. (a) Neither Purchaser nor Consulting Company
shall assign or delegate this Agreement or any of its rights or obligations
hereunder without the prior written consent of the other party; provided,
however, that Purchaser may assign this Agreement to any wholly owned
subsidiary of Purchaser (a "Subsidiary") by giving notice to Consulting
Company. Notwithstanding the foregoing, to provide Purchaser with the benefits
intended to be conferred hereby and by any of the Individual Consulting and
Noncompetition Agreements, and to provide Purchaser with the ability to enforce
any of the Individual Consulting and Noncompetition Agreements directly against
any Consultant, Consulting Company does hereby assign all of its rights (but
not any obligations) under each Individual Consulting and Noncompetition
Agreement to Purchaser, including, without limitation, the right to enforce the
terms and conditions of each Individual Consulting Agreement against the
appropriate Consultant; provided, however, that Purchaser will not avail itself
of this assignment until such time as an Event of Default shall have occurred
under the Note by reason of a breach under any Individual Consulting and
Noncompetition Agreement that is not cured in accordance with the terms of the
Note; and provided, further, that such assignment shall not be effective upon
the occurrence of a Bankruptcy Event of the Purchaser. For purposes
11
<PAGE> 12
hereof, a Bankruptcy Event, with respect to any person, shall occur if: (i)
such person, pursuant to or within the meaning of any Bankruptcy Law (as
hereinafter defined), (A) commences a voluntary case or proceeding, (B)
consents to the entry of an order for relief against it in an involuntary case
or proceeding, (C) consents to the appointment of a Custodian (as hereinafter
defined) of it or for all or substantially all of its property, or (D) makes a
general assignment for the benefit of its creditors; or (ii) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law (x)
for relief against such person in an involuntary case or proceeding, (y)
appointing a Custodian of such person for all or substantially all of its
properties, or (z) ordering the liquidation of such person. The term
"Bankruptcy Law" means Title 11 U.S. Code or any similar federal or state law
for the relief of debtors. The term "Custodian" means any receiver, trustee,
liquidator or similar official under any Bankruptcy Law.
(b) In case of an assignment of this Agreement by Purchaser to
a Subsidiary, such assignment shall not be effective unless the Subsidiary to
which this Agreement is being assigned assumes all of the rights and
obligations of the Purchaser under this Agreement and the Note, including,
without limitation, the limitation on assignment of the Individual Consulting
and Noncompetition Agreements upon the occurrence of a Bankruptcy Event of such
Subsidiary.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon,
inure to the benefit of, and may be enforced by,
12
<PAGE> 13
each of the parties to this Agreement and its successors and permitted assigns.
14. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given, if delivered in person, by telecopy, by United States mail
(certified or registered, postage prepaid, return receipt requested) or by any
recognized overnight courier service to the respective parties as follows:
(a) If to Purchaser, to:
Omega Healthcare Investors, Inc.
905 W. Eisenhower Circle, Suite 110
Ann Arbor, Michigan 48103
Attention: Essel W. Bailey, Jr.
Telecopy: (313) 996-0020
(b) If to Consulting Company, to:
Residential Properties Management, Inc.
915 West Fourth Street
Winston-Salem, North Carolina 27102
Attention: William G. Benton
Telecopy: (910) 724-6765
or to such other address as the party to be notified shall have furnished to
the other party in accordance with this Section 14. Any notice given in
accordance with the foregoing shall be effective only upon receipt.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have duly executed this
Consulting and Noncompetition Agreement as of the date first above written.
OMEGA HEALTHCARE INVESTORS, INC.
By:
--------------------------------
Name: Essel W. Bailey, Jr.
Title: President
RESIDENTIAL PROPERTIES MANAGEMENT, INC.
By:
---------------------------------
Name: William G. Benton
Title: President
<PAGE> 15
EXHIBIT A
INDIVIDUAL CONSULTING AND NONCOMPETITION AGREEMENT
THIS INDIVIDUAL CONSULTING AND NONCOMPETITION AGREEMENT (this
"Agreement"), dated as of the ______ day of ____________, 1994, by and between
________________ ("Consultant") and Residential Properties Management, Inc.
("Consulting Company"), a North Carolina corporation and a wholly owned
subsidiary of Taylor House Enterprises, Limited, is executed and delivered
pursuant to the Consulting and Noncompetition Agreement (the "Consulting
Company Noncompetition Agreement") of even date herewith by and between
Consulting Company and Omega Healthcare Investors, Inc. ("Purchaser"), a
Maryland corporation, in connection with the merger by Omega with Health Equity
Properties Incorporated ("Acquired Company"), a North Carolina corporation,
pursuant to that certain Amended and Restated Merger Agreement and Plan of
Reorganization dated as of June 17, 1994, by and between Purchaser and Acquired
Company (the "Merger Agreement"). Capitalized terms used herein, but not
otherwise defined herein, shall have the meanings ascribed to them in the
Merger Agreement.
In consideration of the mutual covenants and agreements and subject to
the terms and conditions hereinafter set forth and to induce Purchaser to
consummate the Merger, the parties hereto agree as follows:
1. SERVICES. (a) During the period commencing on the date hereof
and expiring five years from the Effective Time of the
1
<PAGE> 16
Merger (the "Term of this Agreement") and pursuant to the
Consulting Company Noncompetition Agreement, Consultant hereby agrees to
provide consulting services on the terms set forth below, at such times and
places as may be mutually convenient to Consulting Company or Purchaser, as the
case may be, with due regard for Consultant's other employment and vacation
arrangements, which consulting services (the "Consulting Services") shall be
limited to the provision of such business consulting and advisory services as
may be reasonably requested by Consulting Company or Purchaser from time to
time with respect to Purchaser's business of (i) owning and leasing and (ii)
providing mortgage financing secured by, in either case, income producing
health care properties, with a principal focus on long-term care facilities
(the "Business"), including, without limitation, consulting and advisory
services regarding the business and properties of Acquired Company. The
Consulting Services are to be provided by Consultant as an executive officer of
Consulting Company and not as an independent contractor or employee of
Purchaser.
(b) Commencing with the first full calendar week following the
Effective Time and continuing through the fourth full calendar week following
the Effective Time (the "Initial Consulting Period"), Consultant will be
available for the provision of Consulting Services for up to 50% of the
aggregate time of Consultant reasonably available during the Initial Consulting
Period for the pursuit of professional activities, it
2
<PAGE> 17
being expressly acknowledged that 40 hours per calendar week shall constitute a
reasonable aggregate period of time to expend on professional activities in any
calendar week. As a result of the foregoing, Consultant will be available to
provide up to 80 hours of Consulting Services during the Initial Consulting
Period.
(c) Commencing with the fifth full calendar week
following the Effective Time and continuing through the eighth full calendar
week following the Effective Time (the "Second Consulting Period"), Consultant
will be available for the provision of Consulting Services for up to 40% of the
aggregate time of Consultant reasonably available during the Second Consulting
Period and as a result, Consultant will be available to provide up to 64 hours
of Consulting Services during the Second Consulting Period.
(d) Commencing with the ninth full calendar week
following the Effective Time and continuing through the twelfth full calendar
week following the Effective Time (the "Third Consulting Period"), Consultant
will be available for the provision of Consulting Services for up to 30% of the
aggregate time of Consultant reasonably available during the Third Consulting
Period and as a result, Consultant will be available to provide up to 48 hours
of Consulting Services during the Third Consulting Period.
(e) Commencing with the thirteenth full calendar week
following the Effective Time and continuing through the sixteenth
3
<PAGE> 18
full calendar week following the Effective Time (the "Fourth Consulting
Period"), Consultant will be available for the provision of Consulting Services
for up to 20% of the aggregate time of Consultant reasonably available during
the Fourth Consulting Period and as a result, Consultant will be available to
provide up to 32 hours of Consulting Services during the Fourth Consulting
Period.
(f) Commencing with the seventeenth full calendar week
following the Effective Time and extending through June 30, 1995 (the "Final
Consulting Period"), Consultant will be available for up to 10% of the
aggregate time of Consultant reasonably available during each calendar week
comprising the Final Consulting Period and as a result, Consultant will be
available to provide up to 4 hours of Consulting Services during each full
calendar week comprising the Final Consulting Period.
(g) Subsequent to June 30, 1995, Consultant will provide
such Consulting Services as Consulting Company or Purchaser, as the case may
be, may, from time to time, reasonably request and as to which Consultant may
agree to provide. Consulting Company and Purchaser expressly acknowledge that
the failure of Consultant to provide any Consulting Services subsequent to June
30, 1995 will not constitute a breach of this Agreement.
2. NONCOMPETITION. (a) Consultant covenants that during the Term
of this Agreement, without the prior written approval of Consulting Company and
Purchaser, in accordance with the
4
<PAGE> 19
Consulting Company Noncompetition Agreement, Consultant shall not, directly or
indirectly, either alone or in conjunction with any person, firm, corporation,
association, or other entity, whether as officer, director, principal, agent,
shareholder (except as the beneficial owner (as defined in Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) of less than
a 5% interest in a corporation or other entity whose shares or other securities
are actively traded on a national securities exchange or quoted on an automated
interdealer quotation system), consultant, or in any other capacity whatsoever:
(1) carry on, engage in, represent, advise, be concerned with or otherwise
interested in, directly or indirectly, any business, enterprise, or undertaking
which is in whole or in part in any way competitive with the Business within
the continental United States; (2) attempt to direct or discourage any lessee,
operator, mortgagor, or other supplier or customer of Acquired Company from
doing business with Purchaser, or offer, solicit or accept any business for the
provision of financial products or services competitive with the financial
products or services offered or rendered by the Purchaser in the ordinary
course of conducting the Business following the Effective Time of the Merger;
(3) solicit or attempt to solicit any employee of the Purchaser to leave his or
her employment and accept employment elsewhere or solicit any person who was an
employee of Purchaser to accept employment elsewhere within three months of the
termination of such employee's employment with
5
<PAGE> 20
Purchaser; or (4) take any action as a result of which the relations between
Acquired Company or Purchaser and any of their respective lessees, operators,
mortgagors or other suppliers or customers is adversely affected; provided,
however, that the provisions of this Agreement shall not preclude Consultant
from (i) owning, operating, managing, financing or otherwise investing in
assisted living facilities, (ii) being on the Board of Directors of any
not-for-profit entity engaged in the Business, or (iii) providing legal or
accounting advice to the operators of income producing health care properties
with a principal focus on long-term care as long as such advice is rendered
pursuant to Consultant's regular full-time employment with a legal or
accounting firm, which employment contemplates the rendering of such advice as
a part of the professional services rendered by a licensed attorney or
accountant affiliated with such a firm.
3. EQUITABLE RELIEF. Consultant acknowledges that Consultant's
expertise in the Business is of a special, unique, unusual, extraordinary and
intellectual character, which gives said expertise a peculiar value, that a
breach by Consultant of any of the provisions of this Agreement that
constitutes an Event of Default (as defined in the Note) under the terms of the
Note that is not cured in accordance with the terms thereof, cannot reasonably
or adequately be compensated with monetary damages in an action at law and that
such a breach will cause Consulting Company and Purchaser irreparable injury
and damage. Consultant further acknowledges that Consultant possesses unique
skills,
6
<PAGE> 21
knowledge and ability and that competition in violation of this Agreement or
any other breach of the provisions of this Agreement by Consultant would be
extremely detrimental to the Consulting Company and/or to the Purchaser. By
reason thereof, Consultant expressly acknowledges and agrees that the
Consulting Company (and the Purchaser by assignment pursuant to Section 12 of
the Consulting Company Noncompetition Agreement) shall be entitled, in addition
to any other remedies it may have under this Agreement or otherwise, to
temporary, preliminary and permanent injunctive and other equitable relief to
prevent or curtail any breach or threatened breach of this Agreement by
Consultant; provided, however, that no specification in this Agreement of a
specific legal or equitable remedy shall be construed as a waiver or
prohibition against pursuing other legal or equitable remedies in the event of
a breach of the terms hereof. In the event Consulting Company (or Purchaser by
assignment pursuant to Section 12 of the Consulting Company Noncompetition
Agreement) brings any action to enforce any provisions hereof, to secure
specific performance hereof or to collect damages of any kind for any breach
hereof, Consulting Company or Purchaser, as the case may be, shall be entitled
to all court costs, all expenses arising out of or incurred by reason of such
action, and reasonable attorneys' fees expended or incurred in any such action,
and all such costs and expenses shall be included in any final judgment;
provided, however, that Consulting Company or Purchaser, as the case may be,
shall reimburse Consultant for
7
<PAGE> 22
such costs and expenses incurred by Consultant in the event any such action
brought by Consulting Company or Purchaser, as the case may be, is
unsuccessful.
4. THIRD PARTY BENEFICIARY; RELIANCE BY PURCHASER. It is expressly
intended and acknowledged that Purchaser is a third- party beneficiary of this
Agreement and that the benefit to Purchaser of Consultant's performance under
this Agreement is direct and not incidental. Consultant further expressly
acknowledges that each of the covenants contained in Sections 1 and 2 hereof
are a material inducement for Purchaser to complete the transactions
contemplated by the Merger Agreement and that Purchaser is relying upon such
covenants in connection therewith. Consultant further expressly acknowledges
that Consultant directly benefits from the completion of the transactions
contemplated by the Merger Agreement, including, without limitation, the
payment by Purchaser of the Noncompete and Consulting Fee (as defined in the
Consulting Company Noncompetition Agreement), and that such benefits are
sufficient consideration for the covenants contained herein.
5. SEVERABILITY AND JUDICIAL MODIFICATION. If the scope of any
restriction contained in Section 2 hereof is too broad to permit enforcement of
such restriction to its full extent, then such restriction shall be enforced to
the maximum extent then permitted by applicable law, and Consultant hereby
consents and agrees that such scope may be judicially modified accordingly in
the proceeding brought to enforce such restriction; provided,
8
<PAGE> 23
however, that any judicial modification shall not expand the scope of any
restriction contained in Section 2 hereof.
6. AMENDMENTS. This Agreement may be amended only by a writing
executed by each of the parties hereto and acknowledged and consented to by
Purchaser.
7. ENTIRE AGREEMENT. This Agreement and the other agreements
expressly referred to herein set forth the entire understanding of the parties
hereto concerning the subject matter hereof and supersede all prior contracts,
agreements, arrangements, communications, discussions, representations and
warranties, whether oral or written, between the parties.
8. GOVERNING LAW. This Agreement shall in all respects be governed by
and construed in accordance with the laws of the State of North Carolina.
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
10. WAIVERS. Any waiver by any party of any violation of, breach of
or default under any provision of this Agreement by the other party shall be
effective only if in writing and, in the case of any waiver by Consulting
Company, only if acknowledged and consented to by Purchaser, and no such waiver
shall be construed as, or constitute, a continuing waiver of such provision, or
waiver of any other violation of, breach of or default under any other
provision of this Agreement.
9
<PAGE> 24
11. ASSIGNMENT. Neither Consulting Company nor Consultant shall
assign or delegate this Agreement or any of its respective rights or
obligations hereunder without the prior written consent of the other party and
with the acknowledgment and consent of Purchaser; provided, however, that
pursuant to the Consulting Company Noncompetition Agreement, Consulting Company
has assigned its rights under this Agreement to Purchaser (except in certain
bankruptcy events as described in Section 12 of the Consulting Company
Noncompetition Agreement) and Consultant expressly acknowledges and consents to
such assignment; provided, further, that Purchaser may assign its rights under
this Agreement to any Subsidiary (as defined in the Consulting Company
Noncompetition Agreement) by giving notice to Consulting Company and Consultant
upon compliance with any applicable provisions set forth in the Consulting
Company Noncompetition Agreement pertaining to any such assignment.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon,
inure to the benefit of, and may be enforced by Consulting Company, Consultant,
and under certain circumstances, Purchaser, and their respective successors and
permitted assigns.
13. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given, if
delivered in person, by telecopy, by United States mail (certified or
registered, postage prepaid, return receipt requested) or by any recognized
overnight courier service to the respective parties as follows:
10
<PAGE> 25
(a) If to Consulting Company, to:
Residential Properties Management, Inc.
915 West Fourth Street
Winston-Salem, North Carolina 27102
Attention: William G. Benton
Telecopy: (910) 724-6765
(b) If to Consultant, to:
--------------------------------
915 West Fourth Street
Winston-Salem, North Carolina 27102
Telecopy: (910) 724-6765
(c) If to Purchaser, to:
Omega Healthcare Investors, Inc.
905 W. Eisenhower Circle, Suite 110
Ann Arbor, Michigan 48103
Attention: Essel W. Bailey, Jr.
Telecopy: (313) 996-0020
or to such other address as the party to be notified shall have furnished to
the other party in accordance with this Section 13. Any notice given in
accordance with the foregoing shall be effective only upon receipt.
11
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have duly executed this
Individual Consulting and Noncompetition Agreement as of the date first above
written.
RESIDENTIAL PROPERTIES MANAGEMENT, INC.
By:
---------------------------------
Name: William G. Benton
Title: President
-----------------------------------
Name:
Consultant
12
<PAGE> 27
EXHIBIT B
PROMISSORY NOTE
$____________ Winston-Salem, North Carolina _________________, 1994
THIS PROMISSORY NOTE (hereinafter referred to as the "Note"), is made
as of this ___ day of __________________, 1994.
WHEREAS, Residential Properties Management, Inc., a North Carolina
corporation ("Maker") has entered into a five (5) year Consulting and
Noncompetition Agreement (the "Consulting Company Noncompetition Agreement") of
even date herewith by and between Maker and Omega Healthcare Investors, Inc., a
Maryland corporation ("Omega"), in connection with the merger of Health Equity
Properties Incorporated, a North Carolina corporation ("HEP"), with and into
Omega pursuant to an Amended and Restated Merger Agreement and Plan of
Reorganization (the "Merger Agreement") dated as of June 17, 1994 by and
between Omega and HEP; and
WHEREAS, pursuant to the Merger Agreement, at the Effective Time of
the Merger (each as defined in the Merger Agreement), Maker is obligated to
execute and deliver the Consulting Company Noncompetition Agreement and to
execute and deliver the Individual Consulting and Noncompetition Agreements
with each Consultant (each as defined in the Consulting Company Noncompetition
Agreement), and in consideration thereof, Omega is obligated to advance as a
lump sum an aggregate fee to be earned by Maker pursuant to the Consulting
Company Noncompetition Agreement in the amount of $4,982,269 upon the execution
and delivery by (i) Maker of this Note and (ii) each Consultant of a Guaranty
of Payment (a "Guaranty") relating to this Note; and
WHEREAS, the conditions set forth in the preceding paragraph have been
satisfied;
FOR VALUE RECEIVED, Maker promises to pay to the order of Omega on
demand, the principal sum of Four Million Nine Hundred Eighty Two Thousand Two
Hundred Sixty Nine Dollars and 00/100 ($4,982,269.00); provided, however, that
Omega may not demand repayment of the principal of this Note except as
hereinafter expressly provided. Prior to any demand by Omega for repayment
pursuant to the terms of this Note, the principal of this Note shall be
forgiven in five (5) equal annual installments on each of the annual
anniversary dates following the date hereof provided that, as of each such
anniversary date, none of the conditions described in the immediately
succeeding paragraph has occurred. Any payment of principal on this Note,
together with any accrued interest thereon, required hereunder shall be made to
Omega by wire transfer of immediately available funds to an account designated
in writing by Omega.
<PAGE> 28
If (i) Maker shall take or fail to take any action that constitutes a
breach of the covenants or obligations of Maker under the Consulting Company
Noncompetition Agreement or (ii) any Consultant shall take or fail to take any
action that constitutes a breach of the covenants or obligations of such
Consultant under such Consultant's Individual Consulting and Noncompetition
Agreement, or (iii) this Note shall be assigned (including any attempted
assignment hereof) by Maker, whether by contract, operation of law or
otherwise, without the prior written consent of Omega, then Omega, at its
option, shall promptly notify Maker and, unless otherwise cured, be entitled on
the date that is ten (10) business days from the date of the occurrence of any
of the foregoing events (each such event which has not been cured in accordance
with the terms hereof, is hereinafter referred to as an "Event of Default"), to
accelerate any and all of the then outstanding indebtedness evidenced by this
Note which has not been forgiven as of the date of the occurrence of any Event
of Default, and the same shall become immediately due and payable in full, and
to exercise cumulatively any and all other rights and privileges provided by
law or this Note; provided, however, that in the event Omega does not prevail
in any action brought seeking to enforce an acceleration of this Note as a
result of an alleged Event of Default under clauses (i) or (ii) above, then
this Note shall be deemed reset and the asserted acceleration of amounts due
and payable previously asserted by Omega shall be null and void.
Maker hereby represents and warrants to Omega that (i) Maker is a
corporation duly organized, validly existing and in good standing under the
laws of the State of North Carolina and is duly registered and qualified as a
foreign corporation in good standing in each state where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure to so register or qualify would not
have a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of Maker, (ii) Maker has as its
corporate name, as registered with the Department of the Secretary of State of
the State of North Carolina, the words first inscribed hereinabove as its name,
and has not done business under any other registered name (including, without
limitation, any registered tradename) for at least the past seven (7) years,
(iii) Maker has the corporate power and authority to make, execute, deliver and
perform under this Note, and to borrow hereunder, and has taken all necessary
and appropriate corporate action to authorize the execution, delivery and
performance of this Note, (iv) this Note constitutes the valid obligations of
Maker, legally binding upon it and enforceable against it in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally, (v) the
undersigned officer of Maker is duly authorized and empowered to execute and
deliver this Note for and on behalf of Maker, and to bind Maker accordingly
thereby, and (vi) after giving effect to the execution and delivery of this
<PAGE> 29
Note and the making of any disbursements hereunder, Maker will not be unable to
pay its debts generally as such debts become due.
Time is of the essence with respect to this Note, and except as
otherwise provided herein, diligence, presentment, demand, protest, notice of
demand and non-payment and all other notices whatsoever, are hereby waived by
Maker. In the event the indebtedness evidenced by this Note shall not be paid
within ten (10) business days of the date when payment is due, thereafter the
unpaid principal balance of such indebtedness shall bear interest at the rate
of twelve percent (12%) per annum until the then outstanding indebtedness
(inclusive of all accrued interest) is paid in full, but in no event shall such
rate of interest exceed the highest rate permitted from time to time by
applicable law. Should this Note, or any part of the indebtedness evidenced by
this Note, be collected by or through an attorney-at-law, Omega shall be
entitled to collect reasonable attorneys' fees and all other reasonable costs
and expenses of collection from Maker or any Consultant who has executed and
delivered a Guaranty to Omega; provided, however, that Omega will reimburse
Maker and each Consultant who has delivered a Guaranty for all such costs and
expenses incurred by them in the event that any such enforcement action brought
by Omega is unsuccessful. For purposes of this Note, the term "business day"
shall mean any day when federally chartered banking institutions located in the
State of North Carolina are open for transacting business.
If delivered personally, the date on which a notice or demand
hereunder is delivered shall be the date of receipt or delivery, and if
delivered by mail, such notice or demand shall be sent by United States
registered or certified mail, return receipt requested, postage prepaid, and
the date on which such notice or demand is received (as evidenced by the
registered or certified mail receipt) shall be the date of delivery. If
delivered by an overnight courier service, such notice or demand shall be sent
by a recognized overnight courier service, return receipt requested, courier
service charges prepaid, and the date on which such notice or demand is
received (as evidenced by the overnight courier service receipt) shall be the
date of delivery. In the event any notice or demand is mailed to a party in
accordance with this paragraph, and is returned to the sender as
nondeliverable, then such notice or demand shall be deemed to have been
delivered or received on the fifth day following the deposit of such notice or
demand in the United States mail; provided that such notice or demand shall
have been properly addressed to the party to whom notice or demand is sent and
postage shall have been properly paid by the sender. Notices and demands made
hereunder shall be addressed to Omega at 905 W. Eisenhower Circle, Suite 110,
Ann Arbor, Michigan 48103, Attention: Essel W. Bailey, Jr. and to Maker at 915
West Fourth Street, Winston-Salem, North Carolina 27102, Attention: William G.
Benton or at such other address as the party to be notified shall give to the
other party pursuant to this paragraph.
<PAGE> 30
This Note may not be assigned except in conjunction with a permitted
assignment by Omega of the Consulting Company Noncompetition Agreement.
This Note shall be governed by and construed in accordance with the
laws of the State of North Carolina.
This Note may not be changed, modified, amended or terminated orally,
but only by an agreement in writing signed by Omega and Maker.
IN WITNESS WHEREOF, Maker has caused this Promissory Note to be
executed on the date first above written.
RESIDENTIAL PROPERTIES MANAGEMENT,
INC.
Attest:
By:
- ------------------------ --------------------------------
Susan L. Christiansen William G. Benton
Title: Secretary Title: President
<PAGE> 31
EXHIBIT C
GUARANTY OF PAYMENT
THIS GUARANTY OF PAYMENT (hereinafter referred to as the "Guaranty")
made and entered into this _____ day of __________, 1994 by and among William
G. Benton, G.L. Clark, Jr. and Susan L. Christiansen, jointly and severally
(each a "Guarantor" of the Note and hereinafter sometimes referred to
collectively as the "Guarantors"), and Omega Healthcare Investors, Inc., a
Maryland corporation ("Omega"), having as its mailing address 905 W. Eisenhower
Circle, Suite 110, Ann Arbor, Michigan 48103,
W I T N E S S E T H:
WHEREAS, Residential Properties Management, Inc. ("Maker") has entered
into a five (5) year Consulting and Noncompetition Agreement (the "Consulting
Company Noncompetition Agreement") of even date herewith by and between Maker
and Omega in connection with the merger of Health Equity Properties
Incorporated, a North Carolina corporation ("HEP"), with and into Omega
pursuant to an Amended and Restated Merger Agreement and Plan of Reorganization
(the "Merger Agreement") dated as of June 17, 1994 by and between Omega and
HEP; and
WHEREAS, pursuant to the Merger Agreement, at the Effective Time of
the Merger (each as defined in the Merger Agreement), Maker is obligated to
execute and deliver the Consulting Company Noncompetition Agreement and to
execute and deliver the Individual Consulting and Noncompetition Agreements
with each Consultant (each as defined in the Consulting Company Noncompetition
Agreement), and in consideration thereof, Omega is obligated to advance to
Maker as a lump sum the aggregate fee to be earned by Maker pursuant to the
Consulting Company Noncompetition Agreement in the amount of $4,982,269 upon
the execution and delivery by Maker of a Promissory Note (the "Note"); and
WHEREAS, Omega, as one of the conditions of advancing the funds under
the Note, requires that each Guarantor guarantee the payment of the
indebtedness of Maker in favor of Omega evidenced by the Note in the event of
the occurrence of an Event of Default (as defined in the Note) under the Note.
NOW, THEREFORE, for and in consideration of the premises and the sum
of Ten and 00/100 Dollars ($10.00) and of other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Guarantor,
jointly and severally, hereby covenants and agrees with Omega as follows:
<PAGE> 32
1. GUARANTY OF PAYMENT. Each Guarantor hereby absolutely and
unconditionally guarantees the prompt, complete and full payment, when due, and
no matter how such shall become due, of all indebtedness now or hereafter owing
by Maker to Omega under the Note upon the occurrence of an Event of Default
thereunder pursuant to which Omega is entitled to accelerate the repayment of
the indebtedness then outstanding under the Note. This Guaranty is a guaranty
of payment and not a guaranty of collection, and the obligations of each
Guarantor hereunder are independent of the obligations of Maker or any other
Guarantor.
2. BENEFIT OF GUARANTY. The benefit of this Guaranty shall
automatically pass with a transfer or assignment of the Note or portions
thereof by Omega to any permitted transferee thereunder without any action,
consent or acknowledgment by any Guarantor.
3. ACTIONS BY OMEGA. No action which Omega may take or omit to take
in connection with the Note, any indebtedness owing by Maker to Omega, or any
security for the payment of the indebtedness of Maker to Omega or for the
performance of any obligations or undertakings of Maker, nor any course of
dealing with Maker or any other person, shall release a Guarantor's obligations
hereunder, affect this Guaranty in any way or afford a Guarantor any recourse
against Omega. By way of example, but not in limitation of the foregoing, each
Guarantor hereby expressly agrees that Omega may, from time to time, without
notice to Guarantor:
(a) amend, change or modify, in whole or in part, the
Note;
(b) accelerate, change, extend or renew the time for
payment of the Note;
(c) compromise or settle any amount due or owing, or
claimed to be due or owing, under the Note;
(d) surrender, release or subordinate any or all security
for the Note or accept additional or substituted security therefor;
(e) release, substitute or add guarantors; and
(f) release Maker or any affiliate thereof.
The provisions of this Guaranty shall extend and be applicable to all renewals,
amendments, extensions and modifications of the Note, and all references herein
to the Note shall be deemed to include any renewals, extensions, amendments or
modifications thereof.
2
<PAGE> 33
4. WAIVER OF CLAIMS. So long as the obligations of Maker under the
Note have not been fully satisfied, each Guarantor hereby expressly waives,
renounces and agrees not to assert, any right, claim, or cause of action,
including, without limitation, a claim for reimbursement, subrogation,
indemnification or otherwise, against Maker arising out of or by reason of this
Guaranty or the obligations of any Guarantor hereunder, including, without
limitation, the payment or securing or purchasing of any of the obligations of
Maker to Omega. The waiver, renunciation and agreement contained in the
preceding sentence is for the benefit of Omega and also for the benefit of
Maker, who may assert the benefits thereof as a third party beneficiary, and
any Guarantor may be released from such waiver, renunciation and agreement only
by the execution and delivery by Omega of an instrument expressly releasing
such Guarantor therefrom.
5. WAIVER OF NOTICE. Each Guarantor expressly waives notice of
acceptance of this Guaranty, presentment for payment of the Note, protest and
notice of protest, demand, notice of dishonor, notice of any and all
proceedings to collect amounts due under the Note and to enforce any security
given therefor and all other notices whatsoever and diligence in collecting
sums due under the Note or the taking of any action with reference to the Note
or to any liability under this Guaranty.
6. DEFAULT. Upon the occurrence of an Event of a Default under the
Note, Omega shall have the right to enforce its rights, powers and remedies
under the Note or hereunder or under any other instrument concerning or
securing the indebtedness evidenced by the Note in any order and all rights,
powers and remedies available to Omega in such event shall be nonexclusive and
cumulative of all other rights, powers and remedies provided under the Note or
hereunder or by law or in equity. The obligations of each Guarantor hereunder
are independent of the obligations of Maker, or any other Guarantor hereunder,
and Omega may proceed directly to enforce all rights under this Guaranty
against any Guarantor without proceeding against or joining Maker, all of the
Guarantors, or any other person and without applying or enforcing any security
for the Note. Each Guarantor hereby agrees that Omega may accept any
payment(s), plan for adjustment of debts, plan for reorganization or
liquidation, or plan of composition or extension proposed by, or on behalf of,
Maker without in any way affecting or discharging the liability of any
Guarantor hereunder. If the obligations of Maker to Omega are partially paid,
each Guarantor shall remain liable for any unpaid balance of such obligations
upon the occurrence of an Event of Default under the Note. This Guaranty shall
be revived and reinstated in the event that any payment(s) received by Omega,
or any of Omega's successors or permitted assigns under the Note, on any of
the obligations of Maker to Omega, is required to be repaid or rescinded under
present or future state
3
<PAGE> 34
or federal law or regulation relating to bankruptcy, insolvency, or other
relief of debtors, to the same extent as if such payment had never been made,
and the amount of such payment and interest thereon shall be part of the
obligations guaranteed hereby. Each Guarantor hereby authorizes and empowers
Omega upon acceleration of the maturity of the Note, at its sole discretion,
and without notice to any Guarantor, to exercise any right or remedy which
Omega may have, including, but not limited to, judicial foreclosure, exercise
of rights of power of sale, acceptance of a deed or assignment in lieu of
foreclosure, appointment of a receiver to collect rents and profits, exercise
of remedies against personal property, or enforcement of any assignment of
leases, as to any security, whether real, personal or intangible, and each
Guarantor shall be liable to Omega for any deficiency resulting from the
exercise by Omega of any such remedy, even though any rights which any
Guarantor may have against Maker or others may be destroyed or diminished by
exercise of any such remedy. Until all of the obligations of Maker to Omega
under the Note have been paid and performed in full, none of the Guarantors
shall have any right of subrogation to Omega against Maker and each Guarantor
hereby waives any rights to enforce any remedy which Omega may have against
Maker and any rights to participate in any security for the Note. In the event
that all of the obligations of Maker under the Note shall be paid and performed
in full and are no longer subject to possible repayment or rescission under any
present or future state or federal law or regulation relating to the
bankruptcy, insolvency or other relief of debtors, Omega shall, upon the
written request of any Guarantor, execute and deliver to such Guarantor such
documents as may be necessary to evidence the transfer by subrogation to such
Guarantor of any interest in the obligations of Maker under the Note resulting
from any payment by such Guarantor thereunder.
7. PROCEEDS. Each Guarantor hereby authorizes Omega, without notice
to any Guarantor, to apply all payments and credits received from Maker or from
any Guarantor or realized from any security in such manner and in such priority
as Omega in its sole judgment shall see fit to the indebtedness, obligations
and undertakings under the Note which are the subject of this Guaranty.
8. SUCCESSORS AND ASSIGNS. Each Guarantor's obligations hereunder
shall not be assigned or delegated but this Guaranty shall pass to and be fully
binding upon the estate, heirs, legatees and legal representatives of such
Guarantor if, but only if, prior to the death of such Guarantor Omega has
delivered a notice to Maker asserting the occurrence of a breach under the Note
and the Maker shall not have cured any such asserted breach prior to the
expiration of the period set forth in the Note during which period Maker is
permitted to cure any asserted breaches. This Guaranty shall apply to and
inure to the benefit of Omega and the successors and permitted assigns of Omega
and
4
<PAGE> 35
may only be assigned in connection with a permitted assignment by Omega of the
Consulting Company Noncompetition Agreement.
9. NO ORAL CHANGE. This Guaranty may not be changed orally, and no
obligation of any Guarantor can be released or waived by Omega except by a
writing signed by Omega.
10. GOVERNING LAW. This Guaranty is to be performed in and shall be
governed by and construed in accordance with the laws of the State of North
Carolina. Each Guarantor hereby submits to personal jurisdiction in said State
in any federal court located in Winston-Salem, North Carolina for the
enforcement of this Guaranty and waives any and all personal rights under the
laws of said State to object to jurisdiction within said State or in said
courts for the purposes of litigation to enforce this Guaranty.
11. TERM. This Guaranty shall be irrevocable by any Guarantor until
the later to occur of ___________, 1999 or the date on which all indebtedness
owed by Maker to Omega under the Note has been completely repaid and all
obligations and undertakings of Maker under, by reason of or pursuant to the
Note, have been completely performed and are no longer subject to possible
repayment or rescission under any present or future state or federal law or
regulation relating to the bankruptcy, insolvency or other relief of debtors;
provided, however, that if all indebtedness owed by Maker to Omega under the
Note shall have been so completely repaid and all such obligations and
undertakings of Maker so completely performed on a date that is prior to
____________, 1999, then this Guaranty shall terminate on such earlier date,
and provided, further, that upon the ocurrence of a Bankruptcy Event (as such
term is defined in the Consulting Company Non competition Agreement) with
respect to Omega or a ermitted assignee of Omega under the Consulting Company
Noncompetition Agreement, this Guaranty shall terminate on the date of such
Bankruptcy Event.
12. NOTICES, DEMANDS AND REQUESTS. If delivered personally, the date
on which a notice or demand hereunder is delivered shall be the date of receipt
or delivery, and if delivered by mail, such notice or demand shall be sent by
United States registered or certified mail, return receipt requested, postage
prepaid, and the date on which such notice or demand is received (as evidenced
by the registered or certified mail receipt) shall be the date of delivery. If
delivered by an overnight courier service, such notice or demand shall be sent
by a recognized overnight courier service, return receipt requested, courier
service charges prepaid, and the date on which such notice or demand is
received (as evidenced by the overnight courier service receipt) shall be the
date of delivery. In the event any notice or demand is mailed to a party in
accordance with this paragraph, and is returned to the sender as
nondeliverable, then such notice or demand shall be deemed to
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<PAGE> 36
have been delivered or received on the fifth day following the deposit of such
notice or demand in the United States mail; provided that such notice or demand
shall have been properly addressed to the party to whom notice or demand is
sent and postage shall have been properly paid by the sender. Notices and
demands made hereunder shall be addressed to Omega at 905 W. Eisenhower Circle,
Suite 110, Ann Arbor, Michigan 48103, Attention: Essel W. Bailey, Jr. and to
Guarantor at 915 West Fourth Street, Winston-Salem, North Carolina 27102 or at
such other address as the party to be notified shall have furnished to each of
the other parties to this Guaranty in accordance with this Section 12.
13. REPRESENTATIONS AND WARRANTIES. Each Guarantor represents and
warrants to Omega that (i) he or she has all requisite legal capacity to
execute, deliver and perform this Guaranty and that this Guaranty is a valid
and binding obligation of him or her enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally, (ii) he or she
has carefully reviewed this Guaranty and, after consultation with his or her
attorney and accountant, understands the terms hereof, (iii) he or she is not
relying on any representation or other statement made by any director or
officer of Omega or Maker in connection with his or her decision to enter into
this Guaranty or to consummate the transactions contemplated hereby, and (iv)
after giving effect to the execution and delivery of this Guaranty, he or she
will not be unable to pay his or her debts generally as such debts become due.
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<PAGE> 37
IN WITNESS WHEREOF, each Guarantor has executed this Guaranty of
Payment on the date first above written.
Witness:__________________ --------------------------
Name:_____________________ William G. Benton
Guarantor
Witness:__________________ Address: 915 West Fourth Street
Name:_____________________ Winston-Salem, North
Carolina 27102
Witness:__________________ --------------------------
Name:_____________________ G.L. Clark, Jr.
Guarantor
Witness:__________________ Address: 915 West Fourth Street
Name:_____________________ Winston-Salem, North
Carolina 27102
Witness:__________________ --------------------------
Name:_____________________ Susan L. Christiansen
Guarantor
Witness:__________________ Address: 915 West Fourth Street
Name:_____________________ Winston-Salem, North
Carolina 27102
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