<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
RWB Medical Income Properties 1 Limited Partnership
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(Name of Registrant as Specified In Its Charter)
--Enter Company Name Here--
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No Filing Fee required.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
7000 Central Parkway, Suite 850
Atlanta, Georgia 30328
March 12, 1997
Dear Limited Partner:
The enclosed materials solicit your consent to the sale of the operating
assets of RWB Medical Income Properties 1 Limited Partnership (the
"Partnership") to Omega Healthcare Investors, Inc. ("Omega"), and the
distribution of the Partnership's remaining assets to the Limited Partners. If
the transaction is consummated, it is anticipated that the holders of Limited
Partner Units of the Partnership (the "Units") would receive approximately $698
for each Unit, of which approximately $515 would be paid within 30 days of the
closing date upon surrender of Limited Partnership Certificates; up to $158 per
Unit within one year of the closing date, and up to $25 per Unit within 40
months of the closing date in connection with the dissolution of the
Partnership. Additional information about the proposed transaction is set forth
in the accompanying Consent Solicitation Statement.
The managing general partner of the Partnership, RWB Management Corp. (the
"MGP"), has approved the Purchase and Sale Agreement by and among Omega, the
MGP, and the Partnership (the "Sale Agreement") subject to the consent of the
holders of a majority of the Units. The investment banking firm of The
Robinson-Humphrey Company, Inc. has reviewed the terms of the transaction for
the MGP and has opined that the consideration to be received by the Limited
Partners under the Sale Agreement is fair from a financial point of view. THE
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MGP RECOMMENDS THAT YOU VOTE YOUR UNITS TO CONSENT TO THE SALE AND DISSOLUTION
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OF THE PARTNERSHIP FOR THE REASONS SET FORTH UNDER "SALE OF PARTNERSHIP ASSETS -
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BACKGROUND AND REASONS FOR THE SALE" IN THE ATTACHED CONSENT SOLICITATION
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STATEMENT.
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PLEASE SIGN, DATE AND MAIL THE ENCLOSED REPLY CARD IN THE ENCLOSED POSTAGE-
PAID ENVELOPE. A vote may be revoked or changed at any time prior to March 28,
1997, the date set for the tabulation of the vote on the proposed transaction,
by providing written notice to the MGP at 7000 Central Parkway, Suite 850,
Atlanta, Georgia 30328 or by executing a later-dated Reply Card.
The transaction cannot proceed without the consent of the holders of a
majority of the Units. Consequently, it is important that you submit your Reply
Card prior to the March 28, 1997 tabulation date. The sale of the Partnership's
operating assets pursuant to the Sale Agreement is also conditioned on the
closing of the sale of the operating assets of three other partnerships which
are also managed by the Managing General Partner or an affiliated company,
Medical Income Properties 2A Limited Partnership, Medical Income Properties 2B
Limited Partnership and RWB Medical Properties Limited Partnership IV, each of
which has entered into substantially similar facility acquisition agreements
with Omega. Accordingly, if each of the other partnerships does not sell its
operating assets to Omega, or if Omega fails to purchase the operating assets of
each of the other partnerships, the Partnership's transaction will not close,
the distributions will not be made, and the Partnership will not be dissolved.
Please do not send your Limited Partnership certificates to the Partnership
or the Exchange Agent at this time. If the sale is approved and consummated,
you will receive further instructions regarding the procedure for exchanging the
certificates evidencing your Units for cash.
Very truly yours,
/s/ John M. DeBlois
----------------------------------------
John M. DeBlois
Chairman of the Board
RWB Management Corp.,
Managing General Partner
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PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED REPLY CARD TODAY.
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SOLICITATION OF CONSENT OF LIMITED PARTNERS
THIS CONSENT SOLICITATION IS DATED MARCH 12, 1997
VOTING ON THE PROPOSAL DESCRIBED BELOW
WILL CLOSE ON MARCH 28, 1997
RWB Management Corp. (the "Managing General Partner"), the managing general
partner of RWB Medical Income Properties 1 Limited Partnership (the
"Partnership"), hereby solicits the written consent of the limited partners of
the Partnership (the "Limited Partners"):
To sell substantially all of the assets of the Partnership to Omega
Healthcare Investors, Inc., a real estate investment trust ("Omega"), pursuant
to the terms and conditions of the Purchase and Sale Agreement by and among the
Partnership, the Managing General Partner and Omega (the "Sale Agreement") to
distribute the Partnership's net assets and to dissolve the Partnership, all as
set forth in the Consent Solicitation Statement.
It is anticipated that the total cash distributions for each Limited
Partner Unit of the Partnership (the "Units") resulting from the sale will be
approximately $698. The Board of Directors of the Managing General Partner has
fixed the date of first mailing of the Consent Solicitation Statement as the
record date for determining the Limited Partners having the right to receive
notice of, and to vote on, the proposal described herein, and only holders of
record of Units at the close of business on such date are entitled to notice of
and to vote on the proposal. A list of Limited Partners entitled to vote
pursuant to the Consent Solicitation will be available during ordinary business
hours at the Partnership's executive offices, 7000 Central Parkway, Suite 850,
Atlanta, Georgia 30328, for ten days prior to March 28, 1997, for examination by
any Limited Partner for purposes germane to the Consent Solicitation. In
addition, in accordance with the Partnership's Limited Partnership Agreement,
the Managing General Partner will mail to any Limited Partner a list of the
names and addresses of, and number of Units held by, the Limited Partners upon
payment of a reasonable fee as determined by the Managing General Partner and
receipt of a representation from the requesting Limited Partner that it will not
sell or disclose the list to anyone or use the list for commercial purposes
unrelated to the Partnership.
By Order of the Managing General Partner
/s/ John M. DeBlois
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John M. DeBlois
Chairman of the Board of Directors and Secretary
RWB Management Corp.
Managing General Partner
Atlanta, Georgia
March 12, 1997
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THE MANAGING GENERAL PARTNER RECOMMENDS THAT YOU VOTE "YES" TO APPROVE THE SALE
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AGREEMENT AND THE SUBSEQUENT TERMINATION OF THE PARTNERSHIP.
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YOUR VOTE IS IMPORTANT. PLEASE SIGN AND MAIL PROMPTLY THE ENCLOSED REPLY CARD
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WHICH IS BEING SOLICITED BY THE MANAGING GENERAL PARTNER OF THE PARTNERSHIP.
A RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS
ENCLOSED FOR THAT PURPOSE.
<PAGE>
CONSENT SOLICITATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
CONSENT SOLICITATION STATEMENT 2
Voting in the Consent Solicitation 2
Solicitation Expenses 2
PROPOSED SALE OF PARTNERSHIP ASSETS AND SUBSEQUENT DISSOLUTION OF PARTNERSHIP 3
General Overview 3
Anticipated Distributions 3
Recommendation of the Managing General Partner 5
Background and Reasons for the Sale 5
Opinion of Financial Advisor 7
The Sale Agreement 10
The Other Sellers 16
Interest of Certain Persons in the Transactions 16
TAX SECTION OF CONSENT SOLICITATION 17
Summary Of Federal Income Tax Consequences 17
Taxation Of Partnerships In General 18
Basis Of Partnership Interests 18
Allocation Of Income, Gain, Loss And Deduction
Among The Partners 19
Sales Of Partnership Properties 19
Liquidation Of The Partnership 19
Alternative Minimum Tax 20
Conclusion 20
INFORMATION FOR LIMITED PARTNERS 22
Dissenters' Rights 22
Exchange of Limited Partnership Certificates 22
Operations Following the Sale and Effect of the Sale on
Limited Partners 22
THE PARTNERSHIP 23
Summary Historical Financial and Operating Data 23
Description of Business 23
Legal Proceedings 26
Security Ownership of Certain Beneficial Owners and Management 26
Comparative Per-Unit Data 26
Information Concerning the Units 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Years
Ended December 31, 1996, 1995, 1994 and 1993 26
Experts 28
INDEX TO FINANCIAL STATEMENTS 29
SALE AGREEMENT APPENDIX A
FAIRNESS OPINION APPENDIX B
</TABLE>
<PAGE>
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement is being furnished by the Board of
Directors of RWB Management Corp., the managing general partner (the "MGP") of
RWB Medical Income Properties 1 Limited Partnership, a Louisiana limited
partnership (the "Partnership"), to limited partners of the Partnership (the
"Limited Partners") for the solicitation of written consents from the Limited
Partners in connection with the proposal to sell substantially all of the
operating assets of the Partnership (the "Sale") and dissolve the Partnership
following the distributions to the Limited Partners, all as described in greater
detail herein.
The Partnership provides a range of long-term care health services in two
nursing homes, Southpoint Manor, located in Miami Beach, Florida and Merry Wood
Lodge, located in Elmore, Alabama (collectively, the "Facilities"). The
principal executive offices of the Partnership and the MGP are located at 7000
Central Parkway, Suite 850, Atlanta, Georgia 30328, and their telephone number
at such address is (770) 668-1080. For most Limited Partners, a toll free
telephone number is available at (800) 226-0024.
This Consent Solicitation Statement is first being mailed to Limited
Partners on or about March 12, 1997.
VOTING IN THE CONSENT SOLICITATION
RECORD DATE; UNITS ENTITLED TO VOTE. Only holders of record of Partnership
units (the "Units") at the close of business on March 12, 1997 (the "Record
Date"), the date on which this Consent Solicitation Statement was first mailed
to Limited Partners, are entitled to notice of and to vote in the Consent
Solicitation. As of the Record Date, there were 22,895 Units outstanding and
entitled to vote in the Consent Solicitation. Each Unit is entitled to one
vote.
VOTE REQUIRED FOR APPROVAL. Under the Partnership's Amended and Restated
Articles of Limited Partnership and Louisiana law, the affirmative consent of
the holders of a majority of the issued and outstanding Units must be received
by March 28, 1997, the date set by the MGP for tabulating the consents, or by
such later date as may be determined by the MGP for approval of the Sale
Agreement. Abstentions and broker non-votes will count as a vote AGAINST the
proposal described herein. As of the date of this Consent Solicitation
Statement, the MGP held 23 Units and QualiCorp, Inc., the parent corporation of
the MGP ("QualiCorp"), held 73 Units, which together constitute less than one-
half of one percent of the Units outstanding on such date. The MGP and
QualiCorp will execute consents to the transaction with respect to each of the
Units owned by them.
REPLY CARDS. All properly executed Reply Cards returned to the MGP will be
voted in accordance with the specifications thereon, or, if no specifications
are made, will be voted FOR approval of the proposal described herein. Any
Reply Card may be revoked by a Limited Partner by delivering written notice to
the MGP stating that the Reply Card is revoked or by execution of a later-dated
Reply Card.
SOLICITATION EXPENSES
The Partnership will bear the cost of the solicitation of consents from the
Limited Partners, which costs are estimated by the MGP not to exceed
approximately $75,000, including printing costs, postage and legal, accounting
and investment banker fees. In addition to solicitation by mail, the directors,
officers and employees of the MGP and the Partnership and their representatives
may solicit consents from Limited Partners by telephone, fax or telegram or in
person. Such persons will not be additionally compensated, but will be
reimbursed for their reasonable, out-of-pocket expenses incurred in connection
with such solicitation. Arrangements will also be made with brokerage firms,
nominees, fiduciaries and other custodians for the forwarding of solicitation
materials to the beneficial owners of Units held of record by such entities, and
the Partnership will reimburse such persons for their reasonable out-of-pocket
expenses in connection therewith. The Robinson-Humphrey Company, Inc.
("Robinson-Humphrey") will assist in the solicitation of consents by the MGP for
a fee of $12,500, plus reimbursement of reasonable out-of-pocket expenses, all
of which will be paid by the Partnership. However, Robinson-Humphrey will
receive the $12,500 fee only if responses with respect to more than 80% of the
Units are received. See "Opinion of Financial Advisor."
<PAGE>
PROPOSED SALE OF PARTNERSHIP ASSETS
AND SUBSEQUENT DISSOLUTION OF PARTNERSHIP
GENERAL OVERVIEW
The following is a brief summary of the material aspects of the Sale. This
summary is qualified in all respects by the Purchase and Sale Agreement
effective as of February 3, 1997 (the "Sale Agreement"), by and among the
Partnership, the MGP and Omega Healthcare Investors, Inc. ("Omega"), which is
attached as Appendix A to this Consent Solicitation Statement and is
incorporated herein by this reference.
The Sale Agreement provides for the sale to Omega of the Partnership's
ownership interests in the Facilities, including the real property on which the
Facilities are located (the "Real Property") and the personal property and
intangible assets related to the operation of the Facilities. The Sale will not
include any assumption by Omega of the Partnership's debts or the payment of any
trade payables, and the Partnership will retain all of its cash or cash
equivalents and accounts receivable.
Omega is a real estate investment trust investing in and providing
financing to the long-term care industry. As of November 30, 1996, its
portfolio included 221 healthcare facilities with more than 20,000 licensed beds
located in 26 states. As a real estate investment trust, Omega is restricted by
law from operating the facilities that it owns. Therefore, Omega leases the
health care facilities owned by it to third party operators. Upon consummation
of the Sale, Omega intends to lease the Partnership's Facilities to one or more
independent third-party operators who have not yet been identified (the "New
Operator").
Consummation of the Sale is not dependent upon Omega's ability to locate
----------------
the New Operator. If the New Operator has not been identified as of the date of
closing (the "Closing Date") or, even if identified, if the New Operator has not
received applicable government permits, licenses or approvals to operate one or
more of the Facilities (the "Regulatory Approvals"), the Sale and the
distributions of funds to the Partnership will nonetheless occur as
contemplated. In this event, the Partnership would enter into a lease agreement
with Omega or, if identified, the New Operator, to lease such facilities for a
period which will not extend beyond December 31, 1997 (the "Interim Leasing
Agreement"). The Partnership's current managers, Atrium Living Centers of
Alabama and Atrium Living Centers of Florida (singularly and collectively,
"Atrium") have agreed to manage the Facilities for Omega pursuant to a
management agreement between the Partnership and Atrium with funding for
operations and management fees to be provided by Omega. See "Interim Operating
Arrangements."
Closing of the Sale Agreement is subject to a number of conditions,
including the closing of facility acquisition agreements between Omega and three
other partnerships managed by wholly-owned subsidiaries of QualiCorp (the "Other
Sellers" - the Partnership and the Other Sellers are sometimes collectively
referred to herein as the "Sellers"). For a description of the Other Sellers,
see "The Other Sellers." The Sellers own a total of 11 long-term care
facilities that are subject to purchase by Omega (collectively, along with the
Sale, the "Asset Sales"). Approval for the sale of the assets and subsequent
dissolution of RWB Medical Properties Limited Partnership IV has already been
obtained. Contemporaneously with this Consent Solicitation, the consents of the
holders of the remaining Other Sellers, Medical Income Properties 2A Limited
Partnership and Medical Income Properties 2B Limited Partnership, are being
solicited for the approval of the respective Asset Sales and the eventual
dissolution of each such entity. Because consummation of each Asset Sale is
contingent upon consummation of the others, if the limited partners of Medical
Income Properties 2A Limited Partnership and Medical Income Properties 2B
Limited Partnership do not approve the sale of the assets of those entities, or
if each Asset Sale is not otherwise consummated, the Sale will not be
consummated, the distributions described herein will not be made and the
Partnership will not be terminated pursuant to this Consent Solicitation,
regardless of whether the Limited Partners approve the Proposal described
herein.
ANTICIPATED DISTRIBUTIONS
Those Limited Partners who purchased their Units in the initial public
offering and have held them since that time, have already received periodic
distributions of $729 per Unit, plus $144 per Unit distributed in connection
with the sale of three properties in prior years.
<PAGE>
Based on the MGP's analysis of the Sale Agreement and of the assets to be
retained by the Partnership following the Sale, taking into account all
liabilities or obligations which must be paid by the Partnership, together with
an analysis of the obligations of the Partnership in the Sale Agreement to
indemnify Omega against certain losses following the Sale, the MGP believes that
the total sales consideration of $18,600,000 will be reduced by accrued expenses
of $332,795 for vacation pay, sick pay, taxes and trust fund obligations as
provided in the Sale Agreement, by $4,206,082 of closing costs, brokerage fees,
third party settlements and other obligations, and by $893,333 for the payment
of debt, resulting in estimated net proceeds from the sale of $13,167,790. These
net proceeds will be augmented by estimated current assets in excess of current
liabilities of $2,818,245 which will increase the total amount available for
distribution to $15,986,035 which will be distributed to the Limited Partners in
three installments as follows:
1. FIRST INSTALLMENT. All Limited Partners will receive a check in the
amount of $515 per Unit, payable within 30 business days of the
closing and surrender of Partnership certificates (an anticipated
aggregate distribution to all of the Limited Partners of $11,795,716);
2. SECOND INSTALLMENT. A second distribution of approximately $158 per
Unit is anticipated to be made within one year of the closing. This
distribution is primarily attributable to the collection of accounts
receivable in the period subsequent to the closing less the payment of
accounts payable and other liabilities (an anticipated aggregate
distribution to all of the Limited Partners of $3,615,400); and
3. FINAL INSTALLMENT. A final distribution of up to $25 per Unit is
anticipated to be made following the expiration of the Partnership's
representations and warranties to Omega and any additional period
required to finally resolve any claims for indemnification against the
Partnership brought prior to the termination of such period (an
anticipated aggregate distribution to all of the Limited Partners of
$574,919). See "The Sale Agreement - Indemnification and Joint
Account." The MGP anticipates that the final distribution will be
made approximately 40 months following the closing.
The amount of the First Installment is based on the amount of consideration
to be received for certain of the Partnership's assets and the Partnership's
cash reserves as of such date, less the payment of Partnership indebtedness,
expenses associated with the sale, and estimated liabilities to third-parties,
and less the amount placed into a joint signature bank account (hereinafter
referred to as the "Joint Account") with NationsBank or another FDIC insured
bank with offices in Atlanta, Georgia selected by the Partnership and reasonably
acceptable to Omega (the "Bank") to be held and disbursed in accordance with an
agreement (the "Letter Agreement") for the purposes of securing the indemnity
and certain other obligations of the Partnership under the Sale Agreement that
will survive the Closing. The amount of indebtedness, expenses and obligations
are estimated by the Partnership to be approximately Five Million Four Hundred
Thirty Two Thousand Two Hundred Ten Dollars ($5,432,210). The amount to be
deposited in the Joint Account will be Six Hundred Thousand Dollars ($600,000).
The Second Installment represents the MGP's good faith estimate of the
amount of accounts receivable that will be collected by the Partnership, offset
by the anticipated amount of remaining accounts payable and other liabilities of
the Partnership. Although the amount and date of payment of the Second
Installment is not determinable, the MGP believes, based on an analysis of
historical collection rates, that it is probable that the Second Installment
will be paid in the amount and at the time contemplated herein. The amount of
the Second Installment may also be affected by the amount of claims for
indemnification, if any, made by Omega prior to the estimated date of payment of
the Second Installment.
Following the expiration of the representations and warranties of the
Partnership and the resolution of any claims for indemnity against the
Partnership made prior to such expiration, the Joint Account will be terminated
and all funds remaining therein, together with any other funds retained by the
Partnership, less administrative expenses, will be distributed to the Limited
Partners as the Final Installment based on the terms of the Partnership
Agreement. There can be no exact determination of the amount of the Final
Installment, if any, nor of the date on which the Final Installment will be
made, although the MGP believes, based on all the facts and circumstances known
to the MGP as of the time of this Consent Solicitation Statement, that all or
substantially all of the estimated Final Installment will be paid within 40
months of the Effective Time (as hereinafter defined). The
<PAGE>
estimated 40-month period relates primarily to statutory periods within which
representatives of the Medicare and Medicaid programs are permitted to make
assessments against the Partnership for funds received under those programs.
The MGP will provide each Limited Partner with updated summaries of the
status of the anticipated payment of the Second Installment and the Final
Installment at least annually. See "Operations Following the Sale and Effect of
the Sale on Limited Partners."
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
For the reasons described below, the MGP, acting pursuant to the unanimous
approval of its directors, has approved the Sale Agreement, the distribution of
the remaining net assets in cash, and the subsequent dissolution of the
Partnership and recommends that the Limited Partners consent to the Sale
Agreement, the distributions, and the subsequent dissolution of the Partnership.
As described in further detail below, the MGP believes that the terms of the
Sale are fair and reasonable, and are in the best interests of the Partnership
and its Limited Partners.
BACKGROUND AND REASONS FOR THE SALE
BACKGROUND. The Partnership was organized in 1984. From its inception,
the business plan of the Partnership was to sell or finance its properties
within five to ten years after the acquisition of such properties, to distribute
the proceeds of such sales or financings to the Limited Partners and to
terminate upon the sale and liquidation of all of its properties and
investments. In accordance with its initial plan of operation, the Partnership
sold two medical office buildings in 1992 and a long-term care facility in 1995.
Thus, the MGP has constantly evaluated the sale of some or all of the
Partnership's assets in the ordinary course of business.
Recently, legislative initiatives have been proposed that, if passed, would
effect significant changes in the national and state health care systems. Among
the proposals under consideration are various restructurings or cut-backs in the
Medicare and Medicaid programs. Although it is not certain which, if any, of
such proposals will be adopted, or, if adopted, what effect, if any, such
proposals would have on the business of the Partnership, the MGP believes that
certain of the initiatives proposed, if adopted, could adversely affect the
business of the Partnership. In addition, various cost containment measures
adopted by the government and private pay sources have limited, or in the future
could limit, the scope and amount of reimbursable health care expenses and
increases in reimbursement rates for medical services, including certain of the
expenses incurred or services offered by the Partnership.
In fact, cost containment mechanisms both by governmental and third-party
payors have already begun to restrict the scope and amount of reimbursable
health care expenses. As a result of the federal government's recent decision
to increase the minimum wage to $4.75 per hour in 1996 and $5.15 per hour in
1997, the Partnership has been required to increase the hourly wage of many
employees previously compensated at less than the new minimum wage in order to
remain competitive in the labor market. The Partnership has also experienced a
"ripple effect" in wages for some employees who had been paid slightly more than
the new minimum wage. Accordingly, the increase in the minimum wage and
consequent increases in other hourly wages have adversely impacted the
Partnership, and will in the future continue to adversely impact the
Partnership, unless Medicare and Medicaid reimbursement rates are increased to
cover such increases. To date, the State of Alabama has increased its
reimbursement rates to reimburse actual expenses due to the 1996 minimum wage
increase to $4.75, but the State of Florida has not. Neither state is committed
to reimbursing nursing home expenses due to the 1997 increases in the minimum
wage to $5.15 per hour, and there is considerable doubt as to whether such
increases will be forthcoming.
In light of the uncertain future of the health care system and the effect
of cost containment measures and wage increases on the business of the
Partnership, as outlined above, the MGP has become increasingly concerned that,
as federal and state governments continue to attempt to control escalating
health care costs, additional measures could be adopted that would impair the
profitability of the Partnership. In order to remain competitive in the current
environment, health care providers larger than the Partnership have begun to
diversify to provide therapy services, pharmaceuticals, and medical and other
supplies. The Partnership currently contracts with third
<PAGE>
parties for the provision of such services. The MGP believes that in order for
the Partnership to remain profitable, it would have to provide such services and
supplies itself without continued reliance upon third-party vendors. However,
even if the Partnership had the ability and resources to support such
diversification, any effort to develop new lines of business to preserve and
enhance the Partnership's profitability in the long-term would likely have
short-term start-up costs and debt service requirements which would adversely
affect the profitability of the Partnership and distributions to its investors
in the short to intermediate term. In addition, even if successfully developed,
there is no assurance that the Partnership would be able to operate such new
lines of business profitably.
In response to the concerns outlined above, the MGP determined to conduct a
valuation of the Partnership's assets in early 1996. At the same time, based on
similar concerns, the managing general partners of the Other Sellers determined
to seek a valuation of those entities' assets. Commencing in January 1996,
representatives of the Partnership and the Other Sellers had discussions with
various investment bankers concerning a potential valuation for Units. In
February, 1996, Robinson-Humphrey was retained by the Sellers to value the
various Sellers' assets and advise the Sellers as to the possible sale of their
assets. As a result of the valuation and the MGP's concerns about the
Partnership's capacity to continue to compete effectively in the rapidly-
changing health care environment, the MGP asked Robinson-Humphrey to seek
potential purchasers of the Partnership's assets. In the first quarterly report
to the Limited Partners in 1996, the MGP informed the Limited Partners that an
investment banking firm had been retained to conduct such a valuation and advise
the Partnership of a possible sale of assets. By letter dated June 10, 1996, to
the Limited Partners, the MGP informed the Limited Partners that it had
determined to seek a buyer of the Partnership's assets based on the Robinson-
Humphrey valuation. The MGP based its decision to seek a purchaser for the
Partnership's assets on its belief that the Partnership did not have adequate
resources to continue to grow the business of the Partnership in the manner that
would be necessary to maintain its level of profitability in the changing
competitive health care environment.
Robinson-Humphrey advised the Sellers that they were likely to obtain a
higher price from a large company with a significant presence in the nursing
home industry, but that such a large company would likely not be interested in
acquiring individual assets, and that the larger the asset group offered for
sale, the higher the price per facility was likely to be. Accordingly,
Robinson-Humphrey solicited indications from those companies that it believed
would be interested in purchasing all of the assets of the Sellers. Pursuant to
Robinson-Humphrey's solicitation, eighteen potential purchasers requested
additional information regarding the proposed sale. Of the eighteen potential
purchasers, five submitted written indications of interest in acquiring the
assets. Beginning in April 1996, Robinson-Humphrey had various discussions with
representatives of each of the parties, and ultimately, two initial proposals
for the acquisition of all of the Sellers' operating assets were received in a
price range deemed appropriate by Robinson-Humphrey. However, the party making
the lower of these initial proposals also introduced unacceptable financing
conditions. The Partnership entered into negotiations with the party making the
better proposal, and entered into a letter of intent with that party. Later,
that party withdrew from negotiations after learning of a threatened change in
Alabama's Medicaid reimbursement policy that would have affected all nursing
homes in Alabama.
By a letter dated October 22, 1996, the Partnership informed Limited
Partners that the aforementioned negotiations and letter of intent had been
abandoned, but that the Partnership would engage Robinson-Humphrey to renew its
efforts to sell the assets of the Partnership in the near future. During
November 1996, Robinson-Humphrey again solicited interest in the purchase of the
Partnership's assets, and received four additional written expressions of
interest in further discussions. Two proposals were made, but the Omega
proposal was deemed to be the most serious offer capable of being accepted, and
to be in the best interest of the Partnership.
Omega is one of the largest healthcare real estate investment trusts in the
United States. As a real estate investment trust, Omega cannot operate nursing
homes owned by it and, as a result, Omega typically leases its properties to
third-party operators. Omega's lessees include some of the largest long-term
care providers in the United States. Virtually all of Omega's lessees have
substantially more resources available to operate the Partnership assets more
competitively than the Partnership.
Based on the terms of the Omega proposal, including the absence of
contingencies similar to those demanded by the other potential purchaser, the
managing general partners of the Sellers commenced discussions with Omega in
December 1996 concerning the sale of substantially all of the assets of the
Sellers, including the Partnership. In mid-December, following the MGP's
consultation with Robinson-Humphrey regarding an
<PAGE>
exclusive negotiation period with Omega, the MGP and Omega agreed to negotiate
exclusively with one another for a thirty (30) day period. In December, 1996 the
Board of Directors of the MGP met to approve the execution of a term sheet for
the exclusive negotiation period. Subsequently, the MGP negotiated the Sale
Agreement and conducted certain financial due diligence investigations with
respect to Omega. Negotiations were completed and the Sale Agreement was
executed effective on February 3, 1997. The execution of the Sale Agreement was
announced to the Limited Partners by letter dated February 6, 1997. Robinson-
Humphrey acted as financial advisor to the Partnership in connection with the
negotiation, approval by the Board of Directors and execution by the MGP on
behalf of the Partnership of the Sale Agreement. No independent representative
of the Limited Partners of the Partnership was retained by the Partnership or
the MGP to participate in the negotiation of the terms of the Sale Agreement
with Omega.
The terms of the Sale are the result of arms-length negotiations between
the MGP and Omega and were approved by the Board of Directors of the MGP at the
meeting held on January 31, 1997. At the meeting, the Board received
presentations concerning, and reviewed carefully the terms and conditions of,
the proposed Sale with Partnership management with legal counsel and the
Partnership's financial advisor, Robinson-Humphrey. As part of the meeting, the
Board of Directors considered, among other things, the historical Limited
Partnership trading prices and trading information for the Units and information
presented by Robinson-Humphrey, including an analysis of other comparable
companies being sold in the nursing home industry, an analysis of comparable
publicly-traded nursing home companies, and an asset analysis. The MGP and
Robinson-Humphrey also discussed the Partnership's results of operations for
1995 and 1996 and its estimated results of operations for 1997, as well as its
growth potential for succeeding years.
REASONS FOR ENTERING INTO THE SALE AGREEMENT WITH OMEGA. In approving the
Sale Agreement and recommending such approval to the Limited Partners, the MGP,
acting through its Board of Directors, considered the following principal
factors in addition to the factors listed above:
1. The sale consideration to be received by the Limited Partners of $515
cash payable within 30 days of Closing, plus an estimated $183 payable
over time in the second and third installments in relationship to the
historical trading ranges for Units and that, as a result of the Sale,
the Limited Partners would receive immediate cash in an amount equal
to approximately two times the average prior trading value for the
Units (excluding trades made after the MGP disclosed its efforts to
sell all Partnership assets) and would be eligible to receive
additional distributions in the future following the collection of
accounts receivable and expiration of the Partnership's
representations and warranties;
2. Financial and other information concerning the financial strength of
Omega;
3. The terms, other than the financial terms, of the proposed Sale;
4. The likelihood of the Sale being approved by appropriate regulatory
authorities;
5. The relative strengths of each entity;
6. The difficulties faced by the Partnership in taking advantage of new
opportunities in the health care industry if the Sale were not
consummated;
7. Industry conditions generally, including the ongoing trend of
consolidations in health care in response to health care reform
movements; and
8. The opinion of Robinson-Humphrey that the consideration to be received
by the Limited Partners pursuant to the Sale Agreement is fair to the
Limited Partners from a financial point of view.
OPINION OF FINANCIAL ADVISOR
BACKGROUND. The managing general partners of the Sellers engaged Robinson-
Humphrey to consult with and advise them concerning the sale of assets of the
Sellers, to solicit offers for the sale of such assets, to assist in the
negotiation of such sale, and to render fairness opinions at or about the date
of the various facility acquisition
<PAGE>
agreements to each of the Sellers with respect to the fairness, from a financial
point of view, to the Limited Partners of such Sellers regarding the
consideration to be received pursuant to the Asset Sales by each Seller.
The terms of Robinson-Humphrey's engagement were set forth in a letter
agreement dated February 6, 1996 (the "Robinson-Humphrey Engagement Letter").
Under the terms of the Robinson-Humphrey Engagement Letter, the Sellers paid
Robinson-Humphrey a retainer of $50,000 upon engagement plus a fee of $15,000
upon renewal (the "Retainer") and fees aggregating $100,000 upon delivery of
fairness opinions to the various Sellers (the "Opinion Fees"). The Opinion Fees
are payable by the Partnership even if the Limited Partners reject the Sale or
the Sale does not occur for any other reason. The Sellers also agreed to pay
Robinson-Humphrey a proxy solicitation fee of $12,500 (the "Proxy Solicitation
Fees") each upon the receipt of responses of greater than 80% of the outstanding
limited partner units of the Sellers. See "Solicitation Expenses." If the
Asset Sales occur either during the term of Robinson-Humphrey's engagement or
within six months of the termination of such engagement to a party of which
Robinson-Humphrey notified the Sellers, then Robinson-Humphrey will also receive
a success fee (the "Success Fee") equal to 1.5% of the first $50 million in
total consideration, 2.5% of any additional consideration up to $60 million and
3% of any additional consideration in excess of $60 million. If the Asset Sales
are consummated and the Success Fee is paid by the Sellers, then the amount
previously paid in connection with the Retainer, Opinion Fees and Proxy Fees
will be deducted from the Success Fee. The Robinson-Humphrey Engagement Letter
also provides that the Sellers will reimburse Robinson-Humphrey for its
reasonable out-of-pocket expenses up to $15,000 and will indemnify Robinson-
Humphrey against certain liabilities and expenses, including certain liabilities
under the Federal Securities laws. The Partnership's share of the Robinson-
Humphrey Success Fee and expenses is based on its pro rata share of the gross
purchase price and is estimated to be approximately $318,000 in the event all of
the fees are earned and expenses of $15,000 are incurred.
Robinson-Humphrey is a recognized investment banking firm and, as a
customary part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with acquisition and
mergers, negotiated underwritings, private placements, and valuations for
corporate and other purposes. The MGP selected Robinson-Humphrey primarily
because of its expertise and reputation, and secondarily because of its
availability to complete the assignment on a timely basis. Prior to its
engagement pursuant to the Robinson-Humphrey Engagement Letter, Robinson-
Humphrey had never performed services for any of the Sellers or any of their
affiliated companies.
THE OPINION. On February 12, 1997, Robinson-Humphrey delivered its
Fairness Opinion to the Board of Directors of the MGP to the effect that, as of
such date, the consideration to be received by the Limited Partners pursuant to
the Sale was fair to such Limited Partners from a financial point of view (the
"Fairness Opinion"). No limitations were imposed by the MGP upon Robinson-
Humphrey with respect to the investigations made or the procedures followed by
it in rendering its opinions or on the conclusions it should reach, nor did
Robinson-Humphrey determine or recommend the amount of consideration to be paid
pursuant to the Sale.
THE FAIRNESS OPINION OF ROBINSON-HUMPHREY, DATED FEBRUARY 12, 1997, WHICH
SETS FORTH ASSUMPTIONS MADE AND MATTERS CONSIDERED, APPEARS AS APPENDIX B TO
----------
THIS CONSENT SOLICITATION STATEMENT. THE LIMITED PARTNERS ARE URGED TO READ THE
FAIRNESS OPINION IN ITS ENTIRETY. ROBINSON-HUMPHREY'S FAIRNESS OPINION WAS
DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE RECEIVED BY THE LIMITED PARTNERS OF THE PARTNERSHIP.
ROBINSON-HUMPHREY'S FAIRNESS OPINION WAS DELIVERED FOR THE INFORMATION OF THE
PARTNERSHIP AND DOES NOT CONSTITUTE A RECOMMENDATION AS TO HOW ANY LIMITED
PARTNER SHOULD VOTE ON THE SALE AND SUBSEQUENT DISSOLUTION OF THE PARTNERSHIP.
THIS SUMMARY OF THE FAIRNESS OPINION OF ROBINSON-HUMPHREY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
In rendering its Fairness Opinion, Robinson-Humphrey reviewed and analyzed:
(1) the Sale Agreement; (2) financial and operating information with respect to
the business, operations and prospects of the Partnership furnished to Robinson-
Humphrey by the MGP; (3) a comparison of the historical financial results and
present financial condition of the Partnership with those of other companies
that Robinson-Humphrey deemed relevant; (4) an analysis of financial and stock
market information of selected publicly-traded companies that Robinson-Humphrey
deemed comparable to the Partnership; and (5) a comparison of the financial
terms of the Sale with the financial terms of certain other recent transactions
that Robinson-Humphrey deemed relevant. In addition, Robinson-Humphrey held
discussions with the management of the Partnership and of the MGP concerning the
business and operations, assets, present condition and future prospects of the
Partnership and undertook such other
<PAGE>
studies, analyses and investigations as it deemed appropriate but did not make
an independent appraisal of the assets of the Partnership.
In rendering its Fairness Opinion, Robinson-Humphrey assumed and relied
upon, without independent verification, the accuracy and completeness of the
financial and other information furnished by the Partnership and MGP. Robinson-
Humphrey further relied upon the assurances of the management of the Partnership
and MGP that they were not aware of any facts that would make such information
inaccurate or misleading. Robinson-Humphrey did not conduct a physical
inspection of all the properties and facilities of each of the partnerships.
Robinson-Humphrey's Fairness Opinion was based upon market, economic and other
conditions as they existed, and which were capable of being evaluated, as of the
date of the Fairness Opinion.
In connection with the preparation of the Fairness Opinion, Robinson-
Humphrey performed certain financial and comparative analyses, including those
described below. The summary set forth below includes all of the financial
analyses used by Robinson-Humphrey and deemed by it to be material but does not
purport to be a complete description of the analyses performed by Robinson-
Humphrey in arriving at its opinion. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances, and therefore, such an opinion is not readily susceptible to
summary description. Furthermore, in arriving at its Fairness Opinion,
Robinson-Humphrey did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Robinson-
Humphrey believes its analyses must be considered as a whole and that
considering any portions of such analyses without considering all analyses and
factors could create a misleading or incomplete view of the process underlying
the opinion. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the price at which businesses may
actually be sold. No public company used as a comparison is identical to the
Partnership. An analysis of the results of such a comparison is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the value of the
companies to which the Partnership is being compared.
The generally accepted financial analyses Robinson-Humphrey used in
reaching its opinions included (1) comparisons with selected publicly-traded
companies, which consisted of reviewing market statistics and financial and
operating information with respect to selected companies considered to have
businesses similar to that of the Partnership; (2) analysis of other selected
transactions, which consisted of reviewing operating statistics and purchase
price information with respect to selected acquisitions of assets or businesses
similar to those of the Partnership; and (3) analysis of asset values based on
the appraised value of the Partnership's Facilities and the net tangible asset
value of the Partnership. The material portions of these analyses (which are
all of the material valuation methodologies performed by Robinson-Humphrey) as
represented in its Fairness Opinion are summarized below.
COMPARISON WITH SELECTED COMPANIES. Robinson-Humphrey compared selected
financial data and market information for the Partnership to the corresponding
financial data and market information for 18 selected public companies in the
health care industry (the "Public Health Care Companies"). Robinson-Humphrey
used this analysis to derive implied equity values (i.e., the value of the total
equity of the Partnership implied by multiplying certain ratios derived from
selected companies other than the Partnership by the Partnership's own financial
data) for the Partnership. This comparison showed, among other things, that (1)
the average ratio of price to earnings for the last 12 months was 17.8x for the
Public Health Care Companies; (2) the average ratio of price to projected
calendar 1996 earnings was 16.6 for the Public Health Care Companies; (3) the
average ratio of market value to book value was 2.1x for the Public Health Care
Companies; (4) the average ratio of firm value (firm value equals equity value
plus total debt less cash) to revenues for the last 12 months was 1.12x for the
Public Health Care Companies; (5) the average ratio of firm value to earnings
before interest and taxes ("EBIT") for the last 12 months was 11.8x for the
Public Health Care Companies; and (6) the average ratio of firm value to
earnings before interest, taxes, depreciation and amortization ("EBITDA") for
the last 12 months was 8.4x for the Public Health Care Companies. In addition
to applying these multiples directly, Robinson-Humphrey took into consideration
the Partnership's smaller size relative to the comparable companies and applied
a discount (the "Small Company Discount") to these multiples. Based upon the
above multiples, Robinson-Humphrey calculated
<PAGE>
an average implied equity value for the Partnership of approximately $10,900,000
based on a direct comparison, and $8,200,000 assuming a Small Company Discount
of 25%.
ANALYSIS OF SELECTED TRANSACTIONS. Robinson-Humphrey analyzed 11
acquisitions and mergers occurring since 1993 involving long-term care
companies, using publicly available information. In each such acquisition,
Robinson-Humphrey calculated the implied equity value as a multiple of earnings
for the last 12 months, as well as the implied firm value as a multiple of
revenues for the last 12 months, EBIT for the last 12 months, and EBITDA for the
last 12 months. The resulting average multiples were as follows: earnings,
19.9x; revenues, 1.22x; EBIT, 14.1x; and EBITDA, 10.5x. Based upon the
multiples for these transactions, Robinson-Humphrey calculated an average
implied equity value of approximately $13,500,000 for the Partnership based on a
direct comparison and $10,000,000, assuming a Small Company Discount of 25%.
ASSET VALUATION ANALYSIS. Robinson-Humphrey used two techniques to analyze
the Partnership's asset value: (i) appraised value of the Partnership's
Facilities and (ii) net tangible asset value of the Partnership at September 30,
1996. The appraisals of the Facilities yielded a value of approximately
$13,500,000, and the net tangible asset value of the Partnership at December 31,
1996, was approximately $10,000,000.
THE SALE AGREEMENT
GENERAL. The Sale Agreement provides that, upon satisfaction or waiver of
conditions to the Sale, the Partnership will sell, and Omega will purchase,
substantially all of the operating assets of the Partnership, including the
Facilities, the Real Property, all buildings and improvements thereon, and the
personal and intangible property used in connection with the Facilities,
including equipment, vehicles, furniture, fixtures, inventories of food and
supplies, books, records, licenses, franchises, permits and trade names. As
part of the Sale, Omega will assume certain contract obligations of the
Partnership related to the operation of the Facilities, but Omega will not
assume any debt or trade payables. The Partnership will retain all cash and
cash equivalents and accounts receivable of the Partnership as of the Effective
Time. The Sale Agreement is reproduced in its entirety as Appendix A to this
----------
Consent Solicitation Statement, and all references in this Consent Solicitation
Statement to the Sale Agreement are qualified by reference thereto. All
exhibits to the Sale Agreement have been omitted from Appendix A, but may be
----------
obtained from the MGP upon request.
EFFECTIVE TIME OF THE SALE. The Sale will become effective (the "Effective
Time") at the closing of the transaction, which will occur as promptly as
practical after the requisite Limited Partner approval has been obtained and all
the conditions to the closing of the Sale have been satisfied or waived,
including the consummation of the sale of the operating assets of the Other
Sellers to Omega. It is currently anticipated that all conditions, other than
the closing of the Asset Sales, will have been satisfied prior to the date on
which the vote is taken. The Effective Time is anticipated to occur on or
before April 30, 1997.
CONSIDERATION. At the Effective Time, Omega will pay the Partnership,
subject to certain adjustments based on certain accrued vacation and sick pay
for employees at the Facilities, as outlined in the Sales Agreement, Eighteen
Million Six Hundred Thousand Dollars ($18,600,000) for the Partnership's
operating assets. The Partnership will either use a portion of the proceeds to
pay Partnership indebtedness or the Partnership will direct Omega to use a
portion of the sale price to pay Partnership indebtedness which encumbers
Partnership properties. The Partnership has received an opinion from Robinson-
Humphrey that such consideration is fair to the Limited Partners from a
financial perspective. See "Opinion of Financial Advisor."
REPRESENTATIONS AND WARRANTIES. The Sale Agreement contains various
representations and warranties of the Partnership and the MGP relating to, among
other things: (a) organization and similar matters; (b) the authorization,
execution, delivery, performance and enforceability of the Sale Agreement; (c)
financial statements; (d) the absence of certain material adverse changes; (e)
required licenses, permits and authorizations; (f) compliance with certain laws;
(g) resident relations and services; (h) books and records; (i) real property;
(j) the absence of certain union-related activity; (k) tax matters; (l)
environmental matters; (m) litigation matters; (n) the absence of certain kinds
of illegal payments; (o) facilities; (p) inventories; (q) admission agreements;
(r) patient rosters; (s) contracts; (t) insurance; (u) employee fringe benefits;
and (v) employee benefit plans and matters relating to the Employment Retirement
Income Security Act of 1974, as amended.
<PAGE>
OPERATIONS PENDING CLOSING. Pursuant to the Sale Agreement, the
Partnership has agreed that, during the period following the date of the Sale
Agreement and prior to the Effective Time, and, if necessary, during the time of
the Interim Operating Agreement, they will:
(a) Furnish Omega with certain documents, information and updates of
certain information concerning the Real Property, the Facilities, and
the operation of the Facilities, including title insurance, security
interests, surveys, environmental matters, government authorizations,
financial statements, litigation, and certain other matters;
(b) Conduct the business and operations of the Facilities in the ordinary
course with due regard for the proper maintenance and repair of the
Facilities, the timely filing of tax returns and Medicare and Medicaid
cost reports for the Facilities, and the payment of accounts payable
related to the Facilities;
(c) Take all reasonable action to preserve the goodwill and occupancy
levels of the Facilities;
(d) Except in the ordinary course of business, make no material changes in
the Facilities or the operation thereof;
(e) Use its reasonable efforts to retain the goodwill of employees of the
Facilities, and promptly notify Omega of any known union organizing or
contract negotiations at any of the Facilities;
(f) Maintain insurance upon the Facilities;
(g) Except in the ordinary course of business, maintain compensation
levels for employees without increases;
(h) Not enter into written employment agreements;
(i) Except in the ordinary course of business, not enter into certain
types of commitments without Omega's approval;
(j) Allow Omega, the New Operator and their representatives, upon
appropriate notice, access to the Facilities and the Partnership's
books and records during normal business hours for the purposes of
performing certain audits, investigations and inspections, all to be
performed with a representative of the Partnership present;
(k) Take all reasonable actions to maintain substantial compliance with
all laws applicable to the Facilities; and
(l) Use its best efforts to cause all conditions to the consummation of
the Sale to be satisfied.
The Partnership has also agreed that after the Closing Date it will:
(a) At no cost to the Partnership, reasonably cooperate with Omega in the
event Omega is required to include audited financial statements with
respect to the Facilities in its filings with the SEC;
(b) Take any and all reasonably necessary actions to complete the transfer
of the Partnership's assets to Omega as provided in the Sale
Agreement;
(c) Retain funds in an amount sufficient to satisfy its remaining
financial obligations including its obligations under the
indemnification provisions of the Sale Agreement; and
(d) Timely file annual cost reports for the Facilities, together with
appropriate supporting documentation, with Medicare, Medicaid and any
other third party payor.
Omega has agreed that during the period following the date of the Sale
Agreement and prior to the Effective Time, it will:
(a) Provide the Partnership and the MGP timely notice of, and permit the
cure of, any conditions or circumstances unsatisfactory to it that
could prevent or inhibit the Sale from being consummated;
(b) Proceed with all due diligence to conduct such investigations with
respect to the Partnership's assets as it deems reasonably necessary;
<PAGE>
(c) Obtain all licenses, permits, consents and approvals required or
desirable in order for it to consummate the Sale, or, where
applicable, obtain assurances reasonably satisfactory to it that the
same will be received in a timely manner;
(d) Advise the Partnership and the MGP which, if any, of the Facilities
the New Operator will assume responsibility for operating at the
Effective Time; and
(e) Use its best efforts to cure any circumstances within its control that
would prevent or inhibit the Sale from being timely consummated;
Omega has further agreed that after the Closing Date it will:
(a) Provide the Partnership, or cause the New Operator to provide the
Partnership, with access during normal business hours to the
Facilities and any books or records which it needs in connection with
tax and other government filings, litigation and certain other
administrative matters;
(b) Take such other reasonable steps requested by the Partnership
necessary to complete and consummate the Sale Agreement;
(c) Ensure the maintenance of patient records for three (3) years after
the Closing Date and, upon proper notice, provide the Partnership with
access thereto; and
(d) For two (2) months following the Closing Date, cause the New Operator
to use commercially reasonable efforts to collect accounts receivable
for the Partnership for the period prior to and including the Closing
Date.
AGREEMENT NOT TO SOLICIT ADDITIONAL OFFERS. The MGP and the Partnership
have agreed that from the date of the Sale Agreement until the earlier of the
Effective Time or the termination of the Sale Agreement, neither will directly
or indirectly initiate, solicit, or take any action to facilitate any
alternative acquisition proposal involving the Partnership or its assets.
CONDITIONS TO CLOSING OF THE SALE. The respective obligations of the
Partnership, the MGP and Omega to consummate the Sale are subject to a number of
conditions, including among others:
(a) Approval of the Sale by the holders of more than 50% of the Units held
by the Limited Partners;
(b) Approval of the Sale by the Board of Directors of Omega;
(c) The compliance by all parties with the provisions of the Sale
Agreement applicable to them and the truth of each party's
representations and warranties as of the closing;
(d) Approval of the Sale by the appropriate governmental authorities and
receipt of all required licenses and permits for operation of the
Facilities, or an indication satisfactory to Omega that the same will
be forthcoming in a timely manner;
(e) Delivery by the Partnership of certain title commitments or insurance
policies for each of the facilities, surveys, environmental site
assessments and UCC searches, and Omega's satisfaction with the same;
(f) The delivery of the Facilities in the same condition as of the date of
the Sale Agreement, reasonable wear and tear excepted;
(g) The absence of any undisclosed defaults and materially adverse events
by the Partnership; and
(h) Upon request by Omega or the New Operator, the Partnership's entrance
into the Interim Leasing Agreement and execution of the Interim
Management Agreement concurrently with the Closing.
CONSUMMATION OF OTHER ASSET SALES. The closing of the Sale Agreement is
also conditioned upon the closing of the sale of the operating assets of each of
the Other Sellers to Omega. See "Sale of Partnership Assets - General." Omega
and the MGP negotiated the cross-closing contingency because Omega desires to
purchase all of the operating assets of the Sellers, and is not willing to
purchase them separately for the overall consideration offered by it for all of
the assets. The managing general partners of the Sellers agreed to the cross-
closing
<PAGE>
contingency of the Asset Sales, because, based on their experience in
negotiating the sale of the Sellers' assets and the advice of Robinson-Humphrey,
they believed that they would be unable to find purchasers for the individual
assets of the Sellers who would be willing to pay as much for the individual
assets as Omega was willing to pay for such assets collectively. See "Background
and Reasons For the Sale." Also, the MGP was unwilling to sell either of the
Facilities separately because if one Facility were not sold, the MGP believed
that it would not be cost effective to operate the remaining Facility alone.
The closings of the other Asset Sales are subject to a number of
conditions, in addition to the cross-closing contingency. The conditions to
closing of the other Asset Sales are substantially similar to the conditions to
the closing of the Sale. See "The Sale Agreement -Conditions to Closing of the
Sale."
INTERIM OPERATING AGREEMENTS. In order for Omega to be taxed a real estate
investment trust, Omega cannot operate the health care facilities it owns.
Therefore, Omega customarily leases the operation and management of its health
care facilities to third party operators, many of whom are among the largest
health care operators in the United States. Omega intends to lease the
operation of the Facilities to the New Operator, but Omega's ability or
inability to procure the New Operator will not have any effect on the ability of
the parties to consummate the Sale. In the event that Omega is unable to
procure the New Operator prior to the Effective Time, or in the event the New
Operator, if identified, has not received the Regulatory Approvals prior to the
Effective Time, the Partnership will enter into the Interim Leasing Agreement
with Omega or, if identified, the New Operator, to permit Omega more time to
locate the New Operator and/or for the New Operator to receive the Regulatory
Approvals.
INTERIM LEASING AGREEMENT. The Interim Leasing Agreement, if entered into
-------------------------
by the Partnership and Omega or the New Operator, will provide that (a) the
Partnership will have no financial responsibility for funding the operations of
the Facilities during the term of the Interim Leasing Agreement; (b) the rent
payable under the Interim Leasing Agreement will be equal to the cash flow
generated by operation of the Facilities under the Interim Leasing Agreement;
and (c) the Interim Leasing Agreement shall terminate no later than December 31,
1997. If the Partnership enters into the Interim Leasing Agreement, Atrium has
agreed to manage the Facilities for the Partnership and Omega pursuant to the
terms of an Interim Management Agreement prepared and agreed to by Atrium, the
Partnership and Omega.
INTERIM MANAGEMENT AGREEMENT. The Interim Management Agreement, if entered
----------------------------
into by the Partnership and Atrium for the benefit of Omega, will provide that
Atrium will receive a monthly management fee during the term of the agreement
equal to a certain percentage of the adjusted gross income of the Facilities,
such percentage to be determined based on the total number of facilities Atrium
is managing for the Partnership and the Other Sellers as outlined in the Sale
Agreement. The Interim Management Agreement, if entered into by the Partnership
and Atrium, will terminate on or before the termination of the Interim Lease
Agreement.
RIGHT TO TERMINATE. The Sale Agreement may be terminated without any
further liability or obligation of either party (except with respect to
liability for damages resulting from willful breaches of representations,
warranties, covenants, or agreements) as follows:
BY THE PARTNERSHIP AND OMEGA at any time by mutual consent of Omega and the
----------------------------
Partnership.
BY THE PARTNERSHIP (a) Upon Omega's failure to meet its obligations
------------------
pursuant to the conditions to closing the sale; or (b) as the result of certain
kinds of material adverse changes in Omega's representations, warranties, or
disclosures pursuant to the Sale Agreement.
BY OMEGA (a) upon the Partnership's failure to meet its obligations
--------
pursuant to the conditions to closing the Sale; (b) as the result of certain
kinds of material adverse changes in the Partnership's representations,
warranties, or disclosures pursuant to the Sale Agreement; or (c) in the event a
material portion of any of Real Property or the Facilities is damaged by fire or
other casualty, or is taken or condemned by public or quasi-public authorities,
unless the estimated cost of repairs to be made by the Partnership is less than
$100,000 and the damage to the property as of the closing will not interfere
with the operation of such Facility.
BY THE PARTNERSHIP OR OMEGA (a) if the required percentage of Units have
---------------------------
not been voted in favor of the Sale or if such approval is not obtained by July
15, 1997; (b) in the event of a material breach by the other party, provided
that the terminating party is not in breach; (c) in the event the Sale has not
been consummated on or
<PAGE>
before July 31, 1997; (d) if any permanent injunction or order of a court or
other competent authority preventing the consummation of the Sale has become
final or non-appealable; or (e) otherwise in accordance with the Sale Agreement.
CONSEQUENCES TO THE PARTNERSHIP RELATED TO FAILURE TO CLOSE THE SALE. In
the event that 1) the Sale is not consummated because the Limited Partners fail
to approve the Sale Agreement and the transactions contemplated thereby, 2) a
material adverse change in information contained in the Partnership's
representations and warranties due to certain types of events occurring after
the signing of the Sale Agreement, or 3) a material breach of the Sale Agreement
by the Partnership, Omega will be entitled to the lesser of One Hundred Twenty
Five Thousand Dollars ($125,000) or reimbursement of its documented, out-of-
pocket expenses. However, the maximum amount Omega may receive in the event the
Partnership commits the breaches listed above, together with amounts received by
Omega for any similar breaches committed by the Other Sellers, will not exceed
One Hundred Twenty Five Thousand Dollars ($125,000).
In the event that the Sale is not consummated because the MGP 1) withdraws,
modifies or amends the MGP's recommendation of the approval of the Sale
Agreement by the Limited Partners, 2) accepts and recommends an alternative
acquisition proposal put forth by any third party, or 3) announces, and fails to
withdraw within ten (10) days, the MGP's intention to recommend an acquisition
proposal other than the Sale Agreement to the Limited Partners, then Omega will
be paid by the Partnership, as Omega's sole remedy, Six Hundred Eleven Thousand
Dollars ($611,000.00) as liquidated damages. Such amount would be paid on the
earlier to occur of consummation of the other acquisition or one hundred twenty
(120) days after termination of the Sale Agreement.
RIGHT OF FIRST REFUSAL. If the Sale Agreement is terminated because the
requisite approval for any of the Asset Sales, including the required approval
of the Limited Partners, is not received and, if at the time of termination the
Partnership has not accepted a competing acquisition proposal, the Partnership
has agreed to grant Omega a right of first refusal to purchase any Facility
owned by the Partnership on the same terms as set forth in a written offer from
a third party for the purchase of the Facility received by the Partnership prior
to December 31, 1997.
REGULATORY APPROVALS. The Sale is subject to various federal, state and
local regulatory approvals:
HART-SCOTT-RODINO APPROVAL. If prior to the Closing Date Omega has not
--------------------------
identified the New Operator, or, if identified, the New Operator has not entered
into operating leases for the Facilities with Omega, the Sale will still be
consummated, but the Partnership will enter into the Interim Operating
Agreements with Omega or the New Operator, and approvals under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "HSR Act") will not be required.
However, in the event that the New Operator has been identified and has
entered into operating leases for the Facilities with Omega at the Effective
Time, consummation of each Asset Sale, including the Sale, is subject to the
pre-acquisition notification requirements of the HSR Act and expiration or early
termination of the waiting period requirement thereunder. Under the HSR Act,
the Federal Trade Commission (the "FTC") evaluates the anti-competitive effects
of transactions meeting the threshold for a HSR Act filing. Companies filing
under the HSR Act must wait at least 30 days following the filing prior to
consummating the transaction, and such period may be extended by the FTC if it
requests additional information. On the other hand, the FTC may grant early
termination of the waiting period at the request of the parties to a
transaction. The federal government may seek an injunction to block a
transaction if it believes that the transaction would violate federal antitrust
laws.
OTHER FEDERAL, STATE AND LOCAL REGULATORY APPROVALS. If prior to the
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Closing Date Omega has not identified the New Operator, or, if identified, the
New Operator has not entered into operating leases for the Facilities with Omega
at the Effective Time, then the Sale will be consummated, but the Partnership
will enter into the Interim Operating Agreements with Omega or the New Operator,
and the approval of various federal, state and local government agencies will
not be required.
In the event that the New Operator has been identified and has entered into
operating leases for the Facilities with Omega at the Effective Time, then the
approval of various federal, state and local governmental agencies will be
required in connection with each Asset Sale, including the Sale, in order for
Omega to own the purchased facilities and for them to be operated by their
respective lessees. In particular, each state in which any Seller operates
requires the prior approval of the applicable state regulatory authorities
before the sale of a long-
<PAGE>
term care facility in such state may be consummated. New Operator will be
required to apply to receive Medicare Provider Agreements with respect to the
facilities acquired. As of the date of this Consent Solicitation Statement, all
required regulatory approvals have not yet been obtained, but the MGP
anticipates that all regulatory approvals, or, where applicable under the Sale
Agreement, assurances of forthcoming regulatory approval satisfactory to Omega,
and/or New Operator will be received prior to the Effective Time.
INDEMNIFICATION AND JOINT ACCOUNT. The Sale Agreement provides that the
Partnership will indemnify and hold Omega and Omega's assigns, including the New
Operator, harmless from and against any and all damages, losses, liabilities,
costs, actions, suits, proceedings, demands, assessments, and judgments,
including, but not limited to, reasonable attorney's fees and reasonable costs
and expenses of litigation, arising out or in any manner related to (i)
obligations relating to the ownership of the Partnership's assets and the
operation of the Facilities which existed or accrued immediately prior to the
Closing Date; (ii) any operating contracts that the New Operator does not
assume; (iii) any misrepresentation of a material fact, breach of warranty or
nonfulfillment of any agreement under the Sale Agreement or from any
misrepresentations in any certificate furnished or to be furnished to Omega or
the New Operator thereunder; (iv) any failure in connection with the Sale
Agreement to comply with the requirements of any laws or regulations relating to
bulk sales or transfers; and (v) any sums due by the Partnership for Medicare
and Medicaid adjustments arising from the operation of Facilities conveyed
pursuant to this Agreement. Notwithstanding the foregoing, however, Omega has
agreed that it shall be responsible for the first $25,000 of claims against the
Partnership with respect to each Facility, except for claims relating to title
to Seller's Assets, Seller's authority to enter into the Sale Agreement or
claims for money by third party payors or reimbursers.
The Partnership's liability for breach of representations and warranties,
excluding any claims relating to the willful dishonesty or fraud by the
Partnership, title to the Partnership's Assets or the Partnership's authority to
enter into the Sale Agreement, will be limited to Nine Hundred Seventy Thousand
Dollars ($970,000), but there will be no limit on the Partnership's liability
for any other claims against the Partnership under the Sale Agreement.
The Sale Agreement also provides that Omega or the New Operator, if
identified prior to the Closing and reasonably satisfactory to Seller, will
indemnify the Partnership and its officers and directors from all damages,
losses, liabilities, costs, actions, suits, proceedings, demands, assessments,
and judgments, including reasonable attorney's fees and reasonable costs and
expenses of litigation, arising out of or in any manner related to (i) any and
all obligations relating to the ownership of Seller's Assets and the operation
of the Facilities from and after the Closing Date, including any obligations
which arise or accrue following the Closing Date; (ii) any misrepresentation of
a material fact, breach of warranty or nonfulfillment of any agreement on the
part of Omega under the Sale Agreement or from any misrepresentations in any
certificate furnished or to be furnished to Purchaser hereunder; and (iii) any
claim that Omega or the New Operator failed to pay employees vacation or sick
pay which accrued prior to the Closing Date with respect to employees whose
accrued vacation and sick pay was taken into account in computing the adjustment
to the Purchase Price.
THE JOINT ACCOUNT AND LETTER AGREEMENT. At the Effective Time, the
--------------------------------------
Partnership will deposit Six Hundred Thousand Dollars ($600,000) into the Joint
Account pursuant to the Letter Agreement with Omega which will secure certain of
the Partnership's obligations under the Sale Agreement. In addition, the MGP
will hold an amount greater than Three Hundred Seventy Thousand Dollars
($370,000) (the "Additional Reserves") to secure the Partnership's remaining
obligations to Omega or others, including indemnification and certain other
obligations under the Sale Agreement.
The funds deposited in the Joint Account will be used to satisfy indemnity
claims of Omega until such funds are depleted before an indemnified claim may be
made against the Partnership. At the expiration of all relevant indemnity
periods, any remaining funds in the Joint Account plus all earnings thereon but
less all administrative expenses related thereto will be returned to the
Partnership. The indemnity obligations of the Partnership for certain
representations and warranties will survive for a period of 12 months following
the Effective Time. Other representations and warranties, particularly with
respect to Medicare and Medicaid cost reports, will remain outstanding for a
period of three years following the dates on which such reports are finalized,
plus any additional time required to finally determine any claim for indemnity
made prior to the termination of such period. The indemnity obligation of the
Partnership with respect to any claims by a person or entity arising
<PAGE>
from acts or omissions of the Partnership or the employees, agents or
contractors of the Partnership in the operation of the Facilities prior to the
closing, together with any tax liabilities or other liabilities to any
governmental authority or third party payors or service providers against the
Partnership will survive until the expiration of the applicable statute of
limitations and until any claim for indemnity made prior thereto is finally
resolved. The Partnership's liability to parties other than Omega, such as third
party payors is not limited by the Sale Agreement.
Pursuant to the terms of the Letter Agreement, funds in the Joint Account
shall be withdrawn to pay indemnity and certain other obligations of the
Partnership upon the presentation of joint signatures of representatives from
Omega and the Partnership. Up to Three Hundred Seventy Five Thousand Dollars
($375,000) may be paid out of the fund to satisfy amounts owed by the
Partnership for depreciation recapture, as determined by Medicare and Medicaid
(the "Recapture Liability"). Any amount owed pursuant to the Recapture
Liability in excess of Three Hundred Seventy Five Thousand Dollars ($375,000)
will be paid by the Partnership out of its other assets.
Upon the later of one year following the Closing Date or the expiration of
certain time periods related to the filing of Medicare and Medicaid
reimbursement claims by the Partnership, Omega and the Partnership shall agree
to an amount, if any, which will be retained in the Joint Account to secure the
Partnership's payment of any remaining liability claims against the Partnership
under the Sale Agreement as of such date (the "Remaining Claims") and any funds
in the Joint Account in excess of such amount will be disbursed to the
Partnership. Upon resolution of the Remaining Claims, if any, the funds
remaining in the Joint Account, less administrative expenses, shall be disbursed
by the Partnership and the Joint Account shall be closed.
THE OTHER SELLERS
The MGP and QualiCorp Management, Inc., another subsidiary of QualiCorp,
serve as managing general partners of four limited partnerships, including the
Partnership. The other limited partnerships are Medical Income Properties 2A
Limited Partnership, Medical Income Properties 2B Limited Partnership and RWB
Medical Properties Limited Partnership IV.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTIONS
The MGP and QualiCorp are currently parties to an Employment Agreement with
John H. Stoddard, pursuant to which Mr. Stoddard has been employed as President
of both companies. Mr. Stoddard is one of the directors of the MGP and of
QualiCorp. Mr. Stoddard's Employment Agreement extends to May 1, 1998, although
he has indicated that he will relinquish his employment rights under the
Employment Agreement within ninety (90) days of the Closing Date without
additional cost to the Partnership. The MGP anticipates that he will continue
to work for the Partnership as a consultant through and including the survival
period contemplated in the Sale Agreement. See "Operations Following the Sale
and Effect of the Sale on Limited Partners."
No directors or officers of the MGP, officers of the Partnership, or
officers or directors of affiliates of the Partnership or MGP, have been, or are
expected to be, offered either employment or Board positions with Omega
following consummation of the Sale. It is currently anticipated that operating
personnel of the Facilities will be largely unchanged.
Neither the MGP nor any affiliate thereof will receive any distributions as
a result of the Sale, except for distributions to be received by QualiCorp and
the MGP pursuant to their ownership of Units, although the MGP will receive
distributions pursuant to the liquidation of the RWB Medical Properties Limited
Partnership IV, based solely on the terms of the limited partnership agreement
of such Seller. As of December 31, 1996, QualiCorp, the parent corporation of
the managing general partners of each of the Sellers, was owed approximately
$261,000 by the Partnership, for services provided and cost reimbursements. All
amounts owed to QualiCorp by the Partnership will be satisfied, prior to any
distributions to limited partners of the Sellers. John M. DeBlois, a director
of the MGP, is the majority shareholder of QualiCorp.
<PAGE>
TAX SECTION OF CONSENT SOLICITATION
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
The following summarizes the federal income tax provisions relating to the
proposed transactions. Management has received an opinion from special counsel
for each Partnership addressing certain Federal income tax consequences of the
proposed sale of substantially all of the assets of each Partnership and the
liquidation of each Partnership. The opinion is to the effect that if the sale
of assets by each Partnership and the liquidation of each Partnership occur as
set forth in the Sale Agreement and as otherwise described in this Consent
Solicitation, it is more likely than not that:
a. The proposed sale of assets will result in the recognition of gain or
loss by each Partnership computed by comparing the amount realized by
each Partnership on the sale of each of the assets to each
Partnership's adjusted basis in each of the assets sold;
b. The gain and/or loss recognized on the sale of the assets by each
Partnership will pass through to the partners of each Partnership in
accordance with the terms of each Partnership Agreement;
c. A portion of any gain recognized is projected by the Partnership to be
characterized as ordinary income and a portion as short term and/or
long term capital gain;
d. The satisfaction of liabilities out of the proceeds of the sale of the
assets may reduce each partner's basis in its Partnership interest;
e. Cash received by the partners of each Partnership in complete
liquidation of their Partnership interests will result in the
recognition of taxable gain or loss. The amount of such gain or loss
will be the difference between the cash received and each partner's
basis in the Partnership interests surrendered in exchange therefor;
f. The character of any gain or loss recognized by the partners on the
liquidation of each Partnership will be capital gain or loss, subject
to the application of Section 751 of the Internal Revenue Code.
g. During the years of sale and liquidation, each Partnership may have
income or loss from its remaining operations which may result in
ordinary income or loss to the partners in those years. Each
Partnership may make distributions in the year of sale prior to the
distributions in complete liquidation which would reduce each
partner's basis in its partnership interest. If the amount of the
distribution exceeds a partner's basis in its partnership interest,
said partner will recognize gain equal to the excess of the cash
received over the partner's basis in its partnership interest.
The opinion received is subject to the following qualifications. A tax
opinion of special counsel is not binding upon the Internal Revenue Service or
the Courts. It is uncertain whether the Internal Revenue Service would issue a
favorable ruling on the proposed sale transaction and no such ruling has been
attempted to be obtained. An opinion of the special counsel does not provide
the same degree of assurance with respect to the consequences of the transaction
as would a ruling from the Internal Revenue Service. Thus, in the absence of a
ruling from the IRS, there can be no assurance that the IRS will not challenge
any of the special counsel's opinions.
The special counsel's opinion is subject to a number of assumptions and
qualifications that are critical to the opinion and is based on numerous factual
assumptions, representations and assurances made by the Partnership, management
of the Partnership, its advisors, and entities in control of the Partnership.
If such factual information, representations, warranties, or assumptions are not
true when made or subsequently change, the special counsel's opinion may be
inapplicable. The opinions are based upon existing law and applicable current
and proposed regulations, other published IRS positions and court decisions,
which are subject to change either
<PAGE>
prospectively or retroactively. The special counsel has expressed no opinion
concerning the consequences of the proposed sale or liquidation to the partners
under any applicable state, local, or non-U.S. tax laws. Further, the tax
opinion of the special counsel expressly excludes a review of tax consequences
other than federal income tax consequences to the partners of this transaction.
In addition, the special counsel's opinion does not cover partners of special
tax status such as non-U.S. persons, tax-exempt partners, partners that are
corporations, or other non-individual status entities, partners whose tax year
is not the calendar year, alternative minimum tax considerations or other non-
federal income tax matters. Finally, the special counsel's opinion expressly
assumes the tax status of each Partnership as a partnership for federal income
tax purposes as opposed to an association taxable as a corporation. The special
counsel's opinion is limited to matters set forth above. No other opinion can be
inferred beyond the matters expressly stated therein. Because of all of the
above, partners should consult their own tax advisors with respect to all of the
tax consequences of the proposed transactions.
TAXATION OF PARTNERSHIPS IN GENERAL
An entity classified as a partnership for federal income tax purposes is
not subject to federal income tax. Instead, income or loss "flows through" from
the partnership to its partners who are taxable in their individual capacities
on their allocable shares of partnership items of income, gain, loss, deduction
and credit ("taxable income or loss"). However, the partnership is a tax
reporting entity that must make an annual return of partnership taxable income
or loss. The tax treatment of partnership items of taxable income or loss is
generally determined at the partnership level. Each partner is required to
treat partnership items on its return in a manner consistent with the treatment
of such items on the partnership return and may be penalized for intentional
disregard of the consistency requirement. This consistency requirement may be
waived if the partner files a statement identifying the inconsistency or shows
that it resulted from an incorrect schedule furnished by the partnership.
Each partner generally must account for its allocable share of partnership
taxable income or loss in computing its income tax, whether or not any actual
cash distribution is made to such partner during its taxable year. A partner's
basis in its partnership interest is increased by its allocable share of
partnership taxable income. It is this basis increase that generally allows
distributions of taxable income to the partners to be made without recognition
of gain, since the basis increase generally offsets corresponding decreases in
basis that result from such distributions. As a result, a partner is generally
not taxed on distributions of cash or property received from a partnership,
except to the extent that any money distributed exceeds the partner's adjusted
basis in its partnership interest immediately before the distribution.
BASIS OF PARTNERSHIP INTERESTS
A partner's basis in its interest is equal to its cost for such
interest (i.e., the amount of money actually contributed by the partner to the
----
partnership or paid to another to purchase the interest), reduced (but not below
zero) by its allocable share of partnership distributions, taxable losses and
expenditures of the partnership not deductible in computing its taxable income
and not properly chargeable to its capital account, and increased by its
allocable share of partnership taxable profits, income of the partnership exempt
from tax and additional contributions to the partnership. For purposes of
determining basis, an increase in a partner's share of partnership liabilities
is treated as a contribution of money by that partner to the partnership.
Conversely, a decrease in its share of partnership liabilities is treated as a
distribution of money to it.
Generally, a limited partner may not take liabilities into account in
determining its basis except to the extent of any additional capital
contribution it is required to make under the partnership agreement. However,
in the case of a limited partnership, if a partnership asset is subject to a
liability for which no partner has any personal liability ( a "nonrecourse
liability"), in general, the partner's allocable share of the non-recourse
liability will be taken into account to determine basis.
<PAGE>
ALLOCATION OF INCOME, GAIN, LOSS AND DEDUCTION AMONG THE PARTNERS
A partner's distributive share of a partnership's taxable income or loss
generally is determined by reference to the allocation of such items in the
partnership agreement. However, if the allocation under the partnership
agreement is determined not to have "substantial economic effect," then the
partnership agreement may not govern, and the partner's allocable share will be
determined according to the partner's interest in the partnership taking into
account all the facts and circumstances. An allocation is considered to have
"substantial economic effect" if the allocation may actually affect the dollar
amount of the partner's shares of the total partnership income or loss
independent of tax consequences. Management believes that the allocations made
under the Partnership Agreements for the partnership have substantial economic
effect.
SALES OF PARTNERSHIP PROPERTIES
The sale of each Partnership's assets will be a taxable event to the
Partnership and to the partners. Gain or loss on the sale is measured by the
difference between the adjusted basis of the assets disposed and the amount
realized. On a sale, the amount realized is the sum of any money received, plus
the fair market value of any property received, plus the amount of liabilities
from which the Partnership is discharged as a result of the sale or disposition
(which includes the amount of any nonrecourse liability to which the transferred
property is subject). The adjusted basis of such property is generally its cost
less deductions, allowed or allowable, for depreciation. In general, gains from
the sale or other disposition of partnership properties which are treated as
long-term capital gains are taxed at the partner level at a lower rate than
ordinary income and short-term capital gains.
Since a partnership's gain on a sale of property will be measured by the
difference between the sales proceeds (including the amount of any indebtedness
to which the property is subject) and the adjusted basis of the property, the
amount of tax payable by a partner in respect of its share of such gain may in
some cases exceed its share of the cash proceeds therefrom.
A substantial portion of the assets to be sold (including buildings, land,
furniture, fixtures and equipment) which were held for more than one year and
are not "dealer property," are expected to be treated as "section 1231 assets."
Section 1231 assets are property used in the trade or business of a character
which is subject to the allowance for depreciation, held for more than one year,
and real property used in the trade or business held for more than one year.
Gains or losses from the sale of section 1231 assets would be combined with any
other section 1231 gains or losses incurred in that year, and the section 1231
gains or losses would be allocated to the partners as provided in the
partnership agreement and combined with any other section 1231 gains or losses
incurred by the partner in that year. The partner's net section 1231 gains or
losses would be taxed as capital gains or constitute ordinary losses. If a
partnership is deemed a "dealer" and its investment in any property that
constitutes the partnership is considered not to be a capital asset or section
1231 asset, any gain or loss on the sale of such property would be treated as
ordinary income or loss. Each partnership has attempted to operate in such a
manner so as not to be deemed a "dealer."
A portion of a partner's gain recognized on disposition of a partnership's
buildings and furniture, fixtures and equipment may be subject to recapture as
ordinary income under the provisions of sections 1245 or 1250 of the Internal
Revenue Code of 1986, as amended. Such recapture gain will be recognized in the
year of the disposition.
A non-corporate partner's share of any losses from the sale of Partnership
properties which is treated as a capital loss is deductible in any year only to
the extent of the partner's long and short-term capital gains for that year.
Any excess of capital losses over capital gains is deductible by a non-corporate
partner up to $3,000 ($1,500 in the case of a separate return for a married
individual) although the unused portion of such capital losses could be carried
over to later years, and deducted as a long-term or short-term capital loss
until fully exhausted.
LIQUIDATION OF THE PARTNERSHIP
Generally, upon the liquidation of a partnership, gain will be recognized
by and taxable to a partner to the extent the amount of cash and marketable
securities distributed to it exceeds its basis in the partnership at the time of
the distribution. Gain or loss on the liquidation of a partnership interest
generally is considered to be capital
<PAGE>
gain or loss.
An exception to such treatment is provided in Code section 751, which
states that the proceeds of a sale, exchange or liquidation of a partnership
interest will be considered an amount realized from the sale or exchange of
property other than a capital asset to the extent that such proceeds are
attributable to the partnership's "unrealized receivables" or to "substantially
appreciated inventory." The term "unrealized receivables" includes amounts not
previously includible in income under the partnership's method of accounting,
rights to payment for services rendered or to be rendered and for goods
delivered or to be delivered and a partner's pro rata share of any potential
Code section 1245 or 1250 income, short-term obligations, market discount bonds,
franchises, trademarks and trade names and several other categories of property
which would be treated as amounts received from the sale or exchange of property
other than a capital asset. Thus, the difference between the amount realized
that is attributable to a partnership's "section 751 property" and the adjusted
basis to the partner of such "section 751 property" is treated as ordinary
income or loss to the partner. The difference between the remainder, if any, of
the partner's adjusted basis for its partnership interest and the balance, if
any, of the amount realized, is the partner's capital gain or loss on the
liquidation of the partnership interest.
Capital loss will be recognized in the event only cash and unrealized
receivables are distributed, and only to the extent the partner's adjusted basis
for its interest exceeds the sum of money distributed and the partnership's
adjusted basis for unrealized receivables.
In addition, each partner may be in receipt of income or loss from the
normal operations of a partnership during the year of dissolution. Such income
may constitute ordinary income or loss.
There are three commonly encountered limitations on a partner's ability to
take into account its share of a partnership's loss in computing its individual
tax liability. A partner is entitled to deduct its share of the partnership's
loss only after satisfying all three rules. A partner's deductible share of
losses is limited to its basis in its partnership interest. The at-risk rules
limit a partner's deductible share of losses to the amount it is considered to
be economically at-risk in the venture. If a partner's share of the
partnership's losses are considered "passive losses," the partner must combine
them with its passive losses from other sources and is allowed to deduct the
total only to the extent of its passive income from all sources. Losses that
are disallowed due to any of these three limitations are deductible in the year
of the termination of a partnership interest and would offset any gain from
liquidation.
ALTERNATIVE MINIMUM TAX
The above summary of the federal income tax provisions relating to the
proposed transactions has not taken into account the federal alternative minimum
tax. This tax was designed to ensure that at least some tax is paid by high
income taxpayers who obtain benefits from large exemptions and deductions. A
taxpayer's alternative minimum tax liability is determined by adjusting its
regular tax liability for alternative minimum tax preference items. Both of the
proposed transactions may result in alternative minimum tax preference items
flowing through to the partners.
CONCLUSION
The preceding is intended only as a summary of income tax consequences
relating to the proposed sale of assets by the Partnership and the Partnership's
liquidation. The partners of the Partnership should consult their own tax
advisors with respect to all matters discussed herein and their own particular
tax circumstances.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE SALE AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION
OF WHETHER TO VOTE IN FAVOR OF THE SALE. THE DISCUSSION DOES NOT ADDRESS THE
TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR LIMITED PARTNER WHO IS
SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS NOR ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
<PAGE>
JURISDICTION. THE DISCUSSION IS BASED UPON THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED, TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT
DECISIONS AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE,
AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION.
THE LIMITED PARTNERS ARE URGED TO CONSULT AND RELY ON THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE SALE TO
THEM.
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<PAGE>
INFORMATION FOR LIMITED PARTNERS
DISSENTERS' RIGHTS
Under Louisiana statutory law and the Partnership's Limited Partnership
Agreement, no Limited Partner is entitled to exercise dissenter's rights with
respect to the Sale and subsequent dissolution of the Partnership.
EXCHANGE OF LIMITED PARTNERSHIP CERTIFICATES
Upon consummation of the Sale, holders of certificates representing Units
(the "Certificates") outstanding at the Effective Time will, upon surrender
thereof (duly endorsed, if required) to the designated Exchange Agent, be
entitled to receive Sale consideration as outlined in "Sale of Partnership
Assets - Consideration." The Exchange Agent will provide you with instructions
-----------------------------------------------------
regarding exchanging Certificates for cash, including Lost Certificates.
- ------------------------------------------------------------------------
After the Sale has closed, the Exchange Agent will mail a letter of
transmittal with instructions to all owners of record of the Units as of the
Effective Time describing in detail the process for surrendering Certificates in
exchange for the anticipated distributions. Certificates should NOT be
surrendered until the letter of transmittal and instructions are received. NO
DISTRIBUTIONS WILL BE MADE TO A UNIT HOLDER UNTIL HIS OR HER UNITS OR A LOST
CERTIFICATE AFFIDAVIT HAVE BEEN DELIVERED IN ACCORDANCE WITH THE INSTRUCTIONS IN
THE LETTER OF TRANSMITTAL.
OPERATIONS FOLLOWING THE SALE AND EFFECT OF THE SALE ON LIMITED PARTNERS
Following the consummation of the Sale and the termination of the Interim
Operating Agreements, if any, the Limited Partners will not have any interest in
the Facilities or Omega, except to the extent that individual Limited Partners
have an independent equity or other interest in Omega. Following payment of the
Final Installment, the dissolution of the Partnership will be completed, and the
Limited Partners will have no further interest in the Partnership.
Upon consummation of the transactions contemplated by the Sale Agreement,
the Partnership will use Sale proceeds to pay off its debt and other payables
associated with the operations of the Partnership and the Facilities. Based on
the existing debts of the Partnership, the anticipated expenses related to the
Sale and current and historical accounts payable, the MGP believes that these
payments will total approximately $5,432,210 without estimating the cost of
settlement of third-party payor cost reports. Thereafter, representatives of the
Partnership and Omega will endeavor to collect outstanding accounts receivable
of the Partnership, which the MGP anticipates will total approximately
$3,615,400 based on the amount of accounts receivable on the date of this
Consent Solicitation Statement, anticipated accounts receivable as of the
Closing Date and historical collection rates. The Partnership has agreed to
deposit the sum of $600,000 into the Joint Account in order to secure the
indemnification and certain other obligations of the Partnership in the Sale
Agreement. See "The Sale Agreement - Indemnification and Joint Account."
In order to reduce expenses and maximize the final distributions to the
Limited Partners, the Partnership will begin to wind down its affairs following
consummation of the Sale. Annual Reports containing audited financial statements
and informing the former Limited Partners of the status of the distributions
will be sent to the former Limited Partners until the Final Installment has been
paid, although the MGP anticipates that distributions of quarterly reports to
Limited Partners containing unaudited financial statements will be discontinued
following the Effective Time. The Partnership will continue to maintain books
and records and file tax returns until the affairs of the Partnership have been
settled. Initially following the Sale, the Partnership will retain a limited
number of personnel. The MGP anticipates that eventually John H. Stoddard, the
President of the MGP, will perform consulting services for the Partnership on an
as-needed basis until the final distributions have been made. See "Interests of
Certain Persons in the Transaction."
<PAGE>
THE PARTNERSHIP
SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA
The following selected financial information of the Partnership for the
years ended December 31, 1996, 1995, 1994, and 1993, has been derived from the
Partnership's financial statements, which have been audited by Self & Maples,
P.A. for such periods. All such financial information should be read in
conjunction with the financial statements of Partnership and the notes thereto
included elsewhere herein.
(000's omitted except for per share data and distributions)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Summary of Operations:
Total Revenue $15,227 $13,530 $12,364 $11,898
Operating Income $ 939 $ 998 $ 874 $ 1,332
Income (loss) from Discontinued
Operations (308) (1783) - -
Net Income (Loss) $ 508 $ (902) $ 843 $ 1,179
Per Share Data:
Net Income (Loss)
per Limited Partner
Unit $ 20.64 $(40.76) $ 34.23 $ 47.91
Financial Condition:
Total Assets $13,104 $13,359 $17,853 $18,044
Long-term Debt $ 893 $ 989 $ 1,071 $ 1,163
Partner's Capital $ 9,992 $10,327 $15,306 $15,940
Distributions per Limited
Partner Unit:
First Quarter $ 8.56 $ 15.00 $ 15.00 $ 15.00
Second Quarter $ 8.56 $ 15.00 $ 15.00 $ 15.00
Third Quarter $ 8.56 $ 15.00 $ 15.00 $ 15.00
Fourth Quarter $ 8.56 $ 15.00 $ 15.00 $ 15.00
Special Distribution of Sale
Proceeds /(1)/ $113.66 /(1)/ $ 30.44
</TABLE>
/(1)/ Not applicable.
DESCRIPTION OF BUSINESS
GENERAL. The Partnership is a Louisiana limited partnership organized on
July 7, 1984. A Registration Statement filed with the Securities and Exchange
Commission became effective on October 11, 1984, and the offering of $25,000,000
in Units commenced on or about that date. The offering was terminated on June
30, 1986, upon the sale of 22,895 Units for an aggregate purchase price of
$22,895,000.
The purpose of the Partnership is to invest primarily in existing,
improved, medically related, income-producing commercial properties, such as
medical office buildings and nursing homes. The Partnership owns two
Facilities, with a total of 354 licensed beds, which it operates. The
Partnership employed approximately 300 full time employees at December 31, 1996.
During the year ended December 31, 1995, the Partnership sold a 180-bed nursing
home, which had been leased to another operator through April 30, 1995, at which
time the Partnership acquired the operator's interest in a stock purchase. On
September 1, 1995, the nursing home real estate was sold
<PAGE>
to an unrelated third party for consideration of $5 million. The operating
results of this facility for 1995 are reflected as a discontinued rental
operation.
BUSINESS STRATEGY. The Partnership owns real property investments,
primarily health care related, and operates the properties until a sale or other
disposition appears to be advantageous to the Limited Partners. Factors such as
potential capital appreciation, industry trends, cash flow and federal income
tax consequences to the Limited Partners are considered before Partnership
property dispositions are made.
LONG-TERM HEALTH CARE INDUSTRY. The long-term health care industry is
composed of many facilities offering services to subacute, skilled, assisted
living, and personal care residents. The Facilities are in the skilled segment
of the industry, although the Southpoint Manor Facility offers subacute
services, such as respiratory and ventilator programs. Subacute services have
allowed many providers to expand their services and at the same time become more
profitable. In addition, providers have taken advantage of these higher returns
to consolidate their operations either through initial public offerings or
through merging with one another. Subacute care, however, cannot be offered in
all nursing homes. Many providers have established different criteria,
including minimum population levels, to operate a subacute program profitably
because of the shorter lengths of stay of subacute patients and the need for
providers to obtain increasing numbers of admissions to fill the shorter-stay
beds. Even with higher costs in the nursing and service departments, nursing
home subacute care is generally a more cost effective method of caring for
patients than hospital care.
Historically, nursing homes have derived their revenues from Medicare,
Medicaid and private pay patients. In the past few years, the industry has seen
an increase in private insurance patients and to a greater extent, contractual
services from Health Maintenance Organizations (HMO's) and Preferred Provider
Organizations (PPO's).
The industry has always faced a challenge in staffing facilities,
particularly with regard to Registered Nurses, Licensed Practical Nurses and
Certified Nurse Aides. Depending upon the geographic area, the Partnership
competes with hotels, motels and restaurants for other employees, including
dietary and housekeeping staff. Approximately fifty percent of the
Partnership's operating costs consist of employee salaries and benefits. In
1995 a federal law was passed which increased the minimum wage level to $4.75
per hour in 1996 and to $5.15 per hour in 1997. Management of the Partnership
has already responded to these increases, and to a corresponding "ripple effect"
for wages of employees paid above the new minimum wage, by increasing wages
accordingly. To date, the State of Florida has not agreed to increase
reimbursement rates to compensate for the federally mandated increase in the
minimum wage. In addition, although the State of Alabama increased its
reimbursement rates in response to the 1996 minimum wage increase, Alabama has
not agreed to compensate providers, including the Partnership, for the 1997
minimum wage increase or for "ripple effect" wage increases made necessary by
the 1997 minimum wage increase. See "Background and Reasons For the Sale."
The federal government has been discussing changes in Medicare and Medicaid
as it looks for ways to downsize government. The Medicaid program could be
impacted through block grant or level funding programs which would cap federal
funding. If federal funding were capped, and a state wished to retain the
current level of services, significant additional funding would be required,
particularly if the Omnibus Budget Reconciliation Act regulations were not
repealed. The Medicare program is being examined by the federal government for
possible changes, including the implementation of cost limits on ancillary
services (such as therapy programs, equipment and diagnostic services), capital
cost reductions, a continued freeze of the routine cost limits and perhaps a
prospective payment system. The potential impact of such changes, either alone
or in combination, cannot be determined at this time. See "Background and
Reasons For the Sale."
Information regarding industry segments is not applicable to the
Partnership's business.
SEASONALITY. The Partnership's revenue and operating income fluctuate from
quarter to quarter and tend to be higher in the third and fourth quarter of each
fiscal year. These quarterly fluctuations are primarily due to the fact that,
for the state Medicaid programs in which the Partnership operates, rate
increases tend to take effect in such quarters. The Southpoint Manor Facility
also tends to experience census declines during the summer as some Miami-area
residents temporarily move to cooler climates, leading to lower revenue and
operating income during such months.
<PAGE>
ROUTINE SERVICES. Both Facilities are licensed as skilled-care facilities
by the appropriate state regulatory agencies. Routine services provided by the
Facilities include skilled-care services and assistance with daily living
activities, depending upon the needs of each resident. Subacute care, such as
ventilator and respiratory therapy, may also be provided at the Southpoint Manor
Facility, as specified by each resident's physician. Skilled nursing care is
rendered 24 hours per day by registered or licensed nurses and certified nurses'
aides.
ANCILLARY SERVICES. The Partnership provides a variety of rehabilitative
services at its Facilities for residents. These services include physical,
speech, occupational, and respiratory therapies. The Partnership has continued
to expand these services as warranted by the needs of residents and the
requirements of third-party payor programs.
PROPERTIES. The Partnership originally purchased three nursing homes and
two medical office buildings. At December 31, 1996, the Partnership only owned
two Facilities. The following table presents information related to the
Facilities:
<TABLE>
<CAPTION>
Average Daily Census
------------------------------
Type of
Date of No. of Medical Year Ended December 31,
Property Acquisition Beds Real Estate 1996 1995 1994 1993 1992
- -------- ----------- ------ ----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Southpoint Manor 09/03/86 230 Long-term care 219 216 217 219 223
Miami Beach, Florida facility
Merry Wood Lodge 10/01/86 124 Long-term care 121 121 121 123 122
Elmore, Alabama facility
</TABLE>
The Partnership has sold the following properties:
<TABLE>
<CAPTION>
Date of Date Type of
Property Acquisition Sold Medical Real Estate
- -------- ----------- ---- -------------------
<S> <C> <C> <C>
Six Columbia Place Medical Office Building/
Tampa, Florida 09/30/86 7/29/92 Parking Facility
Clayton Medical Center Medical Office
Riverdale, Georgia 07/01/85 11/11/92 Building
Lakecrest Nursing Home (1) 12/17/85 9/l/95 180 bed
(formally Merrillville Long-term Care
Convalescent Center) Facility
Merrillville, Indiana
</TABLE>
______________________________
(1) The facility was leased to an outside organization through December 16,
1992, as indicated in note 3 of the Partnership's Financial Statements. On
December 17, 1992, the lessee was declared in default and the Partnership
assumed operations. Effective January 1, 1993, the Partnership leased the
Merrillville facility to another lessee (as indicated in notes 3, 4 and 5 of the
Partnership's audited financial statements). In May of 1995, the Partnership
purchased the stock of Atrium Living Centers of Indiana, Inc. and canceled the
1993 lease. The Partnership operated the facility as Lakecrest Nursing Home
until the real estate was sold on September 1, 1995.
For a further description of the Partnership's purchase and sale of the
properties, see Notes 1(f), 3, 4, 5, 6, 10 and 14 to the Partnership's Audited
Financial Statements.
<PAGE>
LEGAL PROCEEDINGS
At December 31, 1996, there were no material pending legal actions against
the Partnership. As discussed in Note 11 to the Partnership's Audited Financial
Statements, however, the Partnership does have certain contingent liabilities.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or group is known by the Partnership to own beneficially more
than 5% of the outstanding Units. No executive officers and directors of the
MGP owned any Units as of the date of this Consent Solicitation Statement. As
of such date, the MGP held 23 Units and QualiCorp held 73 Units, which together
constitute less than one-half of one percent of the issued and outstanding
Units.
COMPARATIVE PER-UNIT DATA
The following sets forth certain data concerning the historical net
earnings, distributions and book value per Unit for the Partnership. The
information presented below should be read in conjunction with the financial
statements of the Partnership included elsewhere in this Consent Solicitation
Statement.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1993 1994 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income from Continuing Operations $ 48.31 $ 31.16 $ 35.79 $ 33.17
Per Unit
Net Income (Loss) Per Unit 47.91 34.23 (40.76) 20.64
Cash Distribution Per Unit 60.00 60.00 60.00 34.24
Book Value Per Unit $703.13 $677.36 $463.04 $449.44
</TABLE>
INFORMATION CONCERNING THE UNITS
In general the market for limited partnership units, especially real estate
limited partnership units, is very limited. Nevertheless, the MGP becomes aware
of some transfers of Units after they occur as a result of the review of
transfer documents submitted to the Partnership from the purchaser or broker,
which documents sometimes include the applicable sale price. To the extent the
MGP becomes aware of sale prices for Units, such prices may, but do not
necessarily, include various transfer fees and commissions.
During the period from July 1995 until July 5, 1996, the MGP is aware of
several trades, from a low price of $300 per Unit to a high price of $417.50 per
Unit. The last transfer of the Units of which the MGP is aware occurred in
January, 1997, for $350 per Unit. At February 12, 1997, the Partnership had
1,956 Limited Partners of record who held 22,895 Units.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995, 1994 AND 1993
LIQUIDITY AND CAPITAL RESOURCES. Cash and equivalent balances for the
Partnership totaled $766,621 at December 31, 1996, a decrease of $110,229 from
the previous year. Cash provided from operations decreased to $15,822 during
1996 from $99,372 during 1995. This decrease was primarily due to lower
collections on residents accounts receivable, particularly Medicare, Medicaid
and managed care. Cash paid to suppliers and employees
<PAGE>
increased during the year due to various ancillary service contracts which
require the Partnership to pay for services rendered prior to receipt of
payments from Medicare and managed care payors.
Payments for capital expenditures were $252,550 in 1996 compared to
$501,500 in 1995. During 1996, the Partnership collected notes receivable of
$1,045,102, including $1,000,000 due from the sale of the Lakecrest Nursing
Home.
The Partnership has a $500,000 line of credit available to it should the
need arise. As of December 31, 1996, the Partnership had adequate working
capital, and no advances had been drawn under the line of credit.
During 1996, the Partnership paid regular distributions to Limited Partners
totaling $34.24 per unit, equaling a 4% return on the initial investment of
$1,000 per unit less $144 return of capital from sale proceeds returned in prior
years.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 COMPARED TO 1995. The Partnership's net income for the
---------------------------------
year ended December 31, 1996, was $508,160, compared to a loss of $901,714 in
the previous year. The 1996 income included a loss of $308,413 from
discontinued operations, primarily the Lakecrest Nursing Home. The 1995 loss
included a loss of $207,707 from discontinued operations and a loss of
$1,575,134 on the disposal of rental operations.
Net operating income for 1996 was $938,712, compared to $998,254 in 1995.
Revenue increased to $15,226,616 in 1996, an increase of $1,696,841 over 1995.
This increase of 12.5% was due to improved Medicare reimbursement rates and
higher managed care per diem rates along with higher average daily census.
Operating expenses increased $1,756,383 in 1996 over 1995 due to increased
wages paid to employees, increased contract services expense (primarily
ancillary services) and general and administrative expenses, including higher
legal fees, management fees and insurance costs.
Other income (expenses) reflects lower interest income and lower interest
expense.
FISCAL YEAR 1995 COMPARED TO 1994. The Partnership's net loss for the
---------------------------------
year ended December 31, 1995, was $901,714, compared to a profit of $842,577 in
the previous year. The loss included a loss on disposal of the rental operation
of the Lakecrest Nursing Home of $1,575,134. Operating income for the twelve
months ended December 31, 1995, was $998,254, as compared to $874,261 for the
previous year. Total revenue increased to $13,529,775 in 1995, an increase of
$1,166,000 over 1994. This increase of 9.4% was due to improved routine
services rates as well as an increase in the amount of ancillary services
provided to residents.
Operating expenses increased $1,041,895 in 1995 over 1994 due to increased
wages paid to employees, increased cost of supplies for nursing care and higher
contracted services, primarily for ancillary services.
Other income (expenses) reflects higher interest expense due to the
fluctuation of the prime rate during the year.
FISCAL YEAR 1994 COMPARED TO 1993. Net income for the year ended December
---------------------------------
31, 1994, was $842,577 as compared to $1,179,398 for the year ended December 31,
1993. The decrease in earnings was due to lower than expected margins for
Southpoint Manor caused primarily by the increase in labor costs and ancillary
service expenses. It is expected that much of this expense will benefit ongoing
operations as the Facility builds its reputation to treat more acute patients.
Revenues increased $466,216 while expenses increased $924,117 from 1994 to
1995. Labor costs and ancillary service expenses increased substantially during
1995. In addition, plant operation repairs and maintenance costs increased
$73,232 over 1993 due to exterior painting and sealing of the structure.
General and administrative costs were $89,489 below the 1993 level due to
excellent results from the workers compensation program at Southpoint Manor,
partially offset by higher administrative salary costs. Employee health and
welfare costs in 1993 included vacation pay accruals which have been allocated
in 1994 to the various departments. Providers' fees declined during 1994 due to
changes implemented by the States.
<PAGE>
EXPERTS
The audited consolidated financial statements of the Partnership appearing
in this Consent Solicitation Statement have been audited by Self & Maples, P.A.
as set forth in their report thereon included in the Consent Solicitation
Statement. Such financial statements have been included in this Consent
Solicitation Statement in reliance upon the authority of such firm as experts in
accounting and auditing.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report.................................................................................... F-1
Balance Sheets For the Years Ended December 31, 1996 and 1995................................................... F-2
Statements of Operations For the Years Ended December 31, 1996, 1995 and 1994................................... F-3
Statements of Partners' Capital For the Years Ended December 31, 1996, 1995 and
1994............................................................................................................ F-4
Statements of Cash Flows For the Years Ended December 31, 1996, 1995 and 1994................................... F-5
Notes to Financial Statements................................................................................... F-7
Independent Auditors' Report of Additional Information.......................................................... F-20
Schedule of Valuation and Qualifying Accounts and Reserves For Allowances For
Doubtful Accounts For the Years Ended December 31, 1996, 1995 and 1994.......................................... F-21
Schedule of Consolidated Supplementary Income Statement Information For the Years
Ended December 31, 1996, 1995 and 1994.......................................................................... F-22
Schedule of Real Estate and Accumulated Depreciation For the Year Ended December
31, 1996........................................................................................................ F-23
</TABLE>
<PAGE>
[LETTERHEAD OF SELF & MAPLES, P.A. APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
To the Partners
RWB Medical Income Properties 1 Limited Partnership
We have audited the accompanying balance sheets of RWB Medical Income
Properties 1 Limited Partnership as of December 31, 1996 and 1995 and
the related statements of operations, partners' capital and cash flows
for each of the three years in the three-year period ended
December 31, 1996. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain a reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of RWB Medical
Income Properties 1 Limited Partnership as of December 31, 1996 and
1995 and the results of its operations and its cash flows for each of
the three years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
SELF & MAPLES, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 14, as to which the date is
February 3, 1997
F-1
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents $ 766,621 $ 876,850
Patient accounts receivable, net of allowance
for doubtful accounts of $930,869 in 1996
and $837,727 in 1995 3,172,977 2,614,844
Estimated third-party payor settlements 956,362 373,738
Current portion of notes receivable - 1,045,102
Prepaid expenses and other assets 130,423 127,472
------------- -------------
Total current assets 5,026,383 5,038,006
Property and equipment, net of accumulated
depreciation and amortization 8,067,068 8,300,807
Deferred financing costs, less accumulated
amortization of $36,093 in 1996 and
$26,677 in 1995 10,985 20,401
------------- -------------
Total assets $ 13,104,436 $ 13,359,214
============= =============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities
Current maturities of long-term debt 80,000 84,105
Accounts payable 809,741 834,703
Accrued payroll and payroll taxes 294,126 235,579
Accrued vacation 190,526 146,439
Accrued real estate taxes 196 193
Accrued insurance 4,888 10,977
Accrued management fees 55,285 53,158
Patient deposits and trust liabilities 66,502 81,190
Other accrued expenses 23,203 23,357
Estimated third-party payor settlements 513,939 417,145
------------- -------------
Total current liabilities 2,038,406 1,886,846
Long-term debt, net of current maturities 813,333 904,605
Due to affiliates 260,679 240,973
------------- -------------
Total liabilities 3,112,418 3,032,424
------------- -------------
Partners' capital (deficit)
Limited partners 10,290,023 10,601,361
General partners (298,005) (274,571)
-------------- -------------
Total partners' capital 9,992,018 10,326,790
-------------- -------------
Total liabilities and partners' capital $ 13,104,436 $ 13,359,214
============= =============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Net patient service revenue $15,194,226 $13,503,777 $12,336,791
Other revenue 32,390 25,998 27,096
------------ ------------ ------------
Total revenue 15,226,616 13,529,775 12,363,887
------------ ------------ ------------
Operating expenses
Professional care of patients 8,499,224 6,977,036 5,922,576
Dietary 1,045,674 1,022,914 1,006,362
Household and plant 1,165,942 1,169,583 1,190,677
General and administrative 2,345,075 2,122,280 2,034,703
Employee health and welfare 736,284 733,580 674,289
Depreciation and amortization 495,705 506,128 661,019
------------ ------------ ------------
Total operating expenses 14,287,904 12,531,521 11,489,626
------------ ------------ ------------
Operating income 938,712 998,254 874,261
------------ ------------ ------------
Other income (expenses)
Interest income 102,804 112,432 109,051
Interest expense (100,948) (105,564) (92,302)
Provider fees (123,995) (123,995) (123,995)
------------ ------------ ------------
Total other income (expenses) (122,139) (117,127) (107,246)
------------ ------------ ------------
Income before recognition
of discontinued operations 816,573 881,127 767,015
Discontinued operations
Loss on disposal of rental
operations including the
results of operations
during phase-out period - (1,575,134) -
Income (loss) from discontinued
rental operations (308,413) (207,707) 75,562
------------ ------------ ------------
Net income (loss) $ 508,160 $ (901,714) $ 842,577
============ ============ ============
Net income (loss) attributable to
limited partners $ 472,589 $ (933,103) $ 783,597
Net income (loss) attributable to
general partners 35,571 31,389 58,980
------------ ------------- ------------
$ 508,160 $ (901,714) $ 842,577
============ ============= =============
Net income (loss) per limited
partnership unit outstanding:
Continuing operations $ 33.17 $ 35.79 $ 31.16
Discontinued operations (12.53) (76.55) 3.07
------------ ------------ ------------
Net income (loss) per unit $ 20.64 $ (40.76) $ 34.23
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
--------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Partners' capital (deficit)
December 31, 1993 $ 22,895 $ 16,098,221 $ (158,143) $ 15,940,078
Distributions to partners
($60 per limited partnership
unit outstanding) (1,373,698) (103,397) (1,477,095)
Net income 783,597 58,980 842,577
--------- ------------- ------------ -------------
Partners' capital (deficit)
December 31, 1994 22,895 15,508,120 (202,560) 15,305,560
--------- ------------- ------------ -------------
Distributions to partners
($173.56 per limited
partnership unit outstanding) (3,973,656) (103,400) (4,077,056)
Net income before recognition
of discontinued operations 819,448 61,679 881,127
Loss on disposal of rental
operations including the
results of operations
during phase-out period (1,559,383) (15,751) (1,575,134)
Loss from discontinued
rental operations (193,168) (14,539) (207,707)
--------- ------------- ------------ -------------
Partners' capital (deficit)
December 31, 1995 22,895 10,601,361 (274,571) 10,326,790
--------- ------------- ------------ -------------
Distributions to partners
($34.24 per limited
partnership unit outstanding) (783,927) (59,005) (842,932)
Net income before recognition
of discontinued operations 759,413 57,160 816,573
Loss from discontinued
rental operations (286,824) (21,589) (308,413)
--------- ------------- ------------ -------------
Partners' capital (deficit)
December 31, 1996 $ 22,895 $ 10,290,023 $ (298,005) $ 9,992,018
========= ============= ============ =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ---------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from patient care $ 14,147,312 $ 11,607,874 $ 13,067,071
Interest received 102,804 112,432 58,395
Other operating receipts 32,390 25,998 27,096
Cash paid to suppliers and employees (14,041,741) (11,417,373) (10,608,610)
Interest paid (100,948) (105,564) (92,302)
Provider fees (123,995) (123,995) (123,995)
-------------- ---------------- --------------
Net cash provided (used) by
operating activities 15,822 99,372 2,327,655
-------------- ---------------- --------------
Cash flows from investing activities:
Capital expenditures (252,550) (501,500) (79,293)
Proceeds from the sale of property - 4,000,000 -
Collections on notes receivable 1,045,102 72,600 67,101
-------------- ---------------- --------------
Net cash provided (used) by
investing activities 792,552 3,571,100 (12,192)
-------------- ---------------- --------------
Cash flows from financing activities:
Net related party transactions 19,706 38,127 15,887
Principal payments on debt obligations (95,377) (82,006) (92,564)
Distributions to partners (842,932) (4,077,056) (1,477,095)
-------------- ---------------- --------------
Net cash provided (used) by
financing activities (918,603) (4,120,935) (1,553,772)
-------------- ---------------- --------------
Net increase (decrease) in cash
and cash equivalents (110,229) (450,463) 761,691
Cash and cash equivalents, beginning
of year 876,850 1,327,313 565,622
-------------- ---------------- --------------
Cash and cash equivalents, end of year $ 766,621 $ 876,850 $ 1,327,313
============== ================ ==============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided by operating activities:
Net income (loss) $ 508,160 $ (901,714) $ 842,577
-------------- --------------- --------------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 495,705 701,554 954,158
Provision for losses on accounts
receivable 133,858 57,397 34,674
Loss on disposal of property - 1,575,134 -
(Increase) decrease in:
Patient accounts receivable, net (691,991) (1,736,914) (300,000)
Estimated third-party payor
settlements (582,624) (373,738) 297,604
Prepaid expenses and other assets (2,951) 56,071 (21,208)
Increase (decrease) in:
Accounts payable (24,962) 406,715 207,365
Accrued expenses 98,521 171,572 6,803
Estimated third-party payor
settlements 96,794 157,352 259,793
Other liabilities (14,688) (14,057) 45,889
------------ ------------- ------------
Total adjustments (492,338) 1,001,086 1,485,078
------------ ------------- ------------
Net cash provided (used) by
operating activities $ 15,822 $ 99,372 $ 2,327,655
============ ============= ============
Supplemental schedule of noncash investing and financing activities:
Note receivable taken for property sold $ - $ 1,000,000 $ -
============ ============= ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(a) Organization
------------
RWB Medical Income Properties 1 Limited Partnership (the
Partnership) is a Louisiana partnership formed on July 7, 1984 to
invest primarily in income-producing, health care related
properties, such as doctors' office buildings and nursing homes.
The Partnership currently is operating and holding for investment
purposes income-producing nursing homes. The Partnership
Offering (Offering) as represented by the Partnership Prospectus
(Prospectus) dated October 11, 1984, provided for the sale of
25,000 Partnership units at a price of $1,000 per unit. The
Partnership's first closing on the sale of units was March 20,
1985. The Offering closed on June 30, 1986.
(b) Allocation of Net Profits and Net Losses
----------------------------------------
Net profits and net losses shall be determined and allocated as
of December 31 of each year as follows:
. Net profits (losses) (exclusive of net profits (losses)
attributable to the sale or disposition of Partnership
properties) are allocated 93% to the limited partners and 7%
to the general partners.
. Net profits attributable to the sale or disposition of a
Partnership property shall be allocated as follows:
. First, prior to giving effect to any distributions of
proceeds from the transaction, to the general partners
and the limited partners with negative balances in
their capital accounts pro rata in proportion to such
respective negative balances;
. Second, to the general partners in an amount necessary
to make the balances in their respective capital
accounts equal to 15% of the sales proceeds remaining
following allocation to the limited partners of an
amount equal to their original capital contribution;
and
. Third, the balance, if any, to the limited partners.
. Net losses attributable to the sale or disposition of a
Partnership property shall be allocated in a manner similar
to above, except that limited and general partner
F-7
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
accounts would be reduced pro rata to the amount of their
respective capital investments, then, pro rata to zero, and
for any remaining loss, 93% to the limited partners and 7%
to the general partners. A minimum of 1% of losses shall be
allocated to the general partner.
(c) Principles of Consolidation
---------------------------
The financial statements for the year ended December 31, 1996
consolidate the accounts of the Partnership and its wholly owned
subsidiary, Lakecrest Nursing Home, Inc. since May 1, 1995 (see
Note 10). All material intercompany transactions have been
eliminated.
(d) Cash Distributions
------------------
Cash distributions shall be made quarterly within 45 days of the
end of the quarter. Cash flow shall be distributed 93% to the
limited partners and 7% to the general partners. Sale or
financing proceeds shall be distributed 100% to the limited
partners to the extent of their original capital contribution and
then the remainder shall be distributed 85% to the limited
partners and 15% to the general partners.
(e) Per Unit Information
--------------------
Limited partnership information per unit is based on the number
of partnership units outstanding of 22,895 in 1996, 1995 and
1994. Federal taxable income per unit outstanding is not
necessarily reflective of a limited partner's actual per unit
amount due to different tax allocations with respect to tax-
exempt partners.
(f) Land, Building and Related Personal Property
--------------------------------------------
Land, building and related personal property are stated at cost.
Depreciation of buildings is provided over their estimated useful
lives ranging from twenty to forty years on the straight-line
method. Equipment and other personal property are depreciated
primarily over five to seven years on the straight-line method.
(g) Amortization
------------
Deferred financing costs are amortized over the life of the loan
using the straight-line method. Deferred lease commission costs
were amortized over the lives of the leases through the dates the
properties were sold (see Note 3).
F-8
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(h) Income Taxes
------------
Income is allocated to the individual partners and, therefore, no
income taxes have been provided for in these financial
statements.
(i) Patient Service Revenues
------------------------
Patient service revenue is recorded at the nursing homes'
established rates with contractual adjustments ($11,576,458 in
1996, $7,184,277 in 1995 and $5,391,261 in 1994) and provision
for uncollectible accounts, bad debts ($133,858 in 1996, $57,397
in 1995, and $34,674 in 1994) and other discounts deducted to
arrive at net patient service revenue.
Net patient revenue includes amounts estimated by management to
be reimbursable by Medicare, Medicaid and other third-party
programs under the provisions of cost and prospective payment
reimbursement formulas in effect. Amounts received under these
programs are generally less than the established billing rates of
the nursing homes and the difference is reported as a contractual
adjustment and deducted from gross revenue. The nursing homes
recognize estimated final settlements due from or to third-party
programs currently. Final determination of amounts earned is
subject to audit by the intermediaries. Differences between
estimated provisions and final settlement will be reflected as
charges or credits to operating revenues in the year the cost
reports are finalized.
(j) Cash Equivalents Policy
-----------------------
For purposes of the statement of cash flows, the Partnership
considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
(k) Uninsured Cash Balances
-----------------------
The Partnership maintains cash balances in several banks. Cash
accounts at banks are insured by the FDIC for up to $100,000.
Amounts in excess of insured limits were approximately $242,789
at December 31, 1996 and $291,859 at December 31, 1995. A
portion of commingled funds discussed in Note 8., may be at risk,
but the amount in excess of FDIC limits related to the
Partnership is not determinable.
F-9
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(l) Uses of Estimates
-----------------
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Actual results could vary from the estimates that were assumed in
preparing the financial statements.
Note 2. CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash $ 15,386 $ 876,850
Short-term securities 751,235 -
--------- ---------
$ 766,621 $ 876,850
========= =========
</TABLE>
Note 3. PROPERTY AND EQUIPMENT
----------------------
On September 3, 1986, the Partnership purchased Four Freedoms Manor
Nursing Home, now known as Southpoint Manor, a 230 bed skilled nursing
home in Miami Beach, Florida, for $7,350,000 plus capitalized
acquisition costs and fees of $504,602.
On October 1, 1986, the Partnership purchased Merry Wood Nursing Home,
a 124 bed skilled nursing home in Elmore, Alabama, for $3,643,294.
Merry Wood was leased to Merrywood Nursing Home, Inc., under a ten
year lease with two five year renewal options. On January 1, 1991,
the Partnership purchased the stock of Merrywood Nursing Home, Inc.
for $1. The transaction was accounted for as a purchase. Effective
July 1, 1992 Merrywood Nursing Home, Inc. was merged with the
Partnership. The lease agreement with Merrywood Nursing Home, Inc.,
described in the preceding paragraph, was terminated in conjunction
with the merger.
On December 17, 1985, the Partnership purchased Merrillville
Convalescent Center (Merrillville), a 180 bed skilled nursing home in
Merrillville, Indiana for $5,376,348. Until December 17, 1992,
Merrillville was leased under two twenty year leases which were
accounted for as capital leases (see Note 5). One lease was for the
building, equipment and related land, and the other was for land
adjacent to the nursing home (17.9 acres). On December 17, 1992, the
lessor was declared to be in default on the lease and the Partnership
assumed operations of the facility. The value of the net investment
in direct financing lease along with unamortized deferred lease
commissions was allocated to the cost of land,
F-10
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
building and equipment at the termination of this lease. No gain or
loss was recognized related to the termination of the lease. Effective
January 1, 1993 the Partnership leased the Merrillville facility under
an operating lease (see Note 5). Effective September 1, 1995, the
Partnership sold the facility (see Note 10).
A summary of property, equipment and accumulated depreciation at
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 525,000 $ 525,000
Buildings and improvements 11,866,426 11,590,498
Furniture and equipment 1,309,265 1,322,600
Property under capital leases - 16,870
----------- -----------
Total 13,700,691 13,454,968
Accumulated depreciation
and amortization (5,633,623) (5,154,161)
----------- -----------
Net property and
equipment $ 8,067,068 $ 8,300,807
=========== ===========
</TABLE>
Note 4. NOTES RECEIVABLE
----------------
The Articles of Limited Partnership state that no General Partner
shall have the authority to cause the Partnership to make loans other
than in connection with the purchase, sale or disposition of
partnership property. The General Partner believes the following
loans were necessary to preserve the Partnership's assets. The first
loan described was made in order to remove the bankrupt manager of the
Partnership's property. The second loan was made to finance needed
improvements and operations neglected by an insolvent lessee.
The first note is from the manager of one of the nursing homes owned
by the Partnership. The note requires monthly payments of $6,616
through July of 1996 and bears interest at 8%. These moneys were
loaned as part of an acquisition and financing agreement dated May 23,
1991, whereby the Partnership contracted with a replacement manager of
the Partnership's facility located in Miami Beach, Florida (Southpoint
Manor). As part of the agreement, the Partnership agreed to retain
the manager of the Southpoint Manor facility for a period of no less
than thirty-six (36) months in consideration for its agreement to
manage the facility and in consideration for its agreement to pay
certain sums to the former management company.
The outstanding receivable related to this note totaled $45,102 at
December 31, 1995. The balance was paid in full during the year ended
December 31, 1996.
F-11
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The second note was from the lessee of the Merrillville, Indiana
facility. The lessee agreed to continue to operate the facility and
make the improvements necessary to meet certification requirements if
the Partnership would provide current operating capital and suspend
required lease payments (see Note 5 ). The loan, as amended, was a
$1,500,000 revolving credit agreement that was to accrue interest at
prime plus 1% with payments of principal and interest deferred until
July 1, 1995. The receivable related to this note totaled $734,346
at December 31, 1994. In May of 1995 the Partnership purchased the
stock of the lessee corporation (Note 10), and forgave the note
receivable.
A third note in the amount of $1,000,000 from the purchaser of the
Merrillville, Indiana facility was accepted by the Partnership in
September 1995 (see Note 10). This note, made in conjunction with the
sale of the facility, bore interest at 9%, and called for payments of
interest only through August 31, 1996, at which time the note was paid
in full.
Note 5. PROPERTY LEASES
---------------
Merrillville was accounted for as a capital lease until December 17,
1992 as explained in Note 3. Bad debt expense related to
Merrillville's deferred financing lease was recorded in the amount of
$110,879 in 1993 in addition to $405,784 written off in prior years.
Effective January 1, 1993 the Partnership leased the Merrillville
facility under an operating lease which provided for monthly rental
payments of $55,000. The lease, however, allowed the tenant to leave
the monthly lease payments unpaid until August 15, 1993 with no
interest or penalties, to allow the tenant to correct the operating
deficiencies of the prior tenant (see Note 3).
Rental income for Merrillville's lease was $220,000 in 1995, and
$660,000 in 1994. Interest totaling $74,628 was accrued in 1994 and
interest of $15,837 and penalties of $6,600 were assessed related to
this receivable in 1993. Rental receivables totaled $1,026,210 at
December 31, 1994. Collectibility of some of this rental income and
related penalties and interest was considered doubtful and,
accordingly, reserves of $272,447 in 1994 and $341,218 in 1993 were
charged to bad debt expense. Loans for operating expenses, as
explained in Note 4., were made to the lessee. The Partnership has
other contractual agreements, as explained in Note 9, with entities
that shared common ownership with the lessee of the Merrillville
facility.
Effective May 1, 1995, the Partnership purchased the stock of the
lessee of the Merrillville facility as part of a plan to
F-12
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
discontinue rental operations. In September 1995 the Partnership sold
the Merrillville facility and terminated the lease (Note 10).
Note 6. LONG-TERM DEBT
--------------
Long-term debt at December 31, 1996, and 1995 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Prime plus 1% (9.25% at
December 31, 1996 and 9.5% at
December 31, 1995) mortgage
note payable in monthly prin-
cipal installments of $6,667
plus interest, with a final
balloon principal payment
due March 1, 1998 $ 893,333 $ 980,000
Capitalized lease obligations
payable monthly with interest
rates from 8% to 13.46% - 8,710
----------- -----------
893,333 988,710
Less amounts due in one year
or less 80,000 84,105
----------- -----------
$ 813,333 $ 904,605
=========== ===========
</TABLE>
The mortgage note is secured by the Southpoint and Merry Wood real
estate owned by the Partnership. The General Partner has guaranteed
the debt, as well as pledged its stock and partnership interest. The
management companies (see Note 9) have also guaranteed the debt and
entered into a negative pledge agreement whereby they will not pledge,
transfer or encumber their stock while the loan is outstanding. All
management fees are subordinate to the debt. The loan document
contains restrictive covenants associated with ratio and earnings
requirements. Management is not aware of any conditions that exist
that would cause them to be in noncompliance with these requirements.
The aggregate annual maturities of mortgage notes payable and capital
lease obligations are as follows:
<TABLE>
<S> <C>
1997 $ 80,000
1998 813,333
-----------
$ 893,333
===========
</TABLE>
F-13
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 7. INCOME TAXES
------------
No provision for income taxes is made in the financial statements
since taxable income is reported in the income tax returns of its
partners. Differences between the net income as reported in the
financial statements and Federal taxable income arise from the nature
and timing of certain revenue and expense items. The following is a
reconciliation of reported net income and Federal taxable income:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) as reported $508,160 $ (901,714) $ 842,577
Adjustments:
Gain on sale of Merrillville - 2,343,824 -
(Income) loss from consolidated
C-corporation 307,496 (142,073) -
Depreciation differences (64,124) 36,485 181,284
Insurance deductible - (48,000) -
Travel and entertainment 8,655 8,797 11,488
Bad debt reserve 72,430 (582,317) 231,790
Vacation accrual 31,307 327 (1,880)
-------- ---------- ----------
Federal taxable income $863,924 $ 715,329 $1,265,259
======== ========== ==========
Federal taxable income per
limited partnership unit
outstanding $35.09 $29.06 $51.40
======== ========== ==========
</TABLE>
Note 8. RELATED PARTY TRANSACTIONS
--------------------------
QualiCorp, Inc., the parent of RWB Management Corp. (the Managing
General Partner of the Partnership), charged the Partnership property
management fees totaling $141,923 in 1996, $121,266 in 1995 and
$132,776 in 1994. QualiCorp charged the Partnership administrative
expenses totaling $175,565 in 1996, $166,077 in 1995, and $179,086 in
1994.
Details of the amounts due to affiliates at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Due to affiliates of the general
partner $ - $ 51,783
Due to QualiCorp 260,679 189,190
--------- ---------
$ 260,679 $ 240,973
========= =========
</TABLE>
During the year ended December 31, 1995, the General Partners
established a pooled investment account in which the General Partners
and the partnerships in which they act as general partners could
participate. This account was used by those entities to invest
overnight cash balances, and borrow funds when an entity
F-14
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
needed temporary access to funds. Each entity received its share of
interest earned monthly, and was charged interest on any funds
borrowed.
The Articles of Limited Partnership of the partnerships involved state
that no General Partner shall have the authority to cause those
partnerships to make loans other than in connection with the purchase,
sale or disposition of partnership property. The Articles of Limited
Partnership of those partnerships also state that the partnerships'
funds may not be commingled with any other entities' funds except as
necessary for the operation of those partnerships.
At December 31, 1995, the Partnership had borrowed $51,783 from the
other entities, and had earned net interest of $14,967 from this
arrangement.
See Footnote 14 for sale of affiliated assets.
Note 9. CONTRACTUAL AGREEMENTS
----------------------
On June 20, 1991, the Partnership entered into a management agreement
whereby the Manager is required to perform certain services for the
Southpoint facility. The agreement had an initial three-year term and
was extended for three additional years in 1994. Fees were based on
6% of gross collected operating revenues not to exceed 6% of the gross
collected operating revenues from July 1, 1990 to July 1, 1991 and
increased by an inflation factor in 1992 and thereafter. Management
fees charged to the Partnership were $480,119 in 1996, $461,653 in
1995, and $443,897 in 1994.
On July 1, 1992, the Partnership entered into a management agreement
whereby the Manager is required to perform certain services for the
Merry Wood facility. The agreement had an initial five-year term with
one additional five-year option. Fees were based on 5% of gross
collected operating revenues, excluding revenues solely attributed to
reimbursement for provider taxes. Management fees charged to the
Partnership were $183,297 in 1996, $176,247 in 1995 and $172,603 in
1994.
The management agreements were amended on January 1, 1995. The
amendment calls for fixed monthly management fees of $38,471 at
Southpoint and $14,687 at Merry Wood, with a cost of living factor
equal to the greater of 4% per annum or the increase in the Consumer
Price Index or such other measure mutually agreeable to the parties.
The agreements expire December 31, 1998. Both agreements contained
termination on sale clauses that were amended to base the fee on a sum
equal to the discounted present value of the monthly management fee as
of the date of termination of the agreement times the number of months
remaining in the management
F-15
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
agreement discounted to the date of termination at an annual interest
rate of ten percent (10%). In addition, the parties agreed to
terminate the Manager's right of first refusal.
Commencing January 1, 1996, the Management Agreement was extended for
a period of up to a maximum of eighteen months by one month for every
month after January 1, 1996 in which the parties are engaged in the
process of attempting to sell the Facilities. In the event of a sale
of the Facilities, the termination on sale fee described above would
be discounted to the date of termination at an annual rate of ten
percent (10%) and then further discounted by a factor of thirty-three
and one-third percent (33 1/3%).
The above agreements are with entities that are commonly owned. The
property manager who owes the Partnership the first of the notes
receivable described in Note 4 along with the lessor of the
Merrillville, Indiana property who, prior to being purchased by the
Partnership (Note 10), owed the Partnership the second note receivable
described in Note 4 and the unpaid lease payments described in Note 5,
are or were commonly owned with the above entities. Additionally, the
seller of the equipment purchased at Merrillville as described in Note
10, is commonly owned with the above entities.
Note 10. DISCONTINUED OPERATIONS
-----------------------
Effective May 1, 1995, the Partnership purchased the stock of the
lessee, now known as Lakecrest Nursing Home, Inc. for $500. The
Partnership took over operations with the intent of selling the
facility and discontinuing all rental activities. The transaction is
accounted for as a purchase. In June 1995, the Partnership purchased
various items of equipment that had been leased by Lakecrest Nursing
Home, Inc. for $218,855. As explained in Note 9, the Partnership has
other contractual agreements, with entities that shared common
ownership with the lessee of the Merrillville facility. On September
1, 1995, the Partnership sold the Merrillville facility in exchange
for a total of $5,000,000, payable with $4,000,000 in cash and note
receivable of $1,000,000 (Note 4). The results of operations are
consolidated for the period from May 1, 1995 to December 31, 1995 and
for the year ended December 31, 1996, and are included in the loss on
disposal of rental operations. Pro forma results of operations for
December 31, 1995 and 1994 as though the Partnership and Lakecrest
Nursing Home, Inc. had combined at the beginning of 1994 would have
been stated as follows:
F-16
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Revenues $14,897,120 $16,493,451
=========== ===========
Net income (loss) $(1,099,390) $ 441,904
=========== ===========
Net income (loss) per limited
partnership unit outstanding $ (48.79) $ 17.95
=========== ===========
</TABLE>
Loss on disposal of rental operations at December 31, 1995 reflects
the loss related to operations subsequent to April 30, 1995 totaling
$336,183 on revenues of $1,414,947 and loss on sale of assets totaling
$1,238,951.
Note 11. CONTINGENCIES
-------------
The Partnership maintains insurance or reserves which it believes are
adequate to meet the needs of the Partnership. While the Partnership
has been named as a defendant in several lawsuits, nothing has come to
the attention of the Partnership which leads it to believe that it is
exposed to a risk of material loss not covered by insurance or
reserves.
Note 12. CONCENTRATIONS IN REVENUE SOURCES
---------------------------------
The Partnership provides patient care services under various third
party agreements. The principal sources of revenue under these
contracts are derived primarily through the Medicaid and Medicare
programs, as well as contracts with private pay patients who do not
qualify for assistance from the other programs. The percentage of the
Joint Venture's income from each of these sources for the years ended
December 31, 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Private pay patients 15.35% 17.87% 15.71%
Medicaid 43.50% 50.57% 50.96%
Medicare 41.15% 31.56% 33.33%
------ ------ ------
Total 100.00% 100.00% 100.00%
====== ======= ======
</TABLE>
The percentage attributable to private pay patients includes only
amounts due for services where the primary payer is a private source.
The Medicaid and Medicare percentages include amounts due from those
programs as well as the patient's financial responsibility incurred
under these contracts.
Note 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Financial Accounting Statement No. 107, Disclosures about Fair Value
of Financial Instruments ("FAS 107") requires disclosure of fair value
information about financial instruments, whether or not
F-17
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
recognized on the face of the balance sheet, for which it is
practicable to estimate the value. The assumptions used in the
estimation of the fair value of the Company's financial instruments
are detailed below. Where quoted prices are not available, fair values
are based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. The following disclosures should not
be considered a surrogate of the liquidation value of the Company, but
rather represents a good-faith estimate of the increase or decrease in
value of financial instruments held by the Company since purchase,
origination or issuance. The following methods and assumptions were
used by the Company in estimating the fair value of its financial
instruments:
Cash and cash equivalents: The carrying amount approximates fair
value because of the short period to maturity of the instruments.
Long-term Debt: For variable rate notes, fair values are based on
carrying values.
The other financial instruments of the Company are short-term
assets and liabilities whose carrying amounts reported in the
balance sheet approximate fair value. These items include
accounts receivable and accounts payable.
Note 14. SUBSEQUENT EVENT
----------------
On February 3, 1997, RWB Medical Income Properties 1 Limited
Partnership entered into a purchase agreement with Omega HealthCare
Investors, Inc. to sell all of the real and personal property of the
nursing home facilities.
The purchase price is allocated among the facilities as follows:
<TABLE>
<S> <C>
Southpoint Manor (230 beds) $12,550,000
Merry Wood Lodge (124 beds) 6,050,000
-----------
Proceeds from sale $18,600,000
===========
</TABLE>
Proceeds from the sale will be reduced by expenses incurred as a
result of the sale, cash offsets for liabilities assumed by the buyer
and existing indebtedness. These payments should approximate
$5,432,000.
The closing could take place as early as March 31, 1997 and can be
extended by the Partnership until April 30, 1997. If conditions
precedent to either party's obligation to close are not satisfied
F-18
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
or waived, the closing can be extended to a date no later than July
31, 1997. Approximately $600,000 of these proceeds will be set aside
in a joint signature account for the purpose of securing all of the
seller's obligations under the purchase agreement. These funds will be
available to the Partnership in the event that these obligations do
not exceed the funds held in escrow.
In addition, a separate amount of proceeds of approximately $2,370,000
will also be held in reserve by the Partnership pending final
settlement of third-party cost reports and other contingencies.
This agreement can be terminated by mutual consent of the parties and
other conditions precedent.
In conjunction with the above sale, Omega HealthCare Investors, Inc.
has agreed to a similar purchase of assets from RWB Medical Properties
Limited Partnership IV, of which an officer of QualiCorp, Inc. owns
either directly or indirectly a 21.53% interest. This sale relates to
a 131 bed nursing home in Patterson, Louisiana and the purchase price
for the assets is $5,350,000.
F-19
<PAGE>
[LETTERHEAD OF SELF & MAPLES, P.A. APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
To the Partners
RWB Medical Income Properties 1 Limited Partnership
Our report on our audits of the basic financial statements
of RWB Medical Income Properties 1 Limited Partnership for
1996 appears on page 1. Those audits were made for the purpose
of forming an opinion on the basic financial statements
taken as a whole. The Schedule of Valuation and Qualifying
Accounts and Reserves for Allowances for Doubtful Accounts,
Schedule of Consolidated Supplementary Income Statement
Information, and Schedule of Real Estate and Accumulated
Depreciation are presented for purposes of additional
analysis and are not required parts of the basic financial
statements. Such information has been subjected to the
auditing procedures applied to the audits of the basic
financial statements, and in our opinion, is fairly stated
in all material respects in relation to the financial
statements taken as a whole.
SELF & MAPLES, P.A.
Oneonta, Alabama
January 24, 1997, except for Note 14, as to which the date is
February 3, 1997
F-20
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES FOR ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 837,727 $ 1,233,671 $ 1,001,881
Amounts charged to revenue (40,716) 160,323 (75,331)
Bad debt expense and recording
of losses realized related to
Merrillville's operating lease - (613,665) 272,447
Write-offs 133,858 57,398 34,674
---------- ------------ ------------
Balance at end of year $ 930,869 $ 837,727 $ 1,233,671
========== ============ ============
</TABLE>
F-21
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE X
CONSOLIDATED SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Professional care of patients
Salaries and wages $ 4,000,223 $ 3,982,347 $ 3,765,545
Ancillary service expense 3,343,906 1,927,683 1,258,187
Supplies & pharmaceuticals 700,352 625,828 545,257
General and administrative
Salaries and wages 446,017 359,481 343,421
Accounting and auditing 121,760 117,375 86,617
Insurance 327,224 316,009 351,362
Property tax 134,365 133,409 108,829
Management fees 663,416 637,900 616,500
Property management fees 141,924 121,265 132,776
Cost reimbursement 175,565 166,077 179,086
Dietary
Food cost 444,992 433,544 448,072
Household and plant
Repairs and maintenance 63,967 107,613 139,529
Utilities 281,561 267,383 267,843
Depreciation and amortization $ 495,705 $ 701,554 $ 954,158
============ ============ ============
</TABLE>
F-22
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED
TO PARTNERSHIP(A) SUBSEQUENT TO
ACQUISITION
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST
- ------------------------ ------------ ------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
SOUTHP0INT MANOR $ 509,200 $500,000 $ 7,354,602 $1,665,802 $ -
MERRYWOOD 384,133 25,000 3,743,335 111,952 -
---------- ------------------------- ------------------------
$ 893,333 $525,000 $11,097,937 $2,077,754 $ -
========== ========================= ========================
<CAPTION>
LIFE ON WHICH
GROSS AMOUNT AT WHICH CARRIED DEPRECIATION
AS OF DECEMBER 31, 1996(B) IN LATEST
STATEMENT OF
BUILDING AND ACCUMULATED DATE OF DATE OPERATION IS
LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
- ------------------------------------ ------------ ------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
$500,000 $ 9,020,404 $ 9,520,404 $4,157,019 1984 09/03/86 30 YEARS
25,000 4,155,287 4,180,287 1,506,604 1965/1975 10/01/86 30 YEARS
- ------------------------------------ ------------
$525,000 13,175,691 $13,700,691 $5,663,623
==================================== ============
</TABLE>
(A) The initial cost to the Partnership represents the original purchase price
of the properties.
(B) The aggregate cost of real estate owned at December 31, 1996 for Federal
Income tax purposes was approximately $13,700,691
(C) Reconciliation of real estate owned at December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -------------
<S> <C> <C> <C>
Balance at beginning of period $13,454,968 $ 18,884,656 18,805,363
Additions 245,723 501,500 79,293
Reductions - (142,335) -
Sale of Merrillville facility - (15,788,853) -
----------- ------------ -------------
Balance at end of period $13,700,691 $13,454,968 $18,884,656
=========== ============ =============
</TABLE>
(D) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of period $5,074,404 $5,386,058 $4,441,316
Depreciation expense 559,219 701,554 944,742
Reductions - (142,335) -
Sale of Merrillville facility - (870,873) -
----------- ------------ -------------
Balance at end of period $5,633,623 $5,074,404 $5,386,058
=========== ============ =============
</TABLE>
F-23
<PAGE>
APPENDIX A
PURCHASE AGREEMENT
OMEGA HEALTHCARE INVESTORS, INC.
AND
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
AND
RWB MANAGEMENT CORP.
DATED: FEBRUARY 3, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
ARTICLE I........................................................................... 2
PURCHASE AND SALE................................................................. 2
1.01. The Facilities.............................................................. 2
--------------
1.02. Personal Property........................................................... 2
-----------------
1.03. Consumables................................................................. 2
-----------
1.04. Delivery of Information to Certain Persons.................................. 3
------------------------------------------
Temporary Operation of the Facilities............................................. 3
-------------------------------------
1.06. Transition Agreement........................................................ 4
--------------------
ARTICLE II.......................................................................... 4
PURCHASE PRICE...................................................................... 4
2.01. Purchase Price.............................................................. 5
--------------
ARTICLE III......................................................................... 5
CLOSING............................................................................. 5
3.01. The Closing................................................................. 5
-----------
ARTICLE IV.......................................................................... 5
COSTS AND PRORATIONS................................................................ 5
4.01. Transfer Taxes.............................................................. 5
--------------
4.02. Sales Taxes................................................................. 6
-----------
4.03. Title Insurance............................................................. 6
---------------
4.04. Surveys/ UCC-1 Searches..................................................... 6
-----------------------
4.05. Environmental Reports/Remediation........................................... 6
---------------------------------
4.06. Revenues and Expenses....................................................... 6
---------------------
4.07. Taxes/Prorations............................................................ 6
----------------
4.08. Utilities................................................................... 6
---------
4.09. Attorneys' Fees............................................................. 7
---------------
4.10. Recording Costs............................................................. 7
---------------
4.11. Releases.................................................................... 7
--------
4.12. Environmental Adjustment.................................................... 7
------------------------
4.13. Prorations Regarding Contracts.............................................. 7
------------------------------
ARTICLE V........................................................................... 7
POSSESSION.......................................................................... 7
5.01. Possession.................................................................. 7
----------
ARTICLE VI.......................................................................... 8
SELLER'S REPRESENTATIONS AND WARRANTIES............................................. 8
6.01. Status of Seller............................................................ 8
----------------
6.02. Validity Conflicts.......................................................... 8
------------------
6.03. Authority................................................................... 8
---------
6.04. The Seller Financial Statements............................................. 9
-------------------------------
6.05. Absence of Adverse Change................................................... 9
-------------------------
6.06. The Licenses................................................................ 9
------------
6.07. Compliance with Law......................................................... 9
-------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.08. Residents................................................................... 10
---------
6.09. Books and Records........................................................... 10
-----------------
6.10. Title....................................................................... 10
-----
6.11. Unions...................................................................... 10
------
6.12. Taxes and Tax Returns....................................................... 11
---------------------
6.13. Environmental Issues........................................................ 11
--------------------
6.14. Necessary Action............................................................ 11
----------------
6.15. Litigation.................................................................. 12
----------
6.16. Sensitive Payments.......................................................... 12
------------------
6.17. The Facilities.............................................................. 12
--------------
6.18. Inventories................................................................. 13
-----------
6.19. The Facility Agreements..................................................... 13
-----------------------
6.20. Patient Roster.............................................................. 13
--------------
6.21. Operating Contracts......................................................... 13
-------------------
6.22. Disclosure.................................................................. 14
----------
6.23. Insurance................................................................... 14
---------
6.24. Fringe Benefits............................................................. 14
---------------
6.25. ERISA....................................................................... 14
-----
ARTICLE VII......................................................................... 15
PURCHASER REPRESENTATIONS AND WARRANTIES............................................ 15
7.01. Status of Purchaser......................................................... 15
-------------------
7.02. Validity and Conflicts...................................................... 15
----------------------
7.03. Authority................................................................... 15
---------
7.04. Necessary Action............................................................ 15
----------------
ARTICLE VIII........................................................................ 16
BROKER; INVESTMENT BANKER........................................................... 16
ARTICLE IX.......................................................................... 16
SELLER COVENANTS.................................................................... 16
9.01. Pre Closing................................................................. 16
-----------
9.02. Closing Date................................................................ 22
------------
9.03. Post Closing................................................................ 23
------------
ARTICLE X........................................................................... 24
PURCHASER COVENANTS................................................................. 24
10.01. Pre-Closing................................................................ 24
-----------
10.02. Closing Date............................................................... 26
------------
10.03. Post Closing............................................................... 27
------------
ARTICLE XI.......................................................................... 28
MUTUAL COVENANTS.................................................................... 28
11.01. General Covenants.......................................................... 28
-----------------
11.02. Hart-Scott-Rodino Filing................................................... 29
------------------------
11.03. HSR Consent/Regulatory-Approval............................................ 29
-------------------------------
11.04. Public Announcements....................................................... 29
--------------------
ARTICLE XII......................................................................... 29
CONDITIONS.......................................................................... 29
12.01. Purchaser Conditions....................................................... 29
--------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12.02. Seller Conditions.......................................................... 32
-----------------
ARTICLE XIII........................................................................ 32
TERMINATION......................................................................... 32
13.01. Termination................................................................ 32
-----------
13.02. Opportunity to Cure........................................................ 34
-------------------
13.03. Termination................................................................ 34
-----------
13.04. Right of First Refusal..................................................... 36
----------------------
ARTICLE XIV......................................................................... 36
OPERATIONAL PROVISIONS.............................................................. 36
14.01. Employees: Schedule of Employee Benefits................................... 36
----------------------------------------
14.02. Accounting Patient Trust Funds and Patient Prepaid Accounts................ 37
-----------------------------------------------------------
14.03. Indemnity for Trust Funds and Prepaid Funds................................ 37
-------------------------------------------
14.04. Accounts Receivable........................................................ 38
-------------------
14.05. Alabama Workers' Compensation Rebate....................................... 38
------------------------------------
ARTICLE XV.......................................................................... 39
INDEMNIFICATION..................................................................... 39
15.01. Seller's Indemnification................................................... 39
------------------------
15.02. New Operator............................................................... 40
------------
15.03. Procedure.................................................................. 40
---------
15.04. Basket..................................................................... 41
------
ARTICLE XVI......................................................................... 41
MISCELLANEOUS....................................................................... 41
16.01. Notices.................................................................... 41
-------
16.03. Employee Recruitment....................................................... 42
--------------------
16.04. Assignment................................................................. 42
----------
16.05. Sole Agreement............................................................. 42
--------------
16.06. Captions................................................................... 42
--------
16.08. Counterparts............................................................... 43
------------
16.09. Knowledge Defined.......................................................... 43
-----------------
16.10. Expenses................................................................... 43
--------
16.11. Third Party Beneficiary.................................................... 43
-----------------------
16.12. Attorneys' Fees............................................................ 43
---------------
16.13. Construction............................................................... 43
------------
16.14. Survival................................................................... 44
--------
16.15. Exhibits................................................................... 44
--------
16.16. Governing Law.............................................................. 44
-------------
16.17. Exclusivity................................................................ 44
-----------
16.18. Confidentiality............................................................ 45
---------------
16.19. Arbitration of Disputes Following Closing.................................. 45
-----------------------------------------
SCHEDULE OF EXHIBITS........................................................... 47
EXHIBIT A-1:................................................................... 47
EXHIBIT A-2:................................................................... 47
EXHIBIT 1.02:.................................................................. 47
EXHIBIT 1.02 (A):.............................................................. 47
EXHIBIT 1.05 (c):.............................................................. 47
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EXHIBIT 2.01:.................................................................. 47
EXHIBIT 4.13:.................................................................. 47
EXHIBIT 6.06:.................................................................. 47
EHXIBIT 6.07:.................................................................. 47
EXHIBIT 6.07(b):............................................................... 47
EXHIBIT 6.10:.................................................................. 47
EXHIBIT 6.11:.................................................................. 47
EXHIBIT 6:13:.................................................................. 47
EXHIBIT 6.15:.................................................................. 47
EXHIBIT 6.17:.................................................................. 47
EXHIBIT 6.19:.................................................................. 47
EXHIBIT 6.20:.................................................................. 47
EXHIBIT 6.21:.................................................................. 47
EXHIBIT 6.23:.................................................................. 47
EXHIBIT 6.24:.................................................................. 47
EXHIBIT 6.25:.................................................................. 47
EXHIBIT 9.02(d):............................................................... 47
EXHIBIT 9.02(f):............................................................... 47
EXHIBIT 9.02(g):............................................................... 47
EXHIBIT 9.02(h):............................................................... 47
EXHIBIT 10.01(a):.............................................................. 47
EXHIBIT 10.02(f):.............................................................. 47
</TABLE>
<PAGE>
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") is made and entered into
this 3rd day of February, 1997 (the "Effective Date"), by and between RWB
MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP, a Louisiana limited partnership
("Seller"), RWB MANAGEMENT CORP., a Louisiana corporation ("General Partner")
and OMEGA HEALTHCARE INVESTORS, INC., a Maryland corporation ("Purchaser").
ARTICLE I
PURCHASE AND SALE
On the terms and subject to the conditions set forth herein, Seller does
hereby agree to sell to Purchaser and Purchaser does hereby agree to acquire
from Seller the following:
1.01 The Facilities. The real property owned by Seller and situated in the
--------------
States of Alabama and Florida and more particularly described in Exhibits A-1
and A-2 (the "Real Property") and the improvements thereon that comprise the
following skilled nursing, facilities (the "Facilities"):
Southpoint Manor
Miami Beach, Florida
Number of Licensed Beds: 230
Merry Wood Lodge
Elmore, Alabama
Number of Licensed Beds: 124
1.02 Personal Property. All equipment, furniture, fixtures, inventory
-----------------
(including linens, dietary supplies and housekeeping supplies but specifically
excluding food and other consumable inventories), contract rights, and other
tangible personal property owned by Seller and located on the Real Property and
Facilities, including, but not limited to, motor vehicles, entitlements,
telephone numbers and those items of personal property listed on Exhibit 1.02
(collectively, the "Personal Property"), it being understood by the parties that
the only items of Personal Property reflected on Exhibit 1.02 are items which
were acquired at an initial purchase price of greater than $100.00.
Notwithstanding the foregoing, the "Personal Property" specifically excludes (i)
cash, cash equivalents or accounts receivable relating to the period prior to
the Closing Date, as defined below, and (ii) those items of personal property
identified on Exhibit 1.02(A).
1.03 Consumables. The food and other consumable inventories located at the
-----------
Facilities on the Closing Date (the "Consumables").
2
<PAGE>
Hereinafter the Facilities, the Real Property the Personal Property and the
Consumables will sometimes be collectively referred to as the "Seller's Assets."
Except as specifically set forth herein, Purchaser is not acquiring or assuming,
any of the liabilities whatsoever, including, without limitation, those of
Seller with respect to the Seller's Assets. This shall be a sale and purchase of
the Seller's Assets collectively and not separately. Purchaser is acquiring the
Seller's Assets without any express or implied warranties, including the
warranties of merchantability and fitness for a particular purpose, other than
those specifically stated in this Agreement.
1.04 Delivery of Information to Certain Persons. Purchaser intends to
------------------------------------------
enter into one or more master leases (collectively, the "Master Lease") with one
or more corporations experienced in operating licensed nursing homes such as the
Facilities (collectively, the "New Operator"). Purchaser is hereby authorized to
deliver to one or more corporations that may become the New Operator as
described herein all information which Seller makes available to Purchaser
concerning the Facilities. Purchaser's entry into the Master Lease is not a
condition to Purchaser's obligations hereunder.
Temporary Operation of the Facilities.
-------------------------------------
(a) If as of the Closing Date Purchaser has entered into a Master
Lease with respect to one or more of the Facilities, and the New Operator has
not obtained the Regulatory Approvals required for the operation of one or more
of the Facilities covered by the Master Lease, then if permitted by state law
New Operator shall operate the Facilities under a management or operating
agreement using Seller's licenses or if requested by the New Operator, Seller
will enter into an interim operating agreement (the "Interim Operating
Agreement') with the New Operator with respect to those Facilities covered by
the Master Lease for which Regulatory Approvals have not been obtained. The
Interim Operating Agreement shall (i) impose no financial obligations on Seller,
except to the extent of funds advanced by the New Operator or funds received
from the operation of the Facilities covered by the Interim Operating Agreement,
(ii) shall terminate as to each Facility on the earlier of December 31, 1997 or
the last day of the month during which all Regulatory Approvals applicable to
that Facility are received, and (iii) otherwise be in form and substance
reasonably satisfactory to both New Operator and Seller.
(b) If as of the Closing,, Date Purchaser has not entered into a
Master Lease with respect to one or more of the Facilities, then Purchaser, as
lessor, and Seller, as lessee, will enter into an interim master lease (the
"Interim Master Lease") with respect to those Facilities as to which Purchaser
has not entered into a Master Lease. The Interim Master Lease shall be on
Purchaser's standard form master lease, modified, however, to reflect that (i)
Seller shall have no financial obligations thereunder, except to the extent of
funds advanced by Purchaser or funds received from the operation of the
Facilities covered by the Interim Master Lease, (ii) the rent payable under the
Interim Master Lease shall be the cash flow generated from the operation of the
Facilities, and (iii) the Interim Master Lease shall terminate as to each
Facility covered thereby on the earlier of December 31, 1997
3
<PAGE>
or the last day of the month during which Purchaser enters into a Master Lease
with respect to that Facility and all Regulatory Approvals applicable to that
Facility are received.
(c) If an Interim Operating Agreement is entered into with Seller
pursuant to Section 1.05(a), or if an Interim Master Lease is entered into with
Seller pursuant to Section 1.05(b), simultaneously therewith Seller shall enter
into an interim management agreement (the "Interim Management Agreement") with
Atrium Living Centers of Florida, Inc., a Florida corporation with respect to
Southpoint Manor and Atrium Living Centers of Alabama, Inc., an Alabama
corporation, with respect to Merry Wood Lodge (individually and collectively,
"Atrium"), with respect to those Facilities covered by the Interim Operating
Agreement or Interim Master Lease, as applicable. Within fifteen (15) days from
the date hereof, Purchaser and Atrium shall agree upon the form of the Interim
Management Agreement, and the form shall be attached to this Agreement as
Exhibit 1.05(c). The Interim Management Agreement shall expire as to each
Facility covered thereby on the date of termination of the Interim Operating
Agreement or Interim Master Lease as to that Facility. The Interim Management
Agreement shall provide for a monthly management fee payable to Atrium: (i) of
four percent (4%) of Accrued Gross Income of the Facilities which Atrium is
managing under the Interim Management Agreement if the number of Facilities
which Atrium is managing, plus the number of Facilities which Atrium or Atrium
Living Centers, Inc., a Delaware corporation, under the comparable Sections of
Seller's Affiliates' Purchase Agreement is eight or more, or (ii) of five
percent (5%) of Accrued Gross Income of the Facilities which Atrium is managing
under the Interim Management Agreement if the number of Facilities which Atrium
is managing, plus the number of Facilities which Atrium, or Atrium Living
Centers, Inc., a Delaware corporation, under the comparable Sections of Seller's
Affiliates' Purchase Agreement is between four and seven, or (iii) Atrium's
actual cost not to exceed eight percent (8%) of Accrued Gross Income of the
Facilities which Atrium is managing under the Interim Management Agreement if
the number of Facilities which Atrium is managing, plus the number of Facilities
which Atrium, or Atrium Living Centers, Inc., a Delaware corporation, under the
comparable Sections of Seller's Affiliates' Purchase Agreement is one, two or
three. The term "Accrued Gross Income of the Facilities" shall mean the monthly
accrued gross revenues from all sources of each Facility less usual and
customary contractual adjustments from gross revenues attributable to third-
party payor rates or contracts with others, less allowances for collection of
doubtful accounts or bad debts and less the amount of provider fees, if any,
which are chargeable to a Facility for the same monthly period.
1.06 Transition Agreement. On or before the Closing Date, or if New
--------------------
Operator has not been identified by that date, on or before the expiration of
the term of the Interim Management Agreement, Seller and Atrium shall enter into
a Transition Agreement with New Operator in form and substance reasonably
satisfactory to Seller, Atrium and New Operator, providing for the smooth
transfer of operations at the Facilities from the Seller to the New Operator.
ARTICLE II
PURCHASE PRICE
4
<PAGE>
2.01 Purchase Price. The purchase price for Seller's Assets shall be
--------------
Eighteen Million Six Hundred Thousand and no/100 Dollars ($18,600,000) and shall
be payable in cash at the Closing described in Article III below and subject to
the adjustments as set forth in this Agreement. Six Hundred Thousand and 00/100
Dollars ($600,000.00) of the purchase price shall be deposited in an account
with Nationsbank, or other FDIC insured bank selected by Seller with offices in
-----------
Atlanta, Georgia and reasonably acceptable to Purchaser, to be held and
disbursed in accordance with a Letter Agreement substantially in the form of
Exhibit 2.01 (the "Letter Agreement") for the purposes of securing all of
Seller's or General Partner's obligations under this Agreement and other
documents executed in connection herewith, which obligations survive the
Closing, including, without limitation, Seller's obligations under Section
15.01. The purchase price shall be allocated among the Facilities as set forth
in Paragraph 16.02.
ARTICLE III
CLOSING
3.01 The Closing. The purchase and sale of the Seller's Assets shall occur
-----------
on the earlier of (i) the last day of the month during which satisfaction or
waiver of the conditions to Closing set forth in Paragraphs 12.01 and 12.02
occurs, or (ii) March 31, 1997 (the "Closing Date"). The Closing Date may be
extended to April 30, 1997 by Seller upon written notice to Purchaser prior to
March 31, 1997 solely for the purpose of obtaining (i0 the approval of Seller's
limited partners (the "Limited Partners"), or (ii) obtaining the approval of the
transactions contemplated by Seller's Affiliates Purchase Agreements (as defined
below) by the limited partners of each of Seller's Affiliates(as defined below).
Closing shall occur at such place s may be agreed upon by the parties.
Notwithstanding the foregoing, although both parties are committed to using best
efforts to close by the dates set forth above, if one or more of the conditions
precedent to either party's obligation to close is not satisfied or waived by
the dates set forth above, the Closing Date shall be automatically postponed
until the last day of the month which is at least three (3) business days after
the last condition precedent is satisfied or waived, but, in any event, not late
than July 31, 1997.
ARTICLE IV
COSTS AND PRORATIONS
The costs of the transaction and the expenses related to the ownership and
operation of the Seller's Assets shall be allocated among Seller and Purchaser
as follows:
4.01 Transfer Taxes. All State and County transfer or excise taxes due on
--------------
the transfer of title to the Real Property and the Facilities to Purchaser and
all assessments and taxes related to the recording of the deeds, shall be paid
by Seller.
5
<PAGE>
4.02 Sales Taxes. Any sales tax due on the transfer of title to the
-----------
Personal Property to Purchaser shall be paid by Seller.
4.03 Title Insurance. Seller shall pay the cost of the "Title Commitments"
---------------
and the premiums for ALTA extended coverage owner's policies of title insurance
for the Facilities.
4.04 Surveys/ UCC-1 Searches. Seller shall pay the cost of the "Surveys"
-----------------------
and the "UCC Search Reports" (as such terms are defined below) for each of the
Facilities.
4.05 Environmental Reports/Remediation. Seller shall pay for the cost for
---------------------------------
a Phase I environmental assessment for each of the Facilities, for any
additional assessments recommended in the original Phase I reports, and for the
cost of remediation of any environmental condition revealed in such
environmental assessments. Notwithstanding anything to the contrary contained in
this Section 4.05, Purchaser may in its sole discretion waive the requirement of
Seller to provide any additional assessments or reports recommended in the
original Phase I environmental assessments. Irrespective of any such waiver by
Purchaser, Seller shall cause the original Phase I environmental assessments and
any additional assessments or reports provided by Seller, to be certified to
Purchaser and to New Operator, when New Operator is identified, for reliance by
Purchaser and New Operator thereon. The delivery of such certification by Seller
shall be a condition precedent to Purchaser's obligation to close the
transaction contemplated by this Agreement.
4.06 Revenues and Expenses. All revenues (including but not limited to
---------------------
payments due from the residents or patients of the Facilities) and expenses
(including but not limited to payroll and employee benefits) related to the
ownership or operation of the Seller's Assets shall be prorated as of the
Closing, Date, with Seller responsible therefor for the period prior to the
Closing Date and with Purchaser or New Operator responsible therefor for the
period from and after the Closing Date. All accounts receivable shall be handled
in the manner provided for in Section 14.04 below. Purchaser has no duty to
operate any Facility from and after the Closing Date, such operations to be
accomplished solely by Seller during the term of the Interim Operating Agreement
or Interim Master Lease (if applicable) and by the New Operator thereafter.
4.07 Taxes/Prorations. Real and Personal Property taxes, assessments and
----------------
similar charges shall be prorated as of the Closing Date pursuant to the local
custom of the State where the Facility is located, with Seller responsible
therefor for the period prior to the Closing Date and with (i) Seller pursuant
to the Interim Operating Agreement or Interim Master Lease, or (ii) New Operator
pursuant to the Master Lease responsible therefor for the period from and after
the Closing Date, as applicable to each of the Seller or New Operator.
4.08 Utilities. Seller shall arrange for final statements with respect to
---------
all utilities serving the Real Property and each Facility as of the Closing Date
and shall pay all fees identified thereon and Purchaser shall arrange for all
such utilities to be billed in the name of the (i) Seller pursuant to the
6
<PAGE>
Interim Operating Agreement or Interim Master Lease, or (ii) New Operator
pursuant to the Master Lease from and after the Closing Date and the Seller or
New Operator, as applicable, shall pay all fees due therefor from and after the
Closing Date. Seller shall retain its right to any deposits which may have been
made with any utility company and Purchaser shall replace or cause Atrium or New
Operator, as applicable, to replace said deposits with funds of its own or, in
the case of Atrium, funds advanced by Purchaser or New Operator.
4.09 Attorneys' Fees. Seller and Purchaser shall each pay their own
---------------
attorneys' fees.
4.10 Recording Costs. All recording fees related to the recording of the
---------------
deeds shall be paid in accordance with the local custom of the State in which
the Facility is located.
4.11 Releases. Seller shall pay the cost of obtaining and recording any
--------
releases necessary to delivery title to the Seller's Assets in accordance with
the terms of this Agreement.
4.12 Environmental Adjustment. An amount to be determined by the parties
------------------------
shall be deducted from the purchase price at Closing to cover potential costs to
be incurred by Purchaser for any remediation of environmental problems at, on or
affecting the Facilities, including without limitation, the removal of any
asbestos from the Facilities ("Environmental Adjustment"). In the event that
Seller and Purchaser do not agree prior to February 15, 1997 on the amount of
the Environmental Adjustment, either party may terminate as Agreement and
neither party shall have any other rights or obligations hereunder.
4.13 Prorations Regarding Contracts. All amounts paid by Seller prior to
------------------------------
the Closing Date for contracts for goods or services to be received or incurred
for the benefit of the Facilities after the Closing Date ("Prepaid Contracts")
shall be a credit to Seller at Closing. Exhibit 4.13 sets forth a list of such
Prepaid Contracts as of the date of this Agreement and Exhibit 4.13 shall be
updated by Seller as of the Closing Date. Notwithstanding anything in this
Agreement to the contrary, Purchaser assumes no liability for payables of the
Facilities prior to the Closing Date or after the Closing Date if applicable to
goods or services provided to the Facilities prior to the Closing Date, and
Seller shall pay all such amounts.
ARTICLE V
POSSESSION
5.01 Possession. At Closing, Purchaser shall be entitled to possession of
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the Seller's Assets, subject only to the rights of the patients and residents of
the Facilities and any liens and encumbrances permitted hereunder. Seller shall
retain possession of the Consumables and the inventory during the term of the
Interim Operating Agreement or Interim Master Lease, if any, and shall deliver a
like quantity and quality of Consumables and inventory to New Operator upon the
termination date of the Interim Operating Agreement or Interim Master Lease, as
applicable.
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ARTICLE VI
SELLER'S REPRESENTATIONS AND WARRANTIES
Seller hereby warrants and represents to Purchaser and to any assignee of
Purchaser of this Agreement or Purchaser's rights under Seller's warranties,
representations, covenants and indemnifications under this Agreement that,
except as otherwise specifically set forth in the Seller Disclosure Schedule
addressed and delivered to Purchaser as provided for in Section 9.01 (w) below:
6.01 Status of Seller. Seller is a limited partnership duly organized,
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validly existing and in good standing under the laws of the State of Louisiana,
and duly qualified to do business as a foreign partnership in the States of
Alabama and Florida.
6.02 Validity Conflicts. This Agreement is and all documents to be
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executed by Seller pursuant hereto will be, the valid and binding obligations of
Seller, enforceable in accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). The execution
of this Agreement and the consummation of the transactions contemplated herein
in accordance with the terms hereof have been (i) approved by all necessary
action of the General Partner of Seller as may be required under the General
Partner's articles of incorporation and bylaws, and (ii) approved by all
necessary action of Seller as may be required under Seller's Partnership
Agreement ("Charter Documents"), except that the approval of Limited Partners is
required as specified in Section 9.01(u) below ("Seller's Limited Partners'
Approval"), and do not and will not result in a breach of the terms and
conditions of nor constitute a default under or violation of Seller's Charter
Documents or any law, regulation, court order, mortgage, note, bond, indenture,
agreement, license or other instrument or obligation to which Seller is now a
party or by which any of Seller's assets may be bound or affected.
6.03 Authority. Subject to the Regulatory Approvals, Seller has full
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partnership power and authority to execute and to deliver this Agreement and all
related documents, and, subject to Seller's Limited Partners' Approval, to carry
out the transactions contemplated herein and therein. Seller has full
partnership power and authority (i) to own and operate the Facilities as the
same are presently owned and operated by it and (ii) to conduct its business as
the same is now being conducted.
6.04 The Seller Financial Statements. True and correct copies of the
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financial statements for the Seller and for the Facilities, as requested by
Purchaser and relating to the operations of the Facilities and of the Seller for
the years 1993, 1994 and 1995 and for the fiscal quarter ended September 30,
1996 (the "Seller Financial Statements") have been previously delivered to
Purchaser. Except as otherwise noted therein or in Seller Disclosure Schedule,
the Seller Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP")
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consistently applied, fairly represent the financial condition, and accurately
set forth in all material respects as and to the extent required by GAAP the
results of the operations of the Seller and/or the Facilities for the periods
covered thereby subject to customary year end adjustments. Any financial
statements prepared by Seller subsequent to the date of the Seller Financial
Statements or the date hereof will fairly represent the financial condition, and
will accurately set forth in all material respects the results of the operations
of the Facilities for the periods covered thereby and will be provided to
Purchaser within ten (10) days after the completion thereof.
6.05 Absence of Adverse Change. Since the date of the Seller Financial
-------------------------
Statements there has not been any material adverse change in the financial
condition, business, assets, liabilities, results of operations or prospects of
the Seller or of the Facilities, taken as a whole, whether in the ordinary
course of business or otherwise.
6.06 The Licenses. Seller has all material licenses, permits and
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authorizations necessary for the lawful operation of the Facilities, as
presently operated ( the "Seller Licenses"). True and correct copies of the
licenses issued most recently by the applicable health care authority with
respect to the operation of the Facilities are attached hereto as Exhibit 6.06.
Seller has not received written or verbal notice of any action or proceeding
which has been initiated or is proposed to be initiated by the appropriate state
or federal agency having jurisdiction thereof, to either revoke, withdraw or
suspend any of the Seller Licenses or to terminate the participation of any of
the Facilities in either the Medicare or Medicaid Programs or any judicial or
administrative agency judgement or decision not to renew any of the Seller
Licenses or any licensure or certification action of any other type.
6.07 Compliance with Law.
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(a) Set forth in Exhibit 6.07 is a list of the most recent licensure
or certification survey for each of the Facilities, copies of which have
been delivered to Purchaser as of the date hereof. Each of the Facilities
and its and their current operation and use are in compliance with all
applicable municipal, county, state and federal laws, regulations,
ordinances, and orders and with all applicable municipal health, and
building laws and regulations (including, without limitation, the building
and life safety codes) where the failure to comply therewith would have a
material adverse effect on the business, property, condition (financial or
otherwise) or operation thereof;
(b) To the best of Seller's knowledge, there are no outstanding cited
deficiencies or other written requirements imposed by any governmental
authority having jurisdiction over any of the Facilities requiring
conformity to any applicable statute, regulation, ordinance or bylaw, which
have not been corrected as of the date hereof or which shall not have been
corrected on or prior to the Closing, except to the extent that either a
waiver has been issued by the appropriate authority, in which case a copy
of such waivers shall be included in Exhibit
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6.07(b), or if not so corrected will not have a material adverse effect on
the financial condition or results of the operations of the affected
Facility;
(c) Seller has not received written or, to Seller's knowledge, verbal
notice from any licensing or certifying agency supervising or having
authority over the Facilities. requiring them to be reworked or redesigned
or additional furniture, fixtures, equipment or inventory to be provided
thereat so as to conform to or comply with any existing law, code or
standard except where the requirement either (i) has been fully satisfied
prior to the date hereof, (ii) will be satisfied by Seller prior to the
Closing Date, (iii) will be in the process of being satisfied in the
ordinary course of Seller's business pursuant to the terms of a Plan of
Correction or other documentation submitted to and approved by the
appropriate authority or (iv) will be the subject of a valid written waiver
issued by the applicable licensing or certifying agency; and
(d) Seller has no knowledge that any of the Facilities participating in
the Medicare or Medicaid Programs is not in substantial compliance with all
Conditions and Standards of Participation in those Programs, except as set
forth in Exhibit 6.07(b).
6.08 Residents. Except for notice provisions that are required by law or
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which are contained in the admissions agreement provided to Purchaser, there are
no agreements not terminable at will with residents or patients of any of the
Facilities operated by Seller which provide for the provision of the care
routinely provided at said Facility for the duration of the resident's stay at
said Facility for no consideration nor will Seller enter into any such
agreements between the date hereof and the Closing Date.
6.09 Books and Records. All of the books and records of the Facilities,
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including resident records, patient trust fund records and records concerning
all resident prepaid accounts, are true and correct in all material respects.
6.10 Title. Seller has good title (and fee title with respect to the Real
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Property of the Facilities) of the Seller's Assets free and clear of all liens
charges and encumbrances other than the liens provided for in Section 9.02 (e)
and those liens, charges, encumbrances and other items reflected in the Title
Commitment, the Survey and the UCC Search. Except as disclosed in Exhibit 6.10,
Seller is not leasing any of Seller's Assets.
6.11 Unions. Except as set forth in Exhibit 6.11, there are no union
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contracts in effect between Seller, on the one hand, and the employees of any of
the Facilities, on the other hand. To the knowledge of Seller, none of Seller's
employees who are not currently members of a labor union are actively seeking
the formation of a labor union at any of the Facilities. Seller is not a party
to any labor dispute. The Seller Disclosure Schedule shall contain a summary of
all grievances brought by members of any union representing employees of any of
the Facilities for the last three (3) years.
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6.12 Taxes and Tax Returns. All tax returns, reports and filings of any
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kind or nature, as to or affecting the Facilities, required to be filed by
Seller prior to date of execution of this Agreement have been properly completed
and timely filed, or extensions for the filing thereof have been timely secured,
with all such filings being in material compliance with all applicable
requirements and all taxes due with respect to Seller have been timely paid.
6.13 Environmental Issues. To the best of Seller's knowledge, except in
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accordance, and in compliance, with any and all applicable local, state and
federal governmental laws, regulations and requirements (collectively, the
"Environmental Laws") relating to environmental and occupational health and
safety matters, and hazardous materials, substances or wastes (as defined from
time to time under any applicable Environmental Laws), Seller has not released
into the environment or discharged, placed or disposed of any such hazardous
materials, substances or wastes or caused the same to be so released into the
environment or discharged, placed or disposed of at, on or under any of the
Facilities other than to the extent the same will not have a material adverse
affect on the condition, financial or otherwise, of the affected Facility. To
the best of Seller's knowledge, with respect to the Facilities, (i) except to
the extent permitted by applicable Environmental Laws, no hazardous materials,
substances or wastes are located on or at the Facilities or have been released
into the environment or discharged, placed or disposed of in, on or under the
Facilities, (ii) except to the extent permitted by applicable Environmental
Laws, no underground storage tanks are or have been located at the Facilities,
(iii) none of the Facilities is located on property which was used as a dump for
waste material, and (iv) each of the Facilities complies with, and at all times
during the period of its operation by Seller has complied with, all
Environmental Laws in all material respects. Seller has not received any written
notice from any governmental authority or any written complaint from any third
party with respect to its alleged noncompliance with, or potential liability
under, any Environmental Laws at any of the Facilities which remains unresolved
as of the date hereof. All written assessments prepared by or on behalf of
Seller of the hazardous waste conditions at the Facilities which are in the
possession of Seller have been made available to Purchaser. Notwithstanding the
foregoing, the foregoing representations and warranties are subject to any
environmental condition existing at any of the Facilities of which Purchaser
receives notice pursuant to the information provided to it in any environmental
assessment prepared in connection with the purchase of the Facilities or in the
Phase I Environmental Assessment Reports identified on Exhibit 6.13 which were
previously delivered to Purchaser.
6.14 Necessary Action. Except for the Regulatory Approvals (as defined
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below) and Seller's Limited Partners' Approval, Seller has duly and properly
taken or obtained or caused to be taken or obtained, or prior to Closing will
have duly and properly taken or obtained or caused to be taken or obtained, all
action necessary for Seller (i) to enter into and to deliver this Agreement and
any and all documents and agreements executed by Seller in connection herewith
or in furtherance hereof and (ii) to carry out the terms hereof and thereof and
the transaction contemplated herein and therein. Except for Regulatory Approvals
and Seller's Limited Partners' Approval, no other action by or on behalf of
Seller is or will be necessary to authorize the execution, delivery and
performance of this Agreement and any documents and agreements executed by
Seller in connection herewith or the
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transactions contemplated herein. Other than consents for the assignment of any
Operating Contracts as provided for in Section 6.21 below, no consent of any
other third party is or will be necessary nor any other action by or on behalf
of Seller is or will be necessary, to authorize the execution, delivery and
performance of this Agreement and any documents and agreements executed by
Seller in connection herewith or consummation of the transactions contemplated
herein and Regulatory Approvals for which Purchaser is responsible under the
terms hereof. Seller agrees to cooperate with Purchaser and/or New Operator if
either or both of them determine that HSR Consent is necessary.
6.15 Litigation. Except as set forth in Exhibit 6.15, there is no, nor has
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Seller or its General Partner received written notice of any, litigation,
administrative investigation or other proceeding pending or, to the best of
Seller's or its General Partner's knowledge based on written notice with respect
thereto, threatened by any governmental authority having jurisdiction over the
Facilities where the amount claimed exceeds $10,000 in any single action or
$25,000 in the aggregate. Neither Seller nor its General Partner is a party to
nor is Seller or its General Partner nor any of the Facilities bound by any
orders, judgments, injunctions, decrees or settlement agreements under which it
or they may have continuing obligations as of the date hereof or as of the
Closing Date and which are likely to materially restrict or affect the present
business operations of any or all of the Facilities. To Seller's knowledge, the
right or ability of Seller to consummate the transaction contemplated herein has
not been challenged by any government agency or any other person.
6.16 Sensitive Payments. Neither Seller nor its General Partner has (i)
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made any contributions, payments or gifts to or for the private use of any
governmental official, employee or agent where either the payment or the purpose
of such contribution, payment or gift is illegal under the laws of the United
States or the jurisdiction in which made, (ii) established or maintained any
unrecorded fund or asset for any purpose or made any false or artificial entries
on its books, (iii) given or received any payments or other forms of
remuneration in connection with the referral of patients which would violate the
Medicare/Medicaid Anti-kickback Law, Section 1128(b) of the Social Security Act,
42 USC Section 1320a-7b(b) or any analogous state statute or (iv) made any
payments to any person with the intention or understanding that any part of such
payment was to be used for any purpose other than that described in the
documents supporting the payment.
6.17 The Facilities. Each of the Facilities is duly licensed to operate
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the number of beds set forth opposite its name in Article I and, in the case of
all of the Facilities, is duly certified to participate in Medicare and
Medicaid. The Personal Property is all of the property necessary for the lawful
operation of the Facilities at their current occupancy levels. There is no
action pending, or to the knowledge of Seller, recommended by the appropriate
state or federal agencies having jurisdiction thereof which, if decided
adversely to Seller, would have a material adverse effect on the affected
Facility, its operations or business. To the best of Seller's knowledge, the
building and improvements constituting each Facility have been constructed in
compliance with the requirements of all laws at the time of construction and all
ordinances, rules, regulations and restrictions of record applicable thereto,
and all bills for labor and materials in connection with the construction
thereof have been paid in full or
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irrevocably provided for. Except as disclosed in Exhibit 6.17, Seller has no
knowledge of any latent or patent material defect or deficiency with regard to
the structures, roofs, soils, furniture, fixtures or equipment of any facility
which would materially impair the use or value of such Facility, and the same
are in good working order and condition. Seller has no knowledge of any latent
or patent material defect or deficiency with regard to the plumbing, mechanical,
electrical or other systems of any Facility which would materially impair the
use or value of such Facility, and the same are in good working order and
condition.
6.18 Inventories. At Closing, each of the Facilities shall have an
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inventory of perishable and non-perishable food, central supplies, linens,
housekeeping supplies, kitchen supplies, and nursing supplies sufficient in
condition and at such quantity levels as may be required under all applicable
laws and, to the extent there exists no applicable laws which specifically
identify the condition and/or required quantity levels for any such supplies or
inventory, then such inventory and supplies shall be in such condition and at
such levels as is customarily maintained by Seller.
6.19 The Facility Agreements. Attached hereto as Exhibit 6.19 is a true
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and correct copy of the form of admission agreement entered into by Seller with
each of the current residents/patients of the Facilities. At Closing Seller
shall deliver to Purchaser duly executed assignments of all admission agreements
(the "Admission Agreements") in effect for each of the Facilities as provided
for in Section 9.02 (h) below.
6.20 Patient Roster. Attached hereto as Exhibit 6.20 is a true and correct
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patient roster which identifies by Facility each of the residents and patients
of the Facilities, the daily rate paid by each of the patients and residents,
and with respect to the private pay residents and patients, the date through
which each of them has paid.
6.21 Operating Contracts. Set forth in Exhibit 6.21 is a true and correct
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list of the operating contracts to which Seller is a party in connection with
its operations at the Facilities (the "Operating Contracts"). Each of the
Operating Contracts is in full force and effect and none of the Operating
Contracts has been modified or amended except as set forth in Exhibit 6.21.
Seller is not in default of any of its material obligations under the Operating
Contracts nor has Seller any knowledge of any material default or any action or
omission which, with the passage of time or the giving of notice or both, would
constitute a material default under the Operating Contracts by any other party
thereto. At Closing, Seller shall deliver to Purchaser a duly executed
assignment of any of the Operating Contracts which Purchaser elects to assume
pursuant to Section 10.01 (e). In the event the consent of the other contracting
party shall be required for said assignment, Seller shall timely request in
writing said consent; provided, however, if Seller is unable to secure any such
consent, the delivery of such consent shall not be deemed a condition precedent
to the Closing unless the Operating Contract for which Seller failed to obtain
the consent is material to the operations of the Facilities by Purchaser
following the Closing. If Seller is unable to secure any such consent with
respect to an Operating Contract which is material to the operations of the
Facilities, the lack of said consent shall be deemed the failure of a
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Purchaser's condition precedent hereunder and, in such event, Purchaser shall
have the right to either waive the requirement for said consent or terminate
this Agreement by written notice delivered to Seller within five (5) business
days following Purchaser's receipt of written notice from Seller that said
consent cannot be obtain.
6.22 Disclosure. Subject to the terms of the Seller Disclosure Schedule,
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as it may be amended pursuant to this Agreement, no representation or warranty
by or on behalf of Seller contained in this Agreement and no statement contained
in any certificate, list, exhibit, or other instrument furnished or to be
furnished to Purchaser pursuant hereto contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material facts
which are necessary in order to make the statements contained herein or therein,
in light of the circumstances under which they were made, not misleading.
6.23 Insurance. Seller's Assets have been continuously covered since
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January 1, 1994 by insurance policies covering physical damage, general
liability, professional liability and worker's compensation, which policies are
on an occurrence basis. Attached as Exhibit 6.23 are descriptions of each such
policy and certificates of insurance evidencing such coverage.
6.24 Fringe Benefits. Attached as Exhibit 6.24 is a list of all fringe
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benefits applicable to any and all employees of the Facilities ("Employees").
Unless designated on Exhibit 6.24, all of the fringe benefits are applicable to
all Employees and there are no other fringe benefits applicable to any Employees
other than listed on Exhibit 6.24.
6.25 ERISA. Except as set forth in Exhibit 6.25, Seller has in effect no
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employee pension or defined benefit plans, profit sharing plans, defined
contribution plans, retirement plans, or other like plans or programs covering
any of the Employees, and Seller has made no commitments or agreements to place
in effect or extend any such plans for the benefit of the Employees. Seller has
not contributed to, and has no withdrawal liability with respect to any multi-
employer plan as that term is defined by the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). To the best of Seller's knowledge, Seller is
in compliance with ERISA and no "reportable event" within the meaning of ERISA
has occurred. Attached hereto as part of Exhibit 6.25 are copies of any such
benefits plans and any actuarial studies in Seller's possession relating to any
such benefit plans contained in Exhibit 6.25.
Notwithstanding anything contained herein to the contrary, except for those
representations and warranties that by their terms relate to a specific period
of time and except as may be expressly stated in the Seller Disclosure Schedule,
as it may be amended hereunder, all of the foregoing representations and
warranties shall be materially applicable, true, correct and complete, both as
of the date hereof and as of the Closing Date, and Seller shall, as stated in
Section 9.02 (a) of this Agreement, certify in writing at Closing that each and
all said representations and warranties are materially true, correct and
complete as of and with respect to that date.
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ARTICLE VII
PURCHASER REPRESENTATIONS AND WARRANTIES
Purchaser hereby warrants and represents to Seller that, except as
otherwise specifically set forth in the Purchaser Disclosure Schedule addressed
and delivered to Seller as provided for in Section 10.01(i) below:
7.01 Status of Purchaser. Purchaser is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of Maryland.
7.02 Validity and Conflicts. This Agreement is, and all documents to be
----------------------
executed by Purchaser pursuant hereto will be, the valid and binding obligations
of Purchaser, enforceable in accordance with their respective terms, except as
the enforceability thereof may be limited by bankruptcy insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding, in equity or at law).
The execution of this Agreement and the consummation of the transactions
contemplated herein have been approved by the Board of Directors of Purchaser
and do not and will not result in a breach of the terms and conditions of nor
constitute a default under or violation of the Charter Documents or Bylaws of
Purchaser or any law, regulation, court order, mortgage, note, bond, indenture,
agreement, license or other instrument or obligation to which Purchaser is now a
party or by ,which any of their assets may be bound or affected, subject,
however, to Purchaser obtaining the HSR Consent, if required, and Regulatory
Approvals for which it is responsible under the terms hereof.
7.03 Authority. Subject to obtaining the HSR Consent, if required, and
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Regulatory Approvals which Purchaser is required to use its best efforts to
secure, and Purchaser's board of directors approving this Agreement, and the
transactions contemplated hereby, Purchaser has full corporate power and
authority to execute and to deliver this Agreement and all related documents,
and to carry out the transactions contemplated herein and therein.
7.04 Necessary Action. Purchaser has duly and properly taken or obtained
----------------
or caused to be taken or obtained, or prior to Closing will have duly and
properly taken or obtained or caused to be taken or obtained, all action
necessary for Purchaser (i) to enter into and to deliver this Agreement and any
and all documents and agreements executed by Purchaser in connection herewith or
in furtherance hereof and (ii) to carry out the terms hereof and thereof and the
transactions contemplated herein and therein, which action shall include, but
not be limited to, obtaining the consent of the Board of Directors of Purchaser
and the HSR Consent, if required, and Regulatory Approvals. No consent of any
other third party is or will be necessary nor any other action by or on behalf
of Purchaser is or will be necessary, to authorize the execution, delivery and
performance of this Agreement and any documents and agreements executed by
Purchaser in connection herewith or consummation of the
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transactions contemplated herein, other than Regulatory Approvals (as defined
below). Each party shall mutually cooperate in the procurement of any Regulatory
Approvals; provided, however, nothing herein shall be construed as a guarantee
by either Purchaser or Seller that it will be able to secure the Regulatory
Approvals, and the foregoing Purchaser's representation and warranty shall be
limited to the representation and warranty that it will use its best efforts to
secure the Regulatory Approvals as provided in Section 11.03 below.
Notwithstanding anything contained herein to the contrary, except for those
that by their terms relate to a specific period of time, all of the foregoing
representations and warranties shall be materially applicable, true, correct and
complete, both as of the date hereof and as of the Closing Date, and Purchaser
shall, as stated in Section 10.02 (b) of this Agreement, certify in writing at
Closing that each and all said representations and warranties are materially
true, correct and complete as of and with respect to that date.
ARTICLE VIII
BROKER; INVESTMENT BANKER
Seller has utilized the services of The Robinson-Humphrey Company, Inc., an
investment banker, in connection with this Agreement and the transactions
contemplated herein. Except for the fee payable to The Robinson-Humphrey
Company, Inc., the payment of which is the sole responsibility of Seller, each
party hereby represents, covenants and warrants to the other that it has
employed no other broker, finder or investment banker in connection with the
transaction contemplated herein. Each party agrees to pay any commission,
finder's fee or investment banker's fee which may be due on account of the
transaction contemplated herein to any broker, finder or investment banker
employed by it, and to indemnify the other party hereto against any claim for
any commission, finder's fee or investment banker's fee made by any broker,
finder or investment banker allegedly employed by it and from and against any
and all costs and expenses incurred in connection therewith, including, but not
limited to, reasonable attorneys fees and costs.
ARTICLE IX
SELLER COVENANTS
9.01 Pre Closing. Seller covenants that between the date hereof and the
-----------
Closing and during the term of the Interim Operating Agreement or Interim Master
Lease, if any, except as contemplated by this Agreement or with the consent of
Purchaser, which consent shall not be unreasonably withheld, conditioned or
delayed:
(a) Within five (5) days following the Effective Date, Seller shall
order (i) an update to each title insurance policy previously delivered to
Purchaser by Seller as set forth in Exhibit 9.01 (a) through the national
office of Lawyers Title Insurance Corporation (the "Title Company"), for
each facility with a value equal to the amount of the Purchase Price
allocated
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by Seller to such facility (the "Title Commitments"), (ii) a UCC-1 search
report in the name of Seller and each of the Facilities conducted at the
state and county level ("UCC Search Reports"), and (iii) order an ALTA/ACSM
survey of each of the Facilities prepared by a surveyor acceptable to
Purchaser (the "Surveys"). The Title Commitments shall run in favor of
Purchaser, but shall commit the Title Company to provide lessee's policies
for New Operator if ordered by Purchaser prior to December 31, 1997.
Purchaser or New Operator shall be responsible for payment of the
additional premium, if any, attributable to the commitment to issue a
lessee's policy or any policy issued pursuant thereto. The Surveys shall
show thereon: (a) the location of all boundaries, existing fences,
easements, pipelines, right-of-way, and public roads and highways which are
of record or visible on the ground, (b) vicinity map showing the Real
Property surveyed in reference to nearby highways or major street
intersections, (c) flood zone designation (with proper annotation based on
Federal Flood Insurance Rate Maps or the state or local equivalent, by
scaled map location and graphic plotting only), (d) all setback, height and
bulk restrictions of record or disclosed by applicable zoning or building,
codes (in addition to those recorded in subdivision maps), (e) exterior
dimensions of all buildings at ground level, (f) exterior footprint of all
buildings, or gross floor area of all buildings at sound level, (g) all
substantial physical improvement (in addition to buildings) such as signs,
parking structures, swimming pools, etc., (h) parking areas and, if
striped, the striping and the type (e.g. handicapped, motorcycle, regular
etc.) and the number of parking paces, (i) indication of access to a public
way such as curb cuts and driveways marked, location of all utilities
serving or exiting on the Real Property as evidenced by on-site observation
or as determined by records provided by Seller, utility companies and/or
other appropriate sources (with reference to the source of information),
(k) the number of acres and net square footage contained within the
boundaries of the Real Property, (1) the location and dimensions of any
protrusions from and encroachments on the Real Property, and (m) such other
requirements as may be necessary including, without limitation, evidence
that each Facility complies with the applicable zoning classification for
the associated Real Property in order to permit the Title Company to issue
the Title Insurance Policies without the so-called "standard exceptions".
The Surveys shall be certified to the Purchaser, Seller, and the Title
Company. The surveyor shall include in its certification its Registration
Number, address, telephone number, the job number and that the Survey meets
all ALTA/ACSM requirements and that the Survey was made on the ground as
per the field notes shown thereon and that, except as shown thereon, there
are no visible easements, rights-of-way, party walls, conflicts, or visible
encroachments by any improvements onto an easement or neighboring property
or by any improvements on adjoining property onto the Real Property and
that the Real Property has direct access to an adjacent public street;
(b) Seller will operate the Facilities only in the ordinary course
and with due regard to the proper maintenance and repair of the Real
Property or Personal Property in order to maintain and repair the Real
Property and the Personal Property substantially in the same
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condition as they were in at the date hereof, ordinary wear and tear,
insured casualty loss and taking by eminent domain excepted;
(c) Seller will take all reasonable action to preserve the goodwill
and the present occupancy levels of the Facilities;
(d) Except in the ordinary course of business, Seller will not make
any material change in the operation of the Facilities nor sell or agree to
sell any items of machinery, equipment or other fixed assets of any of the
Facilities nor otherwise enter into any agreements materially affecting any
of the Facilities;
(e) Seller will use its reasonable efforts to retain the goodwill of
the employees at each of the Facilities and will provide Purchaser and New
Operator (or Atrium, if applicable) with notice in the event of any known
union organizing activities or if contract negotiations are commenced at
the Facilities after the date hereof;
(f) Seller will maintain in force the existing insurance coverage or
comparable insurance coverage, in all material respects, with respect to
the Facilities;
(g) Except in the ordinary course of business, Seller will not
increase the compensation or bonuses payable or to become payable to any of
the employees at any of the Facilities or grant any severance benefits to
any such employees other than in accordance with the provisions set forth
in the Seller Disclosure Schedule;
(h) Seller will not enter into any written employment agreements with
any current or prospective employees of the Facilities;
(i) Without the prior written approval of Purchaser, Seller will not,
except in the ordinary course of business, enter into any lease, tenancy,
contract or other commitment affecting any of the Seller's Assets or incur
any additional indebtedness or amend, extend or renew any current debt
instruments, whether in the ordinary course of business or otherwise,
unless, however, neither Purchaser, New Operator nor any of the Facilities
shall be obligated, following the Closing, for any such indebtedness or
debt investments;
(j) Seller will provide Purchaser within ten (10) days following the
mutual execution of this Agreement with copies of the following documents
relating to the Real Property and each of the Facilities to the extent the
same are in Seller's possession or reasonable control (collectively, the
"Property Documents"): all environmental reports, structural reports and
geological reports, governmental licenses, permits and approvals, service
and maintenance contracts not previously delivered as part of the Operating
Contracts, existing surveys of the Real Property including any as-built
surveys for the improvements, wetland
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<PAGE>
reports, soils reports, architectural drawings, plans and specifications,
engineering tests and reports. In the event Purchaser or its accountants or
New Operator and its accountants determines that any additional documents
or information will be necessary in order for Purchaser or New Operator to
comply with any requirements of the Securities and Exchange Commission
("SEC") applicable to Purchaser or New Operator, Seller access to cooperate
in good faith in order to obtain copies of the same, provided that said
cooperation shall be at no cost or expense to Seller;
(k) During normal business hours, Seller will provide Purchaser and
New Operator and their agents with access on 24 hours notice to the Real
Property and the Facilities, provided Purchaser, New Operator and their
agents do not interfere with the operation of the Facilities and at such
times Seller shall permit Purchaser, New Operator and their agents to
inspect the books and records related to each Facility (which may be
unaudited) covering a period of not less than two years prior to the date
hereof and conduct an audit of said books and records and inspect the
physical and structural condition of each Facility, the Real Property and
the Personal Property, all with a representative of Seller being present.
Said books and records shall include, but not be limited to, leases,
accounts payable records, rent rolls, operating statements, inventory of
personal property and all other contracts and agreements which relate to
Seller's Assets;
(l) Seller will file all returns, reports and filings of any kind or
nature, with respect to the Facilities, or will secure timely extensions
for the filing thereof, required to be filed by Seller including, but not
limited to, state and federal tax returns and Medicare and Medicaid cost
reports and to timely pay all taxes or other obligations which are due and
payable with respect thereto, except to the extent that the same are being
duly contested in good faith in accordance with applicable law and such
contest does not materially affect Seller or the Facilities;
(m) Seller will operate the Facilities in substantial compliance with
all applicable municipal, county, state and federal laws, regulations,
ordinances, and orders as now in effect (including, without limitation, all
applicable building, zoning and life safety codes with respect thereto)
where the failure to comply therewith would have a material adverse effect
on the business, property, condition (financial or otherwise) or operation
thereof, as presently operated;
(n) Seller will take all reasonable action to achieve substantial
compliance with any laws, regulations, ordinances, standards and orders
applicable to the Facilities which are enacted or issued after execution of
this Agreement and prior to the Closing where the failure to comply
therewith would have a material adverse effect on the business, property,
condition (financial or otherwise) or operation thereof, as presently
operated;
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(o) Seller will provide Purchaser with (I) true and correct copies of
financial statements for Seller and for the Facilities for the entire
calendar year 1996 as soon as available, and (II) copies of monthly
financial statements for each of the Facilities prepared in the ordinary
course of business between the date hereof and the Closing Date, it being
acknowledged that such monthly financial statements are not prepared in
accordance with GAAP;
(p) Seller will provide Purchaser with copies of all licensure or
certification surveys for the Facilities received by Seller and the related
Plans of Correction prepared by Seller between the date hereof and the
Closing Date;
(q) Seller will pay as and when due the accounts payable related to
the Facilities which arise in the ordinary course of their business, except
to the extent that the amount owing is being duly contested by Seller and
such contest does not materially affect Seller or the Facilities;
(r) Unless specifically prohibited by law, Seller will use its best
efforts to cause all of the conditions to Closing set forth in Sections
12.01 and 12.02 which are within Seller's control to be satisfied prior to
the Closing Date and Seller will not take any action inconsistent with its
obligations tinder this Agreement or which could hinder or delay the
consummation of the transactions contemplated by this Agreement or which
would cause any representation, warranty or covenant made by Seller in this
Agreement or in any certificate, list, exhibit, or other instrument
furnished or to be furnished pursuant hereto, or in connection with the
transaction contemplated hereby, to be untrue in any material respect as of
the Closing Date;
(s) Seller and the General Partner and any officer, director,
employee, advisor or others authorized to act on any of their behalf (i)
will not, directly or indirectly, initiate, solicit, authorize or encourage
discussions relating to any alternative acquisition proposal or similar
transaction, involving any of the Seller's Assets, including, without
limitation, a merger or other business combination or the purchase of any
ownership interests in the Seller, other than the transactions contemplated
by this Agreement (any such proposal shall be referred to as an
"Acquisition Proposal"); (ii) will not participate in negotiations in
connection with or in furtherance of any Acquisition Proposal or permit any
person other than Purchaser and its representatives to have any access to
the Facilities, or furnish to any person other than Purchaser and its
representatives any non-public information with respect to the Seller's
Assets; (iii) will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties, other
than Purchaser, conducted on or before the date of this Agreement with
respect to any Acquisition Proposal; and (iv) will immediately provide to
Purchaser written notice of any Acquisition Proposal which notice shall
include the name of the party seeking to initiate, continue or renew
activities, discussions or negotiations regarding an Acquisition Proposal;
provided, however, that nothing contained in this Section
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9.01(s) shall prohibit Seller or the General Partner from taking any action
otherwise prohibited by this Section 9.01(s) if Seller or the General
Partner determines, upon the receipt of a written opinion of its outside
counsel, that it is necessary to take such action in order to fulfill its
fiduciary duties to the Limited Partners;
(t) Seller will provide to Purchaser copies of all material documents
which relate to, and, upon request, with verbal or written updates
concerning the status of, any litigation filed as of the date hereof or
filed from and after the date hereof by or against Seller or its General
Partner and which may affect the Facilities after the date of this
Agreement but prior to the Closing Date where the amount claimed or
assessed is judged by the General Partner as likely to exceed $10,000.00;
provided, however, neither Seller nor its General Partner shall be required
to deliver any documents to Purchaser which, by reason of said delivery,
would result in the waiver or relinquishment of the attorney-client
privilege held by Seller or its General Partner;
(u) Seller and the General Partner (i) as promptly as practicable,
but in no event later than five (5) business days after the date the SEC
clears the Consent Solicitation (as that ten-n is defined below), will take
all actions necessary in accordance with applicable law and the Partnership
Agreement to solicit and seek to obtain the requisite consent of the
Limited Partners as required by applicable law and the terms of the
Partnership Agreement to consider and vote upon the approval of tills
Agreement and the actions contemplated by this Agreement; (ii) will
recommend that the Limited Partners approve this Agreement and the
transactions contemplated by this Agreement; (iii) will use their best
efforts to seek to obtain such approval, including, without limitation, by
having the Consent Solicitation (as defined below) cleared by the SEC for
mailing to the Limited Partners; (iv) within fourteen (14) days after the
date of this Agreement, will prepare and file with the SEC a consent
solicitation statement (the "Consent Solicitation') with respect to the
solicitation by the General Partner of the consent of the Limited Partners
to this Agreement and the transactions contemplated by this Agreement; and
(v) will cause the Consent Solicitation (A) to comply as to form in all
material respects with the applicable provisions of the Securities and
Exchange Act of 1934, as amended (the "1934 Act"), and the rules and
regulations thereunder and (B) to include the recommendation of the General
Partner that the Limited Partners approve this Agreement and the
transactions contemplated by this Agreement; Seller will provide Purchaser
with a copy of the Consent Solicitation at the time Seller sends the
Consent Solicitation to its Limited Partners; Seller will provide Purchaser
with a draft of the Consent Solicitation and any proposed amendments
thereto prior to their submission to the SEC for Purchaser's review and
comment;
(v) Seller will not agree to do or to cause to be done any of the
acts which it has covenanted not to do under this Section 9.01; and
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<PAGE>
(w) Within fifteen (15) days following the mutual execution of this
Agreement, Seller will deliver to Purchaser a disclosure schedule addressed
to Purchaser which sets forth in reasonable detail any exceptions to any of
the representations and warranties made by Seller hereunder (the "Seller
Disclosure Schedule").
9.02 Closing Date. On the Closing, Date, Seller will deliver to Purchaser
------------
the following:
(a) A certificate of General Partner dated as of the Closing Date,
certifying, on behalf of Seller in such detail as Purchaser may reasonably
specify the fulfillment of the conditions set forth in Sections 12.01 (a)
and (b);
(b) A certificate from General Partner certifying that a majority in
interest of the limited partners of the Sellers have authorized and
approved the sale of the Facilities;
(c) Certificates of Organization and Certificates of Authority to
Transact Business in a foreign state with respect to Seller issued within
the 30 days prior to the Closing Date by the Secretary of State (or other
authorized official) in each of the States where the Facilities are located
and in the State of Seller's incorporation or formation;
(d) An opinion or opinions of counsel to Seller dated as of the
Closing Date in substantially the form attached hereto as Exhibit 9.02 (d);
(e) Subject to Section 10.01(a) below, fee simple title to the Real
Property to be conveyed by Warranty Deed as referred to in Section 9.02(f)
below, free and clear of all liens and encumbrances other than the
following:
(i) Liens for real and personal property taxes which are not yet
due and payable; and
(ii) Such liens, encumbrances and restrictions as may be approved
or deemed approved by Purchaser pursuant to Section 10.01 (a).
(f) A duly executed Warranty Deed in form and substance reasonably
acceptable to Purchaser with respect to each parcel of Real Property and a
Bill of Sale in form and substance in accordance with Exhibit 9.02 (f)
attached hereto with respect to all of the Personal Property for each of
the Facilities;
(g) A counterpart of an assignment and assumption agreement with
respect to the Operating Contracts described in Section 6.21 to the extent
Purchaser or New Operator elects to assume the same in accordance with the
provisions of Section 10.01, but only if the
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<PAGE>
Operating Contracts are assumable by Purchaser, which agreement shall be in
the form and substance of Exhibit 9.02(g) attached hereto;
(h) A counterpart of an assignment and assumption agreement with
respect to the Admission Agreements described in Section 6.19, in the form
and substance of Exhibit 9.02 (h) attached hereto;
(i) Such other documents or instruments as may be reasonably
necessary to convey title to the Seller's Assets to Purchaser in accordance
with the terms hereof;
(j) Possession of the Seller's Assets in such condition and repair as
shall comply with the terms hereof;
(k) The original certificates of title to any motor vehicles included
within the Personal Property;
(l) The Benefits Schedule (as defined in Section 14.01); and
(m) A counterpart of the Letter Agreement (as defined in Section
2.01).
In addition, on the Closing Date, the Seller shall take the following actions:
(n) Pay the closing costs for which it is responsible under Article
IV; and
(o) Adjust the Purchase Price by a credit to Purchaser for the
accrued Benefit Pay (as defined below) and accrued sick pay of each
Facility in accordance with the provisions of Section 14.01.
9.03 Post Closing. Seller covenants and agrees that after the Closing Date
------------
it will:
(a) At no cost to Seller, reasonably cooperate with Purchaser in the
event Purchaser is required to include audited financial statements with respect
to the Facilities in its filings with the SEC.
(b) Take such actions and properly execute and deliver to Purchaser
such further instruments of assignment, conveyance and transfer as, in the
reasonable opinion of counsel for Purchaser and Seller, may be reasonably
necessary to assure, complete and evidence the transfer and conveyance of
Seller's Assets, as contemplated herein.
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<PAGE>
(c) Seller shall retain and not disburse to any general or limited
partner, Three Hundred Seventy Thousand and 00/100 Dollars ($370,000.00)
less any amounts paid out to satisfy any Claims (as defined below) against
Seller in liquid assets (i) until the Medicare/Medicaid Release Date (as
defined in the Letter Agreement), and (ii) after the Medicare/Medicaid
Release Date, an amount which the parties shall reasonably determine
appropriate to assure Purchaser, or its assigns, that Seller will be able
to satisfy its obligations under Section 15.01 with respect to any Claims
which are not yet resolved. Funds maintained in the joint signature account
pursuant to Section 2.01 of this Agreement shall not be included toward
Sellers obligation to maintain liquid assets as set forth in the preceding
sentence. Notwithstanding anything in this Section 9.03(c) to the contrary,
Seller may use such funds for payment of operational payables and expenses
of the Facilities and the expenses of winding up its business, provided
--------
however, in no event shall the amount of such funds retained be an amount
-------
less than Three Hundred Thousand and 00/100 Dollars ($300,000.00).
(d) File the annual cost reports for the Facilities within the
periods required by Medicare, Medicaid and any other third party payor and
provide any additional documentation to support the amounts claimed under
such cost reports within such time periods.
ARTICLE X
PURCHASER COVENANTS
10.01 Pre-Closing. Purchaser covenants that between the date hereof and
-----------
the Closing, except as contemplated by this Agreement or with the consent of
Seller, which consent shall not be unreasonably withheld, conditioned or
delayed:
(a) Within ten (10) days after its receipt of the Title Commitments
and all documents referred therein to as any exception to title, the
Surveys and the UCC Search Report, Purchaser shall advise Seller in writing
of its objections, if any, to, each Title Commitment, Survey and UCC Search
Report. Seller agrees to use reasonable best faith efforts to cure any
defects in title, and in any event will from the proceeds of the sale pay
any encumbrances which may be satisfied by the payment of money. Within ten
(10) days after Seller's receipt of Purchaser's title objections, UCC
search and Survey objections, Seller shall advise Purchaser whether it will
be able to correct the defects to which Purchaser has objected. If Seller
notifies Purchaser that Seller, using reasonable best faith efforts, is
unable to correct some or all of the title, survey or lien defects objected
to by Purchaser, Purchaser shall have (5) days to advise Seller of its
decision to close, notwithstanding the defects, or of its election to
terminate this Agreement, in which case shall have any
further rights or obligations hereunder. Any matter reflected on the Title
Commitments or Surveys provided to Seller which has not been objected to by
Purchaser in accordance with the terms hereof, shall be deemed accepted by
Purchaser. If Purchaser elects to purchase the Facilities
24
<PAGE>
notwithstanding Seller's inability to correct any matter objected to, then
all such matters so objected to shall be deemed accepted by Purchaser
hereunder;
(b) Purchaser acknowledges receipt of the Phase I Environmental
Assessment Reports identified on Exhibit 6.13. Seller will promptly order
updates of those Phase I Environmental Assessment Reports identified on
Exhibit 6.13 and has previously ordered Phase I Environmental Assessment
Reports as to those Facilities which are not covered by the Phase I
Environmental Assessment Reports identified on Exhibit 6.13. Within five
(5) business days of receipt of the updated Phase I Environmental
Assessment Reports and the new Phase I Environmental Assessment Reports,
Purchaser will notify Seller in writing of any additional environmental
studies or investigations which Purchaser requires. The updated Phase I
Environmental Assessment Reports and the new Phase I Environmental
Assessment Reports will be from companies reasonably acceptable to
Purchaser and will be certified to Purchaser and to the New Operator as
soon as the New Operator is identified.
(c) Purchaser will proceed with all due diligence to conduct such
investigations with respect to Seller's Assets as it deems to be reasonably
necessary in connection with its purchase thereof, including, but not
limited to, zoning investigations, soil studies, environmental assessments,
seismic assessments, wetlands reports, review of all Property Documents
provided by Seller, investigations of each of the Facility's operating
books and records and structural inspections, provided, however, no studies
or investigations conducted at the Real Property will be physically
intrusive on the Real Property or the Facilities unless Seller consents
thereto (the "Feasibility Review") and, provided further that, Purchaser
shall maintain the confidentiality of any documents or information obtained
by it during the course of its Feasibility Review and shall return the same
to Seller in the event the transaction provided for herein fails close for
any reason whatsoever. Notwithstanding the foregoing, Purchaser may
disclose any such documents and information to its lawyers, accountants,
lenders, appraisers and other professionals advising, Purchaser so long as
each of them agrees to treat such documents and information confidentially.
Any access to the Real Property and/or the Facilities which is provided to
the Purchaser in order to conduct its Feasibility Review shall be subject
to the terms and conditions of Section 9.01 (k) above;
(d) Purchaser will proceed with all due diligence to obtain the HSR
Consent, if required, and Regulatory Approvals for which it is responsible
under the terms hereof, including without limitation, obtaining from the
applicable governmental licensing authorities assurances, reasonably
satisfactory to Purchaser, that Purchaser will receive all necessary
operating licenses. as provided in Section 12.01 (c) below;
(e) Within ten (10) days after receipt of the exhibits as set forth
in Section 16.15 hereof, Purchaser will advise Seller in writing which, if
any of the Operating Contracts it or New Operator will assume as of the
Closing Date and which of the Operating Agreements it is
25
<PAGE>
electing to assume are deemed by Purchaser to be material to the operations
of the Facilities for purposes of Section 6.21 above;
(f) Unless specifically prohibited by law, Purchaser will use its
best efforts to cause all of the conditions to Closing set forth in
Sections 12.01 and 12.02 which are within its control to be satisfied prior
to the Closing Date and Purchaser will not take any action inconsistent
with its obligations under this Agreement or which could hinder or delay
the consummation of the transactions contemplated by this Agreement or
which is intended to cause any representation, warranty or covenant made by
Purchaser in this Agreement or in any certificate, list, exhibit, or other
instrument furnished or to pursuant hereto, or in connection with the
transaction contemplated hereby, to be untrue in any material respect as of
the Closing Date;
(g) Purchaser (i) will furnish such information concerning Purchaser
as is necessary in order to cause the Consent Solicitation, insofar as it
relates to Purchaser, to be prepared in accordance with all applicable
requirements of the 1934 Act and the rules and regulations promulgated
thereunder; and (ii) will promptly advise Seller if at any time prior to
any meeting of the Limited Partners any information provided by Purchaser
to Seller in the Consent Solicitation becomes inaccurate or incomplete in
any material respect and will provide to Seller the information needed to
correct such inaccuracy or omission;
(h) Purchaser will not agree to do or to cause to be done any of the
acts which it has covenanted not to do under this Section 10.01;
(i) Within fifteen (15) days following the mutual execution of this
Agreement, Purchaser will deliver to Seller a disclosure schedule addressed
to Seller which sets forth in reasonable detail any exceptions to any of
the representations and warranties made by Purchaser hereunder (the
"Purchaser Disclosure Schedule"); and
(j) Purchaser will proceed with all due diligence to secure the
Regulatory approvals and HSR Consent, if required, for which it is
responsible under the terms hereof.
10.02 Closing Date. On the Closing Date, Purchaser will deliver or cause
------------
New Operator to deliver the following:
(a) The purchase price in accordance with Article II and any other
adjustments set forth in this Agreement and subject to Section 12.01(d)
hereof:
(b) A certificate of a responsible officer of Purchaser dated as of
the Closing Date certifying on behalf of Purchaser in such detail as Seller
may reasonably specify the fulfillment of the condition set forth in
Sections 12.02 (a) and (b);
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<PAGE>
(c) Resolutions of Purchaser's Board of Directors, certified by the
Secretary of Purchaser authorizing and approving the transactions
contemplated herein;
(d) A counterpart of an assignment and assumption agreement with
respect to the Operating Contracts described in Section 6.21 to the extent
New Operator elects to assume the same in accordance with the provisions of
Section 10.01;
(e) A counterpart of an assignment and assumption agreement with
respect. to the Admission Agreements described in Section 6.20;
(f) An opinion or opinions of counsel to Purchaser dated as of the
Closing Date in substantially the form attached hereto as Exhibit 10.02;
(g) Pay the closing costs for which it is responsible under Article
IV;
(h) A counterpart of the Letter Agreement (as defined in Section
2.01).
10.03 Post Closing. After the Closing Date, Purchaser will:
------------
(a) Provide Seller, or cause New Operator to provide Seller, with
access during normal business hours to the Facilities and any books or
records which Seller may need to file or to defend tax returns or other
governmental filings or any litigation or administrative actions filed
prior to or subsequent to the Closing Date which relate to the period prior
to the Closing Date as well as for purposes of pursuing collection of third
party payments due Seller for the period prior to the Closing Date; Seller
shall have the ability to photocopy accounts receivable records and such
other records of residents and the Facilities as may be commercially
reasonable and provided that Seller shall limit its documentary and
photocopy requests to periods relating prior to the Closing Date;
(b) Take such actions and properly execute and deliver such further
instruments as Seller may reasonably request to assure, complete and
evidence the transaction provided for in this Agreement;
(c) Cause New Operator and/or Atrium to retain all patient records
for the Facilities which are in existence as of the Closing, for a period
of not less than three (3) years and, upon reasonable advance notice to
Purchaser, allow Seller access to said patient records and;
(d) For two (2) months after the Closing Date, cause New Operator to
use commercially reasonable efforts to collect, for the account of Seller,
the accounts receivable for
27
<PAGE>
each Facility for the period prior to and including, the Closing Date.
Seller shall provide New Operator with a completed aged trial balance of
the accounts receivable as of the Closing Date, on or as soon as reasonably
practical after the Closing Date. On the 15th day of the calendar month
immediately following the applicable calendar month during such two (2)
month period, following the provision to New Operator of such trial balance
of accounts receivable, New Operator shall provide Seller with a detail of
the accounts receivable collected, if any, during the preceding calendar
month, accompanied by copies of remittance advices and shall pay to Seller
the aggregate amount collected on behalf of Seller. Without Seller's
consent, New Operator shall not compromise or settle for less than full
value of any of the accounts receivable. New Operator's obligation
hereunder will be to collect the accounts receivable in the ordinary and
normal course of business in accordance with customary practices and new
Operator shall not have any obligation to institute litigation, employ
counsel or any collection agency, employ any other extraordinary means of
collection or take any other action or proceeding against any resident or
patient of the Facilities or any other person liable for such accounts
receivable. Seller agrees that it shall not institute litigation or employ
a collection agency against any person to collect any such accounts
receivable while such person is a resident or patient of any Facility.
Sellers' commitment with respect to litigation does not apply to collection
efforts with respect to Medicare, Medicaid or third party payors, including
anyone who may have misappropriated the funds of any resident. Purchaser
agrees to cause New Operator to provide reasonable access, at reasonable
times, for Seller's designated agents, to the Facilities' books and records
and personnel to assist Seller in Seller's efforts to collect its accounts
receivables so long as such access is not disruptive to the normal
operations of the Facilities.
ARTICLE XI
MUTUAL COVENANTS
11.01 General Covenants. Following the execution of this Agreement,
-----------------
Seller and Purchaser agree:
(a) If any event should occur which would prevent fulfillment of
the conditions to the obligations of any party hereto to consummate the
transactions contemplated by this Agreement, to use its or their reasonable
efforts to cure the same as expeditiously as possible;
(b) To cooperate fully with each other in preparing, filing,
prosecuting, and taking any other actions which are or may be reasonable
and necessary to obtain the consent of any governmental instrumentality or
any third party, to accomplish the transactions contemplated by this
Agreement;
(c) To deliver such other instruments of title, certificates,
consents, endorsements, assignments, assumptions and other documents or
instruments, as may be reasonably necessary
28
<PAGE>
to carry out and/or to comply with the terms of this Agreement and the
transactions contemplated herein;
(d) To confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally and in writing of
any change or event having a material adverse effect the consummation of
the transactions contemplated herein, or which would constitute a material
breach of any of the representations, warranties or covenants of such party
contained herein;
(e) To promptly provide the other (or its counsel) with copies of
all other filings made by such party with any state or federal governmental
entity in connection with this Agreement or the transactions contemplated
hereby;
11.02 Hart-Scott-Rodino Filing. If Purchaser determines that a filing is
------------------------
required under the HSR Act as a consequence of the transactions contemplated
herein or as a consequence of the Master Lease, Seller agrees to cooperate with
such filing.
11.03 HSR Consent/Regulatory-Approval. Purchaser and Seller will use their
-------------------------------
best efforts to obtain prior to the Closing Date all consents, approvals and
licenses necessary to permit the consummation of the transactions contemplated
by this Agreement, including, but not limited to, such licensure and
certification approval in the States of Alabama, Illinois and Texas as may be
necessary to enable Purchaser to lawfully own and/or New Operator to operate the
Facilities from and after the Closing Date (the "Purchase Regulatory
Approvals"), and Purchaser, with Seller's cooperation, will use its best efforts
to obtain prior to the Closing Date the consent as may be required under HSR Act
(as that term is defined above) (the "HSR Consent"). Purchaser will use its best
efforts to cause New Operator to obtain such licensure and certification
approval in the States of Alabama, Illinois and Texas as may be necessary to
enable New Operator to lawfully operate the facilities from and after the
Closing Date (the "New Operator Regulatory Approvals") and to obtain the HSR
Consent. The Purchaser Regulatory Approvals and the New Operator Regulatory
Approvals are collectively referred to as the "Regulatory Approvals".
11.04 Public Announcements. Each party shall consult with the other, and
--------------------
shall use best efforts to agree upon, the form and content, prior to issuing any
press release, public announcement or statement with respect to this Agreement
or the transactions contemplated hereby.
ARTICLE XII
CONDITIONS
12.01 Purchaser Conditions. All obligations of Purchaser under this
--------------------
Agreement are subject or as of the Closing Date (or such earlier date as may be
provided for below) of each of the following conditions any one or more of which
may be waived in writing by Purchaser:
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(a) The representations and warranties of Seller contained in this
Agreement or in any certificate or document delivered in connection with
this Agreement or the transaction contemplated herein shall be true and
correct in all material respects at and as of the Closing Date as though
such representations and warranties were then again made, other than any
representations or warranties which specifically relate to an earlier
period, which shall have been true as of the date thereof.
(b) Seller shall have performed all of its obligations under this
Agreement that are to be performed by it prior to or as of the Closing
Date, including without limitation, the provisions of Section 9.02 hereof.
(c) If a Master Lease has been entered into, Purchaser, Seller and
the New Operator shall have received the Regulatory Approvals and shall
have satisfied any and all conditions to the effectiveness thereof;
provided, however, notwithstanding anything to the contrary contained
herein, with respect to any licenses which may be required for Purchaser's
operation of the Facilities as skilled nursing facilities by the New
Operator, it shall not be a condition to Purchaser's obligations hereunder
to obtain prior to the Closing Date a license "in-hand' but rather that
Purchaser or New Operator shall have received prior to the Closing Date
assurances from the applicable governmental licensing authorities
assurances, reasonably satisfactory to Purchaser, that New Operator will
receive a license following the Closing with an effective date as of
September 1, 1997 or earlier. If Purchaser is unable to obtain said
assurances for the issuance operating licenses for the Facilities,
Purchaser agrees to Seller a reasonable opportunity to attempt to obtain,
on behalf of Purchaser, said assurances for the operating, licenses before
this condition shall be deemed not satisfied. Following the expiration of
the Feasibility Period, Purchaser agrees to provide to Seller, upon
Seller's request (which requests shall not be made more often than weekly),
and update as to Purchaser's progress in obtaining licensure approval.
(d) Purchaser shall be satisfied in its sole discretion with the
results of its Feasibility Review, including but not limited to Purchaser's
review and approval of (i) the physical condition of the Real Property and
the structural condition of the Facilities, (ii) the financial performance
and financial prospects of each of the Facilities, (iii) the results of the
Phase I Reports to be obtained by Seller with respect to the Real Property
and the Facilities, (iv) all Property Documents required to be delivered by
Seller hereunder, (v) the zoning of each of the Facilities in order to
confirm that the development of the Facilities and the current operation
thereof are in compliance with all applicable zoning laws and that said
zoning laws would impose no conditions which would limit the right or
ability of Purchaser to rebuild or repair the same in the event of any
damage or destruction thereto, and (vi) the MAI appraisals which Purchaser
intends to obtain with respect to each of the Facilities. In the event
Purchaser has not advised Seller in writing on or before thirty (30) days
after the execution of
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this Agreement (such thirty (30) day period referred to as the "Feasibility
Period") of its objections to the results of its Feasibility Review and its
election to terminate this Agreement by reason of a failure of this
condition, then Purchaser shall deposit Three Hundred Five Thousand Seven
Hundred and 00/100 Dollars ($305,700.00) with the Title Company as an
earnest money deposit (the "Deposit"). The Deposit shall be applied at
Closing to the purchase price of each Facility on a pro rata basis that the
purchase price of each Facility bears to the total purchase price allocated
as set forth in Section 16.02 hereof (the "Allocated Deposit"). Nothing
herein shall be construed as amending or modifying in any manner the
representations or warranties of Seller set forth in this Agreement, which
representations and warranties shall be separate from and unaffected by
Purchaser's Feasibility Review except as to any representations and
warranties which, during the course of Purchaser's Feasibility Review,
Purchaser obtains knowledge of the falsity or inaccuracy and advises Seller
in writing thereof.
(e) Other than with respect to a default identified in the Seller
Disclosure Schedule as of the date of this Agreement or any defaults
identified after the date of this Agreement in any amendments to the Seller
Disclosure Schedule, Seller shall not be in default, where :,aid default
cannot be cured by the Closing Date, under any mortgage, contract, lease or
other agreement to which Seller is a party or by which Seller is bound and
which materially affects or relates to the Real Property, the Personal
Property or the Facilities. In the event there are any amendments or
updates to the Seller Disclosure Schedule, Seller shall notify Purchaser in
writing and should Purchaser reasonably determine that any such amendment
would have a material adverse affect on any of the facilities or the
operation thereof by Purchaser, Purchaser shall have the right, exercised
by written notice delivered to Seller within five (5) business days
following Purchaser's receipt of said amendment or update, to terminate
this Agreement.
(f) A title insurance policy or marked-up title for each Facility
providing for extended owners coverage and issued without the so-called
"standard exceptions" shall have been issued to Purchaser with respect to
each to the Facilities subject only to those exceptions not otherwise
objected to or deemed accepted by Purchaser pursuant to Section 10.01 (b)
and containing such endorsements as may be necessary in order to address
any objections of Purchaser to the Title Commitment as provided above and
Path a total value equal to the amount of the purchase price allocated to
each parcel of Real Property as provided herein (the "Title Insurance
Policies").
(g) Purchaser shall have approved the Surveys within the ten (10)
day period provided for in Section 10.01(a).
(h) Purchaser shall have approved the results of the UCC Searches
with the ten (10) day period provided for in Section 10.01 (a).
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(i) Concurrently with or prior to the Closing hereunder, (A) if
requested by New Operator, Seller shall have entered into the Interim
Operating Agreement, (B) if requested by Purchaser, Seller shall have
entered into the Interim Master Lease, and (C) if an Interim Operating
Agreement or Interim Master Lease has been entered into, Seller shall have
entered into the Interim Management Agreement with Atrium.
(j) Concurrently with the Closing hereunder, Purchaser and Medical
Income Properties 2A Limited Partnership, RWB Medical Properties IV Limited
Partnership and Medical Income Properties 2B Limited Partnership
(collectively referred to as the "Seller's Affiliates") shall have closed
the purchase of the facilities owned by each of Seller's Affiliates by
Purchaser in accordance with the terms and conditions of those certain
Purchase Agreements by and between Purchaser and each of Seller's
Affiliates of even date herewith ("Seller's Affiliates' Purchase
Agreements"). Any default by Purchaser hereunder shall be a default by
Purchaser under the Seller's Affiliates' Purchase Agreements and any
default by Seller hereunder shall be a default by Seller under the Seller's
Affiliates' Purchase Agreements.
12.02 Seller Conditions. All obligations of Seller under this Agreement
-----------------
are subject to the fulfillment, prior to or as of the Closing Date, of each of
the following conditions any one or more of which may be waived by Seller in
writing:
(a) The representations and warranties of Purchaser contained in
this Agreement or in any certificate or document delivered in connection
with this Agreement or the transaction contemplated herein shall be true
and correct at and as of the Closing Date as though such representations
and warranties were then again made, other than any representations or
warranties which specifically relate to an earlier period, which shall have
been true as of the date thereof.
(b) Purchaser shall have performed all of its obligations under
this Agreement that are to be performed by it prior to or as of the Closing
Date.
ARTICLE XIII
TERMINATION
13.01 Termination. This Agreement may be terminated by Purchaser or Seller
-----------
upon the following conditions:
(a) By mutual consent of the parties;
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(b) By Purchaser if the conditions to Closing set forth in Section
12.01 have not been satisfied or waived by the Closing Date or such earlier
date as may be provided for therein;
(c) By Seller if the conditions to Closing set forth in Section
12.02 have not been satisfied or waived by the Closing Date;
(d) By Purchaser or Seller at any time after the date that the
Limited Partners ultimately and finally fail to approve this Agreement and
the transactions contemplated by this Agreement in accordance with
applicable law and the Partnership Agreement or if such approval is not
obtained prior to July 15, 1997;
(e) (I) By Purchaser in the event of a material adverse change in
the information contained in Seller's Disclosure Schedule or
representations and warranties as a result of the amending or updating
thereof by Seller due to events occurring subsequent to the execution of
this Agreement and which were (i) not otherwise required to be disclosed
hereunder, and (ii) not caused by Seller's failure to perform pursuant to
Section 9.01;
(II) By Seller in the event of a material adverse change in
the information contained in Purchaser's Disclosure Schedule or
representations and warranties as a result of the amending or updating
thereof by Purchaser due to events occurring subsequent to the execution of
this Agreement and which were (i) not otherwise required to be disclosed
hereunder, and (ii) not caused by Purchaser's failure to perform pursuant
to Section 10.01;
(f) By Purchaser in event that prior to the Closing Date a material
portion of any of the Real Property or the Facilities is damaged or
destroyed by fire or other casualty of has been taken or condemned by any
public or quasi-public authority under the power or eminent domain;
provided, however, that in the event the estimated cost to repair any such
damage is less than or equal to One Hundred Thousand Dollars ($100,000.00)
per Facility and such loss or damage does not or will not at Closing
materially interfere with the operation of the Facility, then neither party
shall have the right to terminate this Agreement, and Seller shall
expeditiously repair the damage, and provided further that if Purchaser
fails to exercise its termination rights hereunder, then it shall be
conclusively deemed to have waived said right and Seller shall assign to
Purchaser all of its rights to any insurance proceeds or condemnation award
and all claims in connection therewith and the amount of any deductible
under any insurance policy covering such casualty shall be a credit against
the Purchase Price at Closing. In event Purchaser exercises its termination
rights hereunder, parties shall have no further rights or obligations
hereunder; and/or
(g) By a non-defaulting party, in the event of a material breach by
the other party;
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(h) By Purchaser if (i) the General Partner shall have withdraw,
modified or amended its recommendations of this Agreement and the
transactions contemplated by this Agreement; (ii) the General Partner shall
have recommended that the Limited Partners accept or approve an Acquisition
Proposal by a person other than Purchaser or an affiliate of Purchaser; or
(iii) a public announcement with respect to a proposal, plan or intention
to effect an Acquisition Proposal shall have been made by any person other
than Purchaser or an affiliate of Purchaser and Seller shall have failed to
publicly reject or oppose such proposed Acquisition Proposal within ten
(10) days of the public announcement of such proposal, plan or intention;
and/or
(i) By Purchaser if Seller shall receive and approve an Acquisition
Proposal by the earlier of (i) the date of the Limited Partners Approval or
(ii) June 30, 1997.
13.02 Opportunity to Cure. Neither party to this Agreement may claim
-------------------
termination or pursue any other remedy referred to, in this Section 13 on
account of a breach of a condition, covenant or warranty by the other, without
first giving such other party written notice of such breach and not less than
ten (10) days within which to cure such breach. The Closing Date shall be
postponed if necessary to afford such opportunity to cure. Notwithstanding
anything contained in this Section 13.02 to the contrary, Seller shall have no
opportunity to cure Seller's default pursuant to Section 13.01(h) or 13.01(i).
13.03 Termination.
-----------
(a) In the event of termination of this Agreement by mutual consent
of the parties under Section 13.01(a), Purchaser shall be entitled to
immediate return of the Deposit, and neither party shall have any further
rights or obligations hereunder.
(b) In the event that Purchaser terminates this Agreement under
Section 13.01(b) following a material default by Seller not cured following
written notice within the applicable cure period, Purchaser shall be
entitled to the immediate return of the Deposit and shall be entitled to
commence an action for damages for Seller's default. Further, if Seller's
default occurs after the Limited Partners have approved the transaction
contemplated by this Agreement, Purchaser shall also be entitled to seek
specific performance of Seller's obligations hereunder.
(c) In the event that Seller terminates this Agreement under
Section 13.01(c), following a material default by Purchaser not cured
following written notice within the applicable cure period, Seller shall
receive the Deposit as liquidated damages, and neither party shall have any
further rights or obligations hereunder.
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<PAGE>
(d) In the event that either party terminates this Agreement under
Section 13.01 (d), Purchaser shall be entitled to immediate return of the
Deposit and Seller will pay Purchaser, as Purchaser's sole remedy, in
immediately available funds not later than two (2) days after receiving a
written demand from Purchaser an amount equal to the lesser of (i) One
Hundred and Twenty Five Thousand Dollars ($125,000.00), or (ii) Purchaser's
documented out-of-pocket expenses (including attorneys'' fees) incurred in
connection with this Agreement and the transaction contemplated herein;
provided, however, that the maximum amount payable to Purchaser under
clauses (i) and (ii) of this section 13.03(d) and the comparable sections
in Seller's Affiliates' Purchase Agreements shall not exceed One Hundred
and Twenty-Five Thousand Dollars $125.000
(e) (I) In the event that Purchaser terminates this Agreement
under Section 13.01 (e)(I), Purchaser shall be entitled to immediate return
of the Deposit and neither party shall have any further rights or
obligations hereunder; provided, however, that if the material adverse
change is the result of acts by Seller, Seller shall also pay Purchaser an
amount equal to the lesser of (i) One Hundred and Twenty Five Thousand
Dollars ($125,000.00), or (ii) Purchaser's documented out-of-pocket
expenses (including attorneys'' fees) incurred in connection with this
Agreement and the transaction contemplated herein; provided, however, that
the maximum amount payable to Purchaser under clauses (i) and (ii) of this
section 13.03(e) and the comparable sections in Seller's Affiliates'
Purchase Agreements shall not exceed One Hundred and Twenty-Five Thousand
Dollars ($125,000.00).
(II) In the event that Seller terminates this Agreement under
Section 13.01(e)(11), Seller shall receive the Deposit as liquidated
damages. and neither party shall have any further rights or obligations
hereunder.
(f) In the event that Purchaser terminates this Agreement under
Section 13.01(f), Purchaser shall be entitled to immediate return of the
Deposit and neither party shall have any further rights or obligations
hereunder.
(g) (I) In the event that Seller terminates this Agreement under
Section 13.01(g), Seller shall receive the Deposit as liquidated damages,
and neither party shall have any further rights or obligations hereunder.
(II) In the event that Purchaser terminates this Agreement
under Section 13.01(g), Purchaser shall have the same rights and remedies
as set forth in Section 13.03(b) following a termination of this Agreement
by Purchaser under Section 13.01(b).
(h) In the event that Purchaser terminates this Agreement under
either Section 13.01(h) or 13.01(i), Purchaser shall be entitled to the
immediate return of the Deposit and Seller will pay to Purchaser as
Purchaser's sole remedy, in immediately available funds, an
35
<PAGE>
amount equal to Six Hundred Eleven Thousand Four Hundred and 00/100 Dollars
($611,400.00) as liquidated damages on the earlier to occur of the
consummation of an Acquisition Proposal with another party, or one hundred
twenty (120) days after the termination.
13.04 Right of First Refusal. If this Agreement is terminated because
----------------------
Seller's Limited Partners fail to approve it, or if this Agreement is terminated
because the limited partners of one or more of Seller's Affiliates fails to
approve the Seller's Affiliates' Purchase Agreement, and if at the time of
termination Seller has not accepted an Acquisition Proposal, Purchaser shall
have a right of first refusal to purchase any Facility on the same terms as set
forth in a bona fide offer from a third party for the purchase of such Facility
received by Seller prior to December 31, 1997. Seller shall provide written
notice of the receipt of such bona fide offer and a copy of such offer (with
name(s) of purchasing party redacted if necessary) within five (5) business days
of Seller's receipt thereof. Purchaser shall have seven (7) business days from
receipt of such notice to reform Seller in writing of Purchaser's intent to
enter into a purchase agreement on the same terms as the bona fide offer.
Failure of Purchaser to inform Seller in writing of its intentions within such
seven (7) day period shall be deemed a rejection of such bona fide offer by
Purchaser. Seller agrees that Purchaser may record an affidavit of interest in
the real estate records of the county in which any Facility is located
evidencing Purchaser's right of first refusal as set forth herein, but Purchaser
shall discharge that affidavit of interest promptly on the earlier of December
31, 1997 or upon Seller's acceptance of a bona fide offer from a third party as
to which Purchaser has not exercised its right of first refusal. If Purchaser
fails to discharge the affidavit of interest within the time set forth above,
and thereafter does not discharge it within ten (10) days of receipt of written
notice from Seller of its failure or do so, Purchaser shall promptly pay Seller
$100,000.00 as liquidated damages. The right of first refusal provided for in
this Section 13.04 is in addition to, and not a limitation on, Seller's remedies
under Section 13.03(h).
ARTICLE XIV
OPERATIONAL PROVISIONS
14.01 Employees: Schedule of Employee Benefits.
----------------------------------------
(a) At Closing, Seller shall deliver to Purchaser a schedule (the
"Benefits Schedule") which reflects all accrued vacation pay due to and/or
coming due to the employees of Merry Wood Lodge as of the Closing Date (the
"Benefit Pay"). At Closing the Purchase Price shall be adjusted as set forth in
Section 9.02(o) of this Agreement for such Benefit Pay, Purchaser shall pay, or
cause New Operator or Atrium to pay, from and after the Closing, Benefit Pay to
the employees of the Facility as and when due in accordance with Purchaser's
personnel policies. New Operator agrees to honor, for purposes of its benefit
package, the length of service each employee at a Facility has with Seller. The
provisions of this Section 14.01 shall survive the Closing.
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<PAGE>
(b) At Closing the Purchase Price shall be adjusted as set forth in
Section 9.02(o) of this Agreement for accrued sick pay due to and/or coming, due
to the employees of Merry Wood Lodge as of the Closing Date. Such adjustment
shall be in the amount obtained by multiplying (i) the total amount of sick pay
incurred by each Facility for the calendar year ending 1996 by (ii) a fraction,
the numerator of which is the number of days Seller owned the Facilities in the
calendar year 1997 and the denominator of which is 365. Purchaser shall pay, or
cause New Operator or Atrium to pay, from and after the Closing, sick pay to the
employees of the Facility as and when due in accordance with Purchaser's
personnel policies. New Operator agrees to honor, for purposes of its benefit
package, the length of service each employee at a Facility has with Seller. The
provisions of this Section 14.01 shall survive the Closing.
(c) At Closing, Seller shall deliver to Purchaser a schedule (the
"Southpoint Benefits Schedule") which reflects all accrued vacation pay and
accrued sick pay due to and/or coming due to the employees of Southpoint Manor
as of the Closing Date (the "Benefit Pay"). At Closing the Purchase Price shall
be adjusted as set forth in Section 9.02(o) of this Agreement for such Benefit
Pay, Purchaser shall pay, or cause New Operator or Atrium to pay, from and after
the Closing, Benefit Pay to the employees of the Facility as and when due in
accordance with Purchaser's personnel policies. New Operator agrees to honor for
purposes of its benefit package, the length of service each employee at a
Facility has with Seller. The provisions of this Section 14.01 shall survive the
Closing.
14.02 Accounting Patient Trust Funds and Patient Prepaid Accounts. At the
-----------------------------------------------------------
Closing, Seller shall provide New Operator with an accounting of all patient
trust funds (the "Patient Trust Funds") being held by Seller as of the Closing
Date and of all fees and expenses which have been prepaid by residents/patients
and have not been applied as of the Closing Date (the "Patient Prepaid Funds").
Such accounting shall set forth the names of the residents/patients or
prospective residents/patients for whom such funds are held, the amounts held on
behalf of each resident/patient or prospective resident/patient and the Seller's
warranty that the accounting is true, correct and complete. Seller shall, by
separate check, deliver to New Operator or Atrium, as manager under the Atrium
Management Agreement, at the Closing Date, such Patient Trust Funds and Patient
Prepaid Funds and, subject to Section 14.03 below, New Operator or Atrium shall
thereafter be responsible for such Patient Trust Funds and Patient Prepaid
Funds, to the extent so transferred by Seller.
14.03 Indemnity for Trust Funds and Prepaid Funds. Notwithstanding the
-------------------------------------------
foregoing, Seller will indemnify and hold New Operator and Atrium harmless from
all liabilities, claims and demands in the event the amount of the Patient Trust
Funds and Patient Prepaid Funds transferred to New Operator or Atrium, as
provided in Section 14.02, did not represent the full amount of such Patient
Trust Funds and Patient Prepaid Funds then or thereafter shown to have been
delivered to Seller and outstanding as of the Closing Date. New Operator or
Atrium, as appropriate, will indemnify, defend and hold Seller harmless from all
liabilities, claims and demands in the event a claim is made against Seller by a
patient with respect to his/her Patient Trust Funds and/or Patient Prepaid Funds
but only if
37
<PAGE>
said Patient Trust Funds and/or Patient Prepaid Funds with respect to the
patient making said claim were actually transferred to New Operator or Atrium
pursuant to the terms of Section 14.02 above.
14.04 Accounts Receivable. Seller shall retain its right, title and
-------------------
interest in and to all unpaid amounts and accounts receivable with respect to
the Facilities which relate to any period prior to the Closing Date, including,
but not limited to, amounts or accounts receivable arising from rate
adjustments, Medicare or Medicaid or any other third party payor under payments,
insurance proceeds, rebates or any other monies which relate to the period prior
to the Closing Date even if such adjustments or payments occur after the Closing
Date. Seller shall remain liable for any overpayments made to Seller prior to
the Closing Date whether such overpayment is received by Seller prior to or
after the Closing Date for which payment is due to Medicare, Medicaid or any
other third party payor after the Closing Date. If, following the Closing Date,
Purchaser or New Operator receives payment from any federal or state agency or
other third party payor or from any patient or resident, which represents
payment for services rendered by Seller prior to the Closing Date, then
Purchaser shall promptly forward, or cause New Operator to promptly forward,
such payments to Seller in accordance with the following provisions:
(a) If such payments either specifically indicate on the
accompanying remittance advice, or if the par-ties agree, that they relate
to the period prior to the Closing Date, a copy of the applicable
remittance advice and the payment received shall be forwarded to Seller by
New Operator; and
(b) If such payments indicate on the accompanying remittance
advice, or if the parties agree, that they relate to the period on or after
the Closing Date, they shall be retained by New Operator.
(c) If such payments indicated on the accompanying remittance
advice, or if the parties agree, that they relate to periods both prior to
and after the Closing Date, the portion thereof which relates to the period
on and after the Closing Date shall be retained by New Operator and the
balance shall be remitted to Seller.
(d) Any payments received by New Operator during the first forty-
five (45) days after the Closing Date which fail to designate the period to
which they relate, will first be the property of Seller to reduce the pre-
Closing Date balances, with any excess applied to balances due for services
rendered by New Operator after the Closing Date. Thereafter all non-
designated payments will first be applied to any post-Closing, Date
balances, with the excess, if any, remitted to Seller.
14.05 Alabama Workers' Compensation Rebate. Purchaser acknowledges that
------------------------------------
Seller may be due a certain rebate from the State of Alabama for pre-payments of
worker's compensation insurance if the Facilities located in Alabama remain
under their current worker's compensation insurance program
38
<PAGE>
until October 1, 1997. Purchaser agrees to use its best efforts to cause New
Operator to maintain such worker's compensation insurance program and to forward
to Seller any payments received by New Operator after the Closing Date for the
portion of such rebates applicable to the period prior to the Closing Date in
accordance with the procedures set forth in Section 14.04.
ARTICLE XV
INDEMNIFICATION
15.01 Seller's Indemnification. Subject to the limitations contained
------------------------
herein and in Section 15.04, Seller shall indemnify and hold Purchaser and its
assigns, including New Operator, harmless from and against any and all damages,
losses, liabilities, costs, actions, suits, proceedings, demands, assessments,
and judgments, including, but not limited to, reasonable attorney's fees and
reasonable costs and expenses of litigation, arising out of or in any manner
related to any of the following:
(a) Except as otherwise provided in this Agreement, any and all
obligations relating to the ownership of Seller's Assets and the operation
of the Facilities which exist immediately prior to the Closing Date,
including, but not limited to, any obligations under the Operating
Contracts which Purchaser assumes at Closing and all vacation and/or sick
pay, retirement and severance benefits and bonuses which are claimed by any
employee of Seller to have accrued prior to the Closing Date, provided,
however, that Seller shall have no liability for any accrued vacation or
sick pay for employees whose accrued vacation and sick pay was taken into
account in computing the adjustment to the Purchase Price under Section
14.01;
(b) Any of the Operating Contracts which New Operator does not
assume in writing;
(c) Any misrepresentation of a material fact, breach of warranty or
nonfulfillment of any agreement on the part of Seller under this Agreement
or from any misrepresentations in any certificate furnished or to be
furnished shed to Purchaser or New Operator hereunder;
(d) Any failure by Seller in connection with the transaction
contemplated herein to comply with the requirements of any laws or
regulations relating to bulk sales or transfers; and
(e) Any sums due by Seller for Medicare and Medicaid adjustments
arising from the operation of Facilities conveyed pursuant to this
Agreement.
For purposes of Section 15.01(a), an obligation shall be deemed to
"exist" immediately prior to the Closing Date if it relates to events which
occurred prior to the Closing Date even if it is not asserted until after
the Closing Date.
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Notwithstanding the foregoing, Seller's liability for all claims under
Section 15.01 (c) shall not exceed in the `aggregate Nine Hundred Seventy
Thousand and 00/100 Dollars ($970,000.00), except for claims relating to title
to Seller's Assets, Seller's authority to enter into this Agreement or the
transactions contemplated by this Agreement or acts of willful dishonesty or
fraud by Seller. There shall be no limit, except as provided in Section 15.04,
on Seller's liability for claims under Sections 15.01(a), (b), (d) or (e).
15.02 New Operator. Subject to the limitations contained in Section 15.03,
------------
Purchaser shall indemnify and hold Seller harmless from and against any and all
damages, losses, liabilities, costs, actions, suits, proceedings, demands,
assessments, and judgments, including, but not limited to, reasonable attorney's
fees and reasonable costs and expenses of litigation, arising out of or in any
manner related to any of the following:
(a) Except as otherwise provided in this Agreement, any and all
obligations relating to the ownership of Seller's Assets and the operation
of the Facilities from and after the Closing Date, including, but not
limited to, any obligations under the Operating Contracts which New
Operator elects to assume and all holiday and sick pay, retirement and
severance benefits and bonuses which are claimed by any employee of New
Operator to have accrued following the Closing Date;
(b) Any misrepresentation of a material fact, breach of warranty or
nonfulfillment of any agreement on the part of Purchaser under this
Agreement or from any misrepresentations in any certificate furnished or to
be furnished to Purchaser hereunder; and
(c) Any claim that Purchaser or New Operator failed to pay employee
or sick pay which accrued prior to the Closing, Date with respect to
employees whose accrued vacation and sick pay was taken into account in
computing the adjustment to the Purchase Price under Section 14.01.
15.03 Procedure. In the event a party (the "Indemnified Party") asserts
---------
that the other party (the "Indemnitor") is subject to an indemnification claim
pursuant to Sections 15.01 or 15.02 ("Claim"), the Indemnified Party shall
promptly notify the Indemnitor in writing of such Claim arising, which notice
shall describe the Claim in sufficient detail in order to permit the Indemnitor
to evaluate the nature and cause of the Claim. In the event the asserted Claim
arises or is in connection with a claim, suit, or demand filed by a third party,
the Indemnitor shall be entitled to defend against such Claim with counsel
reasonably satisfactory to the Indemnified Party. The Indemnified Party may
continue to employ counsel of its own, but such costs shall be borne by the
Indemnified Party as long as the Indemnitor continues to so defend. If the
Indemnitor fails to respond or does not admit responsibility for
indemnification, the Indemnified Party may take such necessary steps to defend
itself and any reasonable costs associated therewith may be included as part of
the asserted Claim for indemnification. For all Claims that are not Claims
arising from a third party, Indemnitor shall notify
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<PAGE>
the Indemnified Party as to its assertion of whether such Claim is covered by
this Article, including specific reasons for non-coverage, within 30 days of
receipt of written notice from the Indemnified Party describing the Claim in
reasonable detail.
15.04 Basket. Notwithstanding anything contained in this Section 15 to the
------
contrary, Purchaser shall be responsible for the first Twenty-Five Thousand
Dollars ($25,000.00) of Claims against each Facility, except for Claims relating
to title to Seller's Assets, Seller's authority to enter into the transactions
contemplated by this Agreement or any claims for money by third party payors or
reimbursers. In no event shall a Claim against a Facility be included in or
applied against the basket of another Facility.
ARTICLE XVI
MISCELLANEOUS
16.01 Notices. Any notice,. request or other communication to be given by
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any party hereunder shall be in writing and shall be sent by registered or
certified mail, postage prepaid, by overnight delivery, hand delivery or
facsimile transmission to the following address:
To Seller and John H. Stoddard
General Partner: RWB Management Corp.
7000 Central Parkway, Suite 850
Atlanta, Georgia
Telephone No.: 770-668-1080
Facsimile No.: 770-668-0136
With copy to Leon H. Rittenberg, Jr., Esquire
(which shall not Baldwin & Haspel
constitute notice): 2200 Energy Centre
1100 Poydras Street
New Orleans, Louisiana 70163
Telephone No.: (504) 585-7711
Facsimile No.: (504) 585-7751
To Purchaser: Omega Healthcare Investors, Inc.
901 West Eisenhower, Suite 110
Ann Arbor, Michigan 48103
Attn: F. Scott Kellman
Telephone No.: (313) 747-9790
Facsimile No.: (313) 996-0020
With copy to Dykema Gossett PLLC
(which shall not 1577 N. Woodward, Suite 300
41
<PAGE>
constitute notice): Bloomfield Hills, MI 48304
Attn: Fred J. Fechheimer
Telephone No.: 810/540-0743
Facsimile No.: 810/540-0763
Notices shall be deemed given three (3) business days after deposit in the
mail as provided herein or upon actual receipt if sent by overnight delivery,
facsimile transmission or hand delivery.
16.02 Allocation of Purchase Price. The purchase price shall be allocated
----------------------------
among the two (2) Facilities as follows:
Southpoint Manor $12,550,000
Merry Wood Lodge $6,050,000
The allocation of the purchase price for each of the Facilities shall be further
allocated between the value of the Real Property and the Personal Property as
mutually agreed upon the parties prior to the Closing Date and each party agrees
to timely file tax form 8594 in accordance with the allocations so agreed to.
16.03 Employee Recruitment. As a matter which shall survive the Closing
--------------------
hereunder, neither Seller nor any of its subsidiaries or affiliates shall, for a
period of 120 days following the Closing Date, solicit any of the employees or
independent contractors of Purchaser at any of the Facilities or induce any such
persons to terminate their employment or contractual relationships with
Purchaser.
16.04 Assignment. No party may assign, directly or indirectly, its rights
----------
or obligations hereunder without the prior written consent of the other parties.
Notwithstanding the foregoing, Purchaser shall also have the right, on written
notice to Seller, to (i) assign its rights hereunder to the New Operator as
required to enter into and cause the term of the Master Lease to commence, or
(ii) assign its ownership interest in any of the Facilities to any third party.
16.05 Sole Agreement. This Agreement may not be amended or modified in any
--------------
respect whatsoever except by instrument in writing signed by the parties hereto.
This Agreement, the disclosure schedules for each of the parties, the documents
executed and delivered pursuant hereto and the Confidentiality Agreements
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior negotiations, discussions,
writings and agreements between them.
16.06 Captions. The captions of this Agreement are for convenience of
--------
reference only and shall not define or limit any of the terms or provisions
hereof.
42
<PAGE>
16.07 Severability. Should any one or more of the provisions of this
------------
Agreement be determined to be invalid, unlawful or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby.
16.08 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
16.09 Knowledge Defined. To the extent that any of the representations and
-----------------
warranties contained . in this Agreement are limited by the phrases "to the
knowledge of' or "Purchaser has no knowledge of" or "Seller has no knowledge of'
or words or phrases of similar import, the same shall mean to the actual
knowledge of any of the corporate officers or directors or general partners of
the party or its subsidiaries making said representation or warranty. To the
extent that any of the representations and warranties contained in this
Agreement refer to verbal notice to a party such notice shall be deemed to have
been received if delivered to any officer of such party or to an officer of one
of its subsidiaries. Notwithstanding anything in this Section 16.9 to the
contrary, the phrase "Seller's knowledge" or such similar phrases shall include
the actual knowledge of any of the corporate officers or directors of Atrium and
the actual knowledge of any administrator(s) of any of the Facilities.
16.10 Expenses. Each party shall bear its own costs and expenses
--------
(including legal fees and expenses) incurred in connection with this Agreement
and other transactions contemplated hereby.
16.11 Third Party Beneficiary. Nothing in this Agreement express or
-----------------------
implied is intended to and shall not be construed to confer upon or create in
any person (other than the parties hereto) any rights or remedies under or by
reason of this Agreement, including without limitation, any right to enforce
this Agreement. Notwithstanding the foregoing, the New Operator is an intended
Third Party Beneficiary of this Agreement.
16.12 Attorneys' Fees. In the event of a dispute between the parties
---------------
hereto with respect to the interpretation or enforcement of the terms hereof,
the prevailing party in any action resulting therefrom shall be entitled to
collect from the other its reasonable costs and attorneys' fees, including its
costs and fees on appeal.
16.13 Construction. The parties have participated jointly in the
------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring, any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state or local
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean "including without limitation."
43
<PAGE>
16.14 Survival. The representations, warranties, covenants or conditions
--------
set forth herein shall survive the Closing for a period of one year after the
Closing; provided, however, that in the event that, at anytime during that one
year period, any claim is made for a breach thereof, the same shall survive
until a final non-appealable resolution thereof. Purchaser and New Operator
shall make no claims for indemnification against Seller under Section 15.01(c)
of this Agreement after one (1) year after the Closing Date except for claims
related to title to Seller's Assets, Seller's authority to enter into the
transactions contemplated by this Agreement and any claims for money by third
party payors or reimbursers.
16.15 Exhibits. The parties acknowledge that a number of exhibits have
--------
been attached to this Agreement in blank with references thereon that said
exhibits shall be provided by Seller. Within fifteen (15) days following the
mutual execution of this Agreement, Seller agrees to deliver to Purchaser, for
Purchaser's review and approval, complete copies of said exhibits. Within five
(5) days following receipt of said exhibits, Purchaser shall review the exhibits
provided and notify Seller of its approval or disapproval thereof, provided that
any such approval shall not be unreasonably withheld. If Purchaser disapproves
any such exhibits, Purchaser shall have the right to terminate this Agreement by
written notice to Seller.
16.16 Governing Law. THIS AGREEMENT AND THE TRANSACTION DOCUMENTS SHALL BE
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN.
SELLER CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS
OF THE STATE OF MICHIGAN AND THE STATE WHERE THE FACILITY IS LOCATED, AND AGREES
THAT ALL DISPUTES CONCERNING THIS AGREEMENT MAY BE HEARD, AT PURCHASER'S OPTION,
IN THE STATE AND FEDERAL COURTS LOCATED IN EITHER OF THE STATES OF MICHIGAN OR
THE STATE WHERE THE FACILITY IS LOCATED. EACH PARTNER OF THE SELLER AGREES THAT
SERVICE OF PROCESS MAY BE EFFECTED UPON SUCH PARTNER UNDER ANY METHOD
PERMISSIBLE UNDER THE LAWS OF THE STATE OF MICHIGAN OR THE STATE WHERE THE
FACILITY IS LOCATED AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE
AND FEDERAL COURTS OF THE STATE OF MICHIGAN OR THE STATE WHERE THE FACILITY IS
LOCATED.
16.17 Exclusivity. Prior to the Closing Date and subject to the fiduciary
-----------
duties of Seller or its General Partner, Seller and its partners, affiliates,
agents and employees shall not negotiate with or discuss the sale, financing or
other disposition of the Facilities, or take any steps to initiate, consummate,
encourage or document the sale, financing or other disposition of any of the
Facilities to any other person or entity until the earlier of (i) date on which
Purchaser notifies Seller that Purchaser is withdrawing, from the transactions
contemplated hereby or (ii) material breach by Purchaser that is not cured by
Purchaser within any applicable grace and cure period, upon expiration of such
grace and cure period.
44
<PAGE>
16.18 Confidentiality. The terms of that certain letter by and between
---------------
Seller and Purchaser dated November 19, 1996 relating to the confidentiality of
certain information is incorporated herein. However, subject to the provisions
of Section 11.04, each party may issue such press releases or public statements
relating to the transactions contemplated hereby as it determines appropriate or
required by law.
16.19 Arbitration of Disputes Following Closing. If a controversy shall
-----------------------------------------
arise between the parties hereto following Closing relating to this Agreement,
any other agreement between the parties, any instrument or document delivered
pursuant to or in connection with the Agreement, or the transaction contemplated
by this Agreement (hereinafter, a "Controversy") which the parties are unable to
settle between themselves, the Controversy shall be determined by arbitration.
Such arbitration shall be conducted by three arbitrators selected in accordance
with the procedures of the American Arbitration Association and in accordance
with its rules and procedures. The decision of the arbitrators shall be final
and binding, and enforceable in any court of competent jurisdiction. Such
decision shall set forth in writing the basis for the decision, and in rendering
such decision, the arbitrators shall not add to, subtract from or otherwise
modify the provisions of this Agreement and any other agreements, documents and
instruments executed pursuant to or in connection with this Agreement. The
expense of the arbitration shall be divided equally between Seller and Purchaser
unless otherwise specified in award. The prevailing party, as determined by the
arbitrators, shall be entitled to recover its costs and expenses including
attorney fees. Such arbitration shall be conducted in Atlanta, Georgia. In any
such arbitration, the parties shall be entitled to conduct discovery in the same
manner as permitted under Federal Rules of Civil Procedure 27 through 37. No
provision in this Section 16.19 shall limit the right -of any party to this
Agreement to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration. The
exercise of such a remedy does not waive the right of any party to arbitration.
The Section shall not apply to any Controversy which may arise between the
parties prior to the Closing.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the day
and year first set forth therein.
SELLER:
RWB MEDICAL INCOME PROPERTIES 1
LIMITED PARTNERSHIP, a Louisiana limited
partnership
By: RWB
Management Corp., a Louisiana
corporation
Its: Managing General Partner
45
<PAGE>
By: /s/ John H. stoddard
-------------------------------
John H. Stoddard
Its: President
GENERAL PARTNER:
RWB MANAGEMENT CORP., A Louisiana
corporation
By: /s/ John H. stoddard
------------------------------------
John H. Stoddard
Its: President
PURCHASER:
OMEGA HEALTHCARE INVESTORS, INC., a
Maryland corporation
By: /s/ Todd P. Robinson
------------------------------------
Todd P. Robinson
Its: AVP
-----------------------------------
46
<PAGE>
SCHEDULE OF EXHIBITS:
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT A-1: Legal Description of Real Property (Southpoint Manor)
EXHIBIT A-2: Legal Description of Real Property (Merry Wood Lodge)
EXHIBIT 1.02: Inventory of Personal Property
EXHIBIT 1.02(A): Inventory of Excluded Personal Property
EXHIBIT 1.05(c): Form of Management Agreement
EXHIBIT 2.01: Escrow Agreement
EXHIBIT 4.13: Prepaid Contracts
EXHIBIT 6.06: Copies of Licenses and Permits
EXHIBIT 6.07: List of Most Recent Licensure or Certification Surveys
EXHIBIT 6.07(b): Waiver for Cited Deficiencies
EXHIBIT 6.10: Seller's Assets Which are Subject to Leases
EXHIBIT 6.11: Union Contracts
EXHIBIT 6:13: Phase I Environmental Reports Delivered by Seller
EXHIBIT 6.15: Litigation
EXHIBIT 6.17: Facility Defects
EXHIBIT 6.19: Form of Admission Agreement
EXHIBIT 6.20: Patient Roster
EXHIBIT 6.21: List of Operating Contracts
EXHIBIT 6.23: Insurance Policies and Certificates
EXHIBIT 6.24: Fringe Benefits
EXHIBIT 6.25: Benefit Plans
EXHIBIT 9.02(d): Form of Legal Opinion from Seller's Counsel
EXHIBIT 9.02(f): Bill of Sale
EXHIBIT 9.02(g): Form of Operating Contracts Assignment and Assumption Agreement
EXHIBIT 9.02(h): Form of Admission Agreements Assignment and Assumption Agreement
EXHIBIT 10.01(a): List of Title Policies Delivered by Seller
EXHIBIT 10.02(f): Form of Legal Opinion from Purchaser's Counsel
</TABLE>
47
<PAGE>
APPENDIX B
February 12, 1997
Board of Directors
RWB Medical Income Properties 1 Limited Partnership
7000 Central Parkway
Suite 850
Atlanta, Georgia 30328
To the Members of the Board:
We understand that RWB Medical Income Properties 1 Limited Partnership (the
"Partnership") has entered into Asset Purchase Agreement (the "Proposed
Transaction") with Omega Healthcare Investors, Inc. ("Omega"), pursuant to which
the Buyer shall acquire substantially all of the operating assets of the
Partnership in exchange for cash and the assumption of certain liabilities. In
addition, we understand that, after consummation of the Proposed Transaction,
the Partnership intends to make certain distributions to its limited partners
(the "Limited Partners") consisting of such cash proceeds and the Partnership's
net working capital (upon collection), all as offset by the Partnerships
obligations, including the repayment of its outstanding indebtedness, the
payment of transaction-related expenses and the payment of other expenses of the
Partnership. A detailed description of the Proposed Transaction, including the
detailed description of the consideration to be received by the Partnership (the
"Consideration"), is provided in the Asset Purchase Agreement (the "Agreement").
We have been requested by the Partnership to render our opinion (the
"Opinion") with respect to the fairness, from a financial point of view, to the
Limited Partners of the Consideration to be received by the Limited Partners in
the Proposed Transaction.
In arriving at our Opinion, we reviewed and analyzed: (1) the Agreement,
(2) financial and operating information with respect to the business, operations
and prospects of the Partnership furnished to us by RWB Management Corp., the
managing general partner of the Partnership ("RWB Management"), (3) a comparison
of the historical financial results and present financial condition of the
Partnership with those of other companies which we deemed relevant, (4) an
analysis of financial and stock market information for selected publicly-traded
companies which we deemed comparable to the Partnership, and (5) a comparison of
the financial terms of the Proposed Transaction with the financial terms of
certain other recent transactions which we deemed relevant. In addition, we
held discussions with the management of RWB Management concerning the business
and operations, assets, present condition and future prospects of the
Partnership and undertook such other studies, analyses and investigations as we
deemed appropriate.
We have relied upon the accuracy and completeness of the financial and
other information used by us in arriving at our Opinion without independent
verification. In arriving at our Opinion, we have not conducted a physical
inspection of the properties and facilities of the Partnership. We have not
made nor obtained any evaluations or appraisals of the assets or liabilities of
the Partnership. Our Opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated as of the date of this
letter.
We have acted as financial advisor to RWB Management in connection with the
Proposed Transaction, and we will receive a fee for our services which is in
significant part contingent upon the consummation of the
<PAGE>
Board of Directors
February 12, 1997
Page 2
___________________
Proposed Transaction. In addition, the Partnership has agreed to indemnify us
for certain potential liabilities arising out of the rendering of this Opinion.
Based upon and subject to the foregoing, we are of the Opinion as of the
date hereof that, from a financial point of view, the Consideration to be
received by the Limited Partners in the Proposed Transaction is fair to the
Limited Partners.
Very truly yours,
/s/ The Robinson-Humphrey Company, Inc.
-----------------------------------------------
THE ROBINSON-HUMPHREY COMPANY, INC.
<PAGE>
REPLY CARD
CONSENT SOLICITATION
LIMITED PARTNERSHIP UNITS
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
THIS CONSENT IS SOLICITED BY THE MANAGING GENERAL PARTNER
The following proposal is submitted for approval by written consent to the
holders of limited partnership units (the "Units") of RWB Medical Income
Properties 1 Limited Partnership (the "Partnership") by the managing general
partner of the Partnership, RWB Management Corp. (the "Managing General
Partner"):
To sell substantially all of the assets of the Partnership
to Omega Healthcare Investors, Inc., a real estate
investment trust ("Omega"), pursuant to the terms and
conditions of the Purchase and Sale Agreement by and among
the Partnership, the Managing General Partner and Omega, to
distribute the Partnership's net assets and to dissolve the
Partnership, all as set forth in the Consent Solicitation
Statement.
THE UNDERSIGNED LIMITED PARTNER HEREBY VOTES HIS OR HER UNITS FOR THE ABOVE
PROPOSAL AS FOLLOWS:
CONSENT WITHHOLD CONSENT ABSTAIN
(YES) (NO) (NO VOTE)
----- ------ -----
<PAGE>
A PROPERLY-EXECUTED AND DATED REPLY CARD MUST BE RECEIVED BY MARCH 28, 1997, TO
BE INCLUDED IN THE TABULATION OF CONSENTS.
THE MANAGING GENERAL PARTNER URGES THE LIMITED PARTNERS TO CONSENT TO THE
PROPOSAL.
Please sign this Reply Card
exactly as the registered name
appears on the label affixed to
this Reply Card.
----------------------------------
(Signature)
----------------------------------
(Signature)
Note: When signing as attorney,
trustee, administrator or guard-
ian, please give your title as
such. In the case of joint ten-
ants, each joint owner must sign.
Date: ____________________________
PROPERLY EXECUTED BALLOTS WHICH DO NOT INDICATE A VOTE WILL BE COUNTED AS VOTES
FOR THE PROPOSAL DESCRIBED HEREIN
