MEDICAL INCOME PROPERTIES 2B 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 2B 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 $921 for each
Unit, of which approximately $725 would be paid within 30 days of
the closing date upon surrender of Limited Partnership Certificates;
up to $153 per Unit within one year of the closing date, and up to
$43 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 2A Limited Partnership and RWB Medical
Properties Limited Partnership IV, each of which has entered into
substantially similar facility acquisition agreements with OMEGA.
Accordingly, if each of the other partnerships does not sell its
operating assets to OMEGA, or if OMEGA fails to purchase the
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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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MEDICAL INCOME PROPERTIES 2B 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 2B 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 $921. 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 2B 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 2B 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
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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 2B 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 services in
the one nursing home it owns, Edwardsville Care Center East in
Edwardsville, Illinois. In addition, the Partnership provides long-
term care services in three homes owned and operated pursuant to
joint ventures with Medical Income Properties 2A Limited
Partnership, Medical Park Convalescent Center in Decatur, Alabama
(45.45% interest owned by the Partnership, with the majority
interest owned by Medical Income Properties 2A Limited Partnership),
Renaissance Place-Katy in Katy, Texas (50% interest owned by the Partnership)
and Renaissance Place-Humble in Humble, Texas (50% interest owned by the
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
entitled to notice of and to vote in the Consent Solicitation. As
of the Record Date, there were 10,907 Units outstanding and entitled
to vote in the Consent Solicitation. Each Unit is entitled to one
vote.
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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 44 Units, which constitutes less than
one half of one percent of the Units outstanding on such date.
QualiCorp will execute consents to the transaction with respect to
each of the Units owned by it.
REPLY CARDS. All properly executed Reply Cards returned to the
MGP will be voted in accordance with the specifications thereon, or,
if no specifications are made, will be voted FOR approval of the
proposal described herein. Any Reply Card may be revoked by a
Limited Partner by delivering written notice to the MGP stating that
the Reply Card is revoked or by execution of a later-dated Reply
Card.
SOLICITATION EXPENSES
The Partnership will bear the cost of the solicitation of
consents from the Limited Partners, which costs are estimated by the
MGP not to exceed approximately $75,000, including printing costs,
postage and legal, accounting and investment banker fees. In
addition to solicitation by mail, the directors, officers and
employees of the MGP and the Partnership and their representatives
may solicit consents from Limited Partners by telephone, fax or
telegram or in person. Such persons will not be additionally
compensated, but will be reimbursed for their reasonable, out-of-
pocket expenses incurred in connection with such solicitation.
Arrangements will also be made with brokerage firms, nominees,
fiduciaries and other custodians for the forwarding of solicitation
materials to the beneficial owners of Units held of record by such
entities, and the Partnership will reimburse such persons for their
reasonable out-of-pocket expenses in connection therewith. The
Robinson-Humphrey Company, Inc. ("Robinson-Humphrey") will assist in
the solicitation of consents by the MGP for a fee of $12,500, plus
reimbursement of reasonable out-of-pocket expenses, all of which
will be paid by the Partnership. However, Robinson-Humphrey will
receive the $12,500 fee only if responses with respect to more than
80% of the Units are received. See "Opinion of Financial Advisor."
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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
lease such facilities for a period which will not extend beyond
December 31, 1997 (the "Interim Leasing Agreement"). The
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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 2A 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 2A 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 $277.63 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
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 $12,377,275 will be reduced by accrued expenses of
$325,207 for vacation pay, sick pay, taxes and trust fund
obligations as provided in the Sale Agreement, by $1,741,052 of
closing costs, brokerage fees, third party settlements and other
obligations, and by $1,898,867 for the payment of debt, resulting in
estimated net proceeds from the sale of $8,412,149. These net
proceeds will be augmented by estimated current assets in excess of
current liabilities of $1,629,269 which will increase the total
amount available for distribution to $10,041,418 which will be
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distributed to the Limited Partners in three installments as
follows:
1. FIRST INSTALLMENT. All Limited Partners will receive a
check in the amount of $725 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
$7,909,761);
2. SECOND INSTALLMENT. A second distribution of
approximately $153 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 $1,668,632); and
3. FINAL INSTALLMENT. A final distribution of up to $43
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
$463,025). See "The Sale Agreement - Indemnification
and Joint Account." The MGP anticipates that the final
distribution will be made approximately 40 months
following the closing.
The amount of the First Installment is based on the amount of
consideration to be received for certain of the Partnership's assets
and the Partnership's cash reserves as of such date, less the
payment of Partnership indebtedness, expenses associated with the
sale, and estimated liabilities to third-parties, and less the
amount placed into a joint signature bank account (hereinafter
referred to as the "Joint Account") with NationsBank or another FDIC
insured bank with offices in Atlanta, Georgia selected by the
Partnership and reasonably acceptable to Omega (the "Bank") to be
held and disbursed in accordance with an agreement (the "Letter
Agreement") for the purposes of securing the indemnity and certain
other obligations of the Partnership under the Sale Agreement that
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will survive the Closing. The amount of indebtedness, expenses and
obligations are estimated by the Partnership to be Three Million
Nine Hundred Sixty Five One Hundred Twenty Six Dollars ($3,965,126).
The amount to be deposited in the Joint Account will be Three Hundred
Ninety Five Thousand Four Hundred Fifty Dollars ($395,450).
The Second Installment represents the MGP's good faith estimate
of the amount of accounts receivable that will be collected by the
Partnership, offset by the anticipated amount of remaining accounts
payable and other liabilities of the Partnership. Although the
amount and date of payment of the Second Installment is not
determinable, the MGP believes, based on an analysis of historical
collection rates, that it is probable that the Second Installment
will be paid in the amount and at the time contemplated herein. The
amount of the Second Installment may also be affected by the amount
of claims for indemnification, if any, made by Omega prior to the
estimated date of payment of the Second Installment.
Following the expiration of the representations and warranties
of the Partnership and the resolution of any claims for indemnity
against the Partnership made prior to such expiration, the Joint
Account will be terminated and all funds remaining therein, together
with any other funds retained by the Partnership, less
administrative expenses, will be distributed to the Limited Partners
as the Final Installment based on the terms of the Partnership
Agreement. There can be no exact determination of the amount of the
Final Installment, if any, nor of the date on which the Final
Installment will be made, although the MGP believes, based on all
the facts and circumstances known to the MGP as of the time of this
Consent Solicitation Statement, that all or substantially all of the
estimated Final Installment will be paid within 40 months of the
Effective Time (as hereinafter defined). The estimated 40-month
period relates primarily to statutory periods within which
representatives of the Medicare and Medicaid programs are permitted
to make assessments against the Partnership for funds received under
those programs.
The MGP will provide each Limited Partner with updated
summaries of the status of the anticipated payment of the Second
Installment and the Final Installment at least annually. See
"Operations Following the Sale and Effect of the Sale on Limited
Partners."
RECOMMENDATION OF THE MANAGING GENERAL PARTNER
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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 1987. 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 continually 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
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
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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 has not.
Although 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
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
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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
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
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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-
Humphrey acted as financial advisor to the Partnership in connection
with the negotiation, approval by the Board of Directors and
execution by the MGP on behalf of the Partnership of the Sale
Agreement. No independent representative of the Limited Partners of
the Partnership was retained by the Partnership or the MGP to
participate in the negotiation of the terms of the Sale Agreement
with Omega.
The terms of the Sale are the result of arms-length
negotiations between the MGP and Omega and were approved by the
Board of Directors of the MGP at the meeting held on January 31,
1997. At the meeting, the Board received presentations concerning,
and reviewed carefully the terms and conditions of, the proposed
Sale with Partnership management with legal counsel and the
Partnership's financial advisor, Robinson-Humphrey. As part of the
meeting, the Board of Directors considered, among other things, the
historical Limited Partnership trading prices and trading
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information for the Units and information presented by Robinson-
Humphrey, including an analysis of other comparable companies being
sold in the nursing home industry, an analysis of comparable
publicly-traded nursing home companies, and an asset analysis. The
MGP and Robinson-Humphrey also discussed the Partnership's results
of operations for 1995 and 1996, 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 $725 cash payable within 30 days of Closing,
plus an estimated $196 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;
2. Financial and other information concerning the financial
strength of Omega;
3. The terms, other than the financial terms, of the proposed
Sale;
4. The likelihood of the Sale being approved by appropriate
regulatory authorities;
5. The relative strengths of each entity;
6. The difficulties faced by the Partnership in taking
advantage of new opportunities in the health care industry
if the Sale were not consummated;
7. Industry conditions generally, including the ongoing trend
of consolidations in health care in response to health
care reform movements; and
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8. The opinion of Robinson-Humphrey that the consideration to
be received by the Limited Partners pursuant to the Sale
Agreement is fair to the Limited Partners from a financial
point of view.
OPINION OF FINANCIAL ADVISOR
BACKGROUND. The managing general partners of the Sellers
engaged Robinson-Humphrey to consult with and advise them concerning
the sale of assets of the Sellers, to solicit offers for the sale of
such assets, to assist in the negotiation of such sale, and to
render fairness opinions at or about the date of the various
facility acquisition agreements to each of the Sellers with respect
to the fairness, from a financial point of view, to the Limited
Partners of such Sellers regarding the consideration to be received
pursuant to the Asset Sales by each Seller.
The terms of Robinson-Humphrey's engagement were set forth in a
letter agreement dated February 6, 1996 (the "Robinson-Humphrey
Engagement Letter"). Under the terms of the Robinson-Humphrey
Engagement Letter, the Sellers paid Robinson-Humphrey a retainer of
$50,000 upon engagement plus a fee of $15,000 upon renewal (the
"Retainer") and fees aggregating $100,000 upon delivery of fairness
opinions to the various Sellers (the "Opinion Fees"). The Opinion
Fees are payable by the 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
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
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be approximately $211,600 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.
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
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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 the acquisition of selected comparable
publicly traded companies. In addition, Robinson-Humphrey held
discussions with the management of the Partnership and of the MGP
concerning the business and operations, assets, present condition
and future prospects of the Partnership and undertook such other
studies, analyses and investigations as it deemed appropriate but
did not make an independent appraisal of the assets of the
Partnership.
In rendering its Fairness Opinion, Robinson-Humphrey assumed
and relied upon, without independent verification, the accuracy and
completeness of the financial and other information furnished by the
Partnership and MGP. Robinson-Humphrey further relied upon the
assurances of the management of the Partnership and MGP that they
were not aware of any facts that would make such information
inaccurate or misleading. Robinson-Humphrey did not conduct a
physical inspection of all the properties and facilities of each of
the partnerships. Robinson-Humphrey's Fairness Opinions was based
upon market, economic and other conditions as they existed, and
which were capable of being evaluated, as of the date of the
Fairness Opinion.
In connection with the preparation of the Fairness Opinion,
Robinson-Humphrey performed certain financial and comparative
analyses, including those described below. The summary set forth
below includes all of the financial analyses used by Robinson-
Humphrey and deemed by it to be material but does not purport to be
a complete description of the analyses performed by Robinson-
Humphrey in arriving at its opinion. The preparation of a fairness
opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and therefore, such
an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its Fairness Opinion, Robinson-Humphrey
did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor.
Accordingly, Robinson-Humphrey believes its analyses must be
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
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identical to the Partnership. An analysis of the results of such a
comparison is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies and other
factors that could affect the value of the companies to which the
Partnership is being compared.
The generally accepted financial analyses Robinson-Humphrey
used in reaching its opinions included (1) comparisons with selected
publicly-traded companies, which consisted of reviewing market
statistics and financial and operating information with respect to
selected companies considered to have businesses similar to that of
the Partnership; (2) analysis of other selected transactions, which
consisted of reviewing operating statistics and purchase price
information with respect to selected acquisitions of assets or
businesses similar to those of the Partnership; and (3) analysis of
asset values based on the appraised value of the Partnership's
Facilities and the net tangible asset value of the Partnership. The
material portions of these analyses (which are all of the material
valuation methodologies performed by Robinson-Humphrey) as
represented in its Fairness Opinion are summarized below.
COMPARISON WITH SELECTED COMPANIES. Robinson-Humphrey compared
selected financial data and market information for the Partnership
to the corresponding financial data and market information for 18
selected public companies in the health care industry (the "Public
Health Care Companies"). Robinson-Humphrey used this analysis to
derive implied equity values (i.e., the value of the total equity of
the Partnership implied by multiplying certain ratios derived from
selected companies other than the Partnership by the Partnership's
own financial data) for the Partnership. This comparison showed,
among other things, that based on 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
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Companies; and (6) the average ratio of firm value to earnings
before interest, taxes, depreciation and amortization ("EBITDA") for
the last 12 months was 8.4x for the Public Health Care Companies.
In addition to applying these multiples directly, Robinson Humphrey
took into consideration the Partnership's smaller size relative to
the comparable companies and applied a discount (the "Small Company
Discount") to these multiples. Based upon these values and these
and other multiples, Robinson-Humphrey calculated an average implied
equity value for the Partnership of approximately $8,500,000 based
on a direct comparison, and $6,400,000, assuming a Small Company
Discount of 25%.
ANALYSIS OF SELECTED TRANSACTIONS. Robinson-Humphrey analyzed
11 acquisitions and mergers occurring since 1993 involving health
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
$10,700,000 based on a direct comparison, and $8,000,000 assuming a
Small Company Discount of 25%..
ASSET VALUATION ANALYSIS. Robinson-Humphrey used two
techniques to analyze the Partnership's asset value: (i) appraised
value of the Partnership's Facilities and (ii) net tangible asset
value of the Partnership at September 30, 1996. The appraised value
of the Facilities as of December 31, 1996, was approximately
$9,500,000, and the net tangible asset value of the Partnership at
December 31, 1996, was approximately $8,900,000.
THE SALE AGREEMENT
GENERAL. The Sale Agreement provides that, upon satisfaction
or waiver of conditions to the Sale, the Partnership will sell, and
Omega will purchase, substantially all of the operating assets of
the Partnership, including the Facilities, the Real Property, all
buildings and improvements thereon, and the personal and intangible
property used in connection with the Facilities, including
equipment, vehicles, furniture, fixtures, inventories of food and
supplies, books, records, licenses, franchises, permits and trade
names. As part of the Sale, Omega will assume certain contract
obligations of the Partnership related to the operation of the
Facilities, but Omega will not assume any debt or trade payables.
The Partnership will retain all cash and cash equivalents and
accounts receivable of the Partnership as of the Effective Time.
The Sale Agreement is reproduced in its entirety as Appendix A to
this Consent Solicitation Statement, and all references in this
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Consent Solicitation Statement to the Sale Agreement are qualified
by reference thereto. All exhibits to the Sale Agreement have been
omitted from Appendix A, but may be obtained from the MGP upon
request.
EFFECTIVE TIME OF THE SALE. The Sale will become effective
(the "Effective Time") at the closing of the transaction, which will
occur as promptly as practical after the requisite Limited Partner
approval has been obtained and all the conditions to the closing of
the Sale have been satisfied or waived, including the consummation
of the sale of the operating assets of the Other Sellers to Omega.
It is currently anticipated that all conditions, other than the
closing of the Asset Sales, will have been satisfied prior to the
date on which the vote is taken. The Effective Time is anticipated
to occur on or about April 30, 1997.
CONSIDERATION. At the Effective Time, Omega will pay the
Partnership, subject to certain adjustments based on certain accrued
vacation and sick pay for employees at the Facilities, as outlined
in the Sales Agreement, Twelve Million Three Hundred Seventy Seven
Thousand Two Hundred Seventy Five Dollars ($12,377,275) 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.
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OPERATIONS PENDING CLOSING. Pursuant to the Sale Agreement,
the Partnership has agreed that, during the period following the
date of the Sale Agreement and prior to the Effective Time, and, if
necessary, during the time of the Interim Operating Agreement, they
will:
(a) Furnish Omega with certain documents, information and
updates of certain information concerning the Real
Property, the Facilities, and the operation of the
Facilities, including title insurance, security interests,
surveys, environmental matters, government authorizations,
financial statements, litigation, and certain other
matters;
(b) Conduct the business and operations of the Facilities in
the ordinary course with due regard for the proper
maintenance and repair of the Facilities, the timely
filing of tax returns and Medicare and Medicaid cost
reports for the Facilities, and the payment of accounts
payable related to the Facilities;
(c) Take all reasonable action to preserve the goodwill and
occupancy levels of the Facilities;
(d) Except in the ordinary course of business, make no
material changes in the Facilities or the operation
thereof;
(e) Use its reasonable efforts to retain the goodwill of
employees of the Facilities, and promptly notify Omega of
any known union organizing or contract negotiations at any
of the Facilities;
(f) Maintain insurance upon the Facilities;
(g) Except in the ordinary course of business, maintain
compensation levels for employees without increases;
(h) Not enter into written employment agreements;
(i) Except in the ordinary course of business, not enter into
certain types of commitments without Omega's approval;
(j) Allow Omega, New Operator and their representatives, upon
appropriate notice, access to the Facilities and the
Partnership's books and records during normal business
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hours for the purposes of performing certain audits,
investigations and inspections, all to be performed with a
representative of the Partnership present;
(k) Take all reasonable actions to maintain substantial
compliance with all laws applicable to the Facilities; and
(l) Use its best efforts to cause all conditions to the
consummation of the Sale to be satisfied.
The Partnership has also agreed that after the Closing Date it
will:
(a) At no cost to the Partnership, reasonably cooperate with
Omega in the event Omega is required to include audited
financial statements with respect to the Facilities in its
filings with the SEC;
(b) Take any and all reasonably necessary actions to complete
the transfer of the Partnership's assets to Omega as
provided in the Sale Agreement;
(c) Retain funds in an amount sufficient to satisfy its
remaining financial obligations including its obligations
under the indemnification provisions of the Sale
Agreement; and
(d) Timely file annual cost reports for the Facilities,
together with appropriate supporting documentation, with
Medicare, Medicaid and any other third party payor.
Omega has agreed that during the period following the date of
the Sale Agreement and prior to the Effective Time, it will:
(a) Provide the Partnership and the MGP timely notice of, and
permit the cure of, any conditions or circumstances
unsatisfactory to it that could prevent or inhibit the
Sale from being consummated;
(b) Proceed with all due diligence to conduct such
investigations with respect to the Partnership's assets as
it deems reasonably necessary;
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<PAGE>
(c) Obtain all licenses, permits, consents and approvals
required or desirable in order for it to consummate the
Sale, or, where applicable, obtain assurances reasonably
satisfactory to it that the same will be received in a
timely manner;
(d) Advise the Partnership and the MGP which, if any, of the
Facilities the New Operator will assume responsibility for
operating at the Effective Time; and
(e) Use its best efforts to cure any circumstances within its
control that would prevent or inhibit the Sale from being
timely consummated;
Omega has further agreed that after the Closing Date it will:
(a) Provide the Partnership, or cause the New Operator to
provide the Partnership, with access during normal
business hours to the Facilities and any books or records
which it needs in connection with tax and other government
filings, litigation and certain other administrative
matters;
(b) Take such other reasonable steps requested by the
Partnership necessary to complete and consummate the Sale
Agreement;
(c) Ensure the maintenance of patient records for three (3)
years after the Closing Date and, upon proper notice,
provide the Partnership with access thereto; and
(d) For two (2) months following the Closing Date, cause the
New Operator to use commercially reasonable efforts to
collect accounts receivable for the Partnership for the
period prior to and including the Closing Date.
AGREEMENT NOT TO SOLICIT ADDITIONAL OFFERS. The MGP and the
Partnership have agreed that from the date of the Sale Agreement
until the earlier of the Effective Time or the termination of the
Sale Agreement, neither will directly or indirectly initiate,
solicit, or take any action to facilitate any alternative
acquisition proposal involving the Partnership or its assets.
CONDITIONS TO CLOSING OF THE SALE. The respective obligations
of the Partnership, the MGP and Omega to consummate the Sale are
subject to a number of conditions, including among others:
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(a) Approval of the Sale by the holders of more than 50% of
the Units held by the Limited Partners;
(b) Approval of the Sale by the Board of Directors of Omega;
(c) The compliance by all parties with the provisions of the
Sale Agreement applicable to them and the truth of each
party's representations and warranties as of the closing;
(d) Approval of the Sale by the appropriate governmental
authorities and receipt of all required licenses and
permits for operation of the Facilities, or an indication
satisfactory to Omega that the same will be forthcoming in
a timely manner;
(e) Delivery by the Partnership of certain title commitments
or insurance policies for each of the facilities, surveys,
environmental site assessments and UCC searches, and
Omega's satisfaction with the same;
(f) The delivery of the Facilities in the same condition as of
the date of the Sale Agreement, reasonable wear and tear
excepted;
(g) The absence of any undisclosed defaults and materially
adverse events by the Partnership; and
(h) Upon request by Omega or the New Operator, the
Partnership's entrance into the Interim Leasing Agreement
and execution of the Interim Management Agreement
concurrently with the Closing.
CONSUMMATION OF OTHER ASSET SALES. The closing of the Sale
Agreement is also conditioned upon the closing of the sale of the
operating assets of each of the Other Sellers to Omega. See "Sale
of Partnership Assets - General." Omega and the MGP negotiated the
cross-closing contingency because Omega desires to purchase all of
the operating assets of the Sellers, and is not willing to purchase
them separately for the overall consideration offered by it for all
of the assets. The managing general partners of the Sellers agreed
to the cross-closing 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
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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."
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.
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INTERIM MANAGEMENT AGREEMENT. The Interim Management
Agreement, if entered into by the Partnership and Atrium for the
benefit of Omega, will provide that Atrium will receive a monthly
management fee during the term of the agreement equal to a certain
percentage of the adjusted gross income of the Facilities, such
percentage to be determined based on the total number of facilities
Atrium is managing for the Partnership and the Other Sellers as
outlined in the Sale Agreement. The Interim Management Agreement,
if entered into by the Partnership and Atrium, will terminate on or
before the termination of the Interim Lease Agreement.
RIGHT TO TERMINATE. The Sale Agreement may be terminated
without any further liability or obligation of either party (except
with respect to liability for damages resulting from willful
breaches of representations, warranties, covenants, or agreements)
as follows:
BY THE PARTNERSHIP AND OMEGA at any time by mutual consent of
Omega and the Partnership.
BY THE PARTNERSHIP (a) Upon Omega's failure to meet its
obligations pursuant to the conditions to closing the sale; or
(b) as the result of certain kinds of material adverse changes in
Omega's representations, warranties, or disclosures pursuant to the
Sale Agreement.
BY OMEGA (a) upon the Partnership's failure to meet its
obligations pursuant to the conditions to closing the Sale; (b) as
the result of certain kinds of material adverse changes in the
Partnership's representations, warranties, or disclosures pursuant
to the Sale Agreement; or (c) in the event a material portion of any
of Real Property or the Facilities is damaged by fire or other
casualty, or is taken or condemned by public or quasi-public
authorities, unless the estimated cost of repairs to be made by the
Partnership is less than $100,000 and the damage to the property as
of the closing will not interfere with the operation of such
Facility.
BY THE PARTNERSHIP OR OMEGA (a) if the required percentage of
Units have not been voted in favor of the Sale or if such approval
is not obtained by July 15, 1997; (b) in the event of a material
breach by the other party, provided that the terminating party is
not in breach; (c) in the event the Sale has not been consummated on
or before July 31, 1997; (d) if any permanent injunction or order of
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a court or other competent authority preventing the consummation of
the Sale has become final or non-appealable; or (e) otherwise in
accordance with the Sale Agreement.
CONSEQUENCES TO THE PARTNERSHIP RELATED TO FAILURE TO CLOSE THE
SALE. In the event that 1) the Sale is not consummated because the
Limited Partners fail to approve the Sale Agreement and the
transactions contemplated thereby, 2) a material adverse change in
information contained in the Partnership's representations and
warranties due to certain types of events occurring after the
signing of the Sale Agreement, or 3) a material breach of the Sale
Agreement by the Partnership, Omega will be entitled to the lesser
of One Hundred Twenty Five Thousand Dollars ($125,000) or
reimbursement of its documented, out-of-pocket expenses. However,
the maximum amount Omega may receive in the event the Partnership
commits the breaches listed above, together with amounts received by
Omega for any similar breaches committed by the Other Sellers, will
not exceed One Hundred Twenty Five Thousand Dollars ($125,000).
In the event that the Sale is not consummated because the MGP
1) withdraws, modifies or amends the MGP's recommendation of the
approval of the Sale Agreement by the Limited Partners, 2) accepts
and recommends an alternative acquisition proposal put forth by any
third party, or 3) announces, and fails to withdraw within ten (10)
days, the MGP's intention to recommend an acquisition proposal other
than the Sale Agreement to the Limited Partners, then Omega will be
paid by the Partnership, as Omega's sole remedy, Four Hundred Six
Thousand Eight Hundred Dollars ($406,800) as liquidated damages.
Such amount would be paid on the earlier to occur of consummation of
the other acquisition or one hundred twenty (120) days after
termination of the Sale Agreement.
RIGHT OF FIRST REFUSAL. If the Sale Agreement is terminated
because the requisite approval for any of the Asset Sales, including
the required approval of the Limited Partners, is not received and,
if at the time of termination the Partnership has not accepted a
competing acquisition proposal, the Partnership has agreed to grant
Omega a right of first refusal to purchase any Facility owned by the
Partnership on the same terms as set forth in a written offer from a
third party for the purchase of the Facility received by the
Partnership prior to December 31, 1997.
REGULATORY APPROVALS. The Sale is subject to various federal,
state and local regulatory approvals:
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HART-SCOTT-RODINO APPROVAL. If prior to the Closing Date Omega
has not identified the New Operator, or, if identified, the New
Operator has not entered into operating leases for the Facilities
with Omega, the Sale will still be consummated, but the Partnership
will enter into the Interim Operating Agreements with Omega or the
New Operator, and approvals under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") will not be required.
However, in the event that the New Operator has been identified
and has entered into operating leases for the Facilities with Omega
at the Effective Time, consummation of each Asset Sale, including
the Sale, is subject to the pre-acquisition notification
requirements of the HSR Act and expiration or early termination of
the waiting period requirement thereunder. Under the HSR Act, the
Federal Trade Commission (the "FTC") evaluates the anti-competitive
effects of transactions meeting the threshold for a HSR Act filing.
Companies filing under the HSR Act must wait at least 30 days
following the filing prior to consummating the transaction, and such
period may be extended by the FTC if it requests additional
information. On the other hand, the FTC may grant early termination
of the waiting period at the request of the parties to a
transaction. The federal government may seek an injunction to block
a transaction if it believes that the transaction would violate
federal antitrust laws. The filing pursuant to the HSR Act was made
with the FTC on ______________, 1997. The waiting period under the
HSR Act with respect to the Asset Sales will expire on February ___,
1997, and the MGP anticipates that early termination of the waiting
period will be sought.
OTHER FEDERAL, STATE AND LOCAL REGULATORY APPROVALS. If prior
to the Closing Date Omega has not identified the New Operator, or,
if identified, the New Operator has not entered into operating
leases for the Facilities with Omega at the Effective Time, then the
Sale will be consummated, but the Partnership will enter into the
Interim Operating Agreements with Omega or the New Operator, and the
approval of various federal, state and local government agencies
will not be required.
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
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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
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be limited to Eight Hundred Ninety Five Thousand Four Hundred Fifty
Dollars ($895,450), but there will be no limit on the Partnership's
liability for any other claims against the Partnership under the
Sale Agreement.
The Sale Agreement also provides that Omega or the New
Operator, if identified prior to the Closing and reasonably
satisfactory to Seller, will indemnify the Partnership and its
officers and directors from all damages, losses, liabilities, costs,
actions, suits, proceedings, demands, assessments, and judgments,
including reasonable attorney's fees and reasonable costs and
expenses of litigation, arising out of or in any manner related to
(i) any and all obligations relating to the ownership of Seller's
Assets and the operation of the Facilities from and after the
Closing Date, including any obligations which arise or accrue
following the Closing Date; (ii) any misrepresentation of a material
fact, breach of warranty or nonfulfillment of any agreement on the
part of Omega under the Sale Agreement or from any
misrepresentations in any certificate furnished or to be furnished
to Purchaser hereunder; and (iii) any claim that Omega or the New
Operator failed to pay employees vacation or sick pay which accrued
prior to the Closing Date with respect to employees whose accrued
vacation and sick pay was taken into account in computing the
adjustment to the Purchase Price.
THE JOINT ACCOUNT AND LETTER AGREEMENT.
At the Effective Time, the Partnership will deposit Three
Hundred Ninety Five Thousand Four Hundred Fifty Dollars ($395,450)
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 Five Hundred Thousand Dollars ($500,000) (the "Additional
Reserves") to secure the Partnership's remaining obligations to
Omega or others, including indemnification and certain other
obligations under the Sale Agreement.
The funds deposited in the Joint Account will be used to
satisfy indemnity claims of Omega until such funds are depleted
before an indemnified claim may be made against the Partnership. At
the expiration of all relevant indemnity periods, any remaining
funds in the Joint Account plus all earnings thereon but less all
administrative expenses related thereto will be returned to the
Partnership. The indemnity obligations of the Partnership for
certain representations and warranties will survive for a period of
12 months following the Effective Time. Other representations and
warranties, particularly with respect to Medicare and Medicaid cost
reports, will remain outstanding for a period of three years
following the dates on which such reports are finalized, plus any
additional time required to finally determine any claim for
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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
One Hundred Nineteen Thousand Three Hundred Twelve Dollars and Fifty
Cents ($119,312.50) 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 to One Hundred
Nineteen Thousand Three Hundred Twelve Dollars and Fifty Cents
($119,312.50) 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.
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THE OTHER SELLERS
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 2A 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 will be
entitled to distributions pursuant to its ownership of 44 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 $157,000 by the Partnership, for services
provided and cost reimbursements. All amounts owed to QualiCorp by
the Partnership will be satisfied prior to any distributions to
limited partners of the Sellers. John M. DeBlois, a director of
the MGP, is the majority shareholder of QualiCorp.
TAX SECTION OF CONSENT SOLICITATION
SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES
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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
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
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its partnership interest, said partner will recognize gain
equal to the excess of the cash received over the
partner's basis in its partnership interest.
The opinion received is subject to the following
qualifications. A tax opinion of special counsel is not binding
upon the Internal Revenue Service or the Courts. It is uncertain
whether the Internal Revenue Service would issue a favorable ruling
on the proposed sale transaction and no such ruling has been
attempted to be obtained. An opinion of the special counsel does not
provide the same degree of assurance with respect to the
consequences of the transaction as would a ruling from the Internal
Revenue Service. Thus, in the absence of a ruling from the IRS,
there can be no assurance that the IRS will not challenge any of the
special counsel's opinions.
The special counsel's opinion is subject to a number of assumptions
and qualifications that are critical to the opinion and is based on
numerous factual assumptions, representations and assurances made by
the Partnership, management of the Partnership, its advisors, and
entities in control of the Partnership. If such factual
information, representations, warranties, or assumptions are not
true when made or subsequently change, the special counsel's opinion may
be inapplicable. The opinions are based upon existing law and
applicable current and proposed regulations, other published IRS
positions and court decisions, which are subject to change either
prospectively or retroactively. The special counsel has expressed no
opinion concerning the consequences of the proposed sale or
liquidation to the partners under any applicable state, local, or
non-U.S. tax laws. Further, the tax opinion of the special counsel
expressly excludes a review of tax consequences other than federal
income tax consequences to the partners of this transaction. In
addition, the special counsel's opinion does not cover partners of
special tax status such as non-U.S. persons, tax-exempt partners,
partners that are corporations, or other non-individual status
entities, partners whose tax year is not the calendar year,
alternative minimum tax considerations or other non-federal income
tax matters. Finally, the special counsel's opinion expressly assumes
the tax status of each Partnership as a partnership for federal
income tax purposes as opposed to an association taxable as a
corporation. The special counsel's opinion is limited to matters set
forth above. No other opinion can be inferred beyond the matters
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expressly stated therein. Because of all of the above, partners
should consult their own tax advisors with respect to all of the tax
consequences of the proposed transactions.
TAXATION OF PARTNERSHIPS IN GENERAL
An entity classified as a partnership for federal income tax
purposes is not subject to federal income tax. Instead, income or
loss "flows through" from the partnership to its partners who are
taxable in their individual capacities on their allocable shares of
partnership items of income, gain, loss, deduction and credit
("taxable income or loss"). However, the partnership is a tax
reporting entity that must make an annual return of partnership
taxable income or loss. The tax treatment of partnership items of
taxable income or loss is generally determined at the partnership
level. Each partner is required to treat partnership items on its
return in a manner consistent with the treatment of such items on
the partnership return and may be penalized for intentional
disregard of the consistency requirement. This consistency
requirement may be waived if the partner files a statement
identifying the inconsistency or shows that it resulted from an
incorrect schedule furnished by the partnership.
Each partner generally must account for its allocable share of
partnership taxable income or loss in computing its income tax,
whether or not any actual cash distribution is made to such partner
during its taxable year. A partner's basis in its partnership
interest is increased by its allocable share of partnership taxable
income. It is this basis increase that generally allows
distributions of taxable income to the partners to be made without
recognition of gain, since the basis increase generally offsets
corresponding decreases in basis that result from such
distributions. As a result, a partner is generally not taxed on
distributions of cash or property received from a partnership,
except to the extent that any money distributed exceeds the
partner's adjusted basis in its partnership interest immediately
before the distribution.
BASIS OF PARTNERSHIP INTERESTS
A partner's basis in its interest is equal to its cost for such
interest (i.e., the amount of money actually contributed by the
partner to the partnership or paid to another to purchase the
interest), reduced (but not below zero) by its allocable share of
partnership distributions, taxable losses and expenditures of the
partnership not deductible in computing its taxable income and not
properly chargeable to its capital account, and increased by its
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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.
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
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transferred property is subject). The adjusted basis of such
property is generally its cost less deductions, allowed or
allowable, for depreciation. In general, gains from the sale or
other disposition of partnership properties which are treated as
long-term capital gains are taxed at the partner level at a lower
rate than ordinary income and short-term capital gains.
Since a partnership's gain on a sale of property will be
measured by the difference between the sales proceeds (including the
amount of any indebtedness to which the property is subject) and the
adjusted basis of the property, the amount of tax payable by a
partner in respect of its share of such gain may in some cases
exceed its share of the cash proceeds therefrom.
A substantial portion of the assets to be sold (including
buildings, land, furniture, fixtures and equipment) which were held
for more than one year and are not "dealer property," are expected
to be treated as "section 1231 assets." Section 1231 assets are
property used in the trade or business of a character which is
subject to the allowance for depreciation, held for more than one
year, and real property used in the trade or business held for more
than one year. Gains or losses from the sale of section 1231 assets
would be combined with any other section 1231 gains or losses
incurred in that year, and the section 1231 gains or losses would be
allocated to the partners as provided in the partnership agreement
and combined with any other section 1231 gains or losses incurred by
the partner in that year. The partner's net section 1231 gains or
losses would be taxed as capital gains or constitute ordinary
losses. If a partnership is deemed a "dealer" and its investment in
any property that constitutes the partnership is considered not to
be a capital asset or section 1231 asset, any gain or loss on the
sale of such property would be treated as ordinary income or loss.
Each partnership has attempted to operate in such a manner so as not
to be deemed a "dealer."
A portion of a partner's gain recognized on disposition of a
partnership's buildings and furniture, fixtures and equipment may be
subject to recapture as ordinary income under the provisions of
sections 1245 or 1250 of the Internal Revenue Code of 1986, as
amended. Such recapture gain will be recognized in the year of the
disposition.
A non-corporate partner's share of any losses from the sale of
Partnership properties which is treated as a capital loss is
deductible in any year only to the extent of the partner's long and
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short-term capital gains for that year. Any excess of capital
losses over capital gains is deductible by a non-corporate partner
up to $3,000 ($1,500 in the case of a separate return for a married
individual) although the unused portion of such capital losses could
be carried over to later years, and deducted as a long-term or
short-term capital loss until fully exhausted.
LIQUIDATION OF THE PARTNERSHIP
Generally, upon the liquidation of a partnership, gain will be
recognized by and taxable to a partner to the extent the amount of
cash and marketable securities distributed to it exceeds its basis
in the partnership at the time of the distribution. Gain or loss on
the liquidation of a partnership interest generally is considered to
be capital gain or loss.
An exception to such treatment is provided in Code section 751,
which states that the proceeds of a sale, exchange or liquidation of
a partnership interest will be considered an amount realized from
the sale or exchange of property other than a capital asset to the
extent that such proceeds are attributable to the partnership's
"unrealized receivables" or to "substantially appreciated
inventory." The term "unrealized receivables" includes amounts not
previously includible in income under the partnership's method of
accounting, rights to payment for services rendered or to be
rendered and for goods delivered or to be delivered and a partner's
pro rata share of any potential Code section 1245 or 1250 income,
short-term obligations, market discount bonds, franchises,
trademarks and trade names and several other categories of property
which would be treated as amounts received from the sale or exchange
of property other than a capital asset. Thus, the difference
between the amount realized that is attributable to a partnership's
"section 751 property" and the adjusted basis to the partner of such
"section 751 property" is treated as ordinary income or loss to the
partner. The difference between the remainder, if any, of the
partner's adjusted basis for its partnership interest and the
balance, if any, of the amount realized, is the partner's capital
gain or loss on the liquidation of the partnership interest.
Capital loss will be recognized in the event only cash and
unrealized receivables are distributed, and only to the extent the
partner's adjusted basis for its interest exceeds the sum of money
distributed and the partnership's adjusted basis for unrealized
receivables.
In addition, each partner may be in receipt of income or loss
from the normal operations of a partnership during the year of
dissolution. Such income may constitute ordinary income or loss.
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There are three commonly encountered limitations on a partner's
ability to take into account its share of a partnership's loss in
computing its individual tax liability. A partner is entitled to
deduct its share of the partnership's loss only after satisfying all
three rules. A partner's deductible share of losses is limited to
its basis in its partnership interest. The at-risk rules limit a
partner's deductible share of losses to the amount it is considered
to be economically at-risk in the venture. If a partner's share of
the partnership's losses are considered "passive losses," the
partner must combine them with its passive losses from other sources
and is allowed to deduct the total only to the extent of its passive
income from all sources. Losses that are disallowed due to any of
these three limitations are deductible in the year of the
termination of a partnership interest and would offset any gain from
liquidation.
ALTERNATIVE MINIMUM TAX
The above summary of the federal income tax provisions relating
to the proposed transactions has not taken into account the federal
alternative minimum tax. This tax was designed to ensure that at
least some tax is paid by high income taxpayers who obtain benefits
from large exemptions and deductions. A taxpayer's alternative
minimum tax liability is determined by adjusting its regular tax
liability for alternative minimum tax preference items. Both of the
proposed transactions may result in alternative minimum tax
preference items flowing through to the partners.
CONCLUSION
The preceding is intended only as a summary of
income tax consequences relating to the proposed sale of assets by
the Partnership and the Partnership's liquidation. The partners of
the Partnership should consult their own tax advisors with respect
to all matters discussed herein and their own particular tax
circumstances.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SALE AND DOES NOT
PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX
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EFFECTS RELEVANT TO A DECISION OF WHETHER TO VOTE IN FAVOR OF THE
SALE. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY
BE RELEVANT TO A PARTICULAR LIMITED PARTNER WHO IS SUBJECT TO
SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS NOR ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR
FOREIGN 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 Three Million Nine Hundred Sixty
Five Thousand One Hundred Twenty SixDollars ($3,965,126) 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 One
Million Six Hundred Sixty Eight Thousand Six Hundred Thirty Two
Dollars ($1,668,632) 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
Three Hundred Ninety Five Thousand Four Hundred Fifty Dollars
($395,450) 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.
-39-
<PAGE>
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."
THE PARTNERSHIP
Summary Historical Financial and Operating Data
The following selected financial information of the Partnership
for the years ended December 31, 1996, 1995, 1994, and 1993, has
been derived from the Partnership's financial statements, which have
been audited by Self & Maples, P.A. for such periods. All such
financial information should be read in conjunction with the
financial statements of Partnership and the notes thereto included
elsewhere herein.
(000's omitted except for per share data and distributions)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Total Revenue $ 3,448 $ 3,433 $ 3,059 $ 2,989
Operating Income (222) (216) 36 264
Net Income 582 331 459 615
Per Share Data:
Net Income per Limited
Partner Unit 49.62 28.23 39.14 52.44
Financial Condition:
Total Assets 11,087 11,206 10,954 10,597
Bond, Notes and Capitalized
Lease Obligations 704 763 816 879
Partners' Capital 8,949 8,836 8,974 8,954
Distributions per Limited
Partner Unit:
First Quarter 10.00 10.00 7.50 7.50
Second Quarter 10.00 10.00 10.00 7.50
Third Quarter 10.00 10.00 10.00 7.50
Fourth Quarter 10.00 10.00 10.00 7.50
</TABLE>
GENERAL. The Partnership is a Delaware limited partnership
which was organized on April 29, 1987. 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 January 31, 1988, upon the sale
of 10,907 units for an aggregate purchase price of $10,907,000.
-40-<PAGE>
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
properties as skilled and intermediate care nursing homes. As of
December 31, 1996, the Partnership owned a 100% interest of one
nursing home, a 45.45% 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 88
employees as of February 12, 1996.
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).
-41-
<PAGE>
The industry has always faced a challenge in staffing
facilities, particularly with regard to Registered Nurses, Licensed
Practical Nurses and Certified Nurse Aides. Depending upon the
geographic area, the Partnership competes with hotels, motels and
restaurants for other employees, including dietary and housekeeping
staff. 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
-42-
<PAGE>
implementation of cost limits on ancillary services (such as therapy
programs, equipment and diagnostic services), capital cost
reductions, a continued freeze of the routine cost limits and
perhaps a prospective payment system. The potential impact of such
changes, either alone or in combination, cannot be determined at
this time. See "Background and Reasons For the Sale."
Information regarding industry segments is not applicable to
the Partnership's business.
SEASONALITY. The Partnership's revenue and operating income
fluctuate from quarter to quarter and tend to be higher in the 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.
-43-
<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>
Edwardsville Care
Center East Long Term
Edwardsville, Illinois 3/1/88 120 Care Facility 110 110 112 113 115
</TABLE>
In addition, the Partnership has invested in joint ventures consisting
of three nursing homes with Medical Income Properties 2A Limited
Partnership:
<TABLE>
<CAPTION>
Owner-
Date of No. of ship Avg. Daily Census
Property Acquisition Beds Description % 1996 1995 1994 1993 1992
-------- ----------- ------ ----------- ------- ---- ---- ---- ---- ----
<S> <C> <C> <S> <C> <C> <C> <C> <C> <C>
Medical Park Long Term
Decatur, Alabama 7/1/88 183 Care Facility 45.45 174 170 175 178 179
(45.45% Interest)
Renaissance Place Long-term
Katy, Texas 5/1/88 130 Care Facility 50% 117 121 112 118 116
Renaissance Place 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, 3, 4, 5 and 12 to the Partnership's
Audited Financial Statements.
LEGAL PROCEEDINGS
At December 31, 1996, there were no material pending legal actions
against the Partnership. As discussed in Note 9 to the Partnership's
Audited Financial Statements, however, the Partnership does have certain
contingent liabilities.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person or group is known by the Partnership to own beneficially
more than 5% of the outstanding Units. No executive officers and
directors of the MGP owned any Units as of the date of this Consent
Solicitation Statement. As of such date, QualiCorp held 44 Units, which
constitutes 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
-44-
<PAGE>
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 52.44 39.14 28.23 49.62
Cash Distribution Per Unit 30.00 37.50 40.00 40.00
Book Value Per Unit 825.04 826.68 814.91 824.53
</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 $285 per Unit to a high
price of $450 per Unit. The last transfer of the Units of which the MGP
is aware occurred in January, 1997, for $650 per Unit. At February 12,
1997, the Partnership had 1,011 Limited Partners of record who held
10,907 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 equivalents increased
during the year to $269,249, an increase of $227,886 over 1995. This
improvement was due primarily to improvement in the payments being
received from the State of Illinois for its Medicaid program. Medicare
receivables, however, increased during the year due to increased
intermediary reviews of specific ancillary charges.
Distributions from joint ventures increased during the year to
$876,302, while total distributions during 1995 were $330,905. The
Partnership spent $12,408 on improvements and equipment at its
Edwardsville facility during 1996 and expects similar amounts to be spent
in 1997.
-45-
<PAGE>
In 1996, the Partnership paid distributions to its limited partners
totaling $40.00 per unit. This distribution equaled a 4% return on the
initial investment of $1,000 per unit. Although the Partnership expects
to continue to make distributions to its limited partners based on the
cash flow generated from operations after considering cash required for
debt obligations, necessary improvements to the property and working
capital reserves, no assurance can be given that distributions will be
made in the future.
RESULTS OF OPERATIONS.
FISCAL YEAR 1996 COMPARED TO 1995. Net income for 1996 was
$581,970, as compared to $331,053 for 1995. The increase in earnings was
due to an increase in the Partnership's share of joint venture income,
which is derived from the results of operations of the Texas care
facilities (the "Texas Joint Venture") and the Medical Park care facility
in Alabama (the "Alabama Joint Venture") (together, the Alabama and Texas
Joint Ventures are hereinafter referred to as the "Joint Ventures"). The
operations of the wholly owned Edwardsville Care Center East facility
improved during 1996 over 1995 due to better expense control on slightly
higher revenue, even though ancillary volume was down in 1996 from 1995.
Professional care of patients totaled $1,888,947 versus $1,981,961
due to lower salary and wages paid as well as lower ancillary contract
service fees. The ancillary volume was impacted during the year due to
fewer Medicare A patients being served in the Edwardsville Care Center
East facility. General and Administrative costs were $136,455 higher in
1996 than 1995 due to higher management fees, property management fees
paid to Qualicorp, Inc., higher salaries and wages, auditing, legal
expense and cost reimbursement. Employee health and welfare expense
declined between years due to lower incentive compensation, employee
physical examination expense and tax rates.
Other income (expense) improved from 1995 to 1996 due to
significantly improved operating income of the Joint Venture partners and
lower interest expense incurred on debt obligations. The Joint Venture
operating income is derived from three nursing home properties. 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. 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
-46-
<PAGE>
programs which are devoted to enabling patients to be discharged to their
homes. Net Income for the Medical Park nursing home, which is devoted to
providing high quality care, improved to $816,707 in 1996 from $714,840
in 1995.
FISCAL YEAR 1995 COMPARED TO 1994. Net income for the year was
$331,053, compared to $459,086 for 1994. The decrease in earnings was
due to an operating loss of $215,675 at the Edwardsville East nursing
facility. The facility had an operating income in the prior year of
$36,082. During the year, net revenue from resident service increased
$375,000. This increase was due in part to a higher level of care
provided to residents through an expanded therapy program. In addition,
the nursing home received a Medicaid rate increase in August 1995 of
$4.11 per patient day.
Professional care of residents increased $600,711 over the 1994
level due to higher labor costs of $162,000 and therapy services expenses
of $484,000. Household and Plant expenses were $30,066 over 1994 due to
higher maintenance, utilities and supply costs. General and
Administrative costs decreased between years $19,087 due to lower
insurance costs, partially offset by higher salary costs and fees.
Other income (expense) was affected by the need to borrow operating
funds. Net interest expense increased $97,000 over the previous year.
The Partnership's share of joint venture income rose between years by
$231,000 due to improved earnings at the Renaissance Place-Katy nursing
home and Medical Park nursing home. The operating results at both
facilities improved over the prior year due to increased Medicare
utilization and expanded therapy programs. The Renaissance Place-Humble
facility operating net income was $122,259 lower than 1994 due to higher
salary costs, therapy costs, and maintenance expenses.
FISCAL YEAR 1994 COMPARED TO 1993. Net income for the year was
$459,086, compared to $614,975 for 1993. The decrease in earnings was
due to a decrease in the Illinois Medicaid rate of $5.52 per patient per
day in September 1993 for Edwardsville Care Center East along with higher
labor and increased therapy services costs. In addition, general and
administrative costs increased $81,814. This increase was due to
increased workers compensation insurance charges which rose by almost
$100,000 over the previous year.
-47-<PAGE>
Other income (expense) was $423,004. This represented an increase
of $71,586 over the previous year, even though the Partnership's share of
joint venture income declined by $78,041 between years. This decline in
joint venture earnings was due in part to increased cost in patient care
for salaries and wages, and higher ancillary service costs in the Texas
facilities. Interest income increased due to higher interest rates.
Provider fees decreased due to changes made in the Illinois program.
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.
-48-
<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.....................
The Alabama Joint Venture Financial Statements for the
years ended December 31, 1996, 1995 and 1994.....................<PAGE>
MEDICAL INCOME PROPERTIES 2B LIITED PARTNERSHIP
FINANCIAL STATEENTS
FOR THE YEARS ENDED DECEBER 31, 1996, 1995 AND 1994
<PAGE>
MEDICAL INCOME PROPERTIES 2B 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 7-18
Information Accompanying the Basic Financial Statements
Independent Auditors' Report on Information
Accompanying the Basic Financial Statements 19
Schedule of Valuation and Qualifying Accounts
and Reserves for Allowances for Doubtful Accounts 20
Schedule of Consolidated Supplementary Income
Statement Information 21
Schedule of Real Estate and Accumulated Depreciation 22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Medical Income Properties 2B Limited Partnership
We have audited the balance sheets of edical Income Properties 2B
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 edical
Income Properties 2B 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 12, as to which the date is
February 3, 1997
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 269,249 $ 41,363
Patient accounts receivable, net of allowance
for doubtful accounts of $102,349
in 1996 and $54,188 in 1995 616,404 780,238
Estimated third-party payor settlements 203,628 316,962
Prepaid expense and other assets 54,122 42,144
--------- ----------
Total current assets 1,143,403 1,180,707
Investment in joint ventures 7,087,148 7,034,698
Property and equipment, net of
accumulated depreciation 2,855,196 2,988,787
Deferred financing costs, net of
accumulated amortization of
$1,743 in 1996 and $1,525 in 1995 1,744 1,962
----------- -----------
Total assets $11,087,491 $11,206,154
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Current maturities of long-term debt $ 63,388 $ 57,447
Accounts payable
334,901 235,152
Accrued payroll and payroll taxes 73,433 47,516
Accrued vacation 32,722 31,082
Accrued insurance 10,657 28,384
Accrued real estate taxes 75,096 76,143
Accrued management fees 13,906 13,371
Patient deposits and trust liabilities 48,244 37,010
Other accrued expenses 4,949 387
Due to affiliates 840,835 1,137,913
------------ -----------
Total current liabilities 1,498,131 1,664,405
Long-term debt, net of current maturities
640,309 705,550
------------ ----------
Total liabilities 2,138,440 2,369,955
------------ ----------
Partners' capital (deficit)
Limited partners 8,993,158 8,888,206
General partners (44,107) (52,007)
------------ ---------
Total partners' capital 8,949,051 8,836,199
------------ ---------
Total liabilities and partners' capital $ 11,087,491 $11,206,154
============ ===========
</TABLE>
See accompanying notes to financial statements.
2<PAGE>
MEDICAL INCOME PROPERTIES 2B 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 $3,443,725 $3,428,541 $3,053,550
Other revenue 4,345 4,147 5,791
---------- ---------- ---------
Total revenue 3,448,070 3,432,688 3,059,341
---------- ---------- ---------
Operating expenses
Professional care of patients 1,888,947 1,981,961 1,381,250
Dietary 276,675 265,966 263,409
Household and plant 323,317 342,433 312,367
General and administrative 853,203 716,748 735,835
Employee health and welfare 182,010 190,721 180,033
Depreciation and amortization 146,217 150,534 150,365
---------- ---------- ---------
Total operating expenses 3,670,369 3,648,363 3,023,259
---------- ---------- ---------
Operating income (loss) (222,299) (215,675) 36,082
Other income (expenses)
Interest income - - 55,313
Interest expense (58,603) (92,668) (51,027)
Provider fees (65,880) (65,700) (55,397)
Partnership share of joint
venture income 928,752 705,096 474,115
---------- ---------- ---------
Total other income
(expenses) 804,269 546,728 423,004
---------- ---------- ---------
Net income $ 581,970 $ 331,053 $ 459,086
========== ========== =========
Net income attributable
to limited partners (93%) $ 541,232 $ 307,879 $ 426,950
Net income attributable
to general partners (7%) 40,738 23,174 32,136
---------- ---------- ---------
$ 581,970 $ 331,053 $ 459,086
========== ========== =========
Net income per limited
partnership unit outstanding $ 49.62 $ 28.23 $ 39.14
========== =========== ==========
See accompanying notes to financial statements.
</TABLE>
3<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited Partners General
Units Amount Partners Total
------- -------- -------- ------
<S> <C> <C> <C> <C>
Partners' capital
(deficit) at
December 31, 1993 $ 10,907 $ 8,998,669 $ (43,692) $8,954,977
Distributions to
partners ($37.50 per
limited partnership
unit outstanding) - (409,011) (30,786) (439,797)
Net income - 426,950 32,136 459,086
-------- ------------ --------- ---------
Partners' capital
(deficit) at
December 31, 1994 10,907 9,016,608 (42,342) 8,974,266
Distributions to
partners ($40.00 per
limited partnership
unit outstanding) - (436,281) (32,839) (469,120)
Net income - 307,879 23,174 331,053
------- ---------- -------- ---------
Partners' capital
(deficit) at
December 31, 1995 10,907 8,888,206 (52,007) 8,836,199
Distributions to
partners ($40.00 per
limited parnership
unit outstanding) - (436,280) (32,838) (469,118)
Net income - 541,232 40,738 581,970
------- ---------- ------ ---------
Partners' capital
(deficit) at
December 31, 1996 $10,907 $8,993,158 $(44,107) $8,949,051
</TABLE>
See accompanying notes to financial statements.
4<PAGE>
MEDICAL INCOME PROPERTIES 2B 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> <C>
Cash flows from operating activities:
Cash received from patient care $ 3,708,915 $ 3,186,524 $ 2,762,115
Interest and dividends received - - 55,313
Other operating receipts 4,345 4,147 5,791
Cash paid to suppliers and
employees (3,399,289) (3,516,545) (2,670,505)
Interest paid (58,603) (92,668) (51,027)
Provider fees (65,880) (65,700) (55,397)
----------- ---------- ----------
Net cash provided (used) by operations 189,488 (484,242) 46,290
Cash flows from investing activities:
Capital expenditures (12,408) (52,424) (64,813)
Distributions from joint
ventures 876,302 330,905 276,354
---------- -------- ----------
Net cash provided (used) by
investing activities 863,894 278,481 211,541
--------- -------- ----------
Cash flows from financing activities:
Principal payments on long-term
obligations (59,300) (53,492) (63,206)
Distributions to partners (469,118) (469,120) (439,797)
Net related party transactions (297,078) 644,286 110,592
---------- -------- ----------
Net cash provided (used) by financing
activities (825,496) 121,674 (392,411)
---------- -------- ----------
Net increase (decrease) in cash and
cash equivalents 227,886 (84,087) (134,580)
Cash and cash equivalents, beginning
of year 41,363 125,450 260,030
---------- --------- ----------
Cash and cash equivalents, end of year $ 269,249 $ 41,363 $ 125,450
========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
MEDICAL INCOME PROPERTIES 2B 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 $ 581,970 $ 331,053 $ 459,086
----------- ---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 146,217 150,534 150,365
Partnership share of joint
venture income (928,752) (705,096) (474,115)
Provision for losses on accounts
receivable 15,177 7,625 16,445
(Increase) decrease in:
Patient accounts receivable, net 148,657 130,735 (321,421)
Estimated third-party payor
settlements 113,334 (258,259) (58,703)
Prepaid expenses and other assets (11,978) 23,537 (1,779)
Increase (decrease) in:
Accounts payable 99,749 26,905 116,354
Accrued expenses 13,880 (74,560) 90,004
Estimated third-party payor
settlements - (122,118) 72,244
Other liabilities 11,234 5,402 (2,190)
----------- ---------- ----------
Total adjustments (392,482) (815,295) (412,796)
----------- ---------- ----------
Net cash provided (used) by
operating activities $ 189,488 $ (484,242) $ 46,290
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
6<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Medical Income Properties 2B Limited Partnership (the
Partnership) is a Delaware limited partnership formed on
April 29, 1987 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 on
July 16, 1987. The offering closed on January 31, 1988.
For the period April 29, 1987 (inception) to April 28,
1988, the Partnership was in the development stage. On
March 1, 1988, 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
7
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
. 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.
(d) Per Unit Information
Limited partnership information per unit is based on the
number of units outstanding of 10,907 in 1996, 1995, and
1994.
(e) Patient Service Revenue
Patient service revenue is recorded at the nursing homes'
established rates with contractual adjustments ($1,888,312
in 1996, $1,832,743 in 1995, and $1,014,629 in 1994),
provision for uncollectible accounts, (bad debt expense of
$ 15,177 in 1996, $7,625 in 1995, and $16,445 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.
8
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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 is stated at cost. 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. The amount in excess of insured limits was
approximately $1,360,579 (inclusive of unconsolidated joint
ventures) at December 31, 1996. A portion of commingled
funds discussed in Note 6., may be at risk, but the amount
in excess of FDIC limits related to the Partnership is not
determinable.
(j) 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
9
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
from the estimates that were assumed in preparing the
financial statements.
Note 2. ACQUISITIONS
On March 1, 1988, the Partnership acquired Edwardsville - East
Nursing Home, located in Illinois, for $3,750,000 plus
capitalized acquisition costs and fees of $276,595. The
Partnership assumed $1,133,690 of debt with the purchase.
The acquisition has 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.
Note 3. INVESTMENTS IN JOINT VENTURES
The Partnership has invested in two joint ventures with Medical
Income Properties 2A Limited Partnership (MIP2A). These joint
ventures are accounted for under the equity method.
The Texas Joint Venture
On May 1, 1988, the Partnership purchased 50% of Renaissance
Place - Katy Nursing Home located in Texas for $2,736,250 plus
capitalized acquisition costs and fees of $254,645. The seller
took back a note for $300,000 ($150,000 was the Partnership's
share) due May 1, 1993 that has subsequently been paid.
On May 1, 1988, 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 Alabama Joint Venture
On July 1, 1988, the Partnership purchased 45.45% of Medical
Park Nursing Home located in Alabama for $2,317,950 plus
capitalized acquisition costs and fees of $172,379.
The condensed balance sheet information for the investments in
joint ventures 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:
10
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Katy 1996 1995
<S> <C> <C>
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
=========== ===========
Partnership's investment
at December 31,
1996 and 1995 $ 3,206,748 $ 3,023,952
</TABLE>
11
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Humble 1996 1995
- - - ------ ---- ----
<S> <C> <C>
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
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
=========== =========== ===========
Medical Park 1996 1995
- - - ------------
Current assets $ 1,699,553 $ 2,370,621
Long-term assets 5,369,994 5,308,640
----------- -----------
Total assets $ 7,069,547 $ 7,679,261
=========== ===========
Current liabilities 743,586 713,232
Long-term liabilities 1,704,860 1,868,527
Equity 4,621,101 5,097,502
----------- -----------
Total liabilities
and equity $ 7,069,547 $ 7,679,261
</TABLE>
12
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Medical Park (con't.)
Partnership's investment
at December 31,
1996 and 1995 $ 2,100,682 $ 2,317,207
=========== ==========
1996 1995 1994
---- ---- ----
Revenues $ 6,396,385 $ 5,907,763 $ 5,137,870
Expenses 5,579,678 5,192,923 4,595,148
----------- ----------- -----------
Net income $ 816,707 $ 714,840 $ 542,722
=========== =========== ===========
See Note 9 for contingency.
Note 4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consisted of the following at December 31:
1996 1995
<S> <C> <C>
Land $ 90,000 $ 90,000
Buildings and improvements 3,812,869 3,817,099
Furniture and equipment 302,317 285,680
----------- ------------
Total 4,205,186 4,192,779
Accumulated depreciation
and amortization (1,349,990) (1,203,992)
----------- ------------
Net property and equipment $ 2,855,196 $ 2,988,787
</TABLE>
Note 5. LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Industrial Revenue Bonds 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 $9,645 through April 1, 2005.
The interest rate is adjusted every
May 1 and November 1, secured by
real estate. $ 703,697 $ 762,997
Less amounts due in one year
or less 63,388 57,447
---------- ----------
$ 640,309 $ 705,550
========== ==========
</TABLE>
13
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
The aggregate annual maturities of long-term debt for the
succeeding five fiscal years are as follows:
1997 $ 63,388
1998 68,482
1999 73,986
2000 79,932
2001 86,356
Thereafter 331,553
---------
$ 703,697
==========
Note 6. RELATED PARTY TRANSACTIONS
QualiCorp, Inc. charged the Partnership $84,896 in 1996,
$80,278 in 1995, and $86,348 in 1994 for administrative
expenses (primarily salaries). QualiCorp, Inc. also charged
the Partnership $132,974 for property management fees in 1996.
<TABLE>
<CAPTION>
Details of the amounts due to affiliates at December 31 are as follows:
1996 1995
<S> <C> <C>
Due to QualiCorp, Inc. $ 156,787 $ 48,917
Due to The Texas Joint Venture -
Katy 184,075 184,075
Humble 26,556 26,556
Due to The Alabama Joint Venture -
Medical Park 473,417 382,517
Due to affiliates of the general
partner - 495,848
---------- ----------
Due to affiliates $ 840,835 $ 1,137,913
========== ===========
</TABLE>
During the year ended December 31, 1995, the General Partners
established a pooled investment account in which the General
Partners and the partnerships in which they act as general
partners could participate. This account was used by those
entities to invest overnight cash balances, and borrow funds
when an entity needed temporary access to funds. Each entity
received its share of interest earned monthly, and was charged
interest on any funds borrowed.
The Articles of Limited Partnership of the partnerships involved
state that no General Partner shall have the authority to cause
those partnerships to make loans other than in connection with
the purchase, sale or disposition of partnership property. The
Articles of Limited Partnership of those partnerships also state
14
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
that the partnerships' funds may not be commingled with any
other entities' funds except as necessary for the operation of
those partnerships.
At December 31, 1995, the Partnership had borrowed $495,848 from
the other entities, and had paid interest of $13,116 from this
arrangement.
See Footnote 12 for sale of affiliated assets.
Note 7. INCOME TAXES
No provision for income taxes is made in the financial
statements since taxable income is reported in the income tax
returns of the 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 expenses items. The following
is a reconciliation of reported net income and Federal taxable
income.
1996 1995 1994
Net income as reported $ xxx,xxx $ 331,053 $ 459,086
Adjustments:
Depreciation differences xx,xxx 41,967 59,055
Bad debt reserve xx,xxx 46,191 37,093
Vacation accrual xx,xxx 15,019 12,775
Insurance deductible xxx,xxx (51,636) -
Nondeductible travel
and entertainment xx,xxx 16,165 7,134
--------- --------- ---------
Federal taxable income $ xxx,xxx $ 398,759 $ 575,143
========= ========= =========
Federal taxable income
per limited partnership
unit outstanding $xx.xx $34.00 $49.04
====== ====== ======
Note 8. CONTRACTUAL AGREEMENTS
In 1988, the Partnership entered into a management agreement
whereby the Manager is required to perform certain services.
The agreement 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
15
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
revenues, but not less than $140,000 in a calendar year and are
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 the nursing home. The
management agreement, as amended, contained a termination
clause.
The management agreement was amended on January 1, 1995. The
amendment calls for a fixed monthly management fee of $13,371
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 agreement
expires December 31, 1998.
The termination on sale clause was amended to base the fee on a
sum equal to the discounted present value of the monthly
management fee as of the date of termination of the agreement
times the number of months remaining in the management agreement
discounted to the date of termination at an annual interest rate
of ten percent (10%). In addition, the parties agreed to
terminate the Manager's right of first refusal.
Commencing January 1, 1996, the Management Agreement was
extended for a period of up to a maximum of eighteen months by
one month for every month after January 1, 1996 in which the
parties are engaged in the process of attempting to sell the
Facilities. In the event of a sale of the Facilities, the
termination on sale fee described above would be discounted to
the date of termination at an annual rate of ten percent (10%)
and then further discounted by a factor of thirty-three and one-
third percent (33 1/3%).
Management fees charged to the partnership were $166,875 in
1996, $160,456 in 1995, and $154,285 in 1994.
Note 9. 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
16
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
material loss not covered by insurance or reserves.
The real estate owned by The Texas Joint Venture and The Alabama
Joint Venture is mortgaged as security on debt incurred by the
Partnership's joint venture partner Medical Income Properties 2A
Limited partnership (MIP2A). This debt is also secured by all
other real estate owned by MIP2A. The total outstanding debt
secured by all these properties is $3,805,555.
Legal Response (Pending)
Note 10. CONCENTRATIONS IN REVENUE SOURCES
The Partnership provides patient care services under various
third party agreements. The principal sources of revenue under
these contracts are derived primarily through the Medicaid and
Medicare programs, as well as contracts with private pay
patients who do not qualify for assistance from the other
programs. The percentage of the Joint Venture's income from
each of these sources for the years ended December 31, 1996,
1995, and 1994 is as follows:
1996 1995 1994
Private pay patients 12.05% 11.34% 11.71%
Medicaid 48.03% 47.47% 62.82%
Medicare 39.92% 41.19% 25.47%
------ ------ -------
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 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Statement No. 107, Disclosures about Fair
17
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
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:
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 12. SUBSEQUENT EVENT
On February 3, 1997, Medical Income Properties 2B 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:
Edwardsville - East Nursing Home
(120 beds) $ 2,383,000
Medical Park Convalescent Center
(183 beds) - 54.55% ownership 4,522,275
Renaissance Place - Katy (130 beds) -
50% ownership 2,984,500
Renaissance Place - Humble (120 beds) -
50% ownership 2,487,500
-----------
Proceeds from sale $12,377,275
===========
Proceeds from the sale will be reduced by expenses incurred as a
18
<PAGE>
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
result of the sale, cash offsets for liabilities assumed by the
buyer and existing indebtedness. These payments should
approximate $3,965,000.
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 $395,450 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
$500,000 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.
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON ADDITIONAL INFORATION
To the Partners
Medical Income Properties 2B Limited Partnership
Our report on our audit of the basic financial statements of
Medical Income Properties 2B Limited Partnership for 1996
appears on page 1. That audit was 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, 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 audit 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 12, as to which the date is
February 3, 1997
19<PAGE>
MEDICAL INCOME PROPERTIES 2B 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 $ 54,188 $ 35,327 $25,015
Charged to patient service
revenues 32,984 11,236 (6,133)
Write-offs 15,177 7,625 16,445
-------- ------- ------
Balance at end of year $102,349 $ 54,188 $35,327
20<PAGE>
MEDICAL INCOME PROPERTIES 2B 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
Nursing salaries and wages $ 986,150 $ 1,016,764 $ 854,741
Ancillary service expense 678,357 713,913 230,229
Supplies 89,576 108,192 113,202
Temporary labor 939 8,423 40,476
General and administrative
Salaries and wages 93,837 87,897 77,150
Accounting and auditing 46,552 42,807 42,463
Insurance 150,623 161,912 198,425
Property tax 73,649 76,239 76,446
Management fees 166,875 160,456 154,285
Property management fees 132,974 - -
Cost reimbursement 84,896 80,278 86,348
Dietary
Food cost 134,948 128,930 133,949
Household and plant
Repairs and maintenance 10,212 23,852 12,053
Utilities 126,040 120,078 115,921
Depreciation $ 145,999 $ 150,316 $ 150,147
============ ============ ==========
</TABLE>
21<PAGE>
MEDICAL INCOME PROPERTIES 2B 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>
EDWARDSVILLE - EAST $703,697 $90,000 $3,660,000 $178,591 $276,595 $90,000 $4,115,186 $4,205,186 $1,349,990
======== ======== ========== ======== ======== ======= ========== ========== ==========
(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 $4,140,355.
(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 $4,192,779 $4,140,355 $4,075,542
Additions 12,407 52,424 64,813
Reductions 0 0 0
---------------------------------------
Balance at end of period $4,205,186 $4,192,779 $4,140,355
========================================
=======================================
(D) Reconciliation of accumulated depreciation
Balance at beginning of period $ 1,203,992 $ 1,053,675 $ 903,528
Depreciation expense 145,998 150,317 150,147
Reductions 0 0 0
---------------------------------------
Balance at end of period $ 1,349,990 $ 1,2036,992 $ 1,053,675
=======================================
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
DATE OF DATE OPERATION IS
CONSTRUCTION ACQUIRED COMPUTED
<S> <C> <C> <C> <C>
EDWARDSVILLE - EAST 1987 05/01/88 5 TO 30 YEARS
</TABLE>
23
<PAGE>
TEXAS JOINT VENTURE FINANCIAL STATEMENTS TO BE INSERTED HERE
<PAGE>
ALABAMA JOINT VENTURE FINANCIAL STATEMENTS TO BE INSERTED HERE
<PAGE>
APPENDIX A
PURCHASE AGREEMENT
OMEGA HEALTHCARE INVESTORS, INC.
AND
MEDICAL INCOME PROPERTIES 2B LIMITED PARTNERSHIP
AND
QUALICORP MANAGEMENT, INC.
DATED: JANUARY ___, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 The Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Personal Property . . . . . . . . . . . . . . . . . . . . . . . . 1
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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
4.06 Revenues and Expenses . . . . . . . . . . . . . . . . . . . . . . 6
4.07 Taxes/Prorations . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.08 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.09 Attorney's Fees . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.10 Recording Costs . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.11 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.12 Environmental Adjustment . . . . . . . . . . . . . . . . . . . . . 7
4.13 Prorations Regarding Contracts . . . . . . . . . . . . . . . . . . 7
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
POSSESSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.01 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
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ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SELLER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 7
6.01. Status of Seller . . . . . . . . . . . . . . . . . . . . . . . . 8
6.02. Validity and Conflicts . . . . . . . . . . . . . . . . . . . . . 8
6.03. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.04. The Seller Financial Statements . . . . . . . . . . . . . . . . . 8
6.05. Absence of Adverse Change . . . . . . . . . . . . . . . . . . . . 9
6.06. The Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.07. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . 9
6.08. Residents . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.09. Books and Records . . . . . . . . . . . . . . . . . . . . . . . 10
6.10. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.11 Unions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.12. Taxes and Tax Returns . . . . . . . . . . . . . . . . . . . . . 11
6.13. Environmental Issues . . . . . . . . . . . . . . . . . . . . . 11
6.14. Necessary Action . . . . . . . . . . . . . . . . . . . . . . . 12
6.15. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.16. Sensitive Payments . . . . . . . . . . . . . . . . . . . . . . 12
6.17. The Facilities . . . . . . . . . . . . . . . . . . . . . . . . 13
6.18 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.19. The Facility Agreements . . . . . . . . . . . . . . . . . . . . 13
6.20. Patient Roster . . . . . . . . . . . . . . . . . . . . . . . . 14
6.21. Operating Contracts . . . . . . . . . . . . . . . . . . . . . . 14
6.22. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.24 Fringe Benefits . . . . . . . . . . . . . . . . . . . . . . . . 15
6.25 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PURCHASER REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 15
7.01. Status of Purchaser . . . . . . . . . . . . . . . . . . . . . . 15
7.02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.03. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.04. Necessary Action . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
BROKER; INVESTMENT BANKER . . . . . . . . . . . . . . . . . . . . . . 17
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ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SELLER COVENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.01. Pre Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.02. Closing- Date . . . . . . . . . . . . . . . . . . . . . . . . 23
9.03. Post Closing . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PURCHASER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.02. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 28
10.03. Post Closing . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
MUTUAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.01. General Covenants . . . . . . . . . . . . . . . . . . . . . . 30
11.02. Hart-Scott-Rodino Filing . . . . . . . . . . . . . . . . . . 31
11.03. HSR Consent/Regulatory Approval . . . . . . . . . . . . . . . 31
11.04. Public Announcements . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.01. PurchasEr Conditions . . . . . . . . . . . . . . . . . . . . 32
12.02. Seller Conditions . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 35
13.02. Opportunity to Cure . . . . . . . . . . . . . . . . . . . . . 37
13.03 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 37
13.04 Right of First Refusal . . . . . . . . . . . . . . . . . . . . 39
ARTICLE XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
OPERATIONAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 39
14.01. Employees: Schedule of Employee Benefits . . . . . . . . . . . 39
14.02. Accounting Patient Trust Funds and Patient Prepaid Accounts . 40
14.03. Indemnity for Trust Funds and Prepaid Funds . . . . . . . . . 40
14.04. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . 41
14.05 Alabama Workers' Compensation Rebate . . . . . . . . . . . . . 41
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ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15.01. Seller's Indemnification . . . . . . . . . . . . . . . . . . 42
15.02. New Operator . . . . . . . . . . . . . . . . . . . . . . . . 43
15.03. Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.04 Basket . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE XVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
16.01. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
16.02. Allocation of Purchase Price . . . . . . . . . . . . . . . . 45
16.03. Employee Recruitment . . . . . . . . . . . . . . . . . . . . 45
16.04. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 45
16.05 Sole Agreement . . . . . . . . . . . . . . . . . . . . . . . . 46
16.06. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.08. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 46
16.9. Knowledge Defined . . . . . . . . . . . . . . . . . . . . . . 46
16.10 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.11 Third Party Beneficiary . . . . . . . . . . . . . . . . . . . 47
16.12. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . 47
16.13. Construction . . . . . . . . . . . . . . . . . . . . . . . . 47
16.14. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.15. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . 47
16.16 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 47
16.17 Exclusivity . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.18 Confidential . . . . . . . . . . . . . . . . . . . . . . . . . 48
16.19 Arbitration of Disputes Following . . . . . . . . . . . . . . 48
SCHEDULE OF EXHIBITS: . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT A-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT A-2: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT A-3: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT A-4: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 1.02: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 1.02 (A): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 1.05 (c): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 2.01: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 4.13: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.06: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.07: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.07(b): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.10: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.11: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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EXHIBIT 6.13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.15: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.17: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.19: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.20: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.21: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 9.02 (d): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 9.02 (f): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 9.02(g): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 9.02(h): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 10.01(a): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 10.02(f): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.15: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.17: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.19: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.20: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.21: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 6.25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 9.02(d): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 9.02(f): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 9.02(g): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 9.02(h): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 10.01(a): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXHIBIT 10.02(f): . . . . . . . . . . . . . . . . . . . . . . . . . . 51
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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 2B 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 1
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-4 (the "Real
Property") and the improvements thereon that comprise the
following skilled nursing facilities (the "Facilities"):
Edwardsville Care Center East (100% interest owned by
Seller)
Edwardsville, Illinois
Number of Licensed Beds: 120
Medical Park Convalescent Center (54.55% interest owned
by Seller)
Decatur, Alabama
Number of Licensed Beds: 183
Renaissance Place-Katy (50% interest owned by Seller)
Katy, Texas
Number of Licensed Beds: 130
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
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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
Facilities under a management or operating agreement using
Seller's licenses or if requested by the New Operator,
Seller will enter into an interim operating agreement (the
"Interim Operating Agreement") with the New Operator with
respect to those Facilities covered by the Master Lease for
which Regulatory Approvals have not been obtained. The
Interim Operating Agreement shall (i) impose no financial
obligations on Seller, except to the extent of funds
advanced by the New Operator or funds received from the
operation of the Facilities covered by the Interim Operating
Agreement, (ii) shall terminate as to each Facility on the
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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 eight or more, or (ii) of five percent (5%) of
Accrued Gross Income of the Facilities which Atrium is
managing under the Interim Management Agreement if the
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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 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 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 Twelve Million Three Hundred Seventy-Seven
Thousand Two Hundred Twenty-Five and no/100 Dollars ($12,377,225)
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. Three Hundred Ninety-Five Thousand Four Hundred Fifty
and 00/100 Dollars ($395,450.00) 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
4<PAGE>
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 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
5<PAGE>
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 proprated as of the
Closing Date, with Seller responsible therefor for the period
prior to the Closing Date and with Purchaser or New Operator
responsible therefor for the period from and after the Closing
Date. All accounts receivable shall be handled in the manner
provided for in Section 14.04 below. Purchaser has no duty to
operate any Facility from and after the Closing Date, such
operations to be accomplished solely by Seller during the term of
the Interim Operating Agreement or Interim Master Lease (if
applicable) and by the New Operator thereafter.
4.07 TAXES/PRORATIONS. Real and Personal Property
taxes, assessments and similar charges shall be prorated as of
the Closing Date pursuant to the local custom of the State where
the Facility is located, with Seller responsible therefor for the
period prior to the Closing Date and with (i) Seller pursuant to
the Interim Operating Agreement or Interim Master Lease, or (ii)
New Operator pursuant to the Master Lease responsible therefor
for the period from and after the Closing Date, as applicable to
each of the Seller or New Operator.
4.08 UTILITIES. Seller shall arrange for final
statements with respect to all utilities serving the Real
Property and each Facility as of the Closing Date and shall pay
all fees identified thereon and Purchaser shall arrange for all
such utilities to be billed in the name of the (i) Seller
pursuant to the Interim Operating Agreement or Interim Master
Lease, or (ii) New Operator pursuant to the Master Lease from and
after the Closing Date and the Seller or New Operator, as
applicable, shall pay all fees due therefor from and after the
Closing Date. Seller shall retain its right to any deposits
which may have been made with any utility company and Purchaser
shall replace or cause Atrium or New Operator, as applicable, to
replace said deposits with funds of its own or, in the case of
Atrium, funds advanced by Purchaser or New Operator.
4.09 ATTORNEY'S FEES. Seller and Purchaser shall each
pay their own attorneys' fees.
6<PAGE>
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 cove 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.
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
7
<PAGE>
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.
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
8<PAGE>
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 judgment or decision not to
renew any of the Seller Licenses or any licensure or
certification action of any other type.
6.07. COMPLIANCE WITH LAW.
(a) Set forth in Exhibit 6.07 is a list of the most
recent licensure or certification survey for each of the
Facilities, copies of which have been delivered to Purchaser
as of the date hereof. Each of the Facilities and its and
their current operation and use are in compliance with all
applicable municipal, county, state and federal laws,
regulations, ordinances, and orders and with all applicable
municipal health, and building laws and regulations
(including, without limitation, the building and life safety
codes) where the failure to comply therewith would have a
material adverse effect on the business, property, condition
(financial or otherwise) or operation thereof;
(b) To the best of Seller's knowledge, there are no
outstanding cited deficiencies or other written requirements
imposed by any governmental authority having jurisdiction
over any of the Facilities requiring conformity to any
applicable statute, regulation, ordinance or bylaw, which
have not been corrected as of the date hereof or which shall
not have been corrected on or prior to the Closing except to
the extent that either a waiver has been issued by the
appropriate authority, in which case a copy of such waivers
shall be included in Exhibit 6.07(b), or if not so corrected
will not have a material adverse effect on the financial
condition or results of the operations of the affected
Facility;
9<PAGE>
(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 1 00% 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.
10<PAGE>
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 environmental or discharged, laced 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
11<PAGE>
prepared in connection with the purchase of the Facilities or in
the Phase I Environmental Assessment Reports identified on
Exhibit 6.13 which were previously delivered to Purchaser.
6.14. NECESSARY ACTION. Except for the Regulatory
Approvals (as defined below) and Seller's Limited Partners'
Approval, Seller has duly and properly taken or obtained or
caused to be taken or obtained, or prior to Closing will have
duly and properly taken or obtained or caused to be taken or
obtained, all action necessary for Seller (i) to enter into and
to deliver this Agreement and any and all documents and
agreements executed by Seller in connection herewith or in
furtherance hereof and (ii) to carry out the terms hereof and
thereof and the transaction contemplated herein and therein.
Except for Regulatory Approvals and Seller's Limited Partners'
Approval, no other action by or on behalf of Seller is or will be
necessary to authorize the execution, delivery and performance of
this Agreement and any documents and agreements executed by
Seller in connection herewith or the transactions contemplated
herein. Other than consents for the assignment of any Operating
Contracts as provided for in Section 6.21 below, no consent of
any other third party is or will be necessary nor any other
action by or on behalf of Seller is or will be necessary, to
authorize the execution, delivery and performance of tills
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
12<PAGE>
received any payments or other forms of remuneration in
connection with the referral of patients which would violate the
Medicare/Medicaid Anti-kickback Law, Section 1128(b) of the
Social Security Act, 42 USC Section 1320a-7b(b) or any analogous
state statute or (iv) made any payments to any person with the
intention or understanding that any part of such payment was to
be used for any purpose other than that described in the
documents supporting the payment.
6.17. THE FACILITIES. Each of the Facilities is duly
licensed to operate the number of beds set forth opposite its
name in Article I and, in the case of all of the Facilities, is
duly certified to participate in Medicare and Medicaid. The
Personal Property is all of the property necessary for the lawful
operation of the Facilities at their current occupancy levels.
There is no action pending, or to the knowledge of Seller,
recommended by the appropriate state or federal agencies having
jurisdiction thereof which, if decided adversely to Seller, would
have a material adverse effect on the affected Facility, its
operations or business. To the best of Seller's knowledge, the
building and improvements constituting each Facility have been
constructed in compliance with the requirements of all laws at
the time of construction and all ordinances, rules, regulations
and restrictions of record applicable thereto, and all bills for
labor and materials in connection with the construction thereof
have been paid in full or irrevocably provided for. Except as
disclosed in Exhibit 6.17, Seller has no knowledge of any latent
or patent material defect or deficiency with regard to the
structures, roofs, soils, furniture, fixtures or equipment of any
facility which would materially impair the use or value of such
Facility, and the same are in good working order and condition.
Seller has no knowledge of any latent or patent material defect
or deficiency, with regard to the plumbing, mechanical,
electrical or other systems of any Facility which would
materially impair the use or value of such Facility, and the same
are in good working order and condition.
6.18 INVENTORIES. At Closing each of the Facilities shall
have an inventory of perishable and non-perishable food, central
supplies, linens, housekeeping supplies, kitchen supplies, and
nursing supplies sufficient in condition and at such quantity
levels as may be required under all applicable laws and, to the
extent there exists no applicable laws which specifically
identify the condition and/or required quantity levels for any
such supplies or inventory, then such inventory and supplies
shall be in such condition and at such levels as is customarily
maintained by Seller.
6.19. THE FACILITY AGREEMENTS. Attached hereto as
Exhibit 6.19 is a true and correct copy of the form of admission
agreement entered into by Seller with each of the current
residents/patients of the Facilities. At Closing Seller shall
deliver to Purchaser duly executed assignments of all admission
agreements (the "Admission Agreements") in effect for each of the
Facilities as provided for in Section 9.02 (h) below.
13<PAGE>
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 Contacts"). 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 6.2 1. Seller is not in default of any of its material
obligations under the Operating Contracts nor has Seller any
knowledge of any material default or any action or omission
which, with the passage of time or the giving of notice or both,
would constitute a material default under the Operating Contracts
by any other party thereto. At Closing Seller shall deliver to
Purchaser a duly executed assignment of any of the Operating
Contracts which Purchaser elects to assume pursuant to Section
10.01(e). In the event the consent of the other contracting party
shall be required for said assignment, Seller shall timely
request in writing said consent; provided, however, if Seller is
unable to secure any such consent, the delivery of such consent
shall not be deemed a condition precedent to the Closing unless
the Operating Contract for which Seller failed to obtain the
consent is material to the operations of the Facilities by
Purchaser following the Closing. If Seller is unable to secure
any such consent with respect to an Operating Contract which is
material to the operations of the Facilities, the lack of said
consent shall be deemed the failure of a 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.
15<PAGE>
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 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
15<PAGE>
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 agreements executed by
Purchaser in connection herewith or consummation of the
transactions contemplated herein, other than Regulatory Approvals
(as defined below). Each party shall mutually cooperate in the
procurement of any Regulatory Approvals; provided, however,
nothing herein shall be construed as a guarantee by either
Purchaser or Seller that it will be able to secure the Regulatory
Approvals, and the foregoing Purchaser's representation and
warranty shall be limited to the representation and warranty that
it will use its best efforts to secure the Regulatory Approvals
as provided in Section 11.03 below.
Notwithstanding anything contained herein to the contrary,
except for those that by their terms relate to a specific period
of time, all of the foregoing representations and warranties
shall be materially applicable, true, correct and complete, both
as of the date hereof and as of the Closing Date, and Purchaser
shall, as stated in Section 10.02 (b) of this Agreement, certify
in writing at Closing that each and all said representations and
warranties are materially true, correct and complete as of and
with respect to that date.
16<PAGE>
ARTICLE VIII
BROKER; INVESTMENT BANKER
Seller has utilized the services of The Robinson-Humphrey
Company, Inc., an investment banker, in connection with this
Agreement and the transactions contemplated herein. Except for
the fee payable to The Robinson-Humphrey Company, Inc., the
payment of which is the sole responsibility of Seller, each party
hereby represents, covenants and warrants to the other that it
has employed no other broker, finder or investment banker in
connection with the transaction contemplated herein. Each party
agrees to pay any commission, finder's fee or investment banker's
fee which may be due on account of the transaction contemplated
herein to any broker, finder or investment banker employed by it,
and to indemnify the other party hereto against any claim for any
commission, finder's fee or investment banker's fee made by any
broker, finder or investment banker allegedly employed by it and
from and against any and all costs and expenses incurred in
connection therewith, including, but not limited to, reasonable
attorney's fees and costs.
ARTICLE IX
SELLER COVENANT
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- I search report in the
name of Seller and each of the Facilities conducted at the
state and county level ("UCC Search Reports"), and (iii)
order an ALTA/ACSM survey of each of the Facilities prepared
by a surveyor acceptable to Purchaser (the "Surveys"). The
Title Commitments shall run in favor of Purchaser, but shall
commit the Title Company to provide lessee's policies for
New Operator if ordered by Purchaser prior to December 31,
1997. Purchaser or New Operator shall be responsible for
payment of the additional premium, if any, attributable to
the commitment to issue a lessee's policy or any policy
issued pursuant thereto. The Surveys shall show thereon:
(a) the location of all boundaries, existing fences,
easements, pipelines, 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
17<PAGE>
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, 0)
location of all utilities serving or exiting on the Real
Property as evidenced by on-site observation or as
determined by records provided by Seller, utility companies
and/or other appropriate sources (with reference to the
source of information), (k) the number of acres and net
square footage contained within the boundaries of the Real
Property, (1) the location and dimensions of any protrusions
from and encroachments on the Real Property, and (m) such
other requirements as may be necessary including, without
limitation, evidence that each Facility complies with the
applicable zoning classification for the associated Real
Property in order to permit the Title Company to issue the
Title Insurance Policies without the so-called "standard
exceptions". The Surveys shall be certified to the
Purchaser, Seller, and the Title Company. The surveyor
shall include in its certification its Registration Number,
address, telephone number, the job number and that the
Survey meets all ALTA/ACSM requirements and that the Survey
was made on the ground as per the field notes shown thereon
and that, except as shown thereon, there are no visible
easements, rights-of-way, party walls, conflicts, or visible
encroachments by any improvements onto an easement or
neighboring property or by any improvements on adjoining
property onto the Real Property and that the Real Property
has direct access to an adjacent public street;
(b) Seller will operate the Facilities only in the
ordinary course and with due regard to the proper
maintenance and repair of the Real Property or Personal
Property in order to maintain and repair the Real Property
and the Personal Property substantially in the same
condition as they were in at the date hereof, ordinary wear
and tear, insured casualty loss and taking by eminent domain
excepted;
(c) Seller will take all reasonable action to preserve
the goodwill and the present occupancy levels of the Facilities;
18<PAGE>
(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 @y
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 Sellees 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 documents or information will
19<PAGE>
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
20<PAGE>
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 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 with
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 other 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
21<PAGE>
with respect to any Acquisition Proposal; and (iv) will
immediately provide to Purchaser written notice of any
Acquisition Proposal which notice shall include the name of
the party seeking to initiate, continue or renew activities,
discussions or negotiations regarding an Acquisition
Proposal; provided, however, that nothing contained in this
Section 9.01(s) shall prohibit Seller or the General Partner
from taking any action otherwise prohibited by this Section
9.01 (s) if Seller or the General Partner determines, upon
the receipt of a written opinion of its outside counsel,
that it is necessary to take such action in order to fulfill
its fiduciary duties to the Limited Partners;
(t) Seller will provide to Purchaser copies of all
material documents which relate to, and, upon request, with
verbal or written updates concerning the status of, any
litigation filed as of the date hereof or filed from and
after the date hereof by or 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 counsel 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
22<PAGE>
Agreement; Seller will provide Purchaser with a copy of the
Consent Solicitation at the time Seller sends the Consent
Solicitation to its Limited Partners; Seller will provide
Purchaser with a draft of the Consent Solicitation and any
proposed amendments thereto prior to their submission to the
SEC for Purchaser's review and comment;
(v) Seller will not agree to do or to cause to be done
any of the acts which it has covenanted not to do under this
Section 9.01; and
(w) Within fifteen (15) days following the mutual
execution of this Agreement, Seller will deliver to
Purchaser a disclosure schedule addressed to Purchaser which
sets forth in reasonable detail any exceptions to any of the
representations and warranties made by Seller hereunder (the
"Seller Disclosure Schedule").
9.02. CLOSING- DATE. On the Closing Date, Seller will
deliver to Purchaser the following:
(a) A certificate of General Partner dated as of the
Closing Date, certifying on behalf of Seller in such detail
as Purchaser may reasonably specify the fulfillment of the
conditions set forth in Sections 12.01 (a) and (b);
(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:
23<PAGE>
(i) Liens for real and personal property taxes
which are not yet due and payable; and
(ii) Such liens, encumbrances and restrictions as
may be approved or deemed approved by Purchaser pursuant to
Section I 0.0 1 (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;
(0) Possession of the Seller's Assets in such
condition and repair as shall comply with the terms hereof;
(k) The original certificates of title to any motor
vehicles included within the Personal Property;
(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
24<PAGE>
(o) Adjust the Purchase Price by a credit to Purchaser
for &..- 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, Five Hundred Thousand and 00/100
Dollars ($500,000.00) less any amounts paid out to satisfy
any Claims (as defined below) against Seller in liquid
assets (i) until the Medicare/Medicaid Release Date (as
defined in the Letter Agreement), and (ii) after the
Medicare/Medicaid Release Date, an amount which the parties
shall reasonably determine appropriate to assure Purchaser,
or its assigns, that Seller will be able to satisfy its
obligations under Section 15.01 with respect to any Claims
which are not yet resolved. Funds maintained in the joint
signature account pursuant to Section 2.01 of this Agreement
shall not be included toward Sellers obligation to maintain
liquid assets as set forth in the preceding sentence.
Notwithstanding anything in this Section 9.03(c) to the
contrary, Seller may use such funds for payment of
operational payables and expenses of the Facilities and the
expenses of winding up its business, provided however, in no
event shall the amount of such funds retained be an amount
less than Four Hundred Thousand and 00/100 Dollars
($400,000.00).
(d) File the annual cost reports for the Facilities
within the periods required by Medicare, Medicaid and any
other third party payor and provide any additional
documentation to support the amounts claimed under such cost
reports within such time periods.
ARTICLE X
PURCHASER COVENANTS
25<PAGE>
10.01. Pre-Closing. Purchaser covenants that between the
date hereof and the Closing except as contemplated by this
Agreement or with the consent of Seller, which consent shall not
be unreasonably withheld, conditioned or delayed:
(a) Within ten (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
first 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
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,
26<PAGE>
seismic assessments, wetlands reports, review of all
Property Documents provided by Seller, investigations of
each of the Facility's operating books an 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 (1 0) 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 all of the conditions to
Closing set forth in Sections 12.01 and 12.02 which are
within its control to be satisfied prior to the Closing Date
and Purchaser will not take any action inconsistent with its
obligations under this Agreement or which could hinder or
delay the consummation of the transactions contemplated by
this Agreement or which is intended to cause any
representation, warranty or covenant made by Purchaser in
this Agreement or in any certificate, list, exhibit, or
other instrument 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;
27<PAGE>
(g) Purchaser (i) will furnish such information
concerning Purchaser as is necessary in order to cause the
Consent Solicitation, insofar as it relates to Purchaser, to
be prepared in accordance with all applicable requirements
of the 1934 Act and the rules and regulations promulgated
thereunder; and (ii) will promptly advise Seller if at any
time prior to any meeting of the Limited Partners any
information provided by Purchaser to Seller in the Consent
Solicitation becomes inaccurate or incomplete in any
material respect and will provide to Seller the information
needed to correct such inaccuracy or omission;
(h) Purchaser will not agree to do or to cause to be
done any of the acts which it has covenanted not to do
under this Section 10.01;
(i) Within fifteen (15) days following the mutual
execution of this Agreement, Purchaser will deliver to
Seller a disclosure schedule addressed to Seller which sets
forth in reasonable detail any exceptions to any of the
representations and warranties made by Purchaser hereunder
(the "Purchaser Disclosure Schedule"); and
(j) Purchaser will proceed with all due diligence to
secure the Regulatory Approvals and HSR Consent, if required,
for which it is responsible under the terms hereof.
10.02. CLOSING DATE. On the Closing Date, Purchaser will
deliver or cause New Operator to deliver the following:
(a) The purchase price in accordance with Article 11
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 Operating Contracts described
in Section 6.21 to the extent New Operator elects to assume
28<PAGE>
the same in accordance with the provisions of Section 1 0.0
1;
(e) A counterpart of an assignment and assumption
agreement with respect to the Admission Agreements described
in Section 6.20;
(f) An opinion or opinions of counsel to Purchaser
dated as of the Closing Date in substantially the form
attached hereto as Exhibit 10.02;
(g) Pay the closing costs for which it is responsible
under Article IV;
(h) A counterpart of the Letter Agreement (as defined
in Section 2.01).
10.03. POST CLOSING. After the Closing Date, Purchaser
will:
(a) Provide Seller, or cause New Operator to provide
Seller, with access during normal business hours to the
Facilities and any books or records which Seller may need to
file or to defend tax returns or other governmental filings
or any litigation or administrative actions filed prior to
or subsequent to the Closing Date which relate to the period
prior to the Closing Date as well as for purposes of
pursuing collection of third party payments due Seller for
the period prior to the Closing- Date; Seller shall have the
ability to photocopy accounts receivable records and such
other records of residents and the Facilities as may be
commercially reasonable and provided that Seller shall limit
its documentary and photocopy requests to periods relating,
prior to the Closing Date;
(b) Take such actions and properly execute and deliver
such further instruments as Seller may reasonably request to
assure, complete and evidence the transaction provided for
in this Agreement;
(c) Cause New Operator and/or Atrium to retain all
patient records for the Facilities which are in existence 8
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
29<PAGE>
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 advises
and shall pay to Seller the aggregate amount collected on
behalf of Seller. Without Seller's consent, New Operator
shall not compromise or settle for less than full value of
any of the accounts receivable. New Operator's obligation
hereunder will be to collect the accounts receivable in the
ordinary and normal course of business in accordance with
customary practices and new Operator shall not have any
obligation to institute litigation, employ counsel or any
collection agency, employ any other extraordinary means of
collection or take any other action or proceeding against
any resident or patient of the Facilities or any other
person liable for such accounts receivable. Seller agrees
that it shall not institute litigation or employ a
collection agency against any person to collect any such
accounts receivable while such person is a resident or
patient of any Facility. Sellers' commitment with respect
to litigation does not apply to collection efforts with
respect to Medicare, Medicaid or third party payors,
including, anyone who may have misappropriated the funds of
any resident. Purchaser agrees to cause New Operator to
provide reasonable access, at reasonable times, for Seller's
designated agents, to the Facilities' books and records and
personnel to assist Seller in Seller's efforts to collect
its accounts receivables so long as such access is not
disruptive to the normal operations of the Facilities.
ARTICLE XI
MUTUAL COVENANTS
11.01. GENERAL COVENANTS. Following the execution of this
Agreement, Seller and Purchaser
agree:
(a) If any event should occur which would prevent
fulfillment of the conditions to the obligations of any
party hereto to consummate the transactions contemplated by
this Agreement, to use its or their reasonable efforts to
cure the same as expeditiously as possible;
(b) To cooperate fully with each other in preparing,
filing, prosecuting, and taking any other actions which are
or may be reasonable and necessary to obtain the consent of
any governmental instrumentality or any third party, to
accomplish the transactions contemplated by this Agreement;
30<PAGE>
(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
but not limited to, such licensure and certification approval in
the States of Alabama, Illinois and Texas as may be necessary to
enable Purchaser to lawfully own and/or New Operator to operate
the Facilities from and after the Closing Date (the "Purchase
Regulatory Approvals"), and Purchaser, with Seller's cooperation,
will use its best efforts to obtain prior to the Closing Date the
consent as may be required under HSR Act (as that term is defined
above) (the "HSR Consent"). Purchaser will use its best efforts
to cause New Operator to obtain such licensure and certification
approval in the States of Alabama, Illinois and Texas as may be
necessary to enable New Operator to lawfully operate the
facilities from and after the Closing Date (the "New Operator
Regulatory Approvals") and to obtain the HSR Consent. The
Purchaser Regulatory Approvals and the New Operator Regulatory
Approvals are collectively referred to as the "Regulatory
Approvals".
11.04. PUBLIC ANNOUNCEMENTS. Each party shall consult with
the other, and shall use best efforts to agree upon, the form and
content, prior to issuing any press release, public announcement
or statement with respect to this Agreement or the transactions
contemplated hereby.
ARTICLE XII
CONDITIONS
31<PAGE>
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 here of.
(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 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
32<PAGE>
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 Two Hundred
Three Thousand Four Hundred and 00/100 Dollars ($203,400.00)
with the Title Company as an amount money deposit (the
"Deposit"). The Deposit shall be applied at Closing to the
purchase price of each Facility on a pro rata basis that the
purchase price of each Facility bears to the total purchase
price allocated as set forth in Section 16.02 hereof (the
"Allocated Deposit"). Nothing herein shall be construed as
amending or modifying in any manner the representations or
warranties of Seller set forth in this Agreement, which
representations and warranties shall be separate from and
unaffected by Purchaser's Feasibility Review except as to
any representations 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 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 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
33<PAGE>
to each of the Facilities subject only to those exceptions
not otherwise objected to or deemed accepted by Purchaser
pursuant to Section 10.01 (b) and containing such
endorsements as may be necessary in order to address any
objections of Purchaser to the Title Commitment as provided
above and 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 2A 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 an default by Seller hereunder shall be a
default by Seller under the Seller's Affiliates' Purchase
Agreements.
12.02. SELLER CONDITIONS. All obligations of Seller
under this Agreement are subject to the fulfillment, prior to or
as of the Closing Date, of each of the following conditions any
one or more of which may be waived by Seller in writing:
(a) The representations and warranties of Purchaser
contained in this Agreement or in any Certificate or
document delivered in connection with this Agreement or the
transaction contemplated herein shall be true and correct at
and as of the Closing Date as though such representations
and warranties were then again made, other than any
34<PAGE>
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) (1) 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;
(i) 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 1
0.01;
35<PAGE>
(f) By Purchaser in event that prior to the Closing
Date a material portion of any of the Real Property or the
Facilities is damaged or destroyed by fire or other casualty
or has been taken or condemned by any public or quasi-public
authority under the power or eminent domain; provided,
however, that in the event the estimated cost to repair any
such damage is less than or equal to One Hundred Thousand
Dollars ($100,000.00) per Facility and such loss or damage
does not or will not at Closing materially interfere with
the operation of the Facility, then neither party shall have
the right to terminate this Agreement, and Seller shall
expeditiously repair the damage, and provided further that
if Purchaser fails to exercise its termination rights
hereunder, then it shall be conclusively deemed to have
waived said right and Seller shall assign to Purchaser all
of its rights to any insurance proceeds or condemnation
award and all claims in connection therewith and the amount
of any deductible under any insurance policy covering such
casualty shall be a credit against the Purchase Price at
Closing. In event Purchaser exercises its termination
rights hereunder, parties shall have no further rights or
obligations hereunder; and/or
(g) By a non-defaulting party, in the event of a
material breach by the other party;
(h) By Purchaser if (i) the General Partner. shall
have 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 a person other than Purchaser or an affiliate of
Purchaser; or (iii) a public announcement with respect to a
proposal, plan or intention to effect an Acquisition
Proposal shall have been made by any person other than
Purchaser or an affiliate of Purchaser and Seller shall have
failed to publicly reject or oppose such proposed
Acquisition Proposal within ten (10) days of the public
announcement of such proposal, plan or intention; and/or
(i) By Purchaser if Seller shall receive and
approve an Acquisition Proposal by the earlier of (i) the
date of the Limited Partners Approval or (ii) June 30, 1997.
13.02. OPPORTUNITY TO CURE. Neither party to this
Agreement may claim termination or pursue any other remedy
referred to in this Section 13 on account of a breach of a
condition, covenant or warranty by the other, without first
giving such other party written notice of such breach and not
less than ten (10) days within which to cure such breach. The
Closing Date shall be postponed if necessary to afford such
opportunity to cure. Notwithstanding anything contained in this
Section 13.02 to the contrary, Seller shall have no opportunity
to cure Seller's default pursuant to Section 13.01(h) or
13.01(i).
36<PAGE>
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 13.0 1 (b), following a material
default by Seller not cured following written notice within
the applicable cure period, Purchaser shall be entitled to
the immediate return of the Deposit and shall be entitled to
commence an action for damages for Seller's default.
Further, if Seller's default occurs after the Limited
Partners have approved the transaction contemplated by this
Agreement, Purchaser shall also be entitled to seek specific
performance of Seller's obligations hereunder.
(c) In the event that Seller terminates this Agreement
under Section 13.01(c), following a material default by
Purchaser not cured following written notice within the
applicable cure period, Seller shall receive the Deposit as
liquidated damages, and neither party shall have any
further rights or obligations hereunder.
(d) In the event that either party terminates this
Agreement under Section 13.01 (d), Purchaser shall be
entitled to immediate return of the Deposit and Seller will
pay Purchaser, as Purchaser's sole remedy, in immediately
available funds not later than two (2) days after receiving
a written demand from Purchaser an amount equal to the
lesser of (i) One Hundred and Twenty Five Thousand Dollars
($125,000.00), or (ii) Purchaser's documented out-of-pocket
expenses (including attorney's' 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)(I), Purchaser shall be
entitled to immediate return of the Deposit and neither
party shall have any further rights or obligations
hereunder; provided, however, that if the material adverse
change is the result of acts by Seller, Seller shall also
pay Purchaser an amount equal to the lesser of (i) One
Hundred and Twenty Five Thousand Dollars ($125,000.00), or
(ii) Purchaser's documented out-of-pocket expenses
(including attorney's' fees) incurred in connection with
37<PAGE>
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)(II), Seller shall receive the
Deposit as liquidated damages, and neither party shall have any
further rights or obligations hereunder.
(f) In the event that Purchaser terminates this
Agreement under Section 13.01 (f), Purchaser shall be
entitled to immediate return of the Deposit, and neither
party shall have any further rights or obligations
hereunder.
(g) (i) In the event that Seller terminates this
Agreement under section 13.01 (g), Seller shall receive the
Deposit as liquidated damages, and neither party shall have
any further rights or obligations hereunder.
(ii) In the event that Purchaser terminates this
Agreement under Section 13.01(g), Purchaser shall have the same
rights and remedies as set forth in Section 13.03(b) following a
termination of this Agreement by Purchaser under Section 13.0 1
(b).
(h) In the event that Purchaser terminates this
Agreement under either 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
Four Hundred Six Thousand Eight Hundred and 00/100 Dollars
($406,800.00) 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
38<PAGE>
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 by Purchaser. Seller agrees that
Purchaser may record an affidavit of interest in the real estate
records of the county in which any Facility is located evidencing
Purchaser's right of first refusal as set forth herein, but
Purchaser shall discharge that affidavit of interest promptly on
the earlier of December 31, 1997 or upon Seller's acceptance of a
bona fide offer from a third party as to which Purchaser has not
exercised its right of first refusal. If Purchaser fails to
discharge the affidavit of interest within the time set forth
above, and thereafter does not discharge it within ten (10) days
of receipt of written notice from Seller of its failure to do so,
Purchaser shall promptly pay Seller $100,000.00 as liquidated
damages. The right of first refusal provided for in this Section
13.04 is in addition to, and not a limitation on, Seller's
remedies under Section 13.03(h).
ARTICLE XIV
OPERATIONAL PROVISIONS
14.01. EMPLOYEES: SCHEDULE OF EMPLOYEE BENEFITS.
(a) At Closing Seller shall deliver to Purchaser a
schedule (the "Benefits Schedule") which reflects all
accrued vacation pay due to and/or coming due to the
employees of 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
amount of sick pay incurred by each Facility for the
calendar year ending 1996 by (ii) a fraction, the numerator
of which is the number of days Seller owned the Facilities
in the calendar year 1997 and the denominator of which is
365. Purchaser shall pay, or cause New Operator or Atrium
to pay, from and after the Closing sick pay to the employees
of the Facility as and when due in accordance with
Purchaser's personnel policies. New Operator agrees to
honor, for purposes of its benefit package, the length of
service each employee at a Facility has with Seller. The
provisions of this Section 14.01 shall survive the Closing.
39<PAGE>
14.02. ACCOUNTING PATIENT TRUST FUNDS AND PATIENT PREPAID
ACCOUNTS. At the Closing Seller shall provide New Operator with
an accounting of all patient trust funds (the "Patient Trust
Funds") being held by Seller as of the Closing Date and of all
fees and expenses which have been prepaid by residents/patients
and have not been applied as of the Closing Date (the "Patient
Prepaid Funds"). Such accounting shall set forth the names of
the residents/patients or prospective residents/patients for whom
such funds are held, the amounts held on behalf of each
resident/patient or prospective resident/patient and the Seller's
warranty that the accounting is true, correct and complete.
Seller shall, by separate check, deliver to New Operator or
Atrium, as manager under the Atrium Management Agreement, at the
Closing Date, such Patient Trust Funds and Patient Prepaid Funds
and, subject to Section 14.03 below, New Operator or Atrium shall
thereafter be responsible for such Patient Trust Funds and
Patient Prepaid Funds, to the extent so transferred by Seller.
14.03. INDEMNITY FOR TRUST FUNDS AND PREPAID FUNDS.
Notwithstanding the foregoing, Seller will indemnify and hold New
Operator and Atrium harmless from all liabilities, claims and
demands in the event the amount of the Patient Trust Funds and
Patient Prepaid Funds transferred to New Operator or Atrium, as
provided in Section 14.02, did not represent the full amount of
such Patient Trust Funds and Patient Prepaid Funds then or
thereafter shown to have been delivered to Seller and outstanding
as of the Closing Date. New Operator or Atrium, as appropriate,
will indemnify, defend and hold Seller harmless from all
liabilities, claims and demands in the event a claim is made
against Seller by a patient with respect to his/her Patient Trust
Funds and/or Patient Prepaid Funds but only if said Patient Trust
Funds and/or Patient Prepaid Funds with respect to the patient
making said claim were actually transferred to New Operator or
Atrium pursuant to the terms of Section 14.02 above.
14.04. ACCOUNTS RECEIVABLE. Seller shall retain its right,
title and interest in and to all unpaid amounts and accounts
receivable with respect to the Facilities which relate to any
period prior to the Closing Date, including, but not limited to,
amounts or accounts receivable arising from rate adjustments,
Medicare or Medicaid or any other third party payor under
payments, insurance proceeds, rebates or any other monies which
relate to the period prior to the Closing Date even if such
adjustments or payments occur after the Closing Date. Seller
shall remain liable for any overpayments made to Seller prior to
the Closing Date whether such overpayment is received by Seller
prior to or after the Closing Date for which payment is due to
Medicare, Medicaid or any other third party payor after the
Closing Date. If, following the Closing Date, Purchaser or New
Operator receives payment from any federal or state agency or
40<PAGE>
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.
14.05 ALABAMA WORKERS' COMPENSATION REBATE. Purchaser
acknowledges that Seller may be due a certain rebate from the
State of Alabama for prepayments of worker's compensation .
insurance if the Facilities located in Alabama remain under their
current worker's compensation insurance program until October 1,
1997. Purchaser agrees to use its best efforts to cause New
Operator to maintain such worker's compensation insurance program
and to forward to Seller any payments received by New Operator
after the Closing Date for the portion of such rebates applicable
to the period prior to the Closing Date in accordance with the
procedures set forth in Section 14.04.
ARTICLE XV
INDEMNIFICATION
15.01. SELLER'S INDEMNIFICATION. Subject to the
limitations contained herein and in Section 15.04, Seller shall
indemnify and hold Purchaser and its assigns, including New
Operator, harmless from and against any and all damages, losses,
liabilities, costs, actions, suits, proceedings, demands,
41<PAGE>
assessments, and judgments, including, but not limited to,
reasonable attorney's fees and reasonable. costs and expenses of
litigation, arising out of or in any manner related to any of the
following:
(a) Except as otherwise provided in this Agreement,
any and all obligations relating to the ownership of
Seller's Assets and the operation of the Facilities which
exist immediately prior to the Closing Date, including, but
not limited to, any obligations under the Operating
Contracts which Purchaser assumes at Closing and all sick
pay and/or vacation pay, retirement and severance benefits
and bonuses which are claimed by any employee of Seller to
have accrued prior to the Closing Date provided, however,
that Seller shall have no liability, for any accrued
vacation or sick pay for employees whose accrued vacation
and sick pay was taken into account in computing the
adjustment to the Purchase Price under Section 14.01.
(b) Any of the Operating Contracts which New
Operator does not assume in writing;
(c) Any misrepresentation of a material fact, breach
of warranty or nonfulfillment of any agreement on the part
of Seller under this Agreement or from any
misrepresentations in any certificate fumished 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
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
Eight Hundred Ninety-Five Thousand Four Hundred Fifty and 00/ 100
Dollars ($895,450.00), except for claims relating to title to
Seller's Assets, Seller's authority to enter into this Agreement
or the transactions contemplated by this Agreement or acts of
willful dishonesty or fraud by Seller. There shall be no limit,
except as provided in Section 15.04, on Seller's liability for
claims under Sections 15.01 (a), (b), (d) or (e).
15.02. NEW OPERATOR. Subject to the limitations contained
in Section 15.03, Purchaser shall indemnify and hold Seller
harmless from and against any and all damages, losses,
42<PAGE>
liabilities, costs, actions, suits, proceedings, demands,
assessments, and judgments, including, but not limited to,
reasonable attorney's fees and reasonable costs and expenses of
litigation, arising out of or in any manner related to any of the
following:
(a) Except as otherwise provided in this Agreement,
any and all obligations relating, to the ownership of
Seller's Assets and the operation of these Facilities from
and after the Closing Date, including, but not limited to,
any obligations under the Operating Contracts which New
Operator elects to assume and all holiday and sick pay,
retirement and severance benefits and bonuses, which are
claimed by any employee of New operator to have accrued
following the Closing Date;
(b) Any misrepresentation of a material fact, breach
of warranty or nonfulfillment of any agreement on the part
of Purchaser under this Agreement or from any
misrepresentations in any certificate furnished or to be
furnished to Purchaser hereunder; and
(c) Any claim that Purchaser or New Operator failed
to pay the 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
14.101.
15.03. PROCEDURE. In the event a party (the "Indemnified
Party") asserts that the other party (the "Indemnitor") is
subject to an indemnification claim pursuant to Sections 15.01 or
15-02 ("Claim"), the Indemnified Party shall promptly notify the
Indemnitor in writing of such Claim arising, which notice shall
describe the Claim in sufficient detail in order to permit the
Indemnitor to evaluate the nature and cause of the Claim. In the
event the asserted Claim arises or is in connection with a claim,
suit, or demand filed by a third party, the Indemnitor shall be
entitled to defend against such Claim with counsel reasonably
satisfactory to the Indemnified Party. The Indemnified Party may
continue to employ counsel of its own, but such costs shall be
borne by the Indemnified Party as long as the Indemnitor
continues to so defend. If the Indemnitor fails to respond or
does not admit responsibility for indemnification, the
Indemnified Party may take such necessary steps to defend itself
and any reasonable costs associated therewith may be included as
part of the asserted Claim for indemnification. For all Claims
that are not Claims arising from a third party, Indemnitor shall
notify the Indemnified Party as to its assertion of whether such
Claim is covered by this Article, including specific reasons for
non-coverage, within 30 days of receipt of written notice from
the Indemnified Party describing, the Claim in reasonable detail.
43<PAGE>
15.04 BASKET. Notwithstanding anything contained in this
Section 15 to the contrary, Purchaser shall be responsible for
the first Twenty-Five Thousand Dollars ($25,000.00) of Claims
against each Facility, except for Claims relating to title to
Seller's Assets, Seller's authority to enter into the
transactions contemplated by this Agreement or any claims for
money by third party payors or reimburses. 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 Park-Way, Suite
850
Atlanta, Georgia
Telephone No.: 770-668-1080
Facsimile No.: 770-668-0136
With copy to Leon H. Rittenbera, Jr.,
(which shall not Esquire
constitute Baldwin & Haspel
notice): 2200 Energy Central
1100 Poydras Street
New Orleans, Louisiana 70163
Telephone No.: (504) 585-7711
Facsimile No.: (504) 585-7751
To Purchaser: Omega Healthcare Investors, Inc.
901 West Eisenhower, Suite
110
Ann Arbor, Michigan 48103
Attn: F. Scott Keliman
Telephone No.: (313) 747-9790
Facsimile No.: (313) 996-0020
44<PAGE>
With copy to Dykema Gossett PLLC
(which shall not 1577 N. Woodward, Suite 300
constitute Bloomfield Hills, NE 48304
notice): Attn: Fred J. Fechheimer
Telephone No.: 810/540-0743
Facsimile No.: 810/540-0763
Notices shall be deemed given three (3) business days after
deposit in the mail as provide 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 four (4) Facilities as follows:
Medical Park Convalescent $4,522,275
Center: $2,984,500
Renaissance Place-Katy: $2,487,500
Renaissance Place-Humble $2,383,000
Edwardsville Care Center
East
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
45<PAGE>
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 determined to be invalid, unlawful
or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby.
16.08. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original; but
such counterparts shall together constitute but one and the same
instrument.
16.9. 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 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
46<PAGE>
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 Agreement and
any claims for money by third party payors or reimbursers.
16.15. EXHIBITS. The parties acknowledge that a number of
exhibits have been attached to this Agreement in blank with
references thereon that said exhibits shall be provided by
Seller. Within fifteen (15) days following the mutual execution
of this Agreement, Seller agrees to deliver to Purchaser, for
Purchaser's review and approval, complete copies of said
exhibits. Within five (5) days following, receipt of said
exhibits, Purchaser shall review the exhibits provided and notify
Seller of its approval or disapproval thereof, provided that any
such approval shall not be unreasonably withheld. If Purchaser
disapproves any such exhibits, Purchaser shall have the right to
terminate this Agreement by written notice to Seller.
16.16 GOVERNING LAW. THIS AGREEMENT AND THE TRANSACTION
DOCUMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF MICHIGAN. SELLER CONSENTS TO IN PERSONAM
JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF THE STATE OF
MICHIGAN AND THE STATE WHERE THE FACILITY IS LOCATED, AND AGREES
THAT ALL DISPUTES CONCERNING THIS AGREEMENT MAY BE HEARD, AT
PURCHASER'S OPTION, IN THE STATE AND FEDERAL COURTS LOCATED IN
EITHER OF THE STATES OF MICHIGAN OR THE STATE WHERE THE FACILITY
IS LOCATED. EACH PARTNER OF THE SELLER AGREES THAT SERVICE OF
PROCESS MAY BE EFFECTED UPON SUCH PARTNER UNDER ANY METHOD
48<PAGE>
PERMISSIBLE UNDER THE LAWS OF THE STATE OF MICHIGAN OR THE STATE
WHERE THE FACILITY IS LOCATED AND IRREVOCABLY WAIVES ANY
OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS OF THE STATE
OF MICHIGAN OR THE STATE WHERE THE FACILITY IS LOCATED.
16.17 EXCLUSIVITY. Prior to the Closing Date and subject
to the fiduciary duties of Seller or its General Partner, Seller
and its partners, affiliates, agents and employees shall not
negotiate with or discuss the sale, financing or other
disposition of the Facilities, or take any steps to initiate,
consummate, encourage or document the sale, financing or other
disposition of any of the Facilities to any other person or
entity until the earlier of (i) date on which Purchaser notifies
Seller that Purchaser is withdrawing from the transactions
contemplated hereby or (ii) material breach by Purchaser that is
not cured by Purchaser within any applicable grace and cure
period, upon expiration of such grace and cure period.
16.18 CONFIDENTIAL. 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 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 this
Agreement (hereinafter, a "Controversy") which the parties are
unable to settle between themselves, the Controversy shall be
determined by arbitration. Such arbitration shall be conducted
by three arbitrators selected in accordance with the procedures
of the American Arbitration Association and in accordance with
its rules and procedures. The decision of the arbitrators shall
be final and binding, and enforceable in any court of competent
jurisdiction. Such decision shall set forth in writing, the
basis for the decision, and in rendering such decision, the
arbitrators shall not add to, subtract from or otherwise modify
the provisions of this Agreement and any other agreements,
documents and instruments executed pursuant to or in connection
with this Agreement. The expense of the arbitration shall be
divided equally between Seller and Purchaser unless otherwise
specified in award. The prevailing party, as determined by the
arbitrators, shall be entitled to recover its costs and expenses
including attorney fees. Such arbitration shall be conducted in
Atlanta, Georgia. In any such arbitration, the parties shall be
entitled to conduct discovery in the same manner as permitted
under Federal Rules of Civil Procedure 27 through 37. No
provision in this Section 16.19 shall limit the right of any
party to this Agreement to obtain provisional or ancillary
48<PAGE>
remedies from a court of competent jurisdiction before, after, or
during the pendency of any arbitration. The exercise of such a
remedy does not waive the right of any party to arbitration. The
Section shall not apply to any Controversy which may arise
between the parties prior to the Closing.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as
of the day and year first set forth therein.
SELLER:
MEDICAL INCOME PROPERTIES 2B 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: ________________________
49
<PAGE>
SCHEDULE OF EXHIBITS:
EXHIBIT A-1: Legal Description of Real Property
EXHIBIT A-2: (Edwardsville Care Center East)
EXHIBIT A-3: Legal Description of Real Property (Medical
EXHIBIT A-4: Park Convalescent Home)
EXHIBIT 1.02: Legal Description of Real Property (Renaissance
EXHIBIT 1.02 Place-Katy)
(A): Legal Description of Real Property (Renaissance
EXHIBIT 1.05 Place-Humble)
(c): Inventory of Personal Property
EXHIBIT 2.01: Inventory of Excluded Personal Property
EXHIBIT 4.13: Form of Management Agreement
EXHIBIT 6.06: Escrow Agreement
EXHIBIT 6.07: Prepaid Contracts
EXHIBIT 6.07(b): Copies of Licenses and Permits
EXHIBIT 6.10: List of Most Recent Licensure or Certification
EXHIBIT 6.11: Surveys
EXHIBIT 6.13 Waivers for Cited Deficiencies
EXHIBIT 6.15: Seller's Assets Which are Subject to Leases
EXHIBIT 6.17: Union Contracts
EXHIBIT 6.19: Phase I Environmental Reports Delivered by
EXHIBIT 6.20: Seller
EXHIBIT 6.21: Litigation
EXHIBIT 6.23 Facility Defects
EXHIBIT 6.24 Form of Admission Agreement
EXHIBIT 6.25 Patient Roster
EXHIBIT 9.02(d): List of Operating Contracts
EXHIBIT 9.02(f): Insurance Policies and Certificates
EXHIBIT 9.02(g): Fringe Benefits
EXHIBIT 9.02(h): Benefit Plans
EXHIBIT Form of Legal Opinion from Seller's Counsel
10.01(a): Bill of Sale
EXHIBIT Form of Operating Contracts Assignment and
10.02(f): Assumption Agreement
Form of Admission Agreements Assignment and
Assumption Agreement
List of Title Policies Delivered by Seller
Form of Legal Opinion from Purchaser's Counsel
50
<PAGE>
APPENDIX B
KILPATRICK STOCKTON LLP
1100 PEACHTREE STREET
ATLANTA, GEORGIA 30309
(404) 815-6500
(404) 815-6555 - Telecopy
February 12, 1997
Board of Directors
Medical Income Properties 2B Limited Partnership
7000 Central Parkway
Suite 850
Atlanta, Georgia 30328
To the Members of the Board:
We understand that Medical Income Properties 2B 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.
