RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
7000 Central Parkway, Suite 850
Atlanta, Georgia 30328
March ___, 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 MGP
RECOMMENDS THAT YOU VOTE YOUR UNITS TO CONSENT TO THE SALE AND
DISSOLUTION OF THE PARTNERSHIP FOR THE REASONS SET FORTH UNDER "SALE
OF PARTNERSHIP ASSETS - BACKGROUND AND REASONS FOR THE SALE" IN THE
ATTACHED CONSENT SOLICITATION STATEMENT.
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 April 10, 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 April 10, 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
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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,
John M. DeBlois
Chairman of the Board
RWB Management Corp.,
Managing General Partner
PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED REPLY CARD TODAY.
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RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SOLICITATION OF CONSENT OF LIMITED PARTNERS
This Consent Solicitation is Dated March __, 1997
Voting on the Proposal Described Below
Will Close on April 10, 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 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 April 10, 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.
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By Order of the Managing General
Partner
John M. DeBlois
Chairman of the Board of Directors and
Secretary
RWB Management Corp.
Atlanta, Georgia
March ___, 1997
THE MANAGING GENERAL PARTNER RECOMMENDS THAT YOU VOTE "YES" TO
APPROVE THE SALE AGREEMENT AND THE SUBSEQUENT TERMINATION OF THE
PARTNERSHIP.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND MAIL PROMPTLY THE ENCLOSED
REPLY CARD 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.
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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)
___________ ___________ ____________
A PROPERLY-EXECUTED AND DATED REPLY CARD MUST BE RECEIVED BY APRIL
10, 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 [DESCRIPTION OF LABEL
LOCATION].
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Note: When signing as attorney, trustee, administrator or guardian,
please give your title as such. In the case of joint tenants, 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
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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 __, 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
__, 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 April 10, 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.
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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."
PROPOSED SALE OF PARTNERSHIP ASSETS
AND SUBSEQUENT DISSOLUTION OF PARTNERSHIP
SALE OF PARTNERSHIP ASSETS
GENERAL. 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
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(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, 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
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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.
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
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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
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Five Million Four Hundred Thirty Two Thousand Dollars ($5,432,000).
The amount to be deposited in the Joint Account will be Six Hundred
Thousand Two Hundred Ten Dollars ($600,210).
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 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
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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
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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 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
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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
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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 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
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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
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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 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.
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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
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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; (5) a
comparison of the financial terms of the Sale with the financial
terms of certain other recent transactions that Robinson-Humphrey
deemed relevant; and (6) certain historical data relating to the
transaction multiples paid in acquisition of selected comparable
publicly traded companies. 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
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 Opinions 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
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<PAGE>
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;
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<PAGE>
(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 values and the above and other multiples, Robinson-Humphrey
calculated 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
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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 about 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)
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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.
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;
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(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, 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:
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(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;
(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
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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
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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 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
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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.
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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 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
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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. The filing pursuant to the HSR Act was made
with the FTC on ______________, 1997. The waiting period under the
HSR Act with respect to the Asset Sales will expire on February ___,
1997, and the MGP anticipates that early termination of the waiting
period will be sought.
OTHER FEDERAL, STATE AND LOCAL REGULATORY APPROVALS. 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 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.
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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-term care facility in such
state may be consummated. New Operator has filed all such required
applications with applicable regulatory authorities with respect to
the Asset Sales. In addition, New Operator has applied 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 date that the vote of Limited Partners is
taken.
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.
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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
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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 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
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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.
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
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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
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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
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
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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
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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.
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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.
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.
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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.
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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 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
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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 a
summary of the 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
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FOREIGN 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.
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
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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."
-40-<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 $ 816 $ 998 $ 874 $ 1,332
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
(1) Not applicable.
</TABLE>
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.
-41-
<PAGE>
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 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
-42-
<PAGE>
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 increases have not 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.
-43-
<PAGE>
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.
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.
-44-
<PAGE>
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> <S> <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> <S>
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 2 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 2 and 4 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.
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.
-45-<PAGE>
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.
-46-<PAGE>
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 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.
-47-
<PAGE>
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
-48-
<PAGE>
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.
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.
-49-<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
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-18
Schedule of Valuation and Qualifying Accounts and Reserves
For Allowances For Doubtful Accounts For the Years Ended
December 31, 1996, 1995 and 1994 .................................. F-19
Schedule of Consolidated Supplementary Income Statement
Information For the Years Ended December 31, 1996, 1995
and 1994 .......................................................... F-20
Schedule of Real Estate and Accumulated Depreciation For
the Year Ended December 31, 1996 .................................. F-21
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
Table of Contents
Page
Independent Auditors' Report 1
Financial Statements
Balance Sheets 2
Statements of Operations 3
Statements of Partners' Capital 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-19
Information Accompanying the Basic Financial Statements
Independent Auditors' Report on Information
Accompanying the Basic Financial Statements 20
Schedule of Valuation and Qualifying Accounts
and Reserves for Allowances for Doubtful Accounts 21
Schedule of Consolidated Supplementary Income
Statement Information 22
Schedule of Real Estate and Accumulated Depreciation 23
<PAGE>
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.
Oneonta, Alabama
January 24, 1997, except for Note 14, as to which the date is
February 3, 1997
<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
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.
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.
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.
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.
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 $ -
Sale of property with note receivable - 1,000,000 -
========= ========== ==========
Sale of property with note receivable - 1,000,000 -
</TABLE>
See accompanying notes to financial statements.
6<PAGE>
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)
attribu le to the sale or disposition of Partnership properties) are
allocated 93% to the limited partners and 7% to the general partners.
Net profits attribule 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 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.
7<PAGE>
(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 2).
(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.
8<PAGE>
(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:
1996 1995
Cash $ 15,386 $ 876,850
Short-term securities 751,235 -
--------- ----------
$ 766,621 $ 876,850
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, 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).
9<PAGE>
A summary of property, equipment and accumulated depreciation at
December 31, 1996 and 1995 is as follows:
1996 1995
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
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.
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.
10<PAGE>
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 1
994 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 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>
11
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:
1997 $ 80,000
1998 813,333
-----------
$ 893,333
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 $ xxx,xxx $ (901,714) $ 842,577
Adjustments:
Gain on sale of Merrillville - 2,343,824 -
Income from consolidated
C-corporation - (142,073) -
Depreciation differences xx,xxx 36,485 181,284
Insurance deductible - (48,000) -
Travel and entertainment x,xxx 8,797 11,488
Bad debt reserve xxx,xxx (582,317) 231,790
Vacation accrual xxx 327 (1,880)
Federal taxable income $ xxx,xxx $ 715,329 $1,265,259
Federal taxable income per
limited partnership unit
outstanding $xx.xx $29.06 $51.40
</TABLE>
12<PAGE>
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:
1996 1995
Due to affiliates of the general
partner $ - $ 51,783
Due to QualiCorp 260,679 189,190
$ 260,679 $ 240,973
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 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.
13<PAGE>
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 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 owners
hip 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:
14<PAGE>
1995 1994
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
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.
LEGAL RESPONSE (PENDING)
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:
1996 1995 1994
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%
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.
15<PAGE>
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 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:
Southpoint Manor (230 beds) $12,550,000
Merry Wood Lodge (124 beds) 6,050,000
Proceeds from sale $18,600,000
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
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.
16<PAGE>
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 Pattterson, Louisiana
and the purchase price for the assets is $5,350,000.
17<PAGE>
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.
Oneonta, Alabama
January 25, 1997, except for Note 14, as to which the date is
February 3, 1997
18<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>
19<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>
20<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 BUILDING AND ACCUMULATED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL DEPRECIATION
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOUTHPOINT MANOR $509,200 $500,000 $ 7,354,602 $1,665,802 $ - $500,000 $9,020,404 $9,520,404 $4,157,019
MERRYWOOD 384,133 25,000 $11,097,937 411,952 0 25,000 4,155,287 4,080,287 1,506,604
$893,333 $525,000 $11,097,937 $2,077,754 - $525,000 $13,175,961 $13,700,691 $5,663,623
(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>
<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 0 (142,335) 0
Sale of Merrillville facility 0 (5,788,853) 0
Balance at end of period $13,700,691 $13,454,968 $18,884,656
(D) Reconciliation of accumulated depreciation
Balance at beginning of period $ 5,074,404 $ 5,386,058 $ 4,441,316
Depreciation expense 559,219 701,554 944,742
Reductions 0 (142,335) 0
Sale of Merrillville facility 0 (870,873) 0
Balance at end of period $ 5,633,623 $ 5,074,404 $ 5,386,058
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
DATE OF DATE OPERATION IS
CONSTRUCTION ACQUIRED COMPUTED
<S> <C> <C> <C>
SOUTHPOINT MANOR 1984 09/03/86 30 YEARS
MERRYWOD 1965/1975 10/01/86 30 YEARS
</TABLE>
21<PAGE>
APPENDIX A
PURCHASE AGREEMENT
OMEGA HEALTHCARE INVESTORS, INC.
AND
RWB MEDICAL INCOME . PROPERTIES 1 LIMITED PARTNERSIHP
AND
RNVB MANAGEMENT CORP.
DATED: JANUARY_, 1997<PAGE>
TABLE OF CONTENTS
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.01. The Facilities . . . . . . . . . . . . . . . . . . . . . . . 8
1.02. Personal Property . . . . . . . . . . . . . . . . . . . . . 8
1.03. Consumables . . . . . . . . . . . . . . . . . . . . . . . . 8
1.04 Delivery of Information to Certain Persons . . . . . . . . . 9
1.05 Temporary Operation of the Facilities . . . . . . . . . . . . 9
1.06 Transition Agreement . . . . . . . . . . . . . . . . . . . 10
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.01 Purchase Price . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.01 The Closing . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
COSTS AND PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . 11
4.01. Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . 11
4.02 Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . 11
4.03 Title Insurance . . . . . . . . . . . . . . . . . . . . . . 11
4.04. Surveys/ UCC-1 Searches . . . . . . . . . . . . . . . . . 12
4.05. Environmental Reports/Remediation . . . . . . . . . . . . 12
4.06. Revenues and Expenses . . . . . . . . . . . . . . . . . . 12
4.07. Taxes/Prorations . . . . . . . . . . . . . . . . . . . . . 12
4.08. Utilities . . . . . . . . . . . . . . . . . . . . . . . . 12
4.09. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . 13
4. 10. Recording Costs . . . . . . . . . . . . . . . . . . . . . 13
4.11. Releases . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.12. Environmental Adjustment . . . . . . . . . . . . . . . . . 13
4.13. Prorations Regarding Contracts . . . . . . . . . . . . . . 13
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.01 Possession . . . . . . . . . . . . . . . . . . . . . . . . 13
2<PAGE>
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SELLER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . 14
6.01. Status of Seller . . . . . . . . . . . . . . . . . . . . . 14
6.02. Validity Conflicts . . . . . . . . . . . . . . . . . . . . 14
6.03. Authority . . . . . . . . . . . . . . . . . . . . . . . . 14
6.04. The Seller Financial Statements . . . . . . . . . . . . . 14
6.05. Absence of Adverse Change . . . . . . . . . . . . . . . . 15
6.06. The Licenses . . . . . . . . . . . . . . . . . . . . . . . 15
6.07. Compliance with Law . . . . . . . . . . . . . . . . . . . 15
6.08. Residents . . . . . . . . . . . . . . . . . . . . . . . . 16
6.09. Books and Records . . . . . . . . . . . . . . . . . . . . 16
6.10. Title . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.11. Unions . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.12. Taxes and Tax Returns . . . . . . . . . . . . . . . . . . 16
6.13. Environmental Issues . . . . . . . . . . . . . . . . . . . 17
6.14. Necessary Action . . . . . . . . . . . . . . . . . . . . . 17
6.15. Litigation . . . . . . . . . . . . . . . . . . . . . . . . 18
6.16. Sensitive Payments . . . . . . . . . . . . . . . . . . . . 18
6.17. The Facilities . . . . . . . . . . . . . . . . . . . . . . 18
6.18 Inventories . . . . . . . . . . . . . . . . . . . . . . . . 19
6.19. The Facility Agreements . . . . . . . . . . . . . . . . . 19
6.20. Patient Roster . . . . . . . . . . . . . . . . . . . . . . 19
6.21. Operating Contracts . . . . . . . . . . . . . . . . . . . 19
6.22. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 20
6.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.24 Fringe Benefits . . . . . . . . . . . . . . . . . . . . . . 20
6.25 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
PURCHASER REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 21
7.01 Status of Purchaser . . . . . . . . . . . . . . . . . . . . 21
7.02. Validity and Conflicts . . . . . . . . . . . . . . . . . . 21
7.03. Authority . . . . . . . . . . . . . . . . . . . . . . . . 21
7.04. Necessary Action . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
BROKER; INVESTMENT BANKER . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SELLER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3<PAGE>
9.01. Pre Closing . . . . . . . . . . . . . . . . . . . . . . . 22
9.02. Closing Date . . . . . . . . . . . . . . . . . . . . . . . 27
9.03. Post Closing . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
PURCHASER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 29
10.01. Pre-Closing . . . . . . . . . . . . . . . . . . . . . . . 29
10.02. Closing Date . . . . . . . . . . . . . . . . . . . . . . 32
10.03. Post Closing . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
MUTUAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.01 General Covenants . . . . . . . . . . . . . . . . . . . . 33
11.02. Hart-Scott-Rodino Filing . . . . . . . . . . . . . . . . 34
11.03. HSR Consent/Regulatory-Approval . . . . . . . . . . . . . 34
11.04. Public Announcements . . . . . . . . . . . . . . . . . . 34
ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
12.01. Purchaser Conditions . . . . . . . . . . . . . . . . . . 35
12.02. Seller Conditions . . . . . . . . . . . . . . . . . . . . 37
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13.01. Termination . . . . . . . . . . . . . . . . . . . . . . . 37
13.02. Opportunity to Cure . . . . . . . . . . . . . . . . . . . 39
13.03 Termination . . . . . . . . . . . . . . . . . . . . . . . 39
13.04 Right of First Refusal . . . . . . . . . . . . . . . . . . 40
ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
OPERATIONAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 41
14.01. Employees: Schedule of Employee Benefits . . . . . . . . 41
14.02. Accounting Patient Trust Funds and Patient\
Prepaid Accounts . . . . . . . . . . . . . . . . . . . 42
14.03. Indemnity for Trust Funds and Prepaid Funds . . . . . . . 42
14.04. Accounts Receivable . . . . . . . . . . . . . . . . . . . 42
ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
15.01. Seller's Indemnification . . . . . . . . . . . . . . . . 44
4<PAGE>
15.02. New Operator . . . . . . . . . . . . . . . . . . . . . . 45
15.03. Procedure . . . . . . . . . . . . . . . . . . . . . . . . 45
15.04 Basket . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.03. Employee Recruitment . . . . . . . . . . . . . . . . . . . . 47
16.04. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.05 Sole Agreement . . . . . . . . . . . . . . . . . . . . . . . 47
16.06. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.07. Severabilily . . . . . . . . . . . . . . . . . . . . . . . . 47
16.08. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 47
16.09. Knowledge Defined . . . . . . . . . . . . . . . . . . . . . 48
16.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.11 Third Party Beneficiary . . . . . . . . . . . . . . . . . . . 48
16.12. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . 48
16.13. Construction . . . . . . . . . . . . . . . . . . . . . . . . 48
16.14. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.15. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 49
16.16 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 49
16.17 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 49
16.18 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 49
16.19 Arbitration of Disputes Following Closing . . . . . . . . . . 49
5
<PAGE>
SCHEDULE OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT A-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT A-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 1.02 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 1.02 (A) . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 1.05 (c) . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 2.01 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 4.13 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 6.06 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EHXIBIT 6.07 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 6.07(b) . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 6.10 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 6.11 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 6:13 . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXHIBIT 6.15 . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 6.17 . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 6.19 . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 6.20 . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 6.21 . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 6.23 . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 6.24 . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 6.25 . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6<PAGE>
EXHIBIT 9.02(d) . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 9.02(f) . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 9.02(g) . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 9.02(h) . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 10.01(a) . . . . . . . . . . . . . . . . . . . . . . . . 53
EXHIBIT 10.02(f) . . . . . . . . . . . . . . . . . . . . . . . . 53
7
<PAGE>
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") is made and entered
into this _____ day of January, 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").
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,
8<PAGE>
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.
1.05 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 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,
9<PAGE>
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 (1 5) 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
(50/o) 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 (80/o)
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
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 __________, 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
10<PAGE>
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.
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
11<PAGE>
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 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.
12<PAGE>
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 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 6f Consumables and inventory to New Operator upon the termination
date of the Interim Operating Agreement or Interim Master Lease, as
applicable.
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, 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 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
13<PAGE>
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 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 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 3 0, 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") 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 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
14<PAGE>
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
judgment 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.
(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 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 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
15<PAGE>
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, 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 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 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.
6.12. Taxes and Tax Returns. All tax returns, reports and
filings of any 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 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
16<PAGE>
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 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 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 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) made any contributions, payments or gifts to or for the
private use of any governmental official, employee or agent where either
17<PAGE>
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 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
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
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 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 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.
18<PAGE>
6.21. Operating Contracts. Set forth in Exhibit 6.21 is a true
and correct 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 1 0.0 I (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
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, 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 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 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 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
19<PAGE>
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.
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 I 0.01 (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 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
20<PAGE>
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 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
21<PAGE>
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 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/ACS.M 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;
22<PAGE>
(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 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
23<PAGE>
any as-built surveys for the improvements, wetland 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;
(1) 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;
(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
24<PAGE>
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 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
25<PAGE>
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
(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);
26<PAGE>
(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 I 0.0 1 (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 I
0.0 I (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
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;
27<PAGE>
(1) 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.
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
28<PAGE>
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 (I 0) 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 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 6.1 -'I 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
29<PAGE>
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 Operation-
Agreements it is 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
30<PAGE>
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);
(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 1 0.0 1;
(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;
31<PAGE>
(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 to 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 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
32<PAGE>
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 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 o 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.
33
<PAGE>
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:
(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 licensing 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
34<PAGE>
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 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 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).
35<PAGE>
(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, RVRB 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 b.- 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;
(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;
36<PAGE>
(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;
(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
37<PAGE>
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 t-
his 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 13.0 1 (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.
(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
38<PAGE>
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 ($125,000.00).
(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 13.0 1 (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 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
39<PAGE>
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.
(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
40<PAGE>
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 ca use 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 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,
41<PAGE>
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 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
42<PAGE>
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.
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
43<PAGE>
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 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 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.
44<PAGE>
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
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.
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
45<PAGE>
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.
16.07. Severabilily. 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
46<PAGE>
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."
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 15.0 1 (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 NUCHIGAN. 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 TBE STATES OF MICMGAN OR
THE STATE WHERE THE FACILITY IS LOCATED. EACH PARTNER OF THE SELLER
47<PAGE>
AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON SUCH PARTNER UNDER
ANY METHOD PERIMISSIBLE 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.
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.
48<PAGE>
SELLER:
RWB MEDICAL INCOME PROPERTIES 1 LIMITED
PARTNERSHIP, a Louisiana limited
partnership
By: RWB Management Corp., a Louisiana
corporation
Its: Managing General Partner
By:____________________________
John H. Stoddard
Its: President
GENERAL PARTNER:
RWB MANAGEMENT CORP., A Louisiana
corporation
By:________________________________
John H. Stoddard
Its: President
PURCHASER:
OMEGA HEALTHCARE INVESTORS, INC., a
Maryland corporation
By:________________________________
Its:_______________________________
49
<PAGE>
SCHEDULE OF EXHIBITS:
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 Inventory of Excluded Personal Property
(A):
EXHIBIT 1.05 Form of Management Agreement
(c):
EXHIBIT 2.01: Escrow Agreement
EXHIBIT 4.13: Prepaid Contracts
EXHIBIT 6.06: Copies of Licenses and Permits
EHXIBIT 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
50
<PAGE>
APPENDIX B
KILPATRICK STOCKTON LLP
1100 PEACHTREE STREET
ATLANTA, GEORGIA 30309
(404) 815-6500)
(404) 815-6555 - TELECOPY
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<PAGE>
Board of Directors
February 12, 1997
Page 2
_______________
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
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,
THE ROBINSON-HUMPHREY COMPANY, INC.
