Dividends declared by Alaris Royalty Corp will be considered and designated as "eligible dividends" for Canadian tax purposes. An enhanced dividend tax credit applies to eligible dividends paid to Canadian residents. Generally, when an individual investor receives a dividend from a taxable Canadian corporation, he must include in his income a "grossed-up" amount of that dividend, and may then claim a credit of the grossed-up dividend. From the individual investor's point of view and depending on the investor's province of residence and applicable income tax bracket, eligible dividends are generally taxed more favorably than non-eligible dividends because the gross-up percentage and offsetting dividend tax credit are higher than for non-eligible dividends.

Alaris distributions from Partner companies are reset annually upon completion and receipt of audited annual financial statements. The percentage change in a Private Company Partner's top-line performance is then applied to the previous year's distribution to create the distribution for the next 12 months. This creates unprecedented visibility of revenue for Alaris shareholders as we know 12 months in advance what our revenue will be from each of our partners.

Each of our Partnerships are governed by a series of covenants and consent items in favour of Alaris. An uncured breach of these items would result in some cases Alaris taking over 100% voting control of the businesses and in all cases would trigger a forced repurchase of our preferred equity in the Private Company Partner. Consent items include taking on any additional debt, material acquisitions, divestitures or capital expenditures as well as ownership changes. Covenants include financial reporting and basic financial ratios.

At the current time, Alaris' debt facility is approved for 1.7 times our annual earnings before interest, taxes, depreciation and amortization (EBITDA). As we are a conservative, defensive investment vehicle, we do not anticipate that Alaris will ever have a highly levered balance sheet.

Alaris looks for companies with low leverage in order to protect our annual distributions. At the current time, our Private Company Partners as a whole have only an average of 0.7 times EBITDA of debt based on historical earnings.

To ensure an adequate buffer on future volatility and to ensure management's interests are fully aligned with our shareholders, Alaris is typically entitled to a minority of the EBITDA of a Private Company Partner. At the present time, Alaris distributions represent an average of less than 30% of the historical EBITDA of our Private Company Partners.

Alaris seeks partnerships with private companies that have strong free cashflow (ie. companies with low debt levels and low requirements for ongoing capital expenditures). Our current Private Company Partners have more than $300 million in combined sales; however, capital expenditures for all Private Company Partners were less than $4 million over the last twelve months.

Dividends are declared with a record date of the last business day of each month and are paid out on or around the 15th day of the following month.

When Alaris forms a partnership with a new Private Company Partner, the distribution for the next twelve months is already known by the time the financing arrangement is closed. The yield that we obtain from these partnerships will always be higher than the blended cost of capital (cost of equity combined with our cost of senior debt) that Alaris uses to finance the new Private Company Partner. As such, each new partnership that we complete not only lessens risk to our shareholders by providing further diversification, it also increases our earnings on a per share basis.

The market for non-control private equity investments is significant. Many private business owners who are looking to realize some liquidity on their businesses would prefer to maintain majority ownership and control rather than sell the business to a third party. The Alaris structure is one of the few available options that provide the business owners with the effect of a "partial" liquidity of their businesses without having to actually sell their businesses. Retirement wealth and generational transfer are increasingly prevalent issues among baby boomers. Alaris' unique investment structure is ideally suited to satisfy this growing market.

In the event of a sale, Alaris' participation would be like that of any other equity partner. Alaris could be bought out along with other existing equity holders. Alaris could also transfer its preferred equity on a tax-deferred basis into the new entity, if both parties agree to do so. Either way, a partnership with Alaris would not hinder a future sale any more than any other equity investment would; as recently demonstrated by the sale of LifeMark to Centric Health.

Standard covenants include regular reporting of financial information and payment of monthly distributions. As a passive equity partner, we require that our Private Company Partners obtain our consent prior to carrying out certain activities outside of the ordinary course of business, such as:

• Material acquisition or divestiture
• Incurring new debt over predetermined levels
• Entering into non-arm's length transactions above prescribed levels
• Mergers or corporate reorganizations
• Extraordinary capital expenditures
• Change of control

Each Private Company Partner is required to report internal monthly financials and other agreed upon financial and operational information, as well as audited annual financial statements. Typically this is not an added burden on a private company's finance staff as Alaris will often accept the same information prepared for and provided to a company's senior creditors and/or board of directors.

The financing provided by Alaris is typically characterized as equity on a private company's balance sheet. On the income statement, the payments made to Alaris are typically pre-tax distributions, thereby reducing the tax burden of the business owners.

Typically, Alaris structures its investments as a purchase of preferred equity in a newly formed limited partnership. There are no immediate tax implications in the formation of and transfer of assets to the limited partnership. Proceeds from Alaris' financing can be removed from the partnership and allocated to the business owners out at effectively capital gains rates, and profits of the limited partnership are taxed at the unit holder level.

Our distributions from our Private Company Partners are equity distributions similar to traditional private equity. We track the performance of the company. The difference with Alaris is that we track top line performance while traditional equity investors track bottom line performance. If sales of a Private Company Partner decline at some point in the future, our distribution from the Private Company Partner will also decline.

Our distributions only track organic growth. Growth by acquisition or, in the case of a multi-locational business, growth by additional locations, is not included in our distribution adjustments until such locations or acquired businesses have been in the Private Company's system for at least 12 months. For growing private companies, the Alaris structure provides a material economic advantage over traditional private equity.