MEDICAL INCOME PROPERTIES 2A 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 Medical Income Properties 2A 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 $1,189 for
each Unit, of which approximately $1,003 would be paid within 30
days of the closing date upon surrender of Limited Partnership
Certificates; up to $134 per Unit within one year of the closing
date, and up to $52 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, QualiCorp
Management, Inc. (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, RWB Medical Income Properties 1 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.
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Accordingly, if each of the other partnerships does not sell its
operating assets to OMEGA, or if OMEGA fails to purchase the
operating assets of each of the other partnerships, the
Partnership's transaction will not close, the distributions will not
be made, and the Partnership will not be dissolved.
Please do not send your Limited Partnership certificates to the
Partnership or the Exchange Agent at this time. If the sale is
approved and consummated, you will receive further instructions
regarding the procedure for exchanging the certificates evidencing
your Units for cash.
Very truly yours,
John M. DeBlois
Chairman of the Board
QualiCorp Management, Inc.,
Managing General Partner
PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED REPLY CARD TODAY.
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RWB MEDICAL INCOME PROPERTIES 2A 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
QualiCorp Management, Inc. (the "Managing General Partner"),
the managing general partner of Medical Income Properties 2A 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 $1,189. 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
QualiCorp Management, Inc.
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
MEDICAL INCOME PROPERTIES 2A 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
Medical Income Properties 2A Limited Partnership (the "Partnership")
by the managing general partner of the Partnership, QualiCorp
Management, Inc. (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].
______________________________
______________________________
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
<PAGE>
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement is being furnished by the
Board of Directors of QualiCorp Management, Inc., the managing
general partner (the "MGP") of Medical Income Properties 2A Limited
Partnership, a Delaware 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 seven nursing homes, Oak Crest Nursing Home located in
Tuscumbia, Alabama, Shoals Nursing Home located in Tuscumbia,
Alabama, Muscle Shoals Nursing Home located in Muscle Shoals,
Alabama, University Manor located in Edwardsville, Illinois, and
Medical Park Convalescent Center located in Decatur, Alabama (54.55%
ownership interest owned by the Partnership with the minority
interest owned by Medical Income Properties 2B Limited Partnership),
Renaissance Place in Katy, Texas (50% ownership interest), and
Renaissance Place in Humble, Texas (50% ownership interest)
(collectively, the "Facilities"). The latter two nursing homes are
owned and operated as part of a joint venture with Medical Income
Properties 2B Limited Partnership. 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
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entitled to notice of and to vote in the Consent Solicitation. As
of the Record Date, there were 18,639 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 Delaware 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.
Abstentions and broker non-votes will count as a vote AGAINST the
proposal described herein. As of the date of this Consent
Solicitation Statement QualiCorp, Inc., the parent corporation of
the MGP ("QualiCorp"), held 42 Units constituting 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
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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
(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
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lease such facilities for a period which will not extend beyond
December 31, 1997 (the "Interim Leasing Agreement"). The
Partnership's current manager, Atrium Living Centers, Inc.
("Atrium") has agreed to manage the Facilities for Omega pursuant to
a management agreement between the Partnership and Atrium with
funding for operations and management fees to be provided by Omega.
See "Interim Operating Arrangements."
Closing of the Sale Agreement is subject to a number of
conditions, including the closing of facility acquisition agreements
between Omega and three other partnerships managed by wholly-owned
subsidiaries of QualiCorp (the "Other Sellers" - the Partnership and
the Other Sellers are sometimes collectively referred to herein as
the "Sellers"). For a description of the Other Sellers, see "The
Other Sellers." The Sellers own a total of 11 long-term care
facilities that are subject to purchase by Omega (collectively,
along with the Sale, the "Asset Sales"). Approval for the sale of
the assets and subsequent dissolution of RWB Medical Properties
Limited Partnership IV has already been obtained. Contemporaneously
with this Consent Solicitation, the consents of the holders of the
remaining Other Sellers, RWB Medical Income Properties 1 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 RWB Medical Income Properties
1 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 $403.43 per Unit.
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
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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 $24,522,725 will be reduced by accrued expenses of
$493,705 for vacation pay, sick pay, taxes and trust fund
obligations as provided in the Sale Agreement, by $3,539,444 of
closing costs, brokerage fees, third party settlements and other
obligations, and by $3,398,905 for the payment of debt, resulting in
estimated net proceeds from the sale of $17,090,671. These net
proceeds will be augmented by estimated current assets in excess of
current liabilities of $5,081,610 which will increase the total
amount available for distribution to $22,172,281 which will be
distributed to the Limited Partners in three installments as
follows:
1. FIRST INSTALLMENT. All Limited Partners will receive a
check in the amount of $1,003 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
$18,702,485);
2. SECOND INSTALLMENT. A second distribution of
approximately $134 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 $2,503,337); and
3. FINAL INSTALLMENT. A final distribution of up to $52
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
$966,459). See "The Sale Agreement - Indemnification
and Joint Account." The MGP anticipates that the final
distribution will be made approximately 40 months
following the closing.
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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
Seven Million Four Hundred Thirty Two Thousand Fifty Four Dollars
($7,432,054). The amount to be deposited in the Joint Account will be Nine
Hundred Four Thousand Five Hundred Fifty Dollars ($904,550).
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
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representatives of the Medicare and Medicaid programs are permitted
to make assessments against the Partnership for funds received under
those programs.
The MGP will provide each Limited Partner with updated
summaries of the status of the anticipated payment of the Second
Installment and the Final Installment at least annually. See
"Operations Following the Sale and Effect of the Sale on Limited
Partners."
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
For the reasons described below, the MGP, acting pursuant to
the unanimous approval of its directors, has approved the Sale
Agreement, the distribution of the remaining net assets in cash, and
the subsequent dissolution of the Partnership and recommends that
the Limited Partners consent to the Sale Agreement, the
distributions, and the subsequent dissolution of the Partnership.
As described in further detail below, the MGP believes that the
terms of the Sale are fair and reasonable, and are in the best
interests of the Partnership and its Limited Partners.
BACKGROUND AND REASONS FOR THE SALE
BACKGROUND. The Partnership was organized in 1986. 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.
The MGP has continuously evaluated the
possible 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
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in reimbursement rates for medical services, including certain of
the expenses incurred or services offered by the Partnership.
In fact, cost containment mechanisms both by governmental and
third-party payors have already begun to restrict the scope and
amount of reimbursable health care expenses. As a result of the
federal government's recent decision to increase the minimum wage to
$4.75 per hour in 1996 and $5.15 per hour in 1997, the Partnership
has been required to increase the hourly wage of many employees
previously compensated at less than the new minimum wage in order to
remain competitive in the labor market. The Partnership has also
experienced a "ripple effect" in wages for some employees who had
been paid slightly more than the new minimum wage. Accordingly, the
increase in the minimum wage and consequent increases in other
hourly wages have adversely impacted the Partnership, and will in
the future continue to adversely impact the Partnership, unless
Medicare and Medicaid reimbursement rates are increased to cover
such increases. To date, the State of Alabama has increased its
reimbursement rates to reimburse actual expenses due to the 1996
minimum wage increase to $4.75, but the State of Texas and the State
of Illinois have not. The State of Illinois has recently increased
its reimbursement rates, but these increases were not related to,
and do not reimburse providers for, the 1996 minimum wage increase.
None of the states are 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
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business to preserve and enhance the Partnership's profitability in
the long-term would likely have short-term start-up costs and debt
service requirements which would adversely affect the profitability
of the Partnership and distributions to its investors in the short
to intermediate term. In addition, even if successfully developed,
there is no assurance that the Partnership would be able to operate
such new lines of business profitably.
In response to the concerns outlined above, the MGP determined
to conduct a valuation of the Partnership's assets in early 1996.
At the same time, based on similar concerns, the managing general
partners of the Other Sellers determined to seek a valuation of
those entities' assets. Commencing in January 1996, representatives
of the Partnership and the Other Sellers had discussions with
various investment bankers concerning a potential valuation for
Units. In February, 1996, Robinson-Humphrey was retained by the
Sellers to value the various Sellers' assets and advise the Sellers
as to the possible sale of their assets. As a result of the
valuation and the MGP's concerns about the Partnership's capacity to
continue to compete effectively in the rapidly-changing health care
environment, the MGP asked Robinson-Humphrey to seek potential
purchasers of the Partnership's assets. In the first quarterly
report to the Limited Partners in 1996, the MGP informed the Limited
Partners that an investment banking firm had been retained to
conduct such a valuation and advise the Partnership of a possible
sale of assets. By letter dated June 10, 1996, to the Limited
Partners, the MGP informed the Limited Partners that it had
determined to seek a buyer of the Partnership's assets based on the
Robinson-Humphrey valuation. The MGP based its decision to seek a
purchaser for the Partnership's assets on its belief that the
Partnership did not have adequate resources to continue to grow the
business of the Partnership in the manner that would be necessary to
maintain its level of profitability in the changing competitive
health care environment.
Robinson-Humphrey advised the Sellers that they were likely to
obtain a higher price from a large company with a significant
presence in the nursing home industry, but that such a large company
would likely not be interested in acquiring individual assets, and
that the larger the asset group offered for sale, the higher the
price per facility was likely to be. Accordingly, Robinson-Humphrey
solicited indications from those companies that it believed would be
interested in purchasing all of the assets of the Sellers. Pursuant
to Robinson-Humphrey's solicitation, eighteen potential purchasers
requested additional information regarding the proposed sale. Of
the eighteen potential purchasers, five submitted written
indications of interest in acquiring the assets. Starting in April
1996, Robinson-Humphrey had various discussions with representatives
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of each of the parties, and ultimately, two initial proposals for
the acquisition of all of the Sellers' operating assets were
received in a price range deemed appropriate by Robinson-Humphrey.
However, the party making the lower of these initial proposals also
introduced unacceptable financing conditions. The Partnership
entered into negotiations with the party making the better proposal
and entered into a letter of intent with that party, later that
party withdrew from negotiations after learning of a threatened
change in Alabama's Medicaid reimbursement policy that would have
affected all nursing homes in Alabama.
By a letter dated October 22, 1996, the Partnership informed
Limited Partners that the aforementioned negotiations and letter of
intent had been abandoned, but that the Partnership would engage
Robinson-Humphrey to renew its efforts to sell the assets of the
Partnership in the near future. During November 1996, Robinson-
Humphrey again solicited interest in the purchase of the
Partnership's assets, and received four additional written
expressions of interest in further discussions. Two proposals were
made, but the Omega proposal was deemed to be the most serious offer
capable of being accepted and to be in the best interest of the
Partnership.
Omega is one of the largest healthcare real estate investment
trusts in the United States. As a real estate investment trust,
Omega cannot operate nursing homes owned by it and, as a result,
Omega typically leases its properties to third-party operators.
Omega's lessees include some of the largest long-term care providers
in the United States. Virtually all of Omega's lessees have
substantially more resources available to operate the Partnership
assets more competitively than the Partnership.
Based on the terms of the Omega proposal, including the absence
of contingencies similar to those demanded by the other potential
purchaser, the managing general partners of the Sellers commenced
discussions with Omega in December 1996 concerning the sale of
substantially all of the assets of the Sellers, including the
Partnership. In mid-December, following the MGP's consultation with
Robinson-Humphrey regarding an 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-
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Humphrey acted as financial advisor to the Partnership in connection
with the negotiation, approval by the Board of Directors and
execution by the MGP on behalf of the Partnership of the Sale
Agreement. No independent representative of the Limited Partners of
the Partnership was retained by the Partnership or the MGP to
participate in the negotiation of the terms of the Sale Agreement
with Omega.
The terms of the Sale are the result of arms-length
negotiations between the MGP and Omega and were approved by the
Board of Directors of the MGP at the meeting held on January 31,
1997. At the meeting, the Board received presentations concerning,
and reviewed carefully the terms and conditions of, the proposed
Sale with Partnership management with legal counsel and the
Partnership's financial advisor, Robinson-Humphrey. As part of the
meeting, the Board of Directors considered, among other things, the
historical Limited Partnership trading prices and trading
information for the Units and information presented by Robinson-
Humphrey, including an analysis of other comparable companies being
sold in the nursing home industry, an analysis of comparable
publicly-traded nursing home companies, and an asset analysis. The
MGP and Robinson-Humphrey also discussed the Partnership's results
of operations for 1995 and 1996 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 $1,003 cash payable within 30 days of Closing,
plus an estimated $186 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 more than 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;
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2. Financial and other information concerning the financial
strength of Omega;
3. The terms, other than the financial terms, of the proposed
Sale;
4. The likelihood of the Sale being approved by appropriate
regulatory authorities;
5. The relative strengths of each entity;
6. The difficulties faced by the Partnership in taking
advantage of new opportunities in the health care industry
if the Sale were not consummated;
7. Industry conditions generally, including the ongoing trend
of consolidations in health care in response to health
care reform movements; and
8. The opinion of Robinson-Humphrey that the consideration to
be received by the Limited Partners pursuant to the Sale
Agreement is fair to the Limited Partners from a financial
point of view.
OPINION OF FINANCIAL ADVISOR
BACKGROUND. The managing general partners of the Sellers
engaged Robinson-Humphrey to consult with and advise them concerning
the sale of assets of the Sellers, to solicit offers for the sale of
such assets, to assist in the negotiation of such sale, and to
render fairness opinions at or about the date of the various
facility acquisition 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 Sellers 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
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units of the Sellers. See "Solicitation Expenses." If the Asset
Sales occur either during the term of Robinson-Humphrey's engagement
or within six months of the termination of such engagement to a
party of which Robinson-Humphrey notified the Sellers, then
Robinson-Humphrey will also receive a success fee (the "Success
Fee") equal to 1.5% of the first $50 million in total consideration,
2.5% of any additional consideration up to $60 million and 3% of any
additional consideration in excess of $60 million. If the Asset
Sales are consummated and the Success Fee is paid by the Sellers,
then the amount previously paid in connection with the Retainer,
Opinion Fees and Proxy Fees will be deducted from the Success Fee.
The Robinson-Humphrey Engagement Letter also provides that the
Sellers will reimburse Robinson-Humphrey for its reasonable out-of-
pocket expenses up to $15,000 and will indemnify Robinson-Humphrey
against certain liabilities and expenses, including certain
liabilities under the Federal Securities laws. The Partnership's
share of the Robinson-Humphrey Success Fee and expenses is based on
its pro rata share of the gross purchase price and is estimated to
be approximately $419,000 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 as set forth in the Sale Agreement 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.
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THE FAIRNESS OPINION OF ROBINSON-HUMPHREY, DATED FEBRUARY 12,
1997, WHICH SETS FORTH ASSUMPTIONS MADE AND MATTERS CONSIDERED,
APPEARS AS APPENDIX B TO THIS CONSENT SOLICITATION STATEMENT. THE
LIMITED PARTNERS ARE URGED TO READ THE FAIRNESS OPINION IN ITS
ENTIRETY. ROBINSON-HUMPHREY'S FAIRNESS OPINION WAS DIRECTED ONLY TO
THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION
TO BE RECEIVED BY THE LIMITED PARTNERS OF THE PARTNERSHIP.
ROBINSON-HUMPHREY'S FAIRNESS OPINION WAS DELIVERED FOR THE
INFORMATION OF THE PARTNERSHIP AND DOES NOT CONSTITUTE A
RECOMMENDATION AS TO HOW ANY LIMITED PARTNER SHOULD VOTE ON THE SALE
AND SUBSEQUENT DISSOLUTION OF THE PARTNERSHIP. THIS SUMMARY OF THE
FAIRNESS OPINION OF ROBINSON-HUMPHREY IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE OPINION.
In rendering its Fairness Opinion, Robinson-Humphrey reviewed
and analyzed: (1) the Sale Agreement; (2) financial and operating
information with respect to the business, operations and prospects
of the Partnership furnished to Robinson-Humphrey by the MGP; (3) a
comparison of the historical financial results and present financial
condition of the Partnership with those of other companies that
Robinson-Humphrey deemed relevant; (4) an analysis of financial and
stock market information of selected publicly-traded companies that
Robinson-Humphrey deemed comparable to the Partnership; (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
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upon market, economic and other conditions as they existed, and
which were capable of being evaluated, as of the date of the
Fairness Opinion.
In connection with the preparation of the Fairness Opinion,
Robinson-Humphrey performed certain financial and comparative
analyses, including those described below. The summary set forth
below includes all of the financial analyses used by Robinson-
Humphrey and deemed by it to be material but does not purport to be
a complete description of the analyses performed by Robinson-
Humphrey in arriving at its opinion. The preparation of a fairness
opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and therefore, such
an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its Fairness Opinion, Robinson-Humphrey
did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor.
Accordingly, Robinson-Humphrey believes its analyses must be
considered as a whole and that considering any portions of such
analyses without considering all analyses and factors could create a
misleading or incomplete view of the process underlying the opinion.
In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the price at which businesses
may actually be sold. No public company used as a comparison is
identical to the Partnership. An analysis of the results of such a
comparison is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other
factors that could affect the value of the companies to which the
Partnership is being compared.
The generally accepted financial analyses Robinson-Humphrey
used in reaching its opinions included (1) comparisons with selected
publicly-traded companies, which consisted of reviewing market
statistics and financial and operating information with respect to
selected companies considered to have businesses similar to that of
the Partnership; (2) analysis of other selected transactions, which
consisted of reviewing operating statistics and purchase price
information with respect to selected acquisitions of assets or
businesses similar to those of the Partnership; and (3) analysis of
asset values based on the appraised value of the Partnership's
Facilities and the net tangible asset value of the Partnership. The
material portions of these analyses (which are all of the material
valuation methodologies performed by Robinson-Humphrey) as
represented in its Fairness Opinion are summarized below.
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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 based on the closing stock prices on
February 10, 1997 (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 16.6x for the Public Health Care Companies; (3) the average
ratio of market value to book value was 2.1x for the Public Health
Care Companies; (4) the average ratio of firm value (firm value
equals equity value plus total debt less cash) to revenues for the
last 12 months was 1.12x for the Public Health Care Companies; (5)
the average ratio of firm value to earnings before interest and
taxes ("EBIT") for the last 12 months was 11.8x for the Public
Health Care Companies; and (6) the average ratio of firm value to
earnings before interest, taxes, depreciation and amortization
("EBITDA") for the last 12 months was 8.4x for the Public Health
Care Companies. In addition to applying these multiples directly,
Robinson-Humphrey took into effect the Partnership's smaller size
relative to the comparable companies and applied a discount (the
"Small Company Discount") to these multiples. Based upon these
values and these and other multiples, Robinson-Humphrey calculated
an average implied equity value for the Partnership of approximately
$21.9 million based on a direct comparison, and $16.4 million
assuming a 25% Small Company Discount.
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 for the Partnership of approximately
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<PAGE>
$26.6 million based on a direct comparison, and $20.0 million
assuming a 25% Small Company Discount.
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 December 31, 1996. The appraised value
of the Facilities was approximately $19.4 million, and the net
tangible asset value of the Partnership at December 31, 1996 was
approximately $16.7 million.
THE SALE AGREEMENT
GENERAL. The Sale Agreement provides that, upon satisfaction
or waiver of conditions to the Sale, the Partnership will sell, and
Omega will purchase, substantially all of the operating assets of
the Partnership, including the Facilities, the Real Property, all
buildings and improvements thereon, and the personal and intangible
property used in connection with the Facilities, including
equipment, vehicles, furniture, fixtures, inventories of food and
supplies, books, records, licenses, franchises, permits and trade
names. As part of the Sale, Omega will assume certain contract
obligations of the Partnership related to the operation of the
Facilities, but Omega will not assume any debt or trade payables.
The Partnership will retain all cash and cash equivalents and
accounts receivable of the Partnership as of the Effective Time.
The Sale Agreement is reproduced in its entirety as Appendix A to
this Consent Solicitation Statement, and all references in this
Consent Solicitation Statement to the Sale Agreement are qualified
by reference thereto. All exhibits to the Sale Agreement have been
omitted from Appendix A, but may be obtained from the MGP upon
request.
EFFECTIVE TIME OF THE SALE. The Sale will become effective
(the "Effective Time") at the closing of the transaction, which will
occur as promptly as practical after the requisite Limited Partner
approval has been obtained and all the conditions to the closing of
the Sale have been satisfied or waived, including the consummation
of the sale of the operating assets of the Other Sellers to Omega.
It is currently anticipated that all conditions, other than the
closing of the Asset Sales, will have been satisfied prior to the
date on which the vote is taken. The Effective Time is anticipated
to occur on or about April 30, 1997.
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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, Twenty-Four Million Five Hundred Twenty-Two
Thousand Seven Hundred Twenty-Five Dollars ($24,522,725) for the
Partnership's operating assets. The Partnership will either use a
portion of the proceeds to pay Partnership indebtedness or the
Partnership will direct Omega to use a portion of the sale price to
pay Partnership indebtedness which encumbers Partnership properties.
The Partnership has received an opinion from Robinson-Humphrey that
such consideration is fair to the Limited Partners from a financial
perspective. See "Opinion of Financial Advisor."
REPRESENTATIONS AND WARRANTIES. The Sale Agreement contains
various representations and warranties of the Partnership and the
MGP relating to, among other things: (a) organization and similar
matters; (b) the authorization, execution, delivery, performance and
enforceability of the Sale Agreement; (c) financial statements; (d)
the absence of certain material adverse changes; (e) required
licenses, permits and authorizations; (f) compliance with certain
laws; (g) resident relations and services; (h) books and records;
(i) real property; (j) the absence of certain union-related
activity; (k) tax matters; (l) environmental matters; (m) litigation
matters; (n) the absence of certain kinds of illegal payments; (o)
facilities; (p) inventories; (q) admission agreements; (r) patient
rosters; (s) contracts; (t) insurance; (u) employee fringe benefits;
and (v) employee benefit plans and matters relating to the
Employment Retirement Income Security Act of 1974, as amended.
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
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reports for the Facilities, and the payment of accounts
payable related to the Facilities;
(c) Take all reasonable action to preserve the goodwill and
occupancy levels of the Facilities;
(d) Except in the ordinary course of business, make no
material changes in the Facilities or the operation
thereof;
(e) Use its reasonable efforts to retain the goodwill of
employees of the Facilities, and promptly notify Omega of
any known union organizing or contract negotiations at any
of the Facilities;
(f) Maintain insurance upon the Facilities;
(g) Except in the ordinary course of business, maintain
compensation levels for employees without increases;
(h) Not enter into written employment agreements;
(i) Except in the ordinary course of business, not enter into
certain types of commitments without Omega's approval;
(j) Allow Omega, 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:
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<PAGE>
(a) At no cost to the Partnership, reasonably cooperate with
Omega in the event Omega is required to include audited
financial statements with respect to the Facilities in its
filings with the SEC;
(b) Take any and all reasonably necessary actions to complete
the transfer of the Partnership's assets to Omega as
provided in the Sale Agreement;
(c) Retain funds in an amount sufficient to satisfy its
remaining financial obligations including its obligations
under the indemnification provisions of the Sale
Agreement; and
(d) Timely file annual cost reports for the Facilities,
together with appropriate supporting documentation, with
Medicare, Medicaid and any other third party payor.
Omega has agreed that during the period following the date of
the Sale Agreement and prior to the Effective Time, it will:
(a) Provide the Partnership and the MGP timely notice of, and
permit the cure of, any conditions or circumstances
unsatisfactory to it that could prevent or inhibit the
Sale from being consummated;
(b) Proceed with all due diligence to conduct such
investigations with respect to the Partnership's assets as
it deems reasonably necessary;
(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:
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<PAGE>
(a) Provide the Partnership, or cause the New Operator to
provide the Partnership, with access during normal
business hours to the Facilities and any books or records
which it needs in connection with tax and other government
filings, litigation and certain other administrative
matters;
(b) Take such other reasonable steps requested by the
Partnership necessary to complete and consummate the Sale
Agreement;
(c) Ensure the maintenance of patient records for three (3)
years after the Closing Date and, upon proper notice,
provide the Partnership with access thereto; and
(d) For two (2) months following the Closing Date, cause the
New Operator to use commercially reasonable efforts to
collect accounts receivable for the Partnership for the
period prior to and including the Closing Date.
AGREEMENT NOT TO SOLICIT ADDITIONAL OFFERS. The MGP and the
Partnership have agreed that from the date of the Sale Agreement
until the earlier of the Effective Time or the termination of the
Sale Agreement, neither will directly or indirectly initiate,
solicit, or take any action to facilitate any alternative
acquisition proposal involving the Partnership or its assets.
CONDITIONS TO CLOSING OF THE SALE. The respective obligations
of the Partnership, the MGP and Omega to consummate the Sale are
subject to a number of conditions, including among others:
(a) Approval of the Sale by the holders of more than 50% of
the Units held by the Limited Partners;
(b) Approval of the Sale by the Board of Directors of Omega;
(c) The compliance by all parties with the provisions of the
Sale Agreement applicable to them and the truth of each
party's representations and warranties as of the closing;
(d) Approval of the Sale by the appropriate governmental
authorities and receipt of all required licenses and
permits for operation of the Facilities, or an indication
satisfactory to Omega that the same will be forthcoming in
a timely manner;
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(e) Delivery by the Partnership of certain title commitments
or insurance policies for each of the facilities, surveys,
environmental site assessments and UCC searches, and
Omega's satisfaction with the same;
(f) The delivery of the Facilities in the same condition as of
the date of the Sale Agreement, reasonable wear and tear
excepted;
(g) The absence of any undisclosed defaults and materially
adverse events by the Partnership; and
(h) Upon request by Omega or the New Operator, the
Partnership's entrance into the Interim Leasing Agreement
and execution of the Interim Management Agreement
concurrently with the Closing.
CONSUMMATION OF OTHER ASSET SALES. The closing of the Sale
Agreement is also conditioned upon the closing of the sale of the
operating assets of each of the Other Sellers to Omega. See "Sale
of Partnership Assets - General." Omega and the MGP negotiated the
cross-closing contingency because Omega desires to purchase all of
the operating assets of the Sellers, and is not willing to purchase
them separately for the overall consideration offered by it for all
of the assets. The managing general partners of the Sellers agreed
to the cross-closing 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."
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."
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INTERIM OPERATING AGREEMENTS. In order for Omega to be taxed a
real estate investment trust, Omega cannot operate the health care
facilities it owns. Therefore, Omega customarily leases the
operation and management of its health care facilities to third
party operators, many of whom are among the largest health care
operators in the United States. Omega intends to lease the
operation of the Facilities to the New Operator, but Omega's ability
or inability to procure the New Operator will not have any effect on
the ability of the parties to consummate the Sale. In the event
that Omega is unable to procure the New Operator prior to the
Effective Time, or in the event the New Operator, if identified, has
not received the Regulatory Approvals prior to the Effective Time,
the Partnership will enter into the Interim Leasing Agreement with
Omega or, if identified, the New Operator, to permit Omega more time
to locate the New Operator and/or for the New Operator to receive
the Regulatory Approvals.
INTERIM LEASING AGREEMENT. The Interim Leasing Agreement, if
entered into by the Partnership and Omega or the New Operator, will
provide that (a) the Partnership will have no financial
responsibility for funding the operations of the Facilities during
the term of the Interim Leasing Agreement; (b) the rent payable
under the Interim Leasing Agreement will be equal to the cash flow
generated by operation of the Facilities under the Interim Leasing
Agreement; and (c) the Interim Leasing Agreement shall terminate no
later than December 31, 1997. If the Partnership enters into the
Interim Leasing Agreement, Atrium has agreed to manage the
Facilities for the Partnership and Omega pursuant to the terms of an
Interim Management Agreement prepared and agreed to by Atrium, the
Partnership and Omega.
INTERIM MANAGEMENT AGREEMENT. The Interim Management
Agreement, if entered into by the Partnership and Atrium for the
benefit of Omega, will provide that Atrium will receive a monthly
management fee during the term of the agreement equal to a certain
percentage of the adjusted gross income of the Facilities, such
percentage to be determined based on the total number of facilities
Atrium is managing for the Partnership and the Other Sellers as
outlined in the Sale Agreement. The Interim Management Agreement,
if entered into by the Partnership and Atrium, will terminate on or
before the termination of the Interim Lease Agreement.
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RIGHT TO TERMINATE. The Sale Agreement may be terminated
without any further liability or obligation of either party (except
with respect to liability for damages resulting from willful
breaches of representations, warranties, covenants, or agreements)
as follows:
BY THE PARTNERSHIP AND OMEGA at any time by mutual consent of
Omega and the Partnership.
BY THE PARTNERSHIP (a) Upon Omega's failure to meet its
obligations pursuant to the conditions to closing the sale; or
(b) as the result of certain kinds of material adverse changes in
Omega's representations, warranties, or disclosures pursuant to the
Sale Agreement
BY OMEGA (a) upon the Partnership's failure to meet its
obligations pursuant to the conditions to closing the Sale; (b) as
the result of certain kinds of material adverse changes in the
Partnership's representations, warranties, or disclosures pursuant
to the Sale Agreement; or (c) in the event a material portion of any
of Real Property or the Facilities is damaged by fire or other
casualty, or is taken or condemned by public or quasi-public
authorities, unless the estimated cost of repairs to be made by the
Partnership is less than $100,000 and the damage to the property as
of the closing will not interfere with the operation of such
Facility.
BY THE PARTNERSHIP OR OMEGA (a) if the required percentage of
Units have not been voted in favor of the Sale or if such approval
is not obtained by July 15, 1997; (b) in the event of a material
breach by the other party, provided that the terminating party is
not in breach; (c) in the event the Sale has not been consummated on
or 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.
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<PAGE>
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, Eight Hundred Six
Thousand Dollars ($806,000) as liquidated damages. Such amount
would be paid on the earlier to occur of consummation of the other
acquisition or one hundred twenty (120) days after termination of
the Sale Agreement.
RIGHT OF FIRST REFUSAL. If the Sale Agreement is terminated
because the requisite approval for any of the Asset Sales, including
the required approval of the Limited Partners, is not received and,
if at the time of termination the Partnership has not accepted a
competing acquisition proposal, the Partnership has agreed to grant
Omega a right of first refusal to purchase any Facility owned by the
Partnership on the same terms as set forth in a written offer from a
third party for the purchase of the Facility received by the
Partnership prior to December 31, 1997.
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<PAGE>
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,
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<PAGE>
if identified, the New Operator has not entered into operating
leases for the Facilities with Omega at the Effective Time, then the
Sale will be consummated, but the Partnership will enter into the
Interim Operating Agreements with Omega or the New Operator, and the
approval of various federal, state and local government agencies
will not be required.
In the event that the New Operator has been identified and has
entered into operating leases for the Facilities with Omega at the
Effective Time, then the approval of various federal, state and
local governmental agencies will be required in connection with each
Asset Sale, including the Sale, in order for Omega to own the
purchased facilities and for them to be operated by their respective
lessees. In particular, each state in which any Seller operates
requires the prior approval of the applicable state regulatory
authorities before the sale of a long-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.
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 One Million Seven Hundred Seventy-Four Thousand Five
Hundred Fifty Dollars ($1,774,550), but there will be no limit on
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<PAGE>
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 Nine
Hundred Four Thousand Five Hundred Fifty Dollars ($904,550) 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
Eight Hundred Seventy Thousand Dollars ($870,000) (the "Additional
Reserves") to secure the Partnership's remaining obligations to
Omega or others, including indemnification and certain other
obligations under the Sale Agreement.
The funds deposited in the Joint Account will be used to
satisfy indemnity claims of Omega until such funds are depleted
before an indemnified claim may be made against the Partnership. At
the expiration of all relevant indemnity periods, any remaining
funds in the Joint Account plus all earnings thereon but less all
administrative expenses related thereto will be returned to the
Partnership. The indemnity obligations of the Partnership for
certain representations and warranties will survive for a period of
12 months following the Effective Time. Other representations and
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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 Eighteen Thousand One Hundred Eighty Seven Dollars and
Fifty Cents ($318,187.50) 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 Eighteen Thousand One Hundred Eighty Seven Dollars and
Fifty Cents ($318,187.50) 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 RWB Management Corporation, another subsidiary of
QualiCorp, serve as managing general partners of four limited
partnerships, including the Partnership. The other limited
partnerships are RWB Medical Income Properties 1 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 that QualiCorp is entitled to
distributions pursuant to its ownership of 42 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 $248,108 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
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The following summarizes the federal income tax provisions
relating to the proposed transactions. Management has received an
opinion from special counsel for each Partnership addressing certain
Federal income tax consequences of the proposed sale of
substantially all of the assets of each Partnership and the
liquidation of each Partnership. The opinion is to the effect that
if the sale of assets by each Partnership and the liquidation of
each Partnership occur as set forth in the Sale Agreement and as
otherwise described in this Consent Solicitation, it is more likely
than not that:
a. The proposed sale of assets will result in the recognition
of gain or loss by each Partnership computed by comparing
the amount realized by each Partnership on the sale of
each of the assets to each Partnership's adjusted basis in
each of the assets sold;
b. The gain and/or loss recognized on the sale of the assets
by each Partnership will pass through to the partners of
each Partnership in accordance with the terms of each
Partnership Agreement;
c. A portion of any gain recognized is projected by the
Partnership to be characterized as ordinary income and a
portion as short term and/or long term capital gain;
d. The satisfaction of liabilities out of the proceeds of the
sale of the assets may reduce each partner's basis in its
Partnership interest;
e. Cash received by the partners of each Partnership in
complete liquidation of their Partnership interests will
result in the recognition of taxable gain or loss. The
amount of such gain or loss will be the difference between
the cash received and each partner's basis in the
Partnership interests surrendered in exchange therefor;
f. The character of any gain or loss recognized by the
partners on the liquidation of each Partnership will be
capital gain or loss, subject to the application of
Section 751 of the Internal Revenue Code.
g. During the years of sale and liquidation, each Partnership
may have income or loss from its remaining operations
which may result in ordinary income or loss to the
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partners in those years. Each Partnership may make
distributions in the year of sale prior to the
distributions in complete liquidation which would reduce
each partner's basis in its partnership interest. If the
amount of the distribution exceeds a partner's basis in
its partnership interest, said partner will recognize gain
equal to the excess of the cash received over the
partner's basis in its partnership interest.
The opinion received is subject to the following
qualifications. An 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 speical 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
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the tax status of each Partnership as a partnership for federal
income tax purposes as opposed to an association taxable as a
corporation. The special counsel's opinion is limited to matters set
forth above. No other opinion can be inferred beyond the matters
expressly stated therein. Because of all of the above, partners
should consult their own tax advisors with respect to all of the tax
consequences of the proposed transactions.
TAXATION OF PARTNERSHIPS IN GENERAL
An entity classified as a partnership for federal income tax
purposes is not subject to federal income tax. Instead, income or
loss "flows through" from the partnership to its partners who are
taxable in their individual capacities on their allocable shares of
partnership items of income, gain, loss, deduction and credit
("taxable income or loss"). However, the partnership is a tax
reporting entity that must make an annual return of partnership
taxable income or loss. The tax treatment of partnership items of
taxable income or loss is generally determined at the partnership
level. Each partner is required to treat partnership items on its
return in a manner consistent with the treatment of such items on
the partnership return and may be penalized for intentional
disregard of the consistency requirement. This consistency
requirement may be waived if the partner files a statement
identifying the inconsistency or shows that it resulted from an
incorrect schedule furnished by the partnership.
Each partner generally must account for its allocable share of
partnership taxable income or loss in computing its income tax,
whether or not any actual cash distribution is made to such partner
during its taxable year. A partner's basis in its partnership
interest is increased by its allocable share of partnership taxable
income. It is this basis increase that generally allows
distributions of taxable income to the partners to be made without
recognition of gain, since the basis increase generally offsets
corresponding decreases in basis that result from such
distributions. As a result, a partner is generally not taxed on
distributions of cash or property received from a partnership,
except to the extent that any money distributed exceeds the
partner's adjusted basis in its partnership interest immediately
before the distribution.
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BASIS OF PARTNERSHIP INTERESTS
A partner's basis in its interest is equal to its cost for such
interest (i.e., the amount of money actually contributed by the
partner to the partnership or paid to another to purchase the
interest), reduced (but not below zero) by its allocable share of
partnership distributions, taxable losses and expenditures of the
partnership not deductible in computing its taxable income and not
properly chargeable to its capital account, and increased by its
allocable share of partnership taxable profits, income of the
partnership exempt from tax and additional contributions to the
partnership. For purposes of determining basis, an increase in a
partner's share of partnership liabilities is treated as a
contribution of money by that partner to the partnership.
Conversely, a decrease in its share of partnership liabilities is
treated as a distribution of money to it.
Generally, a limited partner may not take liabilities into
account in determining its basis except to the extent of any
additional capital contribution it is required to make under the
partnership agreement. However, in the case of a limited
partnership, if a partnership asset is subject to a liability for
which no partner has any personal liability ( a "nonrecourse
liability"), in general, the partner's allocable share of the non-
recourse liability will be taken into account to determine basis.
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ALLOCATION OF INCOME, GAIN, LOSS AND DEDUCTION
AMONG THE PARTNERS
A partner's distributive share of a partnership's taxable
income or loss generally is determined by reference to the
allocation of such items in the partnership agreement. However, if
the allocation under the partnership agreement is determined not to
have "substantial economic effect," then the partnership agreement
may not govern, and the partner's allocable share will be determined
according to the partner's interest in the partnership taking into
account all the facts and circumstances. An allocation is
considered to have "substantial economic effect" if the allocation
may actually affect the dollar amount of the partner's shares of the
total partnership income or loss independent of tax consequences.
Management believes that the allocations made under the Partnership
Agreements for the partnership have substantial economic effect.
SALES OF PARTNERSHIP PROPERTIES
The sale of each Partnership's assets will be a taxable event
to the Partnership and to the partners. Gain or loss on the sale is
measured by the difference between the adjusted basis of the assets
disposed and the amount realized. On a sale, the amount realized is
the sum of any money received, plus the fair market value of any
property received, plus the amount of liabilities from which the
Partnership is discharged as a result of the sale or disposition
(which includes the amount of any nonrecourse liability to which the
transferred property is subject). The adjusted basis of such
property is generally its cost less deductions, allowed or
allowable, for depreciation. In general, gains from the sale or
other disposition of partnership properties which are treated as
long-term capital gains are taxed at the partner level at a lower
rate than ordinary income and short-term capital gains.
Since a partnership's gain on a sale of property will be
measured by the difference between the sales proceeds (including the
amount of any indebtedness to which the property is subject) and the
adjusted basis of the property, the amount of tax payable by a
partner in respect of its share of such gain may in some cases
exceed its share of the cash proceeds therefrom.
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A substantial portion of the assets to be sold (including
buildings, land, furniture, fixtures and equipment) which were held
for more than one year and are not "dealer property," are expected
to be treated as "section 1231 assets." Section 1231 assets are
property used in the trade or business of a character which is
subject to the allowance for depreciation, held for more than one
year, and real property used in the trade or business held for more
than one year. Gains or losses from the sale of section 1231 assets
would be combined with any other section 1231 gains or losses
incurred in that year, and the section 1231 gains or losses would be
allocated to the partners as provided in the partnership agreement
and combined with any other section 1231 gains or losses incurred by
the partner in that year. The partner's net section 1231 gains or
losses would be taxed as capital gains or constitute ordinary
losses. If a partnership is deemed a "dealer" and its investment in
any property that constitutes the partnership is considered not to
be a capital asset or section 1231 asset, any gain or loss on the
sale of such property would be treated as ordinary income or loss.
Each partnership has attempted to operate in such a manner so as not
to be deemed a "dealer."
A portion of a partner's gain recognized on disposition of a
partnership's buildings and furniture, fixtures and equipment may be
subject to recapture as ordinary income under the provisions of
sections 1245 or 1250 of the Internal Revenue Code of 1986, as
amended. Such recapture gain will be recognized in the year of the
disposition.
A non-corporate partner's share of any losses from the sale of
Partnership properties which is treated as a capital loss is
deductible in any year only to the extent of the partner's long and
short-term capital gains for that year. Any excess of capital
losses over capital gains is deductible by a non-corporate partner
up to $3,000 ($1,500 in the case of a separate return for a married
individual) although the unused portion of such capital losses could
be carried over to later years, and deducted as a long-term or
short-term capital loss until fully exhausted.
LIQUIDATION OF THE PARTNERSHIP
Generally, upon the liquidation of a partnership, gain will be
recognized by and taxable to a partner to the extent the amount of
cash and marketable securities distributed to it exceeds its basis
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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 includable in income under the partnership's method of
accounting, rights to payment for services rendered or to be
rendered and for goods delivered or to be delivered and a partner's
pro rata share of any potential Code section 1245 or 1250 income,
short-term obligations, market discount bonds, franchises,
trademarks and trade names and several other categories of property
which would be treated as amounts received from the sale or exchange
of property other than a capital asset. Thus, the difference
between the amount realized that is attributable to a partnership's
"section 751 property" and the adjusted basis to the partner of such
"section 751 property" is treated as ordinary income or loss to the
partner. The difference between the remainder, if any, of the
partner's adjusted basis for its partnership interest and the
balance, if any, of the amount realized, is the partner's capital
gain or loss on the liquidation of the partnership interest.
Capital loss will be recognized in the event only cash and
unrealized receivables are distributed, and only to the extent the
partner's adjusted basis for its interest exceeds the sum of money
distributed and the partnership's adjusted basis for unrealized
receivables.
In addition, each partner may be in receipt of income or loss
from the normal operations of a partnership during the year of
dissolution. Such income may constitute ordinary income or loss.
There are three commonly encountered limitations on a partner's
ability to take into account its share of a partnership's loss in
computing its individual tax liability. A partner is entitled to
deduct its share of the partnership's loss only after satisfying all
three rules. A partner's deductible share of losses is limited to
its basis in its partnership interest. The at-risk rules limit a
partner's deductible share of losses to the amount it is considered
to be economically at-risk in the venture. If a partner's share of
the partnership's losses are considered "passive losses," the
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partner must combine them with its passive losses from other sources
and is allowed to deduct the total only to the extent of its passive
income from all sources. Losses that are disallowed due to any of
these three limitations are deductible in the year of the
termination of a partnership interest and would offset any gain from
liquidation.
ALTERNATIVE MINIMUM TAX
The above summary of the federal income tax provisions relating
to the proposed transactions has not taken into account the federal
alternative minimum tax. This tax was designed to ensure that at
least some tax is paid by high income taxpayers who obtain benefits
from large exemptions and deductions. A taxpayer's alternative
minimum tax liability is determined by adjusting its regular tax
liability for alternative minimum tax preference items. Both of the
proposed transactions may result in alternative minimum tax
preference items flowing through to the partners.
CONCLUSION
The preceding is intended only as a summary of
income tax consequences relating to the proposed sale of assets by
the Partnership and the Partnership's liquidation. The partners of
the Partnership should consult their own tax advisors with respect
to all matters discussed herein and their own particular tax
circumstances.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SALE AND DOES NOT
PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX
EFFECTS RELEVANT TO A DECISION OF WHETHER TO VOTE IN FAVOR OF THE
SALE. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY
BE RELEVANT TO A PARTICULAR LIMITED PARTNER WHO IS SUBJECT TO
SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS NOR ANY
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CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR
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 Delaware 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.
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OPERATIONS FOLLOWING THE SALE AND EFFECT OF THE SALE ON LIMITED
PARTNERS
Following the consummation of the Sale and the termination of
the Interim Operating Agreements, if any, the Limited Partners will
not have any interest in the Facilities or Omega, except to the
extent that individual Limited Partners have an independent equity
or other interest in Omega. Following payment of the Final
Installment, the dissolution of the Partnership will be completed,
and the Limited Partners will have no further interest in the
Partnership.
Upon consummation of the transactions contemplated by the Sale
Agreement, the Partnership will use Sale proceeds to pay off its
debt and other payables associated with the operations of the
Partnership and the Facilities. Based on the existing debts of the
Partnership, the anticipated expenses related to the Sale and
current and historical accounts payable, the MGP believes that these
payments will total approximately $7,432,000 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 $2,503,300 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 Nine Hundred Four Thousand Five Hundred
Fifty Dollars ($904,550) 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."
-41-<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 unit data and distributions)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Summary of Operations:
Total Revenue 20,824 $ 19,050 $ 17,906 $ 16,607
Operating Income 2,233 1,941 1,994 2,624
Net Income 1,699 1,184 1,206 1,651
Per Share Data:
Net Income per Limited
Partner Unit 84.76 59.09 60.20 82.36
Financial Condition:
Total Assets 25,543 25,186 24,703 24,479
Bond, Notes and Capitalized
Lease Obligations 3,902 4,241 4,584 4,951
Partners' Capital 16,754 16,260 16,233 16,218
Distributions per Limited
Partner Unit:
First Quarter 15.00 15.00 12.50 8.75
Second Quarter 15.00 15.00 15.00 8.75
Third Quarter 15.00 15.00 15.00 10.00
Fourth Quarter 15.00 15.00 15.00 10.00
</TABLE>
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.
GENERAL. The Partnership is a Delaware limited partnership which
was organized on May 14, 1986. The Partnership is one of a series of
three limited partnerships as represented by the registration statement
filed with the Securities and Exchange Commission on October 22, 1986
(the Effective Date), providing for the sale of $10,000,000 of limited
partnership units (the Units), with an option to increase the offering
by an additional $10,000,000. The offering closed on June 2, 1987, upon
the sale of 18,639 units for an aggregate purchase price of $18,639,000.
The purpose of the Partnership is to engage in the business of
acquiring and holding for investment income-producing health care
related properties, primarily nursing homes, and operating such
-42-<PAGE>
properties as skilled and intermediate care nursing homes. As of
December 31, 1996, the Partnership owned a 100% interest in four
nursing homes, a 54.55% interest in a nursing home in Decatur,
Alabama and a 50% interest in two joint venture nursing homes in the
Houston, Texas area. The Partnership employed approximately 502
employees as of February 12, 1997.
BUSINESS STRATEGY. The Partnership intends to hold its real
property investments until such time as a sale or other disposition
appears to be advantageous. Such factors as potential capital
appreciation, industry trends, cash flow and federal income tax
consequences to the Limited Partners will be considered before
Partnership property dispositions are made.
LONG TERM CARE INDUSTRY. The long term care industry is composed
of many facilities offering services to subacute, skilled, assisted
living, and personal care residents. The Partnership's nursing
homes are considered to be in the skilled segment of the industry,
although several of its homes offer subacute services. 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, however, is not for everyone.
Many companies have established a different criteria, including
minimum population levels, in order to operate a subacute program in
a profitable manner. This is necessary due to the shorter lengths
of stay of patients and the need to obtain more and more admissions
to fill the shorter stay beds. Even with higher costs in the
nursing and service departments, nursing home industry subacute care
is considered to be more cost effective in caring for patients than
hospital care.
Historically, nursing homes have derived their revenues from
Medicare, Medicaid and private pay patients. In the past few years,
the industry has seen an increase in private insurance patients and
to a greater extent, contractual services from Health Maintenance
Organizations (HMO's) and Preferred Provider Organizations (PPO's).
The industry has always faced a challenge in staffing
facilities, particularly with regard to Registered Nurses, Licensed
Practical Nurses and Certified Nurse Aides. Depending upon the
geographic area, the Partnership competes with hotels, motels and
-43-<PAGE>
restaurants for other employees, including dietary and housekeeping
staff. The Partnership owns nursing facilities in the States of
Illinois, Texas and Alabama. Each state reimburses nursing
facilities on a prospective basis, although Alabama is the only
state which bases reimbursement on the nursing facilities' actual
cost. Texas and Illinois use average cost derived from all filed
cost reports. Texas reimburses nursing facilities on a patient
specific need called Texas Index of Level of Effort (TILE).
Illinois pays nursing facilities based upon different cost
parameters, including paying additional incentives based on facility
services provided. 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 Texas and the State of Illinois have not agreed to increase
reimbursement rates to compensate for the federally mandated
increase in the minimum wage. Although the State of Illinois has
recently increased its reimbursement rates, these increases were not
intended to, and have not, compensated providers including the
Partnership, for the minimum wage increases. The State of Alabama
increased its reimbursement rates in response to the 1996 minimum
wage increase, but 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."
-44-<PAGE>
Information regarding industry segments is not applicable to
the Partnership's business.
SEASONALITY. The Partnership's revenue and operating income
fluctuate from quarter to quarter and tend to be higher in the first
and second quarter of each fiscal year. This seasonality is due
primarily to the state Medicaid programs in which the Partnership
operates, rate increases and census cycles.
ROUTINE SERVICES. All of the nursing facilities operated by
the Partnership are licensed as skilled care facilities by the
appropriate regulatory agencies. Routine services include the
provision of skilled care services and assistance with activities of
daily living, depending upon the needs of each resident. Skilled
nursing care is rendered 24 hours per day by registered or licensed
nurses and 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
therapy programs. The Partnership continues to expand these
services as the needs of its residents and the requirements of
third-party payor programs warrants. In addition, the Partnership
has added subacute care programs to several of its facilities.
-45-
<PAGE>
<TABLE>
<CAPTION>
Average Daily Census
No. of Type of
Date of Licensed Medical Year Ended December 31,
Property Acquisition Beds Real Estate 1996 1995 1994 1993 1992
- - - -------- ----------- -------- ----------- ---- ---- ---- ---- ----
<S> <C> <C> <S> <C> <C> <C> <C> <C>
Muscle Shoals
Nursing Home Long-term
Muscle Shoals, Alabama 9/1/87 90 Care Facility 83 84 84 82 82
Shoals Nursing Home Long-term
Tuscumbia, Alabama 9/1/87 103 Care Facility 98 99 100 100 100
Oak Crest Nursing Home Long-term
Tuscumbia, Alabama 9/1/87 109 Care Facility 94 94 95 98 100
University Manor Long-term
Edwardsville, Illinois 3/1/88 120 Care Facility 108 107 106 109 116
Medical Park Long-term
Decatur, Alabama 7/1/88 183 Care Facility 174 170 175 178 179
(54.55% Interest)
</TABLE>
In addition, the Partnership has invested in a joint venture consisting
of two Houston area nursing homes with Medical Income Properties 2B
Limited Partnership:
<TABLE>
<CAPTION>
No. of Owner-
Date of Licensed ship Avg. Daily Census
Property Acquisition Beds Description % 1996 1995 1994 1993 1992
-------- ----------- -------- ----------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <S> <C> <C> <C> <C> <C> <C>
Renaissance Place-Katy Long-term
Katy, Texas 5/1/88 130 Care Facility 50% 117 121 112 118 116
Renaissance Place-Humble Long-term
Humble, Texas 5/1/88 120 Care Facility 50% 115 116 115 113 113
</TABLE>
For a further description of the Partnership's purchase and sale of
the properties, see Notes 1(f), 2, 4, 5, 6 and 14 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 10 to the Partnership's
Audited Financial Statements, however, the Partnership does have certain
contingent liabilities.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or group is known by the Partnership to own beneficially
more than 5% of the outstanding Units. No executive officers and
directors of the MGP owned any Units as of the date of this Consent
-46-<PAGE>
Solicitation Statement. As of such date, QualiCorp held 42 Units, which
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 (Loss) Per Unit $ 82.36 $ 60.20 $ 59.09 $ 84.76
Cash Distribution Per Unit 37.50 57.50 60.00 60.00
Book Value Per Unit 869.76 870.52 871.85 896.48
</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 $380 per Unit to a high
price of $560 per Unit. The last transfer of the Units of which the MGP
is aware occurred in January, 1997, for $800 per Unit. At February 12,
1997, the Partnership had 1,572 Limited Partners of record who held
18,639 Units.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, 1994 AND 1993
LIQUIDITY AND CAPITAL RESOURCES. Cash and cash equivalent balances
and marketable securities totaled $3,984,054 at December 31, 1996, an
increase of $932,898 from December 31, 1995. Accounts receivable
balances decreased during the same time frame $444,215 due to improved
collection efforts directed toward Medicare, Medicaid and private payors.
-47-<PAGE>
In addition, more timely Medicaid reimbursement from the State of
Illinois decreased receivables $131,000 between years. Net cash from
operations increased to $2,598,898 in 1996 compared to $1,914,160 in
1995. Cash paid to suppliers and employees, while increasing $1,865,395,
reflected higher salaries and wages paid and increased ancillary services
provided by contract services.
The Partnership spent $360,089 on capital expenditures during 1996
and expects to spend approximately the same amount in 1997. During the
year, the Partnership let lapse a Certificate of Need to construct a
fourteen (14) bed addition to its Shoals Nursing Home which it had
intended to finance from existing cash balances.
In 1996, the Partnership paid regular distributions to its limited
partners of $60.00 per unit. This distribution equaled a 6% return on
the initial investment of $1,000.00 per unit. Although the Partnership
expects to make distributions to its limited partners based upon cash
flow generated from operations, after considering cash required for debt
obligations, necessary improvements to its properties and working capital
reserves, no assurances can be given that distributions will be made in
the future.
The Partnership has a $500,000 line of credit available to it should
the need arise. At the present time, the Managing General Partner
believes the Partnership has adequate working capital and does not
believe it will be necessary to borrow additional funds.
RESULTS OF OPERATIONS.
FISCAL YEAR 1996 COMPARED TO 1995
Net income for the year ended December 31, 1996 was $1,698,843
compared to $1,184,339 for the year ended December 31, 1995. Total
revenue increased to $20,824,455 during the year, an increase of
$1,774,778 over 1995. This increase was the result of improved routine
service rates and the facilities' continued efforts to provide increased
ancillary services, particularly therapy services, to its residents.
The operating costs of the Partnership increased to $18,591,372
during the year. Operating expenses for 1995 totaled $17,108,449.
Professional care of patient costs by year are:
-48-<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Salaries and Wages $ 5,833,050 $ 5,515,416
Supplies and Pharmaceuticals 837,089 740,854
Ancillary Service Expense 2,899,359 2,160,522
Social Service and Activities 336,707 320,187
Medical Records 80,341 65,715
Temporary Labor -- 46,869
Other Expenses 361,219 356,192
---------- ---------
$ 10,347,837 $ 9,205,785
========== =========
</TABLE>
Dietary expenses increased during the year approximately 3% while
Household and Plant Expenditures Increased $8,889 over 1995 levels.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Salaries and Wages $ 510,373 $ 502,629
Supplies 53,357 54,296
Insurance 585,444 595,983
Management Fees 988,841 950,808
Property Management Fees 235,223 --
Cost Reimbursement 144,527 136,679
Property Tax 68,773 69,709
Accounting and Auditing 225,425 185,395
Telephone 51,654 52,921
Travel 42,918 43,577
Other Expenses 262,598 298,764
---------- ----------
$ 3,169,133 $ 2,890,731
========== ==========
</TABLE>
Insurance expense, particularly workers compensation premiums,
continues to decline due to improved controls on programs for the Alabama
facilities. Property management fee expense was paid to Qualicorp for
services in 1996. Accounting and Audit expense increased $40,030 in 1996
over 1995 due to cost report preparation expenses and increased audit
costs. Employee health and welfare costs increased in 1996 over 1995 due
to higher employment taxes offset by lower than expected health insurance
costs.
-49-<PAGE>
Other income (expenses) for 1996 over 1995 reflected higher interest
income earned on investment funds, lower interest rates charged on debt
obligations and higher earnings from the joint venture partner assets
known as the Texas Joint Venture. The Texas Joint Venture Humble
facility's net income increased from $137,279 to $461,265 due to improved
room and board rates and higher ancillary services provided. Revenue
increased between years $751,219 while expenses increased only 427,233,
of which $313,672 was due to ancillary contract expense. The Texas Joint
Venture Katy property profit increased to $653,851, $30,727 over 1995
levels. This property has outstanding programs which are devoted to
enabling patients to be discharged to their homes. The minority interest
expense represents the Alabama Joint Venture property, known as Medical
Park Convalescent Center, which is devoted to providing high quality care
with substantial rehabilitation care. Its net income improved to
$816,707 in 1996 from $714,840 in 1995.
FISCAL YEAR 1995 COMPARED TO 1994. Net income for the year was
$1,184,339, compared to $1,206,438 in 1994. Revenue from patient
services increased to $19,017,058 during the year, an increase of 6% over
the prior year. The cost of nursing care, including ancillary services
rose $965,000 between years due to higher labor costs, ancillary services
and supply costs. Temporary labor costs declined $134,000 from the prior
year level.
<PAGE>
Professional care of patients costs by year are:
1995 1994
---- ----
Salaries and Wages $ 5,515,416 $ 5,114,186
Supplies and Pharmaceuticals 740,854 611,700
Ancillary Services Expense 2,160,552 1,661,797
Social Service and Activities 320,187 310,435
Medical Records 65,715 62,918
Temporary Labor 46,869 180,950
Other Expenses 356,192 298,801
----------- ----------
$ 9,205,785 $ 8,240,787
=========== ==========
Dietary expenses rose $52,334 due to increased food and supply costs
while Household and Plant costs increased $97,124, primarily due to
higher labor, supplies and utilities expenses.
-50-<PAGE>
General and Administrative expenses by year are:
Salaries and Wages $ 502,629 $ 453,807
Supplies 54,296 50,556
Insurance 595,953 665,557
Management Fees 950,808 914,238
Cost Reimbursement 136,679 147,110
Property Tax 69,709 55,586
Accounting and Auditing 185,395 184,757
Telephone 52,921 45,568
Travel 43,577 52,404
Other Expenses 298,764 229,196
----------- -------------
$ 2,890,731 $ 2,798,779
=========== =============
Insurance costs continue to decline due to improved controls on the
workers compensation programs in the State of Alabama. Total other
income/expenses, net totaled $756,889 for the year, a $31,065 improvement
over the prior year. The earnings of the two Texas properties were
substantially higher than the previous year, therefore increasing the
Partnership share of joint venture income by $152,754. The minority
interest arising from the operation of the Medical Park Nursing Home
reflects improved earnings at that facility due to ancillary services
utilization.
FISCAL YEAR 1994 COMPARED TO 1993. Net income for the year ended
December 31, 1994 was $1,206,438, compared to $1,650,574 for 1993. This
decline in earnings was due to sharply higher operating expenses for the
care of patients which could not be reflected in increased rates in the
current year. These expenditures should be reflected in higher patient
care rates in future periods.
-51-<PAGE>
Professional care of patient costs by year are:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Salaries and Wages $ 5,114,186 $ 4,461,047
Supplies and Pharmaceuticals 611,700 478,020
Ancillary Service Expense 1,661,797 897,741
Social Service and Activities 310,435 285,804
Medical Records 62,918 54,084
Temporary Labor 180,950 93,344
Other Expenses 298,801 242,756
---------- ---------
$ 8,240,787 $ 6,512,796
========== =========
</TABLE>
Ancillary services include physical, occupational, and speech
therapy programs that allow patients to have an improved quality of life
and, in some cases, to be discharged to their homes. Expenses for
salaries and wages include the cost of several new nursing positions
which were added in response to the many regulatory changes being
implemented by the various state and federal agencies. In addition,
vacation pay was allocated to each department in 1994 instead of being
included in Employee Health and Welfare accounts, as it was in previous
years.
A recap of General and Administrative expenses include:
1994 1993
---- ----
Salaries and Wages $ 453,807 $ 409,137
Supplies 50,556 41,104
Insurance 665,557 751,997
Management Fees 914,238 864,674
Cost Reimbursement 147,110 137,579
Property Tax 55,586 79,569
Audit and Accounting 184,757 153,545
Telephone 45,568 42,377
Travel 52,404 36,944
Other Expenses 229,196 177,747
--------- --------
$ 2,798,779 $2,694,653
========= =========
The decrease in insurance costs was due to improved controls on the
workers compensation insurance programs, particularly in the State of
Alabama.
-52-<PAGE>
EXPERTS
The audited consolidated financial statements of the Partnership
appearing in this Consent Solicitation Statement have been audited by
Self & Maples, P.A. as set forth in their report thereon included in the
Consent Solicitation Statement. Such financial statements have been
included in this Consent Solicitation Statement in reliance upon the
authority of such firm as experts in accounting and auditing.
-53-<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditor's Report ...................................... F-2
Balance Sheets For the Years Ended December 31, 1996 and
1995 ...............................................................
Statements of Operations For the Years Ended December 31,
1996, 1995 and 1994 ................................................
Statements of Cash Flows For the Years Ended December 31,
1996, 1995 and 1994 ................................................
Statements of Partners' Capital For the Years Ended
December 31, 1996, 1995 and 1994 ..................................
Notes to Financial Statements ......................................
Independent Auditors' Report of Additional Information ............
Schedule of Valuation and Qualifying Accounts and Reserves
For Allowances For Doubtful Accounts For the Years Ended
December 31, 1996, 1995 and 1994 ..................................
Schedule of Consolidated Supplementary Income Statement
Information For the Years Ended December 31, 1996, 1995
and 1994 ..........................................................
Schedule of Real Estate and Accumulated Depreciation For
the Year Ended December 31, 1996 ..................................
The Texas Joint Venture Financial Statements for the
Years ended December 31, 1996, 1995 and 1994........................<PAGE>
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<PAGE>
MEDICAL INCOME PROPERTIES 2A 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 AUDITORS' REPORT
To the Partners
Medical Income Properties 2A Limited Partnership
We have audited the balance sheets of Medical Income Properties 2A
Limited Partnership as of December 31, 1996 and 1995 and the related
statements of operations, partners' capital and cash flows for each of
the 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 the
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 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 Medical
Income Properties 2A Limited Partnership as of December 31, 1996 and
1995, and the results of its operations and its cash flows for each of
the 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>
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,644,674 $ 889,401
Marketable securities 2,339,380 2,161,755
Patient accounts receivable, net of allowance
for doubtful accounts of $225,011
in 1996 and $190,934 in 1995 2,179,723 2,623,938
Interest receivable 13,914 10,203
Estimated third-party payor settlements 739,842 485,609
Prepaid expenses and other assets 127,032 110,667
----------- -----------
Total current assets 7,044,565 6,281,573
Investment in joint ventures 4,986,273 4,718,713
Property and equipment, net of
accumulated depreciation 13,016,044 13,394,031
Deferred financing costs, net of
accumulated amortization of
$54,075 in 1996 and $39,294 in 1995 22,545 37,326
Due from affiliates 473,417 754,471
----------- -----------
Total assets $25,542,844 $25,186,114
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ 343,697 $ 337,075
Accounts payable 906,261 870,895
Accrued payroll and payroll taxes 309,380 259,497
Accrued vacation 247,096 207,362
Accrued insurance 43,126 65,028
Accrued management fees 82,403 79,234
Patient deposits and trust liabilities 128,204 97,569
Other accrued expenses 91,947 92,522
Estimated third-party payor settlements 516,976 453,166
Due to affiliates 460,564 243,814
----------- -----------
Total current liabilities 3,129,654 2,706,162
</TABLE>
See accompanying notes to financial statements.
2<PAGE>
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Long-term debt, net of current maturities 3,558,529 3,903,921
--------- ---------
Total liabilities 6,688,183 6,610,083
Venture partners' minority interest 2,100,875 2,315,986
--------- ---------
Partners' capital
Limited partners 16,709,571 16,250,393
General partners 44,215 9,652
---------- ----------
Total partners' capital 16,753,786 16,260,045
---------- ----------
Total liabilities and partners' capital $25,542,844 $ 25,186,114
=========== ============
</TABLE>
See accompanying notes to financial statements.
3<PAGE>
MEDICAL INCOME PROPERTIES 2A 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 $20,783,193 $19,017,059 $17,872,338
Other revenue 41,262 32,618 34,056
----------- ----------- -----------
Total revenue 20,824,455 19,049,677 17,906,394
----------- ----------- -----------
Operating expenses
Professional care of patients 10,347,837 9,205,785 8,240,787
Dietary 1,657,865 1,609,770 1,557,436
Household and plant 1,723,483 1,714,594 1,617,470
General and administrative 3,169,133 2,890,731 2,798,779
Employee health and welfare 940,197 919,299 925,354
Depreciation and amortization 752,857 768,270 772,176
----------- ----------- -----------
Total operating expenses 18,591,372 17,108,449 15,912,002
----------- ----------- -----------
Operating income 2,233,083 1,941,228 1,994,392
Other income (expenses)
Interest income 206,257 157,839 152,591
Interest expense (376,001) (419,354) (380,587)
Provider fees (550,861) (550,681) (540,739)
Minority interest in
consolidated joint venture (371,193) (324,895) (246,667)
Partnership share of
unconsolidated joint
venture income 557,558 380,202 227,448
----------- ----------- -----------
Total other income
(expenses) (534,240) (756,889) (787,954)
----------- ----------- -----------
Net income $ 1,698,843 $ 1,184,339 $ 1,206,438
=========== =========== ===========
Net income attributable
to limited partners (93%) $ 1,579,924 $ 1,101,435 $ 1,121,987
Net income attributable
to general partners (7%) 118,919 82,904 84,451
----------- ----------- -----------
$ 1,698,843 $ 1,184,339 $ 1,206,438
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3<PAGE>
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income per weighted
average limited partnership
unit outstanding $ 84.76 $ 59.09 $ 60.20
--------- -------- --------
</TABLE>
See accompanying notes to financial statements.
4<PAGE>
MEDICAL INCOME PROPERTIES 2A 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 at
December 31, 1993 $ 18,639 $ 16,211,431 $ 6,720 $16,218,151
Distributions to
partners ($57.50 per
limited partnership
unit outstanding) - (1,071,744) (80,671) (1,152,415)
Net income - 1,121,987 84,451 1,206,438
Unrealized loss on
marketable securities
available for sale - (36,071) (2,715) (38,786)
--------- ----------- ------- ----------
Partners' capital at
December 31, 1994 18,639 16,225,603 7,785 16,233,388
Distributions to
partners ($60.00 per
limited partnership
unit outstanding) - (1,118,339) (84,175) (1,202,514)
Net income - 1,101,435 82,904 1,184,339
Unrealized gain on
marketable securities
available for sale - 41,694 3,138 44,832
------- ---------- ------- ----------
Partners' capital at
December 31, 1995 18,639 16,250,393 9,652 16,260,045
Distributions to
partners ($60.00 per
limited partnership
unit outstanding) - (1,118,339) (84,175) (1,202,514)
Net income - 1,579,924 118,919 1,698,843
Unrealized loss on
marketable securities
available for sale - (2,407) (181) (2,588)
------- ---------- ------- -----------
Partners' capital at
December 31, 1996 $ 18,639 $16,709,571 $44,215 $16,753,786
</TABLE>
See accompanying notes to financial statements.
4<PAGE>
MEDICAL INCOME PROPERTIES 2A 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 $ 21,020,618 $ 18,528,805 $ 17,291,338
Interest and dividends received 166,085 159,582 125,965
Other operating receipts 41,262 32,618 34,056
Cash paid to suppliers and
employees (17,702,205) (15,836,810) (14,858,368)
Interest paid (376,001) (419,354) (380,587)
Provider fees (550,861) (550,681) (540,739)
------------ ----------- ----------
Net cash provided (used) by operations 2,598,898 1,914,160 1,671,665
------------ ----------- ----------
Cash flows from investing activities:
Purchases of marketable securities (1,543,752) (755,533) (2,169,477)
Maturities of marketable securities 1,400,000 783,981 -
Capital expenditures (360,089) (391,040) (353,775)
Distributions from joint
ventures 290,000 290,000 189,999
----------- ---------- ----------
Net cash provided (used)
by investing activities (213,841) (72,592) (2,333,253)
----------- ---------- ----------
Cash flows from financing activities:
Distributions to partners (1,202,514) (1,202,514) (1,152,415)
Payments on long-term debt and
lease obligations (338,770) (343,400) (367,156)
Net related party transactions 497,804 (229,666) (150,708)
Distributions to venture partners (586,304) (40,905) (86,355)
---------- ---------- ----------
Net cash provided (used) by
financing activities (1,629,784) (1,816,485) (1,756,634)
---------- ---------- ----------
Net increase (decrease) in
cash and cash equivalents 755,273 25,083 (2,418,222)
Cash and cash equivalents, beginning
of year 889,401 864,318 3,282,540
---------- ---------- ----------
Cash and cash equivalents, end of year $1,644,674 $ 889,401 $ 864,318
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
5<PAGE>
MEDICAL INCOME PROPERTIES 2A 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 to net cash
provided by operating activities:
Net income $ 1,698,843 $ 1,184,339 $ 1,206,438
----------- ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 752,857 768,270 772,176
Provision for losses on accounts
receivable 176,465 112,022 80,123
Partnership share of unconsolidated
joint venture (income) loss (557,558) (380,202) (227,448)
Minority interest in consolidated
joint venture income (loss) 371,193 324,895 246,667
(Increase) decrease in:
Patient accounts receivable, net 267,748 (478,052) (729,494)
Interest receivable, securities
premium amortization and
securities discount accretion (40,172) 1,743 (26,626)
Estimated third-party payor
settlements (254,233) (122,224) (1,184)
Prepaid expenses and other assets (16,365) 130,062 (93,140)
Increase (decrease) in:
Accounts payable 35,366 230,853 277,447
Accrued expenses 70,309 (202,997) 99,893
Estimated third-party payor
settlements 63,810 340,394 69,555
Other liabilities 30,635 5,057 (2,742)
----------- --------- ----------
Total adjustments 900,055 729,821 465,227
----------- --------- ----------
Net cash provided (used) by operations $ 2,598,898 $1,914,160 $1,671,665
=========== ========== ==========
Supplemental schedule of noncash investing and financing activities:
Unrealized gain (loss) on marketable
securities available for sale (2,588) 44,832 (38,786)
Secuities valuation allowance 2,588 (44,832) 38,786
</TABLE>
See accompanying notes to financial statements.
7<PAGE>
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Medical Income Properties 2A Limited Partnership (the Partnership) is a
Delaware limited partnership formed on May 14, 1986 that is engaged in
the business of acquiring, operating and holding for investment purposes,
income producing, health care related properties, primarily nursing
homes. The Partnership is one of a series of three partnerships as
represented by the Partnership Prospectus (Prospectus) dated October 22,
1986, providing for the sale of 10,000 units at $1,000 per unit (with an
option to increase to 20,000 units per partnership). The Partnership's
first closing on the sale of units was December 9, 1986. The offering
closed on June 2, 1987. For the period May 15, 1986 (inception) to August
31, 1987, the Partnership was in the development stage. On September 1,
1987, the Partnership began acquiring property.
The general partners are QualiCorp Management, Inc. (a wholly
owned subsidiary of QualiCorp, Inc.) and QualiCorp Capital, Inc.
(b) Allocation of Net Profits and Net Losses
Net profits and net losses shall be determined and allocated as of
December 31 of each year, as follows:
Net profits (losses) (exclusive of net profits (losses) attributable
to the sale or disposition of Partnership properties) are allocated 93%
to the limited partners and 7% to the general partners.
- Net profits attributable to the sale or disposition of a Partnership
property shall be allocated as follows:
- - - - First, to limited partners with negative balances in their capital
accounts in proportion to such negative balances, to the extent of the
total of such negative balances;
- - - - Second, 1% to the general partners and 99% to the limited partners
until the capital account of each limited partner is equal to his capital
investment; and
- - - - Third, the balance, if any, 85% to the limited partners and 15% to
the general 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.
(c) Cash Distributions
Cash distributions shall be made quarterly within 45 days after 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 first to creditors and then 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.<PAGE>
(d) Per Unit Information
Limited partnership information per unit is based on units outstanding of
18,639 in 1996, 1995 and 1994.
(e) Patient Service Revenue
Patient service revenue is recorded at the nursing homes' established
rates with contractual adjustments ($6,510,438 in 1996, $6,182,176 in
1995, and $4,915,980 in 1994), provision for uncollectible accounts, bad
debts ($176,465 in 1996, $112,022 in 1995, and $80,123 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 currently estimated final settlements due
from or to third
party programs.
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.
(f) Property and Equipment
Property and equipment are stated at cost. Items capitalized under
capital lease obligations are recorded at their fair market value at the
inception of the lease. Depreciation of the buildings is provided over
their estimated useful lives of thirty years on the straight line method.
Equipment and other personal property are depreciated over five to seven
years on the straight line method.
(g) Income Taxes
Taxable income is allocated to the individual partners and, therefore, no
income taxes have been provided for in these financial statements.
(h) Cash Equivalents Policy
For the 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.
(i) 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 $2,427,666 (inclusive of
unconsolidated joint ventures) at December 31, 1996 and $380,063 at
December 31, 1995. The 1996 and 1995 amounts do not include the total of
commingled funds discussed in Note 7., since the amount in excess of FDIC
limits related to these funds is not determinable.
<PAGE>
(j) Marketable Securities
The classification of marketable securities is determined at the date of
purchase. Gains or losses on the sale of securities are recognized on a
specific identification basis. Marketable securities represent an
investment of excess funds as a part of the Partnership's cash management
policies. These securities are considered to be available for sale under
Statement of Financial Accounting Standards No. 115 and are, thus, stated
at fair value. Unrealized gains and losses are recognized as a component
of partners' capital as is required by SFAS No. 115.
(k) 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. ACQUISITIONS
On September 1, 1987, the Partnership acquired Muscle Shoals Nursing
Home, Oak Crest Nursing Home, and Shoals Nursing Home located in Alabama
for $6,625,000 plus capitalized acquisition costs and fees of $165,612.
In 1988 an additional $344,631 of acquisition costs and fees were
capitalized. While the transaction is recorded as a purchase, the
property was subject to a capitalized lease obligation (see Note 6) of
$1,685,000. Title is held by a governmental entity until the lease
obligation expires in 2008, at which time title passes to the
Partnership. In 1993 the mortgage associated with this capitalized lease
was repaid with proceeds of a new mortgage note (see Note 6). The lease
continues at $1 per year until the lease expires.
On March 1, 1988, the Partnership acquired Edwardsville West Nursing
Home, now known as University Manor, located in Illinois for $4,200,000
plus capitalized acquisition fees and costs of $311,738. The property
was subject to Industrial Revenue Bonds outstanding of $1,269,723.
On July 1, 1988, the Partnership acquired 54.55% of Medical Park Nursing
Home (The Alabama Joint Venture) located in Alabama for $2,782,050 plus
capitalized acquisition costs of $206,893. Medical Income Properties 2B
Limited Partnership (MIP2B) purchased the remaining 45.45% of Medical
Park. The assets and liabilities of Medical Park have been consolidated
in the financial statements of the Partnership with a minority interest
in 45.45% of the net assets recorded.
Medical Park's equity at December 31, 1996 and 1995 was $4,621,101 and
$5,097,502, respectively, and it had net income of $816,707, $714,840 and
$542,722 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The acquisitions have been accounted for under the purchase method of
accounting. Consequently, only operations subsequent to the acquisition
date have been included in the accompanying financial statements.
<PAGE>
Note 3. MARKETABLE SECURITIES
Marketable securities consist of U.S. Treasury securities. The following
schedule summarizes marketable securities activity for the years ended
December 31, 1996 and 1995:
1996 1995
Beginning balance, amortized cost $2,155,709 $2,190,057
Purchase of marketable securities 1,543,752 755,533
Redemption of investments (1,400,000) (783,981)
Net amortization of premiums and
accretion of discounts 36,463 (5,900)
Amortized cost 2,335,924 2,155,709
Gross unrealized gain 3,456 6,046
Fair value $2,339,380 $2,161,755
The maturities of investment securities at December 31, 1996 were as
follows:
Due in one year or less $ 751,357
Due in two years or less 1,584,567
$2,335,924
Note 4. INVESTMENT IN JOINT VENTURES
The Partnership has invested in two joint ventures with MIP2B, an
affiliated limited partnership.
The Alabama Joint Venture
The Alabama Joint Venture includes only Medical Park which is accounted
for as a purchase and is consolidated in these financial statements as
described in Note 2 above.
The Texas Joint Venture
The Texas Joint Venture is accounted for under the equity method. On May
1, 1988 the Partnership purchased 50% of the Renaissance Place Katy
Nursing Home located in Texas for $2,736,250 plus capitalized acquisition
costs and fees of $254,645. Also, on the same date, the Partnership
purchased 50% of Renaissance Place Humble Nursing Home located in Texas
for $2,243,750 plus capitalized acquisition costs and fees of $114,406.
The condensed balance sheet information for the investment in joint
venture as of December 31, 1996 and 1995 and operating statement
information for each of the years in the three-year period ending
December 31, 1996 is as follows:
Katy 1996 1995
Current assets $ 2,501,874 $ 1,684,094
Long-term assets 4,771,630 5,048,138
Total assets $ 7,273,504 $ 6,732,232
Current liabilities $ 860,008 $ 684,328
Long-term liabilities - -
Equity 6,413,496 6,047,904
----------- -----------
Total liabilities
and equity $ 7,273,504 $ 6,732,232
<PAGE>
Partnership's investment
at December 31,
1996 and 1995 $ 3,206,748 $ 3,023,952
1996 1995 1994
Revenues $ 5,039,616 $ 4,985,129 $ 3,700,538
Expenses 4,385,765 4,362,005 3,505,169
Net income $ 653,851 $ 623,124 $ 195,369
Humble 1996 1995
Current assets $ 1,498,372 $ 1,140,926
Long-term assets 3,377,314 3,651,762
Total assets $ 4,875,686 $ 4,792,688
Current liabilities $ 677,478 $ 703,933
Long-term liabilities 631,250 691,850
Equity 3,566,958 3,396,905
Total liabilities
and equity $ 4,875,686 $ 4,792,688
Partnership's investment
at December 31,
1996 and 1995 $ 1,783,479 $ 1,698,453
Humble (con't) 1996 1995 1994
Revenues $ 4,415,307 $ 3,664,088 $ 3,373,417
Expenses 3,954,042 3,526,809 3,113,890
Net income $ 461,265 $ 137,279 $ 259,527
Note 5. PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists of the following
at December 31, 1996 and 1995:
1996 1995
Land $ 493,528 $ 493,528
Buildings and improvements 10,383,782 10,141,958
Furniture and equipment 2,194,993 2,076,727
Property under capitalized lease 6,550,539 6,550,539
---------- -----------
Total 19,622,842 19,262,752
Accumulated depreciation and
amortization (6,606,798) (5,868,721)
Net property and equipment $13,016,044 $13,394,031
Note 6. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1996 and 1995:
1996 1995
Mortgage notes secured by interest
in capitalized lease with interest at
prime plus 1% (9.25% at December 31,
1996 and 9.50% at December 31, 1995)
payable in 60 payments of $22,728
plus interest through April 26, 1998,
with a balloon payment due
May 26, 1998 $ 3,113,705 $ 3,386,439
Industrial Revenue Bonds secured by
real estate, payable at a variable
rate of interest (7.755% at December
31, 1996 and 8.225% at December 31,
1995) with monthly principal and
interest payments of $10,802 through
April 1, 2005. The interest rate is
adjusted every May 1 and November 1. 788,521 854,557
---------- ----------
3,902,226 4,240,996
Less amounts due in one year
or less 343,697 337,075
---------- ----------
$ 3,558,529 $ 3,903,921
The aggregate annual maturities of bonds and notes payable for the
succeeding five fiscal years are as follows:
1997 $ 343,697
1998 2,917,638
1999 82,829
2000 89,486<PAGE>
2001 96,677
Thereafter 371,899
----------
$3,902,226
The Partnership leases certain property, plant and equipment under a
capital lease. The mortgage associated with this capital lease
obligation was repaid in 1993 (see Note 2). The capital lease expires in
2008.
The mortgage note is secured by all real estate owned by the Partnership.
The General Partner of MIP2A has guaranteed the debt, as well as pledged
its stock and partnership interest. The management company (See Note 9)
has 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.
Note 7. RELATED PARTY TRANSACTIONS
QualiCorp, Inc. charged the Partnership $144,527 in 1996, $136,679 in
1995 and $147,110 in 1994 for administrative expenses (primarily
salaries). QualiCorp, Inc. also charged the Partnership $235,223 in 1996
for property management fees.
As a result of the consolidation of Medical Park as described in Note 2.
above, amounts due to The Alabama Joint Venture from MIP2B are included
in the amounts due from affiliates. Details of the amounts due from
affiliates at December 31 are as follows:
1996 1995
Due from affiliates of the general
partner $ - $ 371,954
Due from MIP2B 473,417 382,517
$ 473,417 $ 754,471
Details of the amounts due to affiliates at December 31 are as follows:
1996 1995
Due to QualiCorp, Inc. $ 248,108 $ 31,358
Due to The Texas Joint Venture 212,456 212,456
---------- ----------
$ 460,564 $ 243,814
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.
<PAGE>
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 loaned $371,954 to the other
entities, and had earned interest of $33,229 from this arrangement.
See Footnote 14 for sale of affiliated assets.
Note 8. 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:
1996 1995 1994
Net income as reported $ x,xxx,xxx $ 1,184,339 $ 1,206,438
Adjustments:
Depreciation differences xx,xxx 34,742 60,405
Insurance deductible (xx,xxx) (76,360) -
Bad debt reserve xx,xxx 71,255 10,571
Vacation accrual xx,xxx 21,768 23,613
Nondeductible meals, and
entertainment xx,xxx 27,867 12,725
Federal taxable income $ x,xxx,xxx $ 1,263,611 $ 1,313,752
Federal taxable income per
limited partnership unit
outstanding $ xx.xxx $ 63.05 $ 65.55
Note 9. CONTRACTUAL AGREEMENTS
In 1988, the Partnership entered into management agreements whereby the
Manager is required to perform certain services at each of the nursing
facilities. Each of the agreements had an initial five year term with
one additional five year option that was exercised in 1993. Fees were
based on 6% of gross collected operating revenues through June 30, 1992.
Thereafter they were based on 5% of gross collected operating revenues,
but not less than $816,000 in a calendar year and were increased by an
inflation factor after 1992. The Manager has a right of first refusal
to match a bona fide offer made by an outside party to purchase or lease
each of the nursing facilities. The management agreements, as amended,
contained a termination clause.
<PAGE>
The management agreements were amended on January 1, 1995. The
amendments call for fixed monthly management fees totaling $79,234 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. The
termination on sale clauses were amended to base the fees on a sum equal
to the discounted present value of the monthly management fees as of the
date of termination of the agreements times the number of months
remaining in the management agreements 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%).
Management fees charged to the Partnership were $988,841 in 1996,
$950,808 in 1995, and $914,238 in 1994.
Note 10. CONTINGENCY
On May 1, 1990, the Texas Joint Venture, of which the Partnership owns
50%, began self insuring its workmen's compensation claims for two
nursing home facilities located in Texas. Accrued liabilities have been
estimated to cover all asserted and unasserted claims and assessments and
funds have been escrowed to cover such claims.
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 11. RENTALS UNDER OPERATING LEASES
The Partnership leases certain minor equipment under various operating
leases. The following is a schedule by years of minimum future rentals
on operating leases as of December 31, 1996:
1997 $ 1,851
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:
<PAGE>
1996 1995 1994
Private pay patients 13.75% 16.18% 17.73%
Medicaid 60.80% 65.72% 64.55%
Medicare 25.45% 18.10% 17.72%
---------------------------
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.
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:
Investment securities available from sale: These securities are being
carried at fair market value as determined by quoted market prices.
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 cash, accounts receivable
and accounts payable.
Note 14. SUBSEQUENT EVENT
On February 3, 1997, Medical Income Properties 2A 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:
Oakcrest Nursing Home (109 beds) $ 3,605,000
Shoals Nursing Home (103 beds) 4,052,000
Muscle Shoals Nursing Home (90 beds) 3,766,000
University Manor (120 beds) 2,200,000
Medical Park Convalescent Center
(183 beds) - 54.55% ownership 5,427,725
Renaissance Place - Katy
(130 beds) - 50% ownership 2,984,500
Renaissance Place - Humble
(120 beds) - 50% ownership 2,487,500
Proceeds from sale $24,522,725
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 $7,432,000.
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 $904,550 of these proceeds will be set aside in a
joint signature account for the purpose of securing all of the seller's
obligations under the purchase agreement. These funds will be available
to the Partnership in the event that these obligations do not exceed the
funds held in escrow.
In addition, a separate amount of proceeds of approximately $870,000 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORMATION
To the Partners
Medical Income Properties 2A Limited Partnership
Our report on our audits of the basic financial statements of
Medical Income Properties 2A 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 24, 1997, except for Note 14, as to which the date is
February 3, 1997
20<PAGE>
MEDICAL INCOME PROPERTIES 2A 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
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 190,934 $ 168,203 $147,145
Charged to patient service
revenue (142,388) (89,291) (59,065)
Write-offs 176,465 112,022 80,123
---------- -------- --------
Balance at end of year $ 225,011 $190,934 $168,203
========== ======== ========
21<PAGE>
MEDICAL INCOME PROPERTIES 2A 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 $ 5,833,050 $ 5,515,416 $ 5,114,186
Ancillary service expenses 2,899,359 2,160,552 1,661,797
Supplies and pharmaceuticals 837,089 740,854 611,700
Temporary labor - 46,869 180,950
General and administrative
Salaries and wages 510,373 502,629 453,807
Accounting and auditing 225,425 185,395 184,757
Insurance 585,444 595,953 665,557
Property tax 68,773 69,709 55,586
Management fees 988,841 950,808 914,238
Property management fees 235,223 - -
Cost reimbursement 144,527 136,679 147,110
Dietary
Food cost 778,824 748,440 726,976
Household and plant
Repairs and maintenance 194,608 210,971 210,299
Utilities 492,459 482,949 445,174
Depreciation $ 738,076 $ 753,489 $ 757,395
============ ============ ===========
</TABLE>
22<PAGE>
RWB MEDICAL INCOME PROPERTIES 1 LIMITED PARTNERSHIP
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
INITIAL COST COSTS CAPITALIZED
TO PARTNERSHIP (A) SUBSEQUENT TO
ACQUISITION
BUILDING AND CARRYING BUILDING AND ACCUMULATED
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST LAND IMPROVEMENTS TOTAL DEPRECIATION
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MUSCLE SHOALS $380,555 $ 55,610 $2,227 047 $298,855 $113,945 $67,138 $2,639,847 $2,706,985 $ 966,971
SHOALS 560,178 44,636 2,412,436 481,237 126,526 44,636 3,020,199 3,064,835 1,114,063
OAK CREST 304,445 56,316 2,083,684 232,876 104,160 56,316 2,420,720 2,477,036 874,854
UNIVERSITY MANOR 788,521 82,000 4,407,718 424,747 82,000 4,832,465 4,914,465 1,575,071
MEDICAL PARK (54.55%) 1,868,527 400,000 5,424,540 634,981 40,000 6,059,521 6,459,521 2,075,839
(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 $19,622,842.
(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 $19,262,752 $18,871,714 $18,517,939
Additions 360,090 391,038 353,775
Reductions 0 0 0
---------------------------------------
Balance at end of period $19,622,842 $19,262,752 $18,871,714
=======================================
(D) Reconciliation of accumulated depreciation
Balance at beginning of period $ 5,868,721 $ 5,115,233 $ 4,357,837
Depreciation expense 738,077 753,488 757,396
Reductions 0 0 0
---------------------------------------
Balance at end of period $ 6,606,798 $ 5,868,721 $ 5,115,233
=======================================
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
DATE OF DATE OPERATION IS
CONSTRUCTION ACQUIRED COMPUTED
<S> <C> <C> <C>
MUSCLE SHOALS 1974/1986 09/01/87 27.5 YEARS
SHOALS 1966/1968 09/01/87 27.5 YEARS
OAK CREST 1961/1968 09/01/87 27.5 YEARS
UNIVERSITY MANOR 1984 03/01/88 40 YEARS
MEDICAL PARK (54.55%
INTEREST) 1969/1980 07/01/88 27.5 YEARS
</TABLE>
23<PAGE>
TEXAS JOINT VENTURE FINANCIAL STATEMENTS TO BE INSERTED HERE
<PAGE>
APPENDIX A
PURCHASE AGREEMENT
OMEGA HEALTHCARE INVESTORS, INC.
AND
MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP
AND
QUALICORP MANAGEMENT, INC.
DATED: JANUARY __, 1997
TABLE OF CONTENTS
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. The Facilities . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Personal Property . . . . . . . . . . . . . . . . . . . . . . . 2
1.03. Consumables . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04. Delivery of Information to Certain Persons . . . . . . . . . . . 2
1.05. Temporary Operation of the Facilities . . . . . . . . . . . . . 2
1.06. Transition Agreement . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.01. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.01. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
COSTS AND PRORATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.01. Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.02. Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.03. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . 5
4.04. Surveys/ UCC-1 Searches . . . . . . . . . . . . . . . . . . . . 5
4.05. Environmental Reports/Remediation . . . . . . . . . . . . . . . 5<PAGE>
4.06. Revenues and Expenses . . . . . . . . . . . . . . . . . . . . . 5
4.07. Taxes/Prorations . . . . . . . . . . . . . . . . . . . . . . . . 6
4.08. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.09. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . 6
4.10. Recording Costs . . . . . . . . . . . . . . . . . . . . . . . . 6
4.11. Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.12. Environmental Adjustment . . . . . . . . . . . . . . . . . . . . 6
4.13. Prorations Regarding Contracts . . . . . . . . . . . . . . . . . 6
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.01. Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SELLER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 7
6.01. Status of Seller . . . . . . . . . . . . . . . . . . . . . . . . .7
6.02. Validity and Conflicts . . . . . . . . . . . . . . . . . . . . . 7
6.03. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.04. The Seller Financial Statements . . . . . . . . . . . . . . . . 8
6.05. Absence of Adverse Change . . . . . . . . . . . . . . . . . . . 8
6.06. The Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.07. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . 9
6.08. Residents . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.09. Books and Records . . . . . . . . . . . . . . . . . . . . . . . 9
6.10. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.11. Unions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
<PAGE>
6.12. Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . .10
6.13. Environmental Issues . . . . . . . . . . . . . . . . . . . . . .10
6.14. Necessary Action . . . . . . . . . . . . . . . . . . . . . . . .11
6.15. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . .11
6.16. Sensitive Payments . . . . . . . . . . . . . . . . . . . . . . .11
6.17. The Facilities . . . . . . . . . . . . . . . . . . . . . . . . .12
6.18. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . .12
6.19. The Facility Agreements . . . . . . . . . . . . . . . . . . . .12
6.20. Patient Roster . . . . . . . . . . . . . . . . . . . . . . . . .12
6.21. Operating Contracts . . . . . . . . . . . . . . . . . . . . . .13
6.22. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . .13
6.23. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .13
6.24. Fringe Benefits . . . . . . . . . . . . . . . . . . . . . . . .13
6.25. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PURCHASER REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 14
7.01. Status of Purchaser . . . . . . . . . . . . . . . . . . . . . 14
7.02. Validity and Conflicts . . . . . . . . . . . . . . . . . . . . .14
7.03. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . .14
7.04. Necessary Action . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
BROKER; INVESTMENT BANKER . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SELLER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.01. Pre Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.02. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.03. Post Closing . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PURCHASER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.01. Pre-Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.02. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 25
10.03. Post Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
MUTUAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.01. General Covenants . . . . . . . . . . . . . . . . . . . . . . . 27
11.02. Hart-Scott-Rodino Filing . . . . . . . . . . . . . . . . . . . .27
11.03. HSR Consent/Regulatory Approval . . . . . . . . . . . . . . . . 28
11.04. Public Announcements . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.01. Purchaser Conditions . . . . . . . . . . . . . . . . . . . . . . 28
12.02. Seller Conditions . . . . . . . . . . . . . . . . . . . . . . .30
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
13.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 31<PAGE>
13.02. Opportunity to Cure . . . . . . . . . . . . . . . . . . . . . .32
13.03. Termination . . . . . . . . . . . . . . . . . . . . . . . . . .32
13.04. Right of First Refusal . . . . . . . . . . . . . . . . . . . . .34
ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
OPERATIONAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 35
14.01. Employees, Schedule of Employee Benefits . . . . . . . . . . . . 35
14.02. Accounting Patient Trust Funds and Patient Prepaid Accounts . . 35
14.03. Indemnity for Trust Funds and Prepaid Funds . . . . . . . . . ..35
14.04. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . ..36
14.05. Alabama Workers' Compensation Rebate . . . . . . . . . . . . . . 37
ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
15.01. Seller's Indemnification . . . . . . . . . . . . . . . . . . . . 37
15.02. New Operator . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.03. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
15.04. Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
16.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
16.02. Allocation of Purchase Price . . . . . . . . . . . . . . . . . . 40
16.03. Employee Recruitment . . . . . . . . . . . . . . . . . . . . . . 40
16.04. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 40<PAGE>
16.05. Sole Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 40
16.06. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
16.07. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 41
16.08. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 41
16.9. Knowledge Defined . . . . . . . . . . . . . . . . . . . . . . . 41
16.10. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
16.11. Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . 41
16.12. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . 41
16.13. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.14. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.15. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.16. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.17. Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . . 42
16.18. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 43
16.19. Arbitration of Disputes Following Closing . . . . . . . . . . . 43
<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 MEDICAL INCOME PROPERTIES 2A LIMITED PARTNERSHIP, a
Delaware limited partnership ("Seller), QUALICORP MANAGEMENT, INC.,
a Delaware 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, Illinois and Texas and more
particularly described in Exhibits A-1 through A-7 (the "Real
Property") and the improvements thereon that comprise the following
skilled nursing facilities (the "Facilities"):
Oak Crest Nursing Home (100% interest owned by
Seller)
Tuscumbia, Alabama
Number of Licensed Beds: 109
Shoals Nursing Home (100% interest owned by Seller)
Tuscumbia, Alabama
Number of Licensed Beds: 103
Muscle Shoals Nursing Home (100% interest owned by
Seller)
Muscle Shoals, Alabama
Number of Licensed Beds: 90
Medical Park Convalescent Center (54.55% interest
owned by Seller)
Decatur, Alabama
Number of Licensed Beds: 183
University Manor (100% interest owned by Seller)
Edwardsville, Illinois
Number of Licensed Beds: 120
Renaissance Place-Katy (50% interest owned by Seller)
Katy, Texas
Number of Licensed Beds: 130
<PAGE>
Renaissance Place-Humble (50% interest owned by
Seller)
Humble, Texas
Number of Licensed Beds: 120
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, 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
-2-<PAGE>
Facilities under a management or operating agreement using Seller's
licenses or if requested by the New Operator, Seller will enter into
an interim operation, 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 operating 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,
Inc., a Delaware corporation ("Atrium"), with respect to those
Facilities covered by the Interim Operating Agreement or Interim
Master Lease, as applicable. Within fifteen (15) days from the date
hereof, Purchaser and Atrium shall agree upon the form of the
Interim Management Agreement, and the form shall be attached to this
Agreement as Exhibit 1.05(c). The Interim Management Agreement shall
expire as to each Facility covered thereby on the date of
termination of the Interim Operating Agreement or Interim Master
Lease as to that Facility. The Interim Management Agreement shall
provide for a monthly management fee payable to Atrium: (i) of four
percent (4%) of Accrued Gross Income of the Facilities which Atrium
is managing under the Interim Management Agreement if the number of
Facilities which Atrium is managing, plus the number of Facilities
which Atrium, Atrium Living Centers of Florida, Inc., a Florida
corporation, or Atrium Living Centers of Alabama, Inc., an Alabama
corporation, under the comparable Sections of Seller's Affiliates'
Purchase Agreement is between four and seven, or (iii) Atrium's
actual cost not to exceed eight percent (8%) of Accrued Gross Income
of the Facilites which Atrium is managing under the Interim
Management Agreementif the numbers of Facilities which Atrium is
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managing, plus the number of Facilites which Atrium, Atrium Living
Centers of Florida, Inc., a Florida corporation, or Atrium Living
Centes of Alabama, Inc., an Alabama Corporation, under the compable
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 Twenty-Four Million Five Hundred Twenty-Two Thousand Seven
Hundred Twenty Five and no/l00 Dollars ($24,522,725) 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. Nine
Hundred Four Thousand Five Hundred Fifty and 00/100 Dollars
($904,550.00) of the purchase price shall be deposited in an account
with ______________, or another FDIC insured bank selected by Seller
with offices in Atlanta, Georgia and reasonably acceptable to
Purchaser, to be held and disbursed in accordance with a Letter
Agreement substantially in the form of Exhibit 2.01 (the "Letter
Agreement") for the purposes of securing all of Seller's or General
Partner's obligations under this Agreement and other documents
executed in connection herewith, which obligations survive the
Closing, including, without limitation, Seller's obligations under
Section 15.01. The purchase price shall be allocated among the
Facilities as set forth in Paragraph 16-02.
ARTICLE III
CLOSING
3.01 The Closing. The purchase and sale of the Seller's Assets
shall occur on the earlier of (i) the last day of the month during
which satisfaction or waiver of the conditions to Closing set forth
in Paragraphs 12.01 and 12.02 occurs, or (ii) March 31, 1997 (the
"Closing Date"). The Closing Date may be extended to April 30, 1997
by Seller upon written notice to Purchaser prior to March 31, 1997
solely for the purpose of obtaining (i) 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 as 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
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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 later 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 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.
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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.
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 this Agreement and neither party shall have any further
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.
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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 of 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 Delaware, and duly qualified to do business as a
foreign partnership in the States of Alabama, Illinois and Texas.
6.02. Validity and 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 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.
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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 30, 1996 (the "Seller
Financial Statements") have been previously delivered to Purchaser.
Except as otherwise noted therein or in Seller Disclosure Schedule,
the Seller Financial Statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") 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 of any action or proceeding which
has been initiated or is proposed to be initiated by the appropriate
state or federal agency having jurisdiction thereof, to either
revoke, withdraw or suspend any of the Seller Licenses or to
terminate the participation of any of the Facilities in either the
Medicare or Medicaid Programs or any judicial or administrative
agency judgement or decision not to renew any of the Seller Licenses
or any licensure or certification action of any other type.
6.07. Compliance with Law.
(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;
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(b) To the best of Seller's knowledge, 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 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 to the percentage
interest in each Facility as set forth in Section 1.01 of this
Agreement (and undivided fee title with respect to the Real Property
of the Facilities in which Seller owns a 100% interest as set forth
in Section 1.01 of this Agreement) 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.
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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
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'
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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 furtherence 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
governmental 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 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
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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.
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
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assignment of any of the Operating Contracts which Purchaser elects
to assume pursuant to Section 10.01(e). In the event the consent of
the other contracting party shall be required for said assignment,
Seller shall timely request in writing said consent; provided,
however, if Seller is unable to secure any such consent, the
delivery of such consent shall not be deemed a condition precedent
to the Closing unless the Operating Contract for which Seller failed
to obtain the consent is material to the operations of the
Facilities by Purchaser following the Closing. If Seller is unable
to secure any such consent with respect to an Operating Contract
which is material to the operations of the Facilities, the lack of
said consent shall be deemed the failure of a 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 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
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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 10.01 (i) below:
7.01. Status of Purchaser. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Maryland.
7.02. Validity and Conflicts. This Agreement is, and all
documents to be executed by Purchaser pursuant hereto will be, the
valid and binding obligations of Purchaser, enforceable in
accordance with their respective terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law). The execution of this Agreement
and the consummation of the transactions contemplated herein have
been approved by the Board of Directors of Purchaser and do not and
will not result in a breach of the terms and conditions of nor
constitute a default under or violation of the Charter Documents or
Bylaws of Purchaser or any law, regulation, court order, mortgage,
note, bond, indenture, agreement, license or other instrument or
obligation to which Purchaser is now a party or by which any of
their assets may be bound or affected, subject, however, to
Purchaser obtaining the HSR Consent, if required, and Regulatory
Approvals for which it is responsible under the terms hereof.
7.03. Authority. Subject to obtaining the HSR Consent, if
required, and Regulatory Approvals which Purchaser is required to
use its best efforts to secure, and Purchaser's board of directors
approving this Agreement, and the transactions contemplated hereby,
Purchaser has full corporate power and authority to execute and to
deliver this Agreement and all related documents, and to carry out
the transactions contemplated herein and therein.
7.04. Necessary Action. Purchaser has duly and properly
taken or obtained or caused to be taken or obtained, or prior to
Closing will have duly and properly taken or obtained or caused to
be taken or obtained, all action necessary for Purchaser (i) to
enter into and to deliver this Agreement and any and all documents
and agreements executed by Purchaser in connection herewith or in
furtherance hereof and (ii) to carry out the terms hereof and
thereof and the transactions contemplated herein and therein, which
action shall include, but not be limited to, obtaining the consent
of the Board of Directors of Purchaser and the HSR Consent, if
required, and Regulatory Approvals. No consent of any other third
party is or will be necessary nor any other action by or on behalf
of Purchaser is or will be necessary, to authorize the execution,
delivery and performance of this Agreement and any documents and
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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 Approval is 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, finders fee or investment banker's fee which may be due
on account of the transaction contemplated herein to any broker,
finder or investment banker employed by it, and to indemnify the
other party hereto against any claim for any commission, finder's
fee or investment banker's fee made by any broker, finder or
investment banker allegedly employed by it and from and against any
and all costs and expenses incurred in connection therewith,
including, but not limited to, reasonable attorneys fees and costs.
ARTICLE IX
SELLER COVENANTS
9.01. Pre Closing. Seller covenants that between the date
hereof and the Closing and during the term of the Interim Operating
Agreement or Interim Master Lease, if any, except as contemplated by
this Agreement or with the consent of Purchaser, which consent shall
not be unreasonably withheld, conditioned or delayed:
(a) Within five (5) days following the Effective Date,
Seller shall order (i) an update to each title insurance policy
previously delivered to Purchaser by Seller as set forth in
Exhibit 9.01(a) through the national office of Lawyers Title
Insurance Corporation (the "Title Company"), for each facility
with a value equal to the amount of the Purchase Price
allocated by Seller to such facility (the "Title Commitments"),
(ii) a UCC-1 search report in the name of Seller and each of
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the Facilities conducted at the state and county level ("UCC
Search Reports), and (iii) order an ALTA/ACSM survey of each of
the Facilities prepared by a surveyor acceptable to Purchaser
(the "Surveys"). The Title Commitments shall run in favor of
Purchaser, but shall commit the Title Company to provide
lessee's policies for New Operator if ordered by Purchaser
prior to December 31, 1997. Purchaser or New Operator shall be
responsible for payment of the additional premium, if any,
attributable to the commitment to issue a lessee's policy or
any policy issued pursuant thereto. The Surveys shall show
thereon: (a) the location of all boundaries, existing fences,
easements, pipelines, rights-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 ground
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 spaces, (i) indication of access to a public
way such as curb cuts and driveways marked, (j) 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 cormpanies and/or other appropriate sources
(with reference to the source of information), (k) the number
of acres and net square footage contained within the boundaries
of the Real Property, (1) the location and dimensions of any
protrusions from and encroachments on the Real Property, and
(m) such other requirements as may be necessary including,
without limitation, evidence that each Facility complies with
the applicable zoning classification for the associated Real
Property in order to permit the Title Company to issue the
Title Insurance Policies without the so-called "standard
exceptions". The Surveys shall be certified to the Purchaser,
Seller, and the Title Company. The surveyor shall include in
its certification its Registration Number, address, telephone
number, the job number and that the Survey meets all ALTA/ACSM
requirements and that the Survey was made on the ground as per
the field notes shown thereon and that, except as shown
thereon, there are no visible easements, rights-of-way, party
walls, conflicts, or visible encroachments by any improvements
onto an easement or neighboring property or by any improvements
on adjoining property onto the Real Property and that the Real
Property has direct access to an adjacent public street;
(b) Seller will operate the Facilities only in the
ordinary course and with due regard to the proper maintenance
and repair of the Real Property or Personal Property in order
to maintain and repair the Real Property and the Personal
Property substantially in the same condition as they were in at
the date hereof, ordinary wear and tear, insured casualty loss
and taking by eminent domain excepted;
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(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 instruments;
(j) Seller will provide Purchaser within ten (10) days
following the mutual execution of this Agreement with copies of
the following documents relating to the Real Property and each
of the Facilities to the extent the same are in Seller's
possession or reasonable control (collectively, the "Property
Documents"): all environmental reports, structural reports and
geological reports, governmental licenses, permits and
approvals, service and maintenance contracts not previously
delivered as part of the Operating Contracts, existing surveys
of the Real Property including any as-built surveys for the
improvements, wetland 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
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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 agrees 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 in the ordinary course of
business between the date hereof and the Closing Date, it being
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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
under 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 fumished or to be fumished
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;
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(t) Seller will provide to Purchaser copies of all
material documents which relate to, and, upon request, with
verbal or written updates concerning the status of, any
litigation filed as of the date hereof or filed from and after
the date hereof by or against Seller or its General Partner and
which may affect the Facilities after the date of this
Agreement but prior to the Closing Date where the amount
claimed or assessed is judged by the General Partner as likely
to exceed $10,000.00; provided, however, neither Seller nor its
General Partner shall be required to deliver any documents to
Purchaser which, by reason of said delivery, would result in
the waiver or relinquishment of the attorney-client privilege
held by Seller or its General Partner;
(u) Seller and the General Partner (i) as promptly as
practicable, but in no event later than five (5) business days
after the date the SEC clears the Consent Solicitation (as that
term 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
this Agreement and the transactions 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) With 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").
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9.02. Closing Date. On the Closing Date, Seller will
deliver to Purchaser the following:
(a) A certificate of General Partner dated as of the
Closing Date, certifying on behalf of Seller in such detail as
Purchaser may reasonably specify the fulfillment of the
conditions set forth in Sections 12.01(a) and (b);
(b) A certificate from General Partner certifying that a
majority in interest of the limited partners of the Sellers
have authorized and approved the sale of the Facilities;
(c) Certificates of Organization and Certificates of
Authority to Transact Business in a foreign state with respect
to Seller issued within the 30 days prior to the Closing Date
by the Secretary of State (or other authorized official) in
each of the States where the Facilities are located and in the
State of Seller's incorporation or formation;
(d) An opinion or opinions of counsel to Seller dated as
of the Closing Date in substantially the form attached hereto
as Exhibit 9.02(d);
(e) Subject to Section 10.01(a) below, fee simple title
to the percentage interest owned by Seller in the Facilities as
set forth in Section 1.01, to be conveyed by Warranty Deed as
referred to in Section 9.02(f) below, free and clear of all
liens and encumbrances other than the following:
(i) Liens for real and personal property taxes which
are not yet due and payable; and
(ii) Such liens, encumbrances and restrictions as may
be approved or deemed approved by Purchaser pursuant to
Section 10.01(a).
(f) A duly executed Warranty Deed in form and substance
reasonably acceptable to Purchaser with respect to each parcel
of Real Property and a Bill of Sale in form and substance in
accordance with Exhibit 9.02(f) attached hereto with respect to
all of the Personal Property for each of the Facilities;
(g) A counterpart of an assignment and assumption
agreement with respect to the Operating Contracts described in
Section 6.21 to the extent Purchaser or New Operator elects to
assume the same in accordance with the provisions of Section
10.01, but only if the 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
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and repair as shall comply with the terms hereof;
(k) The original certificates of title to any motor
vehicles included within the Personal Property;
(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, Eight Hundred Seventy Thousand and 00/100
Dollars ($870,000.00) 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
Dater, 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 Six Hundred Thousand and 00/100 Dollars ($600,000.00).
(d) File the annual cost reports for the Facilities
within the periods required by Medicare, Medicaid and any other
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third party payor and provide any additional documentation to
support the amounts claimed under such cost reports within such
time periods.
ARTICLE X
PURCHASER COVENANTS
10.01. Pre-Closing. Purchaser covenants that between the
date hereof and the Closing, except as contemplated by this
Agreement or with the consent of Seller, which consent shall not be
unreasonably withheld, conditioned or delayed:
(a) Within ten (10) days after its receipt of the Title
Commitments and all documents referred therein to as any
exception to title, the Surveys and the UCC Search Report,
Purchaser shall advise Seller in writing of its objections, if
any, to, each Title Commitment, Survey and UCC Search Report.
Seller agrees to use reasonable best faith efforts to cure any
defects in title, and in any event will from the proceeds of
the sale pay any encumbrances which may be satisfied by the
payment of money. Within ten (10) days after Seller's receipt
of Purchaser's title objections, UCC search and Survey
objections, Seller shall advise Purchaser whether it will be
able to correct the defects to which Purchaser has objected.
If Seller notifies Purchaser that Seller, using reasonable best
faith efforts, is unable to correct some or all of the title,
survey or lien defects objected to by Purchaser, Purchaser
shall have five (5) days to advise Seller of its decision to
close, notwithstanding the defects, or of its election to
terminate this Agreement, in which case neither party 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 6.13 and
has previously ordered Phase I Environmental Assessment Reports
as to those Facilities which are not covered by the Phase I
Environmental Assessment Reports identified on Exhibit 6.13.
Within five (5) business days of receipt of the updated Phase I
Environmental Assessment Reports and the new Phase I
Environmental Assessment Reports, Purchaser will notify Seller
in writing of any additional environmental studies or
investigations which Purchaser requires. The updated Phase I
Environmental Assessment Reports and the new Phase I
Environmental Assessment Reports will be from companies
reasonably acceptable to Purchaser and will be certified to
Purchaser and to the New Operator as soon as the New Operator
is identified.
(c) Purchaser will proceed with all due diligence to
-23-<PAGE>
conduct such investigations with respect to Seller's Assets as
it deems to be reasonably necessary in connection with its
purchase thereof, including, but not limited to, zoning
investigations, soil studies, environmental assessments,
seismic assessments, wetlands reports, review of all Property
Documents provided by Seller, investigations of each of the
Facility's operating books and records and structural
inspections, provided, however, no studies or investigations
conducted at the Real Property will be physically intrusive on
the Real Property or the Facilities unless Seller consents
thereto (the "Feasibility Review") and, provided further that,
Purchaser shall maintain the confidentiality of any documents
or information obtained by it during the course of its
Feasibility Review and shall return the same to Seller in the
event the transaction provided for herein fails close for any
reason whatsoever. Notwithstanding the foregoing, Purchaser
may disclose any such documents and information to its lawyers,
accountants, lenders, appraisers and other professionals
advising Purchaser so long as each of them agrees to treat such
documents and information confidentially. Any access to the
Real Property and/or the Facilities which is provided to the
Purchaser in order to conduct its Feasibility Review shall be
subject to the terms and conditions of Section 9.01(k) above;
(d) Purchaser will proceed with all due diligence to
obtain the HSR Consent, if required, and Regulatory Approvals
for which it is responsible under the terms hereof, including
without limitation, obtaining from the applicable governmental
licensing authorities assurances, reasonably satisfactory to
Purchaser, that Purchaser will receive all necessary operating
licenses, as provided in Section 12.01 (c) below;
(e) Within ten (10) days after receipt of the exhibits as
set forth in Section 16.15 hereof, Purchaser will advise Seller
in writing which, if any of the Operating Contracts it or New
Operator will assume as of the Closing Date and which of the
Operating Agreements it is 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 alt 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
be furnished 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;
-24-<PAGE>
and (ii) will promptly advise Seller if at any time prior to
any meeting of the Limited Partners any information provided by
Purchaser to Seller in the Consent Solicitation becomes
inaccurate or incomplete in any material respect and will
provide to Seller the information needed to correct such
inaccuracy or omission;
(h) Purchaser will not agree to do or to cause to be done
any of the acts which it has covenanted not to do under this
Section 10.01;
(i) Within fifteen (15) days following the mutual
execution of this Agreement, Purchaser will deliver to Seller a
disclosure schedule addressed to Seller which sets forth in
reasonable detail any exceptions to any of the representations
and warranties made by Purchaser hereunder (the "Purchaser
Disclosure Schedule"); and
(j) Purchaser will proceed with all due diligence to
secure the Regulatory Approvals and HSR Consent, if required,
for which it is responsible under the terms hereof.
10.02 Closing Date. On the Closing Date, Purchaser will
deliver or cause New Operator to deliver the following:
(a) The purchase price in accordance with Article II and
any other adjustments set forth in this Agreement and subject
to Section 12.01(d) hereof;
(b) A certificate of a responsible officer of Purchaser
dated as of the Closing Date certifying on behalf of Purchaser
in such detail as Seller may reasonably specify the fulfillment
of the conditions 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 Operationg Contracts described in
Section 6.21 to the extent New Operator elects to assume the
same in accordance with the provisions of Section 10.01;
(e) A counterpart of an assignment and assumption
agreement with respect to the Admission Agreements described in
Section 6.20;
(f) An opinion or opinions of counsel to Purchaser dated
as of the Closing Date in substantially the form attached
hereto as Exhibit 10.02;
(g) Pay the closing costs for which it is responsible
under Article IV;
(h) A counterpart of the Letter Agreement (as defined in
Section 2.01).
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10.03. Post Closing. After the Closing Date, Purchaser
will:
(a) Provide Seller, or cause New Operator to provide
Seller, with access during normal business hours to the
Facilities and any books or records which Seller may need to
file or to defend tax returns or other governmental filings or
any litigation or administrative actions filed prior to or
subsequent to the Closing Date which relate to the period prior
to the Closing Date as well as for purposes of pursuing
collection of third party payments due Seller for the period
prior to the Closing Date; Seller shall have the ability to
photocopy accounts receivable records and such other records of
residents and the Facilities as may be commercially reasonable
and provided that Seller shall limit its documentary and
photocopy requests to periods relating prior to the Closing
Date;
(b) Take such actions and properly execute and deliver
such further instruments as Seller may reasonably request to
assure, complete and evidence the transaction provide for in
this Agreement;
(c) Cause New Operator and/or Atrium to retain all
patient records for the Facilities which are in existence as of
the Closing, for a period of not less than three (3) years and,
upon reasonable advance notice to Purchaser, allow Seller
access to said patient records and;
(d) For two (2) months after the Closing Date, cause New
Operator to use commercially reasonable efforts to collect, for
the account of Seller, the accounts receivable for 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
-26-<PAGE>
respect to Medicare, Medicaid or third party payors, including
anyone who may have misappropriated the funds of any resident.
Purchaser agrees to cause New Operator to provide reasonable
access, at reasonable times, for Seller's designated agents, to
the Facilities' books and records and personnel to assist
Seller in Seller's efforts to collect its accounts receivables
so long as such access is not disruptive to the normal
operations of the Facilities.
ARTICLE XI
MUTUAL COVENANTS
11.01. General Covenants. Following the execution of this
Agreement, Seller and Purchaser agree:
(a) If any event should occur which would prevent
fulfillment of the conditions to the obligations of any party
hereto to consummate the transactions contemplated by this
Agreement, to use its or their reasonable efforts to cure the
same as expeditiously as possible;
(b) To cooperate fully with each other in preparing,
filing, prosecuting, and taking any other actions which are or
may be reasonable and necessary to obtain the consent of any
governmental instrumentality or any third party, to accomplish
the transactions contemplated by this Agreement;
(c) To deliver such other instruments of title,
certificates, consents, endorsements, assignments, assumptions
and other documents or instruments, as may be reasonably
necessary to carry out and/or to comply with the terms of this
Agreement and the transactions contemplated herein;
(d) To confer on a regular basis with the other, report
on material operational matters and promptly advise the other
orally and in writing of any change or event having a material
adverse effect the consummation of the transactions
contemplated herein, or which would constitute a material
breach of any of the representations, warranties or covenants
of such party contained herein;
(e) To promptly provide the other (or its counsel) with
copies of all other filings made by such party with any state
or federal governmental entity in connection with this
Agreement or the transactions contemplated hereby;
11.02. Hart-Scott-Rodino Filing. If Purchaser determines
that a filing is required under the HSR Act as a consequence of the
transactions contemplated herein or as a consequence of the Master
Lease, Seller agrees to cooperate with such filing.
11.03. HSR Consent/Regulatory Approval. Purchaser and
Seller will use their best efforts to obtain prior to the Closing
Date all consents, approvals and licenses necessary to permit the
consummation of the transactions contemplated by this Agreement,
including, but not limited to, such licensure and certification
approval in the States of Alabama, Illinois and Texas as may be
necessary to enable Purchaser to lawfully own and/or New Operator to
operate the Facilities from and after the Closing Date (the
-27-<PAGE>
"Purchase Regulatory Approvals"), and Purchaser, with Seller's
cooperation, will use its best efforts to obtain prior to the
Closing Date the consent as may be required under HSR Act (as that
term is defined above) (the "HSR Consent"). Purchaser will use its
best efforts to cause New Operator to obtain such licensure and
certification approval in the States of Alabama, Illinois and Texas
as may be necessary to enable New Operator to lawfully operate the
facilities from and after the Closing Date (the "New Operator
Regulatory Approvals") and to obtain the HSR Consent. The Purchaser
Regulatory Approvals and the New Operator Regulatory Approvals are
collectively referred to as the "Regulatory Approvals".
11.04. Public Announcements. Each party shall consult with
the other, and shall use best efforts to agree upon, the form and
content, prior to issuing any press release, public announcement or
statement with respect to this Agreement or the transactions
contemplated hereby.
ARTICLE XII
CONDITIONS
12.01. Purchaser Conditions. All obligations of Purchaser
under this Agreement are subject to the fulfillment, prior to 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 of operating licenses
for the Facilities, Purchaser agrees to permit Seller a
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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), an update as to
Purchaser's progress in obtaining licensure approval.
(d) Purchaser shall be satisfied in its sole discretion
with the results of its Feasibility Review, including but not
limited to Purchaser's review and approval of (i) the physical
condition of the Real Property and the structural condition of
the Facilities, (ii) the financial performance and financial
prospects of each of the Facilities, (iii) the results of the
Phase I Reports to be obtained by Seller with respect to the
Real Property and the Facilities, (iv) all Property Documents
required to be delivered by Seller hereunder, (v) the zoning of
each of the Facilities in order to confirm that the development
of the Facilities and the current operation thereof are in
compliance with all applicable zoning laws and that said zoning
laws would impose no conditions which would limit the right or
ability of Purchaser to rebuild or repair the same in the event
of any damage or destruction thereto, and (vi) the MAI
appraisals which Purchaser intends to obtain with respect to
each of the Facilities. In the event Purchaser has not advised
Seller in writing on or before thirty (30) days after the
execution of 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 Four Hundred Three
Thousand and 00/100 Dollars ($403,000.00) 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 arnending 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 or
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 said 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
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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
commitment 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 of the
Facilities subject only to those exceptions not otherwise
objected to or deemed accepted b' 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 with 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 within the ten (10) day period provided for in Section
10.01(a).
(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 RWB Medical Income Properties I Limited Partnership, RWB
Medical Properties IV Limited Partnership and Medical Income
Properties 2B Limited Partnership (collectively referred to as
the "Seller's Affiliates") shall have closed the purchase of
the facilities owned by each of Seller's Affiliates by
Purchaser in accordance with the terms and conditions of those
certain Purchase Agreements by and between Purchaser and each
of Seller's Affiliates of even date herewith ("Seller's
Affiliates' Purchase Agreements"). Any default by Purchaser
hereunder shall be a default by Purchaser under the Seller's
Affiliates' Purchase Agreements and any default by Seller
hereunder shall be a default by Seller under the Seller's
Affiliates' Purchase Agreements.
12.02. Seller Conditions. All obligations of Seller under
this Agreement are subject to the fulfillment, prior to or as of the
Closing Date, of each of the following conditions any one or more of
which may be waived by Seller in writing:
(a) The representations and warranties of Purchaser
contained in this Agreement or in any certificate or document
delivered in connection with this Agreement or the transaction
contemplated herein shall be true and correct at and as of the
Closing Date as though such representations and warranties were
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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;
(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 darnaged or destroyed by fire or other casualty
or has been taken or condemned by any public or quasi-public
authority under the power or erninent domain; provided,
however, that in the event the estimated cost to repair any
such damage is less than or equal to One Hundred Thousand
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Dollars ($1 00,000.00) 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
withdrawn, 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 d
person other than Purchaser or an affiliate of Purchaser; or
(iii) a public announcement with respect to a proposal, plan or
intention to effect an Acquisition Proposal shall have been
made by any person other than Purchaser or an affiliate of
Purchaser and Seller shall have failed to publicly reject or
oppose such proposed Acquisition Proposal within ten (10) days
of the public announcement of such proposal, plan or intention;
and/or
(i) By Purchaser if Seller shall receive and approve an
Acquisition Proposal by the earlier of (i) the date of the
Limited Partners Approval or (ii) June 30, 1997.
13.02. Opportunity to Cure. Neither party to this Agreement
may claim termination or pursue any other remedy referred to in this
Section 13 on account of a breach of a condition, covenant or
warranty by the other, without first giving such other party written
notice of such breach and not less than ten (10) days within which
to cure such breach. The Closing Date shall be postponed if
necessary to afford such opportunity to cure. Notwithstanding
anything contained in this Section 13.02 to the contrary, Seller
shall have no opportunity to cure Seller's default pursuant to
Section 13.01(h) or 13.01(i).
13.03 Termination.
(a) In the event of termination of this Agreement by
mutual consent of the parties under Section 13 .01 (a),
Purchaser shall be entitled to immediate return of the Deposit,
and neither party shall have any further rights or obligations
hereunder.
(b) In the event that Purchaser terminates this Agreement
under Section 13.01 (b), following a: material default by
Seller not cured following written notice within t . he
applicable cure period, Purchaser shall be entitled to the
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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 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)(1), 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.
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(g)
(I) In the event that Purchaser terminates this
Agreement under Section 1301(g), Seller shall receive the
Deposit as liquidated damages, and neither party shall
have any further rights or obligations hereunder.
(II) In the event that Purchaser terminates this
Agreement under Section 13.01(g), Purchaser shall have the
same rights and remedies as set forth in Section 13.03(b)
following a termination of this Agreement by Purchaser
under Section 13.01 (b).
(h) In the event that Purchaser terminates this Agreement
under either Sections 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 Eight Hundred Six Thousand
and 00/100 Dollars ($806,000.00) as liquidated damages on the
earlier to occur of the consummation of an Acquisition Proposal
with another party, or one hundred twenty (120) days after the
termination.
13.04 Right of First Refusal. If this Agreement is
terminated because Seller's Limited Partners fail to approve it, or
if this Agreement is terminated because the limited partners of one
or more of Seller's Affiliates fails to approve the Seller's
Affiliates' Purchase Agreement, and if at the time of termination
Seller has not accepted an Acquisition Proposal, Purchaser shall
have a right of first refusal to purchase any Facility on the same
terms as set forth in a bona fide offer from a third party for the
purchase of such Facility received by Seller prior to December 31,
1997. Seller shall provide written notice of the receipt of such
bona fide offer and a copy of such offer (with name(s) of purchasing
party redacted if necessary) within five (5) business days of
Seller's receipt thereof. Purchaser shall have seven (7) business
days from receipt of such notice to inform 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 (1 0) days of
receipt of written notice from Seller of its failure to do so,
Purchaser shall promptly pay Seller $ 1 00,000.00 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).
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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 each
of the Facilities 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 each of the
Facilities as of the Closing, Date. Such adjustment shall be
in the amount obtained by multiplying (i) the total L-mount 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.
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
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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, 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 parties 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.
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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 for-
ward 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 judgements,
including, but not limited to, reasonable attorney's fees and
reasonable costs and expenses of litigation, arising out of or in
any manner related to any of the following:
(a) Except as otherwise provided in this Agreement, any
and all obligations relating to the ownership of Seller's
Assets and the operation of the Facilities which exist
immediately prior to the Closing Date, including, but not
limited to, any obligations under the Operating Contracts which
Purchaser assumes at Closing and all vacation and/or sick pay,
retirement and severance benefits and bonuses which are claimed
by any employee of Seller to have accrued prior to the Closing
Date provided, however, that Seller shall have no liability for
any accrued vacation or sick pay for employees whose accrued
vacation and sick pay was taken into account in computing the
adjustment to the Purchase Price under Section 14.01.
(b) Any of the Operating Contracts which New Operator
does not assume in writing;
(c) Any misrepresentation of a material fact, breach of
warranty or nonfulfillment of any agreement on the part of
Seller under tills Agreement or from any misrepresentations in
any certificate furnished or to be fumished 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
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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 One
Million Seven Hundred Seventy Four Thousand Five Hundred Fifty to
title to Seller's Assets, Seller's and 00/100 Dollars
($1,774,550.00), except for claims relating 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 attorneys' fees and
reasonable costs and expenses of litigation, arising out of or in
any manner related to any of the following:
(a) Except as otherwise provided in this Agreement, any
and all obligations relating to the ownership of Seller's
Assets and the operation of the Facilities from and after the
Closing Date, including, but not limited to, any obligations
under the Operating Contracts which New Operator elects to
assume and all holiday and sick pay, retirement and severance
benefits and bonuses which are claimed by any employee of New
Operator to have accrued following the Closing Date;
(b) Any misrepresentation of a material fact, breach of
warranty or nonfulfillment of any agreement on the part of
Purchaser under this Agreement or from any misrepresentations
in any certificate fumished or to be furnished to Purchaser
hereunder; and
(c) Any claim that Purchaser or 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 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
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associated therewith may be included as part of the asserted Claim
for indemnification. For all Claims that are not Claims arising
from a @d 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. Not withstanding 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 it 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.
7000 Central Parkway, Suite 850
Atlanta, Georgia
Telephone No.: 770-668-1080
Facsimile No.: 770-668-0136
With copy to Leon H. Rittenberg, Jr.,
(which shall not Esquire|
constitute notice): Baldwin & Haspel
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.
801 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
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deposit in the mail as provided herein or upon actual receipt if
sent by overnight delivery, facsimile transmission or hand delivery.
16.02. Allocation of Purchase Price. The purchase price
shall be allocated among the seven (7) facilities as follows:
Oak Crest Nursing Home: $3,605,000
Shoals Nursing Home: $4,052,000
Muscle Shoals Nursing Home: $3,766,000
Medical Park Convalescent Center: $5,427,725
University Manor: $2,200,000
Renaissance Place-Katy: $2,984,500
Renaissance Place-Humble $2,487,500
The allocation of the purchase price for each of the Facilities
shall be further allocated between the value of the Real Property
and the Personal Property as mutually agreed upon the parties prior
to the Closing Date and each party agrees to timely file tax form
8594 in accordance with the allocations so agreed to.
16.03. Employee Recruitment. As a matter which shall
survive the Closing hereunder, neither Seller nor any of its
subsidiaries or affiliates shall, for a period of 120 days following
the Closing Date, solicit any of the employees or independent
contractors of Purchaser at any of the Facilities or induce any such
persons to terminate their employment or contractual relationships
with Purchaser.
16.04. Assignment. No party may assign, directly or
indirectly, its rights or obligations hereunder without the prior
written consent of the other parties. Notwithstanding the
foregoing, Purchaser shall also have the right, on written notice to
Seller, to (i) assign its rights hereunder to the New Operator as
required to enter into and cause the term of the Master Lease to
commence, or (ii) assign its ownership interest in any of the
Facilities to any third party.
16.05 Sole Agreement. This Agreement may not be amended or
modified in any respect whatsoever except by instrument in writing
signed by the parties hereto. This Agreement, the disclosure
schedules for each of the parties, the documents executed and
delivered pursuant hereto and the Confidentiality Agreements
constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior
negotiations, discussions, writings and agreements between them.
16.06. Captions. The captions of this Agreement are for
convenience of reference only and shall not define or limit any of
the terms or provisions hereof.
16.07. Severability. Should any one or more of the
provisions of this Agreement be determined to be invalid, unlawful
or unenforceable in any respect, the validity,. legality and
enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby.
16.08. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same
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instrument.
16.9. Knowledge Defined. To the extent that any of the
representations and warranties contained in this Agreement are
limited by the phrases "to the knowledge of' or "Purchaser has no
knowledge of or "Seller has no knowledge of" or words or phrases of
similar import, the same shall mean to the actual knowledge of any
of the corporate officers or directors or general partners of the
party or its subsidiaries making, said representation or warranty.
To the extent that any of the representations and warranties
contained in this Agreement refer to verbal notice to a party such
notice shall be deemed to have been received if delivered to any
officer of such party or to an officer of one of its subsidiaries.
Notwithstanding anything in this Section 16.9 to the contrary, the
phrase "Seller's knowledge" or such similar phrases shall include
the actual knowledge of any of the corporate officers or directors
of Atrium and the actual knowledge of any administrator(s) of any of
the Facilities.
16.10 Expenses. Each party shall bear its own costs and
expenses (including legal fees and expenses) incurred in connection
with this Agreement. and other transactions contemplated hereby.
16.11 Third Party Beneficiary. Nothing in this Agreement
express or implied is intended to and shall not be construed to
confer upon or create in any person (other than the parties hereto)
any rights or remedies under or by reason of this Agreement,
including without limitation, any right to enforce this Agreement.
Notwithstanding the foregoing, the New Operator is an intended Third
Party Beneficiary of this Agreement.
16.12. Attorneys' Fees. In the event of a dispute between
the parties hereto with respect to the interpretation or enforcement
of the terms hereof, the prevailing party in any action resulting
therefrom shall be entitled to collect from the other its reasonable
costs and attorneys' fees, including its costs and fees on appeal.
16.13. Construction. The parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state
or local statute or law shall be deemed also to refer to all rules
and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" shall mean "including without
limitation."
16.14. Survival. The representations, warranties, covenants
or conditions set forth herein shall survive the Closing for a
period of one year after the Closing; provided, however, that in the
event that, at anytime during that one year period, any claim is
made for a breach thereof, the same shall survive until a final non-
appealable resolution thereof. Purchaser and New Operator shall
make no claims for indemnification against Seller under Section
15.01(c) of this Agreement after one (1) year after the Closing Date
except for claims related to title to Seller's Assets, Seller's
authority to enter into the transactions contemplated by this
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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 (I 5) days following the mutual execution of this
Agreement, Seller agrees to deliver to Purchaser, for Purchaser's
review and approval, complete copies of said exhibits. Within five
(5) days following receipt of said exhibits, Purchaser shall review
the Exhibits provided and notify Seller of its approval or
disapproval thereof, provided that any such approval shall not be
unreasonably withheld. If Purchaser disapproves any such exhibits,
Purchaser shall have the right to terminate this Agreement by
written notice to Seller.
16.16 Governing Law. THIS AGREEMENT AND THE TRANSACTION
DOCUMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF MICHIGAN. SELLER CONSENTS TO IN PERSONAL
JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE STATE OF
MICHIGAN AND THE STATE WHERE THE FACILITY IS LOCATED, AND AGREES
THAT ALL DISPUTES CONCERNING THIS AGREEMENT MAY BE HEARD, AT
PURCHASER'S OPTION, IN THE STATE AND FEDERAL COURTS LOCATED IN
EITHER OF THE, STATES OF MICHIGAN OR THE STATE WHERE THE FACILITY IS
LOCATED. EACH PARTNER OF THE SELLER AGREES THAT SERVICE OF PROCESS
MAY BE EFFECTED UPON SUCH PARTNER UNDER ANY METHOD PERMISSIBLE UNDER
THE LAWS OF THE STATE OF MICHIGAN OR THE STATE WHERE THE FACILITY IS
LOCATED AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE
AND FEDERAL COURTS OF THE STATE OF MICHIGAN OR THE STATE WHERE THE
FACILITY IS LOCATED.
16.17 Exclusivity. Prior to the Closing Date and subject
to the fiduciary duties of Seller or its General Partner, Seller and
its partners, affiliates, agents and employees shall not negotiate
with or discuss the sale, financing or other disposition of the
Facilities, or take any steps to initiate, consummate, encourage or
document the sale, financing or other disposition of any of the
Facilities to any other person or entity until the earlier of (i)
date on which Purchaser notifies Seller that Purchaser is
withdrawing from the transactions contemplated hereof or (ii)
material breach by Purchaser that is not cured by Purchaser with 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 transactions contemplated by as Agreement
(hereinafter, a "Controversy") which the parties are unable to
settle between themselves, the Controversy shall be determined by
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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 attorneys' 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.
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IN WITNESS WHEREOF, the parties hereby execute this Agreement
as of the day and year first set forth therein.
SELLER:
MEDICAL INCOME PROPERTIES 2A LIMITED
PARTNERSHIP, a Delaware limited partnership
By: QualiCorp Management, Inc., a
Delaware corporation
Its: Managing General Partner
By:________________________________________
John H. Stoddard
Its: President
GENERAL PARTNER:
QUALICORP MANAGEMENT, INC., a Delaware
corporation
By:_______________________________________
John H. Stoddard
Its: President
PURCHASER:
OMEGA HEALTHCARE INVESTORS, INC.,
a Maryland corporation
By:______________________________________
Its:______________________________________
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SCHEDULE OF EXHIBITS
EXHIBIT A-1: Legal Description of Real Property (Oak Crest
EXHIBIT A-2: Nursing Home)
EXHIBIT A-3: Legal Description of Real Property (Shoals
EXHIBIT A-4: Nursing Home)
EXHIBIT A-5: Legal Description of Real Property (Muscle Shoals
EXHIBIT A-6: Nursing Home)
EXHIBIT A-7: Legal Description of Real Property (Medical Park
EXHIBIT 1.02: Convalescent Home)
EXHIBIT 1.02 Legal Description of Real Property (University
(A): Manor)
EXHIBIT 1.05 Legal Description of Real Property (Renaissance
(c): Place-Katy)
EXHIBIT 2.01: Legal Description of Real Property (Renaissance
EXHIBIT 4.13: Place-Humble)
EXHIBIT 6.06: Inventory of Personal Property
EXHIBIT 6.07: Inventory of Excluded Personal Property
ENMBIT 6.07 Form of Management Agreement
(b): Escrow Agreement-
EXHIBIT 6.10: Prepaid Contracts
EXHIBIT 6.11: Copies of Licenses and Pen-nits
EXHIBIT 6.13 List of Most Recent Licensure or Certification
EXHIBIT 6.15: Surveys
EXHIBIT 6.17: Waivers for Cited Deficiencies
EXHIBIT 6.19: Seller's Assets Which are Subject to Leases
EXHIBIT 6.20: Union Contracts
EXHIBIT 6.21: Phase I Environmental Reports Delivered by Seller
EXHIBIT 6.2l Litigation
EXHIBIT 6.24 Facility Defects
EXHIBIT 6.25 Form of Admission Agreement
EXHIBIT Patient Roster
9.02(d): List of Operating Contracts
EXHIBIT Insurance Policies and Certificates
9.02(f): Fringe Benefits
EXHIBIT Benefit Plans
9.02(g): Form of Legal Opinion from Seller's Courses
EXHIBIT Bill of Sale
9.02(h): Form of Operating Contracts Assignment and
EXHIBIT Assumption Agreement
10.01(a): Form of Admission Agreements Assignment and
EXHIBIT Assumption Agreement
10.02(f): List of Title Policies Delivered by Seller
Form of Legal Opinion from Purchaser's Counsel
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APPENDIX B
KILPATRICK STOCKTON LLP
1100 PEACHTREE STREET
ATLANTA, GEORGIA 30309
(404) 815-6500
(404) 815-6555 - Telecopy
February 12, 1997
Board of Directors
Medical Income Properties 2A Limited Partnership
7000 Central Parkway
Suite 850
Atlanta, Georgia 30328
To the Members of the Board:
We understand that Medical Income Properties 2A 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
QualiCorp Management, Inc., the managing general partner of the
Partnership ("QualiCorp"), (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 QualiCorp 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.<PAGE>
We have relied upon the accuracy and completeness of the financial
and other information used by us in arriving at our Opinion without
independent verification. In arriving at our Opinion, we have not
conducted a physical inspection of the properties and facilities of the
Partnership. We have not made nor obtained any evaluations or appraisals
of the assets or liabilities of the Partnership. Our Opinion is
necessarily based upon market, economic and other conditions as they
exist and can be evaluated as of the date of this letter.
We have acted as financial advisor to QualiCorp 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.
