UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
{ X } ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 000-17596
Meridian Healthcare Growth and Income Fund Limited Partnership
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-1549486
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
225 East Redwood Street, Baltimore, Maryland 21202
(Address of Principal Executive Offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to section 12(g) of the Act:
Assignee Units of Limited Partnership Interests
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of December 31, 1998, there were 1,538,800 Units of Assignee Limited
Partnership Interests held by non-affiliates of the Registrant. Because there is
not an established public trading market for the Units, the aggregate market
value of the Units held by non-affiliates of the Registrant cannot be
calculated.
Documents Incorporated by Reference
The Annual Report for 1998 is incorporated by reference.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
INDEX
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Page (s)
<S> <C>
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS 3
Part I.
Item 1. Business 4-5
Item 2. Properties 5-7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 7-8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 13
Part III.
Item 10. Directors and Executive Officers of Registrant 14-16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management 16
Item 13. Certain Relationships and Related Transactions 16
Part IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 17-19
Signatures 20-21
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Cautionary Statement Regarding Forward Looking Statements
Certain statements contained herein, including certain statements in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" concerning the Fund's business outlook or future economic
performances, anticipated profitability, revenues, expenses or other financial
items together with other statements that are not historical facts are
"forward-looking statements" as that term is defined under the Federal
Securities Law. Forward-looking statements are necessarily estimates reflecting
the best judgement of the party making such statements based upon correct
information and involve a number of risks, uncertainties and other factors which
could cause actual results to differ materially from those stated in such
statements. Risks, uncertainties and factors which could affect the accuracy of
such forward looking statements are identified in the Fund's Prospectus and the
Fund's Registration Statement filed by the Fund with the Securities and Exchange
Commission, and forward looking statements contained herein or in other public
statements of the Fund should be considered in light of those factors. There can
be no assurance that factors will not affect the accuracy of such forward
looking statements.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART I
Item 1. Business
Meridian Healthcare Growth and Income Fund Limited Partnership (the
"Fund") was organized under the laws of the State of Delaware on December 8,
1987. The Fund will continue until December 31, 2037, unless sooner terminated
under the provisions of the Partnership Agreement. The Fund was formed to
acquire 98.99% of the limited partnership interests in seven limited
partnerships, each of which owns and operates a single nursing center (the
"Facilities").
The Fund's objectives are to (i) preserve Investors' capital; (ii)
obtain capital appreciation through increases in the value of the Facilities;
and (iii) provide quarterly cash distributions to Investors from income
generated by the Facilities' operating income, the income taxation of a portion
of which is anticipated to be deferred.
The General Partners of the Fund are Brown Healthcare, Inc., a Maryland
corporation (the "Administrative General Partner") and Meridian Healthcare
Investments, Inc., a Maryland corporation (the "Development General Partner").
A maximum of 1,540,000 assignee units of limited partnership interests
("Units") were registered under the Securities and Exchange Act of 1933, as
amended. During 1988 all 1,540,000 Units were sold, and the Fund's net proceeds
available for investment aggregated $31,878,000 (gross proceeds of $38,500,000
less public offering expenses and acquisition fees of $6,622,000). The Assignor
Limited Partner also acquired 40 units of limited partnership interests in 1988.
The Fund acquired 98.99% limited partnership interests (the "Operating
Partnership Interests") in the operating limited partnerships which own and
operate seven nursing center facilities. The Facilities include four nursing
centers located in Maryland; two nursing centers located in North Carolina and
one facility in New Jersey. Each operating partnership owns the real and
personal property of its nursing center facility. (See Note 1, "Organization and
Operations", in Item 8, Financial Statements and Supplementary Data, and Item 2.
Properties, herein.)
The Fund acquired the Operating Partnership Interests with offering
proceeds and certain indebtedness.
The nursing centers owned by the operating partnerships are managed by
and purchase drugs, medical supplies and agency nursing and rehabilitation
services from affiliates of the Development General Partner. (See Note 3,
"Related Party Transactions" in Item 8. Financial Statements and Supplementary
Data, herein.)
On November 30, 1993, Genesis Health Ventures, Inc. ("Genesis") acquired
substantially all of the assets of Meridian Inc., Meridian Healthcare, Inc. and
their affiliated entities, including all of the stock of the Development General
Partner. See Item 10. Directors and Executive Officers of Registrant, herein.
The Fund's sole business is its investment in partnerships which own
and operate nursing centers that are healthcare facilities licensed by
individual states to provide long-term healthcare within guidelines established
by the appropriate state health agencies and as directed by each patient's
physician. Healthcare and related services from private pay and Medicaid and
Medicare patients accounted for approximately 99% of revenues during each of the
years in the three-year period ended December 31, 1998.
Healthcare facilities, including those owned by the operating
partnerships, are subject to extensive federal, state and in some cases, local
regulatory licensing and inspection requirements. In addition, government
revenue sources, particularly Medicaid and Medicare programs, are subject to
statutory and regulatory changes due to administrative rulings, interpretations
of policy and determination by fiscal intermediaries, and to government funding
restrictions, all of which may materially affect the rate of program payments to
nursing facilities.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 1. Business (continued)
The nursing center Facilities face competition with similar facilities
in their general locations as well as the development of other nursing centers
that are able to obtain Certificates of Need and to meet certain other
requirements.
Item 2. Properties
The Fund owns Operating Partnership Interests in operating partnerships
that own four nursing facilities in the State of Maryland, two nursing
facilities in the State of North Carolina, and one nursing facility in New
Jersey.
The Facilities are described below:
Property & Equipment Patient
(before depreciation) Revenues
at December 31, 1998 1998
Name, Location and Description (Dollars in thousands)
Facility 1. Hamilton $ 4,611 $ 4,872
6040 Harford Road
Baltimore City,
Maryland
A 104-bed nursing facility located on 1.06 acres, constructed in 1972 consisting
of a "T" shaped two-story plus partial basement masonry structure containing
22,082 square feet. The facility contains 104 comprehensive care beds of which
14 are Medicare-certified. There are two private rooms, 15 semi-private rooms, 4
three-person rooms and 15 four-person rooms.
Facility 2. Randallstown 10,682 10,138
9109 Liberty Road
Randallstown,
Maryland
A 250-bed nursing facility located on 2.83 acres, constructed in 1971 consisting
of a rectangularly-shaped two-story plus partial basement masonry structure
containing a total of 72,780 square feet. The facility contains 246
comprehensive care beds of which 38 are Medicare-certified and four domiciliary
care beds. There are 111 semi-private rooms and 28 private rooms.
Facility 3. Caton Manor 7,520 8,382
3330 Wilkens Avenue
Baltimore City,
Maryland
A 184-bed nursing facility located on 0.92 acres, constructed in 1972 consisting
of an "L" shaped four-story plus basement masonry structure containing a total
of 48,660 square feet. All 184 beds are comprehensive care beds of which 20 are
Medicare-certified. All rooms are semi-private.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 2. Properties (continued)
Property &Equipment Patient
(before depreciation) Revenues
at December 31, 1998 1998
(Dollars in Thousands)
Name, Location and Description
Facility 4. Frederick 7,172 8,345
(Collegeview)
400 North Avenue
Frederick,
Maryland
A 166-bed nursing facility located on 1.13 acres, originally constructed in 1966
consisting of a two-story plus partial basement masonry structure, the second
floor added in 1968, containing a total of 52,661 square feet. The facility
contains 156 comprehensive care beds of which 28 are Medicare- certified. There
are 10 domiciliary care beds and two non-licensed residential apartments which
are leased to persons who do not require nursing care.
Facility 5. Mooresville 5,884 6,918
550 Glenwood Road
Mooresville,
North Carolina
A 160-bed nursing facility located on 11.38 acres, originally constructed with
100 beds in 1988 with a 60-bed addition completed in 1992 consisting of a
one-story slab on grade building containing a total of 47,657 square feet. The
facility contains 130 beds for skilled care and intermediate care residents, of
which 14 are Medicare certified. There are 30 beds in the Home for the Aged (HA)
wing. There are 8 private rooms and 76 semi-private rooms.
Facility 6. Salisbury 5,709 7,430
710 Julian Road
Salisbury,
North Carolina
A 180-bed nursing facility located on 6.02 acres, originally constructed with
120 beds in 1988 with a 60-bed addition completed in 1991 consisting of a
one-story slab on grade building containing a total of 50,500 square feet. The
facility contains 160 beds for skilled care and intermediate care residents, of
which 28 are Medicare certified. There are 20 beds in the Home for the Aged (HA)
wing. There are 16 private rooms and 82 semi-private rooms.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 2. Properties (continued)
Property & Equipment Patient
(before depreciation) Revenues
at December 31, 1998 1998
(Dollars in thousands)
Name, Location and Description
Facility 7. Woodlands 8,201 7,677
1400 Woodland Avenue
Plainfield,
New Jersey
A 140-bed nursing facility located on
6.52 acres, constructed in 1989
consisting of a two-story slab on grade
building containing a total of 54,000
square feet. The facility contains 120
comprehensive nursing home beds, of
which 27 are Medicare certified, and 20
residential care beds. There are 12
private rooms, 46 semi-private rooms
and 9 four-bed rooms. The facility also
provides space for a child day-care
program.
------- -------
$49,779 $53,762
Item 3. Legal Proceedings
The Fund is a party to litigation arising in the ordinary course of
business. The Fund does not believe the results of such litigation, even if the
outcome is unfavorable to the Fund, would have a material adverse effect on its
consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders for a vote
during the last quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
An established public trading market for the Units does not exist
and the Fund does not anticipate that a public market will develop. Transfer of
Units by an investor and purchase of Units by the Fund may be accommodated under
certain terms and conditions. The Partnership Agreement imposes certain
limitations on the transfer of Units and may restrict, delay or prohibit a
transfer primarily if:
o the transfer of Units would result in 50% or more of all Units
having been transferred by assignment or otherwise within a
12-month period;
o such a transfer would be a violation of any federal or state
securities laws that may cause the Fund to be classified other than
as a partnership for federal income tax purposes;
o such transfers would cause the Fund to be treated as a "publicly
traded partnership" under Sections 7704 and 469(k) of the Internal
Revenue Code; and
o the transfer of Units would cause a technical termination of the
Partnership within meaning of Section 708(b)(1)(A) of the Internal
Revenue Code.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters (continued)
As of December 31, 1998, there were 1,745 holders of Units of the
registrant, owning an aggregate of 1,540,040 Units, including 40 Units held by
the Assignor Limited Partner. The Fund made four quarterly distributions
totaling approximately $3,306,000 in each of the years in the three-year period
ended December 31, 1998. See Note 5, "Distributions to Partners and Allocation
of Net Income", in Item 8. Financial Statements and Supplementary Data, herein.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
(Dollars in thousands - except per Unit amounts)
Statement of Earnings Data
<S> <C> <C> <C> <C> <C>
Net revenue $54,108 $49,568 $47,885 $45,398 $42,852
Operating earnings before capital costs** 9,594 6,286 5,735 5,937 6,834
Net earnings 5,768 2,268 1,722 1,891 2,903
Net earnings per assignee Unit-basic $ 3.71 $ 1.46 $ 1.12 $ 1.23 $ 1.88
Operating Data
Payor mix (as a percent of revenue):
Medicaid and Medicare 80% 77% 77% 75% 75%
Private 20% 23% 23% 25% 25%
Occupancy percentage 91.7% 93.2% 94.3% 94.8% 94.4%
Patient Days Available 429,000 429,000 431,000 430,000 433,000
Balance Sheet Data
Total assets $50,305 $49,707 $52,255 $51,107 $52,494
Property and equipment, net of
accumulated depreciation 33,653 34,839 35,680 36,625 37,714
Long-term debt, including loan
payable to Development General
Partner, less current portion 23,702 24,363 25,955 25,528 25,797
Partners' capital 18,813 16,351 17,389 18,973 20,388
Cash distributions paid per Unit:
from operations $2.12 $ 2.12 $ 2.12 $ 1.88 $ 2.12
from return of capital - - - .24 -
</TABLE>
**Capital costs include depreciation, amortization and interest expense.
-8-
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Fund has sufficient liquid assets and other available credit resources
to satisfy its operating expenditures and anticipated routine capital
improvements at each of the seven nursing home facilities.
Effective February 28, 1998, the Fund refinanced all of the existing
indebtedness. Under the terms of the refinancing, the mortgages mature on
February 28, 2000 and bear interest at LIBOR plus 1.55%. The refinancing also
extended the line of credit commitment until February 28, 2000. The Fund has a
$4,000,000 line of credit which is designated for working capital needs and is
primarily secured by the accounts receivable of the Fund. At December 31, 1998,
there were no outstanding borrowings under this line of credit.
Between 1988 and 1989 the Development General Partner loaned the Fund
$597,000 to support operating deficits generated by the Mooresville, Salisbury
and Woodlands nursing centers during each center's first two years of operation.
Loans outstanding under this arrangement, including interest at 9% per annum,
were $1,086,000 at December 31, 1998. The Fund is obligated to repay these loans
when certain specified financial criteria are met, the most significant of which
is the payment of a preferred return to the assignee limited partners as defined
in the Fund's partnership agreement.
Due primarily to the favorable resolution of a longstanding Maryland
Medicaid reimbursement issue (as discussed in the Results of Operations
section), Fund revenues and profitability increased markedly in 1998 when
compared to prior years. Since the Fund's distribution level remained unchanged,
reserves increased by approximately $3.3 million at December 31, 1998 when
compared to December 31, 1997.
On December 15, 1998 the Fund signed a letter of intent with Genesis Health
Ventures, Inc. ("Genesis"), an affiliate of the Development General Partner, for
the purchase by Genesis of all the limited and general partnership interests of
the operating partnerships (the "Proposed Sale") for approximately $70 million.
The Fund agreed to operate the facilities in the ordinary course of business and
agreed not to make distributions to the partners through the closing date or
upon termination of the Proposed Sale. On March 30, 1999, Genesis informed the
Fund that it terminated the letter of intent. In light of the termination of the
Proposed Sale, the Fund expects to make its deferred fourth quarter 1998
distribution (normally made in February) and to resume its quarterly
distribution policy.
The major challenge to the Fund in the foreseeable future is to control
operating expenses while maximizing revenues through strategic admissions
policies.
Results of Operations
December 31, 1998 vs. December 31, 1997
Patient revenues for the Fund's seven operating partnerships increased by
approximately $4,540,000 (or 9.2%) for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. This was primarily the result of a
favorable outcome to a long standing Maryland Medicaid reimbursement issue. The
resolution of this issue provided increased revenues of approximately $800,000
for current year patient services and approximately $2,100,000 for prior year
patient services. A favorable Medicaid cost report settlement in the state of
North Carolina added approximately $350,000 to revenue. A favorable Medicare
settlement for the three prior years resulted in an increase in revenues of
approximately $700,000.
Census declines of approximately 6,500 days, primarily in private and
Medicare days, were only partially offset by increases in insurance days. The
decline in census days resulted in a revenue reduction of approximately
$1,300,000. Year to year price increases (exclusive of the Medicaid and Medicare
items discussed above) of approximately 2.3% for Medicaid and 6.0% for Medicare
increased revenue by approximately $1,600,000. Year to year price increases in
non-skilled and intermediate care units increased revenue by $260,000.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations (continued)
Profitability for the Fund increased approximately $3,500,000 (or 150%) to
$5,768,000 in 1998 as compared to $2,268,000 in 1997. Operating expenses as a
percentage of revenue declined to approximately 74% in 1998 versus approximately
80% in 1997 primarily due to favorable outcome of reimbursement issues described
above. Operating expenses increased approximately $719,000 (or 1.8%) during 1998
versus 1997. Cost efficiencies due to a decline in census of 1.6% were offset by
inflationary wages increases and increases in therapy, drug, and medical supply
expenses. Management and general and administrative expenses increased
approximately $519,000 principally due to increased management fees and
inflationary changes to general and administrative expenses.
Interest expense decreased approximately $176,000 (or 8.7%) in 1998 as
compared to 1997. This decrease was primarily due to the refinancing at lower
interest rates of its mortgages effective February 28, 1998.
December 31, 1997 vs. December 31, 1996
Patient revenues for the Fund's seven operating partnerships increased by
approximately $1,712,000 (or 3.6%) for the year ended December 31, 1997 as
compared to the year ended December 31, 1996. The increase is primarily
attributable to increased room rates which resulted from an effective rate
increase of 6% (or $1,767,000), of which $1,466,000 relates to Medicaid
residents. Effective July 1, 1997, the four Maryland facilities received
Medicaid increases of 5%- 6% as compared to approximately 2.5% on July 1, 1996.
Also contributing to the Medicaid increase was a shift to higher acuity Medicaid
residents at the facilities. The remaining rate increase of approximately
$296,000 was generated equally by Medicare and private payor classes. Among
Medicare patients, there has been a shift to a higher acuity resident, while
there has been a shift in the census mix of private payors to facilities with
higher base private rates. Additionally, ancillary usage increased in 1997
versus 1996. Partially offsetting these favorable variances was a decrease of
approximately $252,000 in prior year third party cost report settlements.
Profitability for the Fund increased approximately $546,000 (or 32%) to
$2,268,000 in 1997 as compared to $1,722,000 in 1996. Operating expenses as a
percentage of revenues remained consistent at 80% of revenue. Salaries, wages
and benefits increased approximately $462,000 (or 2%) during 1997 versus 1996
due to inflationary wage increases. As a result of the shortage in certified
nursing assistants in the State of Maryland, nursing agency usage increased
approximately $109,000 in 1997 as compared to the prior year.
Another factor contributing to the operating expense increase was higher
ancillary utilization in 1997 as compared to the prior year. This increase was a
result of the higher acuity residents in the facilities as well as increased
utilization by the Medicaid population. On a per patient day basis, Medicaid
ancillary utilization was $1.98 higher in 1997 than in 1996.
Interest expense decreased $113,000 in 1997 as compared to 1996. This
decrease was primarily due to line of credit borrowings that were repaid in full
in April, 1997.
Legislative and Regulatory Issues
Legislative and regulatory action has resulted in continuing changes in the
Medicare and Medicaid reimbursement programs. The changes have limited, and are
expected to continue to limit, payment increases under these programs. Also, the
timing of payments made under the Medicare and Medicaid programs is subject to
regulatory action and governmental budgetary constraints; in recent years, the
time period between submission of claims and payment has increased. Within the
statutory framework of the Medicare and Medicaid programs, there are substantial
areas subject to administrative rulings and interpretations which may further
affect payments made under those programs. Further, the federal and state
governments may reduce the funds available under those
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues (continued)
programs in the future or require more stringent utilization and quality reviews
of eldercare centers or other providers. There can be no assurances that
adjustments from Medicare or Medicaid audits will not have a material adverse
effect on the Fund.
Pursuant to the Balanced Budget Act commencing with cost reporting periods
beginning on July 1, 1998, Prospective Payment System ("PPS") began to be phased
in for skilled nursing facilities at a per diem rate for all covered Part A
skilled nursing facility services as well as many services for which payment may
be made under Part B when a beneficiary who is a resident of a skilled nursing
facility receives covered skilled nursing facility care. The consolidated per
diem rate is adjusted based upon the Resource Utilization Group ("RUG"). In
addition to covering skilled nursing facility services, this consolidated
payment will also cover rehabilitation and non-rehabilitation ancillary
services. Physician services, certain nurse practitioner and physician assistant
services, among others, are not included in the per diem rate. For the first
three cost reporting periods beginning on or after July 1, 1998, the per diem
rate will be based on a blend of a facility specific rate and a federal per diem
rate. In subsequent periods, and for facilities first receiving payments for
Medicare services on or after October 1, 1995, the federal per diem rate will be
used without any facility specific blending.
The Balanced Budget Act also required consolidated billing for skilled
nursing facilities. Under the Balanced Budget Act, the skilled nursing facility
must submit all Medicare claims for Part A and Part B services received by its
residents with the exception of physician, nursing, physician assistant and
certain related services, even if such services were provided by outside
suppliers. Medicare will pay the skilled nursing facilities directly for all
services on the consolidated bill and outside suppliers of services to residents
of the skilled nursing facilities must collect payment from the skilled nursing
facility. Although consolidated billing was scheduled to begin July 1, 1998 for
all services, it has been delayed until further notice for beneficiaries in a
Medicare Part A stay in a skilled nursing facility not yet using PPS and for the
Medicare Part B stay. There can be no assurance that the Fund will be able to
provide skilled nursing services at a cost below the established Medicare level.
Effective April 10, 1998, regulations were adopted by the Health Care
Financing Administration, which revises the methodology for determining the
reasonable cost for contract therapy services, including physical therapy,
respiratory therapy, occupational therapy and speech language pathology. Under
the regulations, the reasonable costs for the contract therapy services are
limited to geographically-adjusted salary equivalency guidelines. However, the
revised salary equivalency guidelines will no longer apply when the PPS system
applicable to the particular setting for contract therapy services (e.g. skilled
nursing facilities, home health agencies, etc.) goes into effect.
The Balanced Budget Act also repealed the Boren Amendment federal payment
standard for Medicaid payments to Medicaid nursing facilities effective October
1, 1997. The Boren Amendment required Medicaid payments to certain health care
providers to be reasonable and adequate in order to cover the costs of
efficiently and economically operated health care facilities. States must now
use a public notice and comment period in order to determine rates and provide
interested parties a reasonable opportunity to comment on proposed rates and the
justification for and the methodology used in calculating such rates. There can
be no assurance that budget constraints or other factors will not cause states
to reduce Medicaid reimbursement to nursing facilities and pharmacies or that
payments to nursing facilities and pharmacies will be made on a timely basis.
The law also grants greater flexibility to states to establish Medicaid managed
care projects without the need to obtain a federal waiver. Although these waiver
projects generally exempt institutional care, including nursing facilities and
institutional pharmacy services, no assurances can be given that these projects
ultimately will not change the reimbursement system for long-term care,
including pharmacy services from fee-for-service to managed care negotiated or
capitated rates. The Fund anticipates that federal and state governments will
continue to review and assess alternative health care delivery systems and
payment methodologies.
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MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Legislative and Regulatory Issues (continued)
In July 1998, the Clinton Administration issued a new initiative to promote
the quality of care in nursing homes. This initiative includes, but is not
limited to (I) increased enforcement of nursing home safety and quality
regulations; (ii) increased federal oversight of state inspections of nursing
homes; (iii) prosecution of egregious violations of regulations governing
nursing homes; (iv) the publication of nursing home survey results on the
Internet; and (v) continuation of the development of the Minimum Data Set
("MDS"), a national automated clinical data system. Accordingly, with this new
initiative it may become more difficult for eldercare facilities to maintain
licensing and certification. The Fund may experience increased costs in
connection with maintaining its licenses and certifications as well as increased
enforcement actions. In addition, beginning January 1, 1999, outpatient therapy
services furnished by a skilled nursing facility to a resident not under a
covered Part A stay or to nonresidents who receive outpatient rehabilitation
services will be paid according to the Medicare Physician Fee Schedule.
Year 2000 Compliance
The Development General Partner ("DGP") has implemented a process to
address its Year 2000 compliance issues. The process includes (I) an inventory
and assessment of the compliance of the essential systems and equipment of the
Fund and of the Year 2000 mission critical suppliers, customers, and other third
parties, (ii) the remediation of non-compliant systems and equipment and testing
and (iii) contingency planning. The DGP is in the process of conducting its
inventory, assessment and remediation of its information technology ("IT")
systems, equipment and non-IT systems and equipment (embedded technology) and
has completed approximately 70% of its internal inventory and assessment and
approximately 30% of the systems and equipment of critical suppliers, customers
and other third parties.
With respect to the Year 2000 compliance of critical third parties, the
Fund derives a substantial portion of its revenue from the Medicare and Medicaid
programs. Congress' General Accounting Office ("GAO") recently concluded that it
is highly unlikely that all Medicare systems will be compliant on time to ensure
the delivery of uninterrupted benefits and services in the year 2000. While the
Fund does not receive payments directly from Medicare, but from intermediaries,
the GAO statement is interpreted to apply as well to these intermediaries. The
DGP intends to actively confirm the Year 2000 readiness status for each
intermediary and to work cooperatively to ensure appropriate continuing payments
for services rendered to all government insured patients.
The DGP is remediating its critical IT and non-IT systems and equipment.
The DGP has also begun contingency planning in the event that essential systems
and equipment fail to be Year 2000 compliant. The DGP is planning to be Year
2000 compliant for all of its essential systems and equipment by September 30,
1999, although there can be no assurance that it will achieve its objective by
such date or by January 1, 2000, or that such potential non-compliance will not
have a material adverse effect on the Fund's business, financial condition or
results from operations. In addition, there can be no assurance that all of the
Fund's critical suppliers and other third parties will be Year 2000 compliant by
January 1, 2000, or that such potential non-compliance will not have a material
adverse effect on the Fund's business, financial condition or results of
operations.
The DGP currently estimates that its aggregate costs directly related to
Year 2000 compliance efforts will be approximately $1,000,000, of which
approximately $500,000 has been spent through September 30, 1998. The DGP's Year
2000 efforts are ongoing and its overall plan and cost estimations will continue
to evolve, as new information becomes available. The Fund's analysis of its Year
2000 issues is based on information from third party suppliers; there can be no
assurance that such information is accurate or complete.
The failure of the DGP or third parties to be fully Year 2000 compliant for
essential systems and equipment by January 1, 2000 could result in interruptions
of normal business work operations. The Fund's potential risks include (I) the
inability to deliver patient care related services in the Fund's facilities,
(ii) the delayed receipt of reimbursement from the Federal or State governments,
private payors or intermediaries, (iii) the failure of security
-12-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year 2000 Compliance (continued)
systems, elevators, heating systems or other operational systems and equipment
of the Fund's facilities and (iv) the inability to receive critical equipment
and supplies from vendors. Each of these events could have a material adverse
affect on the Fund's business, results of operations and financial condition.
Contingency plans for the DGP's Year 2000-related issues continue to be
developed and include, but are not limited to, identification of alternate
suppliers, alternate technologies and alternate manual systems. The DGP is
planning to have contingency plans completed for essential systems and equipment
by June 30, 1999; however, there can be no assurance that it will meet this
objective by such date or by January 1, 2000.
The Year 2000 disclosure set forth above is intended to be a "Year 2000
Statement" as such term is defined in the Year 2000 Information and Readiness
Disclosure Act of 1998 (the "Year 2000 Act") and, to the extent such disclosure
relates to Year 2000 processing of the Fund or to products or services offered
by the Fund, is also intended to be "Year 2000 Disclosure" as such term is
defined in the Year 2000 Act.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("Statement 130"). Statement 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The adoption of this
accounting standard in fiscal 1998 had no impact on the Fund.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities. In April
1998, the Accounting Standards Executive Committee issued Statement of Position
98-5, Reporting on the Costs of Start-up Activities. The Fund does not believe
either of these statements have an impact on the 1998 financial statements.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements:
Page(s)
Annual Report
Independent Auditors' Report 3
Consolidated Balance Sheets 4
Consolidated Statements of Earnings 5
Consolidated Statements of Partners' Capital (Deficit) 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
-13-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART III
Item 10. Directors and Executive Officers of Registrant
The General Partners of the Fund are Meridian Healthcare Investments, Inc.,
the Development General Partner, and Brown Healthcare, Inc., the Administrative
General Partner. The Fund's principal executive offices are located at 225 East
Redwood Street, Baltimore, Maryland 21202. The General Partners had primary
responsibility for the selection and negotiation of terms concerning the
acquisition of the Operating Partnership Interests, selecting a manager for the
interim investments and the structure of the Offering and the Fund. The General
Partners have primary responsibility for overseeing the performance of those who
contract with the Fund as well as making decisions with respect to the
financing, sale and liquidation of the Fund's or the operating partnerships'
assets. The General Partners are responsible for all reports to and
communications with investors and others, all distributions and allocations to
investors, the administration of the Fund's business and all filings with the
Securities and Exchange Commission and other Federal or State regulatory
authorities. The Fund's Partnership Agreement provides certain rights for
investors, which are incorporated herein by reference.
The Development General Partner
Meridian Healthcare Investments, Inc., the Development General Partner, is
a Maryland corporation. On November 30, 1993, Genesis acquired substantially all
the assets of Meridian, Inc., Meridian Healthcare (" MHC") and their affiliated
entities, including all the stock of the Fund's Development General Partner. As
part of the acquisition, MHC, the manager of the Fund's seven nursing centers,
continues to operate the facilities pursuant to management agreements. Since
completion of the Meridian transaction, Genesis operates primarily in five
regional markets in which over 11,100,000 people over the age of 65 reside. The
networks include 326 eldercare centers with approximately 42,200 beds; nine
primary care physician clinics; approximately 85 physicians, physician
assistants and nurse practitioners; 11 medical supply distribution centers
serving over 1,000 eldercare centers with over 80,000 beds; an integrated
NeighborCareSM pharmacy operation with over $900,000,000 in annualized revenues,
including 79 long-term care pharmacies serving approximately 263,000
institutional beds; 34 community-based pharmacies; infusion therapy services;
and certified rehabilitation agencies providing services through over 600
contracts. The Company also provides diagnostic and hospitality services in
selected markets and operates a group purchasing organization. Genesis has
concentrated its eldercare networks in five geographic regions in order to
achieve operating efficiencies, economies of scale and significant market share.
The five geographic markets that Genesis principally serves are: New England
Region (Massachusetts/Connecticut/New Hampshire/Vermont/Rhode Island);
Midatlantic Region (Greater Philadelphia/Delaware Valley); Chesapeake Region
(Southern Delaware/Eastern Shore of Maryland/Baltimore, Maryland/Washington
D.C./Virginia); Southern Region (Central Florida); and Allegheny Region (West
Virginia/Western Pennsylvania/Eastern Ohio/Illinois/Wisconsin). The Company
believes that it is the largest operator of eldercare center beds in the states
of New Hampshire Massachusetts, New Jersey, Pennsylvania, Maryland and West
Virginia.
The following individuals are the directors and principal officers of
Meridian Healthcare Investments, Inc.:
Michael R. Walker, age 50, is President and a Director of the Development
General Partner and is a co-founder of Genesis and has served as Chairman and
Chief Executive Officer of Genesis since its inception in 1985. In 1998, Mr.
Walker became the Chairman of the Board of Trustees of ElderTrustsm, a
healthcare related real estate investment trust. In 1981, Mr. Walker co-founded
Health Group Care Centers ("HGCC"). At HGCC, he served as Chief Financial
Officer and, later, as President and Chief Operating Officer. Prior to its sale
in 1985, HGCC operated nursing homes with 4,500 nursing beds in 12 states. From
1978 to 1981, Mr. Walker was the Vice President and Treasurer of AID Healthcare
Centers, Inc. ("AID"). AID, which owned and operated 20 nursing centers, was
co-founded in 1977 by Mr. Walker as the nursing home division of Hospital
Affiliates International ("HAI"). Mr. Walker holds a Master of Business
Administration degree from Temple University and a Bachelor of Arts in Business
Administration from Franklin and Marshall College. Mr. Walker serves on the
Board of Directors of Renal Treatment Centers, Inc. and the Board of Trustees of
Universal Health Realty and Income Trust.
-14-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 10. Directors and Executive Officers of Registrant (continued)
The Development General Partner (continued)
Richard R. Howard, age 50, is a Director of the Development General Partner
and has served as a Director of Genesis since its inception in 1985, as
President from June 1986 to November 1998 and as Vice Chairman since November
1998. From June, 1986 through March, 1998, Mr. Howard served as President and
Chief Operating Officer of Genesis. He joined Genesis in September, 1985 as Vice
President of Development. Mr. Howard's background in healthcare includes two
years as the Chief Financial Officer of HGCC. Mr. Howard's experience also
includes over ten years with Fidelity Bank, Philadelphia, Pennsylvania and one
year with Equibank, Pittsburgh, Pennsylvania. Mr. Howard is a graduate of the
Wharton School, University of Pennsylvania, where he received a Bachelor of
Science degree in Economics in 1971.
George V. Hager, Jr., age 43, is Vice President and Treasurer of the
Development General Partner and is Senior Vice President and Chief Financial
Officer of Genesis. Mr. Hager was previously partner in charge of the health-
care practice for KPMG LLP in the Philadelphia office. Mr. Hager began his
career at KPMG LLP in 1979 and has over fifteen years of experience in the
healthcare industry. Mr. Hager received a Bachelor of Arts degree in Economics
from Dickinson College in 1978 and a Master of Business Administration degree
from Rutgers Graduate School of Management. He is a certified public accountant
and a member of the AICPA and PICPA.
Administrative General Partner
Brown Healthcare, Inc., the Administrative General Partner, is a Maryland
corporation, and is wholly-owned by Alex. Brown Realty, Inc. The Administrative
General Partner is responsible for administering the business of the Fund,
including providing clerical services, communications, services and reports to
investors, and making all reports and filings to securities regulatory
authorities.
The following individuals are the directors and principal officers of the
Administrative General Partner:
John M. Prugh, age 50, has been a Director and President of the
Administrative General Partner since 1988, and of Alex. Brown Realty, Inc. and
Armata Financial Corp. since 1984. Mr. Prugh graduated from Gettysburg College
in 1970, and was designated a Certified Property Manager by the Institute of
Real Estate Management in 1979. He has worked in property management for H. G.
Smithy Co., in Washington, D.C., and Dreyfuss Bros., Inc. in Bethesda, Maryland.
Since 1977, Mr. Prugh has been involved in managing, administering, developing
and selling real estate investment projects sponsored by Alex. Brown Realty,
Inc. and its subsidiaries.
Peter E. Bancroft, age 46, has been a Director and Vice President of the
Administrative General Partner since 1988 and a Senior Vice President of Alex.
Brown Realty, Inc. and Armata Financial Corp. since 1983. Mr. Bancroft graduated
from Amherst College in 1974, attended the University of Edinburgh, and received
a J.D. degree from the University of Virginia School of Law in 1979. Prior to
joining Alex. Brown Realty, Inc. in 1983, Mr. Bancroft held legal positions with
Venable, Baetjer and Howard and T. Rowe Price Associates, Inc.
Terry F. Hall, age 52, has been the Secretary of the Administrative General
Partner and a Vice President and Secretary of, and Legal Counsel for, Alex.
Brown Realty, Inc. since 1989. Mr. Hall graduated from the University of
Nebraska-Lincoln in 1968, and received a J.D. degree from the University of
Pennsylvania Law School in 1973. Prior to joining Alex. Brown Realty, Inc. in
1986, Mr. Hall was a Partner at the law firm of Venable, Baetjer and Howard from
1981 to 1986 and an associate at the same firm from 1973 to 1981.
Timothy M. Gisriel, age 42, has been the Treasurer of the Administrative
General Partner and of Alex. Brown Realty, Inc. and Armata Financial Corp. since
1990. He was Controller of Alex. Brown Realty, Inc. and Armata Financial Corp.
from 1984 through 1990. Mr. Gisriel graduated from Loyola College in 1978 and
received his Masters of Business Administration degree from the Robert G.
Merrick School of Business, University of Baltimore in 1993. Prior to joining
Alex. Brown Realty, Inc. in 1984, Mr. Gisriel was an audit supervisor in the
Baltimore office of Coopers & Lybrand. He is a Maryland Certified Public
Accountant.
-15-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Item 10. Directors and Executive Officers of Registrant (continued)
There is no family relationship among the officers and directors of the
General Partner.
Item 11. Executive Compensation
The officers and directors of the Administrative General Partner and
Development General Partner received no compensation from the Fund.
The General Partners are entitled to receive a share of cash distributions
and a share of profits and losses as described in the Agreement of Limited
Partnership. (See Note 5, "Distributions to Partners and Allocation of Net
Income" in Item 8. Financial Statements, herein.)
For a discussion of compensation and fees to which the General Partners are
entitled, see Item 13. Certain Relationships and Related Transactions, herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person is known to the Fund to own beneficially more than 5% of the
outstanding Units of the Fund.
The General Partners each have a .5% interest in the Fund as General
Partners, but do not hold any Units.
The Assignor Limited Partner, Brown Healthcare Holding Co., Inc., an
affiliate of the Administrative General Partner, owns for its benefit 40 Units.
The Units held by the Assignor Limited Partner have all rights attributable to
such Units under the Limited Partnership Agreement except that these Units are
non-voting.
On December 15, 1998 the Fund signed a letter of intent with the
Development General Partner for the proposed sale of the limited and general
partnership interests of the Fund's operating partnerships, which if consummated
would have resulted in a change of control of the registrant. On March 30, 1999
Genesis informed the Fund that it terminated the letter of intent.
Item 13. Certain Relationships and Related Transactions
The General Partners and their affiliates have and are permitted to engage
in transactions with the Fund. For a summarization of fees paid during 1998,
1997 and 1996, and to be paid to the General Partners and their affiliates at
December 31, 1998, see Note 3, "Related Party Transactions" in Item 8. Financial
Statements, herein.
-16-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements: see Index to Financial Statements and
Supplementary Data in Item 8 on Page 13.
2. Financial Statement Schedules: Schedule II - Valuation and
Qualifying Accounts for the years ended December 31, 1998, 1997 and
1996. All other schedules are omitted because they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
(3, 4) Limited Partnership Agreement on pages 1 through 41 of
Exhibit A to the Fund's Prospectus, and the Fund's
Registration Statement on Form S-1 (File No. 33-19277)
included herein by reference.
(13) Annual Report for 1998.
(b) Reports on Form 8-K: None.
-17-
<PAGE>
Meridian Healthcare Growth and Income Fund Limited Partnership
Independent Auditors' Report
To the Partners of Meridian Healthcare Growth and Income
Fund Limited Partnership
Under date of February 5, 1999, we reported on the consolidated balance sheets
of Meridian Healthcare Growth and Income Fund Limited Partnership as of December
31, 1998 and 1997, and the related consolidated statements of earnings,
partners' capital (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1998, as contained in the annual report on
Form 10K for the year 1998. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the Form 10K. This consolidated financial
statement schedule is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this consolidated financial statement
schedule based on our audits. In our opinion, such schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 5, 1999
-18-
<PAGE>
Meridian Healthcare Growth and Income Fund Limited Partnership
Valuation and Qualifying Accounts
Years Ended December 31, 1998, 1997 and 1996
(Dollars in Thousands)
Schedule II
<TABLE>
<CAPTION>
Balance at Beginning Charged to Balance at End
Description of Period Operations Deductions(1) of Period
<S> <C> <C> <C> <C>
Year Ended December 31, 1998 $513 252 (286) $479
Allowance for Doubtful Accounts
Year Ended December 31, 1997 $551 351 (389) $513
Allowance for Doubtful Accounts
Year Ended December 31, 1996 $440 376 (265) $551
Allowance for Doubtful Accounts
(1) - Represents amounts written off as uncollectible.
</TABLE>
-19-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MERIDIAN HEALTHCARE GROWTH AND INCOME
FUND LIMITED PARTNERSHIP
DATE: 3/29/99 BY: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended,
this report has been signed by the following in the capacities and on the dates
indicated.
DATE: 3/29/99 By: /s/ John M. Prugh
John M. Prugh
President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/22/99 By: /s/ Peter E. Bancroft
Peter E. Bancroft
Vice President and Director
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/22/99 By: /s/ Terry F. Hall
Terry F. Hall
Secretary
Brown-Healthcare, Inc.
Administrative General Partner
DATE: 3/18/99 By: /s/ Timothy M. Gisriel
Timothy M. Gisriel
Treasurer
Brown-Healthcare, Inc.
Administrative General Partner
-20-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
SIGNATURES (continued)
DATE: 3/25/99 BY: /s/ Michael R. Walker
Michael R. Walker
President and Director
Meridian Healthcare Investments, Inc.
Development General Partner
DATE: 3/25/99 BY: /s/ Richard R. Howard
Richard R. Howard
Director
Meridian Healthcare Investments, Inc.
Development General Partner
DATE: 3/26/99 BY: /s/ George V. Hager, Jr.
George V. Hager, Jr.
Vice President and Treasurer
Meridian Healthcare Investments, Inc.
Development General Partner
-21-
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
1998 Annual Report
March 18, 1999
The General Partners of the Meridian Healthcare Growth and Income Fund
Limited Partnership are pleased to discuss the operating performance of our
seven nursing home facilities.
OPERATIONS
Fund revenues and profitability increased markedly in 1998 when
compared to prior years due primarily to the favorable resolution of a
longstanding Maryland Medicaid reimbursement issue. Profitability increased
approximately $3,500,000 (or 150%) to $5,768,000 in 1998 as compared to
$2,268,000 in 1997.
Patient revenues for the Fund's seven operating partnerships increased
by approximately $4,540,000 (or 9.2%) for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. This was primarily the result of a
favorable outcome to a long standing Maryland Medicaid reimbursement issue. The
resolution of this issue provided increased revenues of approximately $800,000
for current year patient services and approximately $2,100,000 for prior year
patient services. A favorable Medicaid cost report settlement in the state of
North Carolina added approximately $350,000 to revenue. A favorable Medicare
settlement for the three prior years resulted in an increase in revenues of
approximately $700,000.
Census declines of approximately 6,500 days, primarily in private and
Medicare days, were only partially offset by increases in insurance and assisted
living days. The decline in census days resulted in a revenue reduction of
approximately $1,300,000. Year to year price increases (exclusive of the
Medicaid and Medicare items discussed above) of approximately 2.3% for Medicaid
and 6.0% for Medicare increased revenue by approximately $1,600,000. Year to
year price increases in the assisted living units increased revenue by $260,000.
While operating expenses increased approximately $719,000 (or 1.8%)
during 1998 versus 1997, as a percentage of revenue they declined from 80% in
1997 to 74% in 1998. Cost efficiencies due to a decline in census of 1.6% were
offset by inflationary wages increases and increases in therapy, drug, and
medical supply expenses. Management and general and administrative expenses
increased approximately $519,000 principally due to increased management fees
and inflationary changes to expenses.
Interest expense decreased approximately $176,000 (or 8.7%) in 1998 as
compared to 1997. This decrease is primarily due to the refinancing of the
Fund's mortgages effective February 28,
1998.
-1-
<PAGE>
FINANCING
Effective February 28, 1998, the Fund entered into a renewal commitment
with a bank to refinance all of the existing indebtedness. Under the terms of
the refinancing, the mortgages mature on February 28, 2000 and bear interest at
LIBOR plus 1.55%. The Fund has a $4,000,000 line of credit which is designated
for working capital needs and is primarily secured by the accounts receivable of
the Fund. At December 31, 1998, there were no outstanding borrowings under this
line of credit.
PROPOSED SALE OF LIMITED AND GENERAL PARTNERSHIP INTERESTS
On December 15, 1998 the Fund signed a letter of intent with Genesis
Health Ventures, Inc. ("Genesis"), an affiliate of the Development General
Partner, for the purchase by Genesis of all the limited and general partnership
interests of the operating partnerships (the "Proposed Sale") for approximately
$70 million. The Fund agreed to operate the facilities in the ordinary course of
business and agreed not to make distributions to the partners through the
closing date or upon termination of the Proposed Sale. On March 30, 1999,
Genesis informed the Fund that it terminated the letter of intent.
CASH DISTRIBUTIONS
The normal fourth quarter cash distribution of $826,410, scheduled to
be paid to the partners in February 1999, was retained by the Fund pursuant to
the letter of intent with Genesis. The Fund expects to make its deferred fourth
quarter 1998 distribution and to resume its quarterly distribution policy now
that the Proposed Sale has been terminated.
SUMMARY
In light of the termination of the Proposed Sale, the General Partners
will evaluate alternative disposition strategies for the Fund. We will keep you
advised of developments in this area in our quarterly reports.
Very truly yours,
/s/ John M. Prugh /s/ Michael R. Walker
John M. Prugh, President Michael R. Walker, President
Brown Healthcare, Inc. Meridian Healthcare Investments, Inc.
Administrative General Partner Development General Partner
-2-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Meridian Healthcare Growth and
Income Fund Limited Partnership:
We have audited the accompanying consolidated balance sheets of Meridian
Healthcare Growth and Income Fund Limited Partnership as of December 31, 1998
and 1997 and the related consolidated statements of earnings, partners' capital
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these consolidated 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 audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meridian Healthcare
Growth and Income Fund Limited Partnership as of December 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
February 5, 1999
Philadelphia, Pennsylvania
-3-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
Financial Statements
-4-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Consolidated Balance Sheets (Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents $ 2,928 $ 2,275
Accounts receivable, net of allowance for doubtful
accounts of $479 in 1998 and $513 in 1997 7,279 6,437
Estimated third-party payor settlements 882 343
Prepaid expenses and other current assets 565 565
Total current assets 11,654 9,620
Property and equipment
Land and improvements 1,858 1,848
Buildings and improvements 43,304 43,088
Furniture and equipment 4,617 4,308
49,779 49,244
Accumulated depreciation (16,126) (14,405)
33,653 34,839
Other assets
Goodwill, net 4,998 5,239
Loan acquisition costs, net -- 9
4,998 5,248
Total assets $ 50,305 $ 49,707
Liabilities and Partners' Capital
Current liabilities
Current portion of long-term debt $ 720 $ 707
Accrued compensation and related costs 941 1,054
Accounts payable and other accrued expenses
Trade 1,389 1,007
Related party 1,795 1,179
Estimated third-party payor settlements 2,093 4,234
Total current liabilities 6,938 8,181
Deferred management fee payable 852 812
Loan payable to Development General Partner 1,086 1,035
Long-term debt 22,616 23,328
24,554 25,175
Partners' capital (deficit)
General partners (128) (153)
Assignee limited partners; 1,540,040 units issued and 18,941 16,504
Total partners' capital 18,813 16,351
Total liabilities and partners' capital $ 50,305 $ 49,707
</TABLE>
See the accompanying notes to consolidated financial statements.
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Consolidated Statements of Earnings
(Dollars in thousands except per unit amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
Revenues
<S> <C> <C> <C>
Medicaid and Medicare patients $42,641 $38,154 $36,589
Private and other patients 11,121 11,103 10,956
Investment and other income 346 311 340
54,108 49,568 47,885
Expenses
Operating, including $7,400, $6,760 and $5,300
to related parties 40,182 39,463 38,386
Management and administration fees
to related parties 3,522 3,184 3,087
General and administrative 810 635 677
Depreciation and amortization 1,972 1,988 1,870
Interest expense 1,854 2,030 2,143
48,340 47,300 46,163
Net earnings $ 5,768 $ 2,268 $ 1,722
Net earnings per unit of assignee limited partnership interest - basic (computed
based on 1,540,040 units
outstanding in 1998, 1997 and 1996) $ 3.71 $ 1.46 $ 1.12
</TABLE>
See the accompanying notes to consolidated financial statements.
-6-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital (Deficit)
(Dollars in thousands)
<TABLE>
<CAPTION>
Assignee
General Limited
Partners Partners Total
<S> <C> <C> <C>
Balance at December 31, 1995 $ (127) $ 19,100 $ 18,973
Net earnings 17 1,705 1,722
Distributions to partners (33) (3,273) (3,306)
Balance at December 31, 1996 (143) 17,532 17,389
Net earnings 23 2,245 2,268
Distributions to partners (33) (3,273) (3,306)
Balance at December 31, 1997 (153) 16,504 16,351
Net earnings 58 5,710 5,768
Distributions to partners (33) (3,273) (3,306)
Balance at December 31, 1998 $ (128) $ 18,941 $ 18,813
</TABLE>
See the accompanying notes to consolidated financial statements.
-7-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERHSIP
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
Cash flows from operating activities
<S> <C> <C> <C>
Net earnings $ 5,768 $ 2,268 $ 1,722
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation of property and equipment 1,721 1,671 1,553
Amortization of intangibles 250 317 317
Minority interest in net earnings of operating
partnerships 24 26 20
Increase in loan payable to Development General Partner 51 51 52
Increase in deferred management fee payable 40 42 42
Change in other assets and liabilities
Accounts receivable (842) (8) (262)
Estimated third-party payor settlements, net (2,680) 1,038 2,578
Prepaid expenses and other current assets -- (51) 57
Accrued compensation and related costs (113) (1,361) 1,316
Accounts payable and other
accrued expenses 1,048 27 (732)
Net cash provided by operating activities 5,267 4,020 6,663
Cash flows from investing activities
Additions to property and equipment (535) (830) (608)
Additions to other assets -- -- (13)
Net cash used in investing activities (535) (830) (621)
Cash flows from financing activities
Line of credit borrowings, net -- (1,000) 281
Repayment of long-term debt (699) (557) (557)
Distributions to partners (3,306) (3,306) (3,306)
Distributions to minority interests (74) (14) (37)
Net cash used in financing activities (4,079) (4,877) (3,619)
Net increase (decrease) in cash and cash equivalents 653 (1,687) 2,423
Cash and cash equivalents, beginning of year 2,275 3,962 1,539
Cash and cash equivalents, end of year $ 2,928 $ 2,275 $ 3,962
</TABLE>
See the accompanying notes to consolidated financial statements.
-8-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements (continued)
(1) Organization and Operations
Meridian Healthcare Growth and Income Fund Limited Partnership (the Fund)
was organized under the laws of the State of Delaware and will continue to
operate through December 31, 2037, unless terminated sooner under the provisions
of the Partnership Agreement. The Fund's Administrative General Partner is Brown
Healthcare, Inc. and the Fund's Development General Partner is Meridian
Healthcare Investments, Inc. Brown Healthcare Holding Co., Inc. is the Fund's
Assignor Limited Partner. Meridian Healthcare Investments, Inc. is a subsidiary
of Genesis Health Ventures, Inc.
The Fund owns 98.99% limited partnership interests in seven operating
partnerships. Each partnership owns and operates a nursing center located
in Maryland, New Jersey, or North Carolina. As described further in Note
3, Meridian Healthcare, Inc. (MHC) and other affiliates of the
Development General Partner manage the nursing centers and provide
personnel to the operating partnerships along with certain other goods
and services.
The Fund, through its operating partnerships, derives substantially all
of its revenue from extended healthcare provided to nursing center
residents including room and board, nursing care, and drugs and other
medical services. Total patient days available and occupancy (unaudited)
at the facilities in each of the three years were as follows:
<TABLE>
<CAPTION>
Available
Year Days Occupancy
<S> <C> <C> <C>
1998 429,000 91.7%
1997 429,000 93.2%
1996 431,000 94.3%
</TABLE>
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Fund
and its 98.99% owned consolidated partnerships. All significant
transactions and balances between the Fund and its consolidated
partnerships have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash deposits in banks,
money market funds, and certificates of deposit. All cash and cash
equivalents have an original maturity of less than three months, and are
stated at cost which approximates market value.
-9-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Revenue
The Fund derives a substantial portion of its revenue under Medicaid and
Medicare cost reimbursement programs which are subject to audit and
adjustment, in some cases, by the respective third-party payors. The Fund
provides an allowance for potential audit adjustments to the interim
reimbursement amounts received under these cost reimbursement programs.
Revisions to this allowance, if any, are recorded as an adjustment to
revenues in the year such amounts are determined. Such revisions to prior
year cost reimbursement settlements resulted in a credit to 1998 earnings
aggregating $3,094,000 in 1998. Of this total $2,056,000 resulted from
the favorable resolution to a prior year Maryland Medicaid issue. This
settlement also resulted in increased revenues of $817,000 for services
rendered in 1998. Revision to prior year cost reimbursement settlements
resulted in a credit to earnings of $342,000 in 1997 and $594,000 in
1996.
Property and Depreciation
Property and equipment are stated at cost less accumulated depreciation.
Major renewals and betterments are capitalized and ordinary repairs and
maintenance are charged against operations in the period incurred. Asset
costs and related accumulated depreciation are removed from the accounts
upon disposition of an asset and the resulting gain or loss is included
in the determination of earnings.
Depreciation is computed using the straight-line method. Estimated useful
lives established for purposes of computing depreciation range from
thirty to forty years for buildings, twenty years for building
improvements, ten years for land improvements, and from five to ten years
for furniture and equipment.
Loan Acquisition Costs
Loan acquisition costs, which represent costs incurred in connection with
securing financing for the nursing centers, are capitalized and amortized
using the interest method over the period that the related debt is
scheduled to be outstanding. Accumulated amortization of loan acquisition
costs aggregated $576,000 and $567,000 at December 31, 1998 and 1997,
respectively. At December 31, 1998 all loan acquisition costs have been
fully amortized.
Goodwill
Goodwill arising from the Fund's purchase of its limited partnership
interests in the operating partnerships is amortized on a straight-line
basis over thirty years. Accumulated amortization of goodwill aggregated
$2,667,000 and $2,426,000 at December 31, 1998 and 1997, respectively.
-10-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Goodwill (continued)
Goodwill is reviewed for impairment whenever events or circumstances
provide evidence that suggests that the carrying amount of goodwill may
not be recoverable. The Fund assesses the recoverability of goodwill by
determining whether the amortization of the goodwill balance can be
recovered through projected undiscounted cash flows.
Income Taxes
The consolidated financial statements of the Fund do not include any
provision for federal or state income taxes. All items of Fund earnings,
deductions and credits are allocated among the partners. The distributive
share of the Fund's earnings, deductions and credits are included in each
partner's federal and state income tax returns.
A reconciliation of net earnings, as reported on the Fund's consolidated
statements of earnings, to taxable earnings for the years ended December
31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net earnings per consolidated statements of earnings $5,768 $2,268 $1,722
Accelerated depreciation deducted for income
tax purposes over straight-line depreciation
deducted for financial reporting purposes (195) (228) (302)
Amortization of goodwill deducted for financial reporting
purposes, not deducted for income tax purposes 241 248 253
Differences in timing of revenue recognition
for financial reporting purposes and
income tax purposes, primarily related to cost
reimbursement settlements (2,275) 422 435
Differences in timing of expense deductions for
financial reporting purposes and income tax purposes (70) (197) 82
Taxable earnings $3,469 $2,513 $2,190
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimated.
-11-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
New Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("Statement 130"). Statement 130 requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
The adoption of this accounting standard in fiscal 1998 had no impact on
the Fund.
(3) Related Party Transactions
The nursing centers owned by the operating partnerships are managed by
MHC, an affiliate of the Development General Partner. Under the terms of
the management agreements, the operating partnerships are obligated to
pay monthly management fees at an annual rate equal to 6% of each nursing
center's revenue. However, payment of one-half of the fees incurred for
the management of the Mooresville, Salisbury and Woodlands nursing
centers was deferred during the two-year period commencing with the
Fund's acquisition of partnership interests in 1988 and 1989. As of
December 31, 1998 and 1997, the amounts deferred under this agreement,
including interest at 9% per annum, aggregated $852,000 and $812,000,
respectively. The Fund is obligated to repay these amounts when certain
financial criteria are met.
The Fund is obligated to pay the Administrative General Partner
administration fees equal to the greater of 1/2 of 1% of the Fund's
annual revenue or $75,000. Certain of the operating partnerships also
purchase drugs and medical supplies and other services from affiliates of
the Development General Partner.
The Development General Partner loaned the Fund $597,000 as required by
the Cash Flow Deficit Guaranty Agreement to support the operating
deficits generated by the Mooresville, Salisbury and Woodlands nursing
centers during each center's first two years of operations subsequent to
the Fund's acquisition of partnership interests. Loans outstanding under
this arrangement, including accumulated interest from inception of the
loan at 9% per annum, were $1,086,000 and $1,035,000 at December 31, 1998
and 1997, respectively. The Fund is obligated to repay such loans when
certain specified financial criteria are met.
Transactions with the Fund's General Partners and their affiliates for
the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Management and administration fees $3,522 $3,184 $3,087
Drugs and medical supplies purchases 2,447 2,230 2,305
Nursing and rehabilitation services 4,953 4,530 2,995
Interest expense on borrowings 91 93 94
</TABLE>
-12-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements (continued)
(3) Related Party Transactions (continued)
Neither the Fund nor the operating partnerships employ any personnel. All
staff required by the nursing centers are employees of MHC which charges
the operating partnerships for all costs related to such personnel
including payroll taxes, workers' compensation, health insurance and
other fringe benefits. Salaries and benefits represented approximately
65%, 64%, and 67% in 1998, 1997 and 1996, respectively, of total
operating expenses.
(4) Debt
Effective February 28, 1998, the Fund renewed its line of credit
agreement which is designated for working capital needs and issuance of
letters of credit. The agreement expires February 28, 2000 at which time
any and all outstanding borrowings under the agreement become due.
Borrowings are secured primarily by the accounts receivable of the Fund.
Any outstanding cash borrowings under the facility bear interest based on
a LIBOR rate plus 155 basis points. Prior to the refinancing interest was
based on LIBOR rate (6.49% at December 31, 1998 and 7.29% at December
31,1997) plus 175 basis points. There were no borrowings or letters of
credit outstanding at December 31, 1998 and 1997.
Effective February 28, 1998, the Fund refinanced all of the existing
mortgages. Under the terms of the refinancing, the mortgages mature on
February 28, 2000 and bear interest at LIBOR plus 1.55%. Prior to the
refinancing, approximately $18,500,000 of fixed rate mortgages were
outstanding at a weighted average rate of 7.8%, and approximately
$5,500,000 of a variable rate mortgage was outstanding at 7.84%.
Long-term debt at December 31 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
Mortgage notes payable
<S> <C> <C>
Maryland facilities $16,049 $16,464
Woodlands facility 5,773 5,924
Frederick facility 1,153 1,258
Hamilton facility 361 389
23,336 24,035
Less current portion (720) (707)
$22,616 $23,328
</TABLE>
The mortgage notes payable are secured by deeds of trust on the related
property. Under the terms of these loan agreements, the operating
partnerships are obligated to conform with specific financial criteria
and are subject to certain other covenants.
Long-term debt maturing in each of the two years subsequent to December
31, 1998 under the renewal commitment is $720,000 in 1999 and $22,616,000
in 2000.
Cash outflows from operating activities included interest paid of
$1,738,309, $1,803,000 and $2,001,000 in 1998, 1997 and 1996,
respectively.
-13-
<PAGE>
MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements (continued)
(5) Distributions to Partners and Allocation of Net Income
Cash is distributable and net earnings are allocable 1% to the Fund's
general partnership interests and 99% to its limited partnership
interests. Cash distributable to partners is determined at the discretion
of the Fund's general partners.
Cash distributions to partners were made from net cash provided by
operating activities as disclosed on the statements of cash flows in
1998, 1997 and 1996. Cash distributions per unit aggregated $2.12 in
1998, 1997 and 1996.
(6) Employee Benefit Plans
Certain employees of the Fund's nursing centers are eligible to
participate in the Genesis Health Ventures, Inc. Retirement Plan. The
Plan covers all employees having 1,000 hours or more service in a plan
year. Employees' contributions to the plan may be matched by the Fund
based on years of service. During the plan years ended December 31, 1998
and 1997, a company match of 50% of employee contributions up to 3% of
the employee's annual gross salary was accrued. Additionally, the Plan
provides for discretionary employer contributions based on profits.
Certain other employees of the Fund's nursing centers are eligible to
participate in Meridian Healthcare, Inc. Union Retirement Savings Plan
which qualified under Section 401(K) of the Internal Revenue Service
Code. In accordance with the terms of the plan, employees may elect to
contribute a percentage of their respective annual compensation to the
plan, subject to certain limitations. The Fund is obligated to match 50%
of each employee's contribution up to 3% of their respective annual
compensation.
Charges to operations in connection with these plans aggregated $185,000
in 1998, $139,000 in 1997 and $208,000 in 1996.
(7) Commitments and Contingencies
The Fund is a party to litigation arising in the ordinary course of
business. The Fund does not believe the results of such litigation, even
if the outcome is unfavorable to the Fund, would have a material effect
on its consolidated financial position or results of operations.
(8) Fair Value of Financial Instruments
The Fund believes the carrying amount of cash and equivalents, accounts
receivable (net of allowance for doubtful accounts), estimated
third-party payor settlements, prepaid expenses and other current assets,
accounts payable and other accrued expenses and accrued compensation and
related costs approximates fair value because of the short-term maturity
of these instruments.
The carrying value of the Fund's floating-rate debt approximates its fair
value.
-14-
<PAGE>
Directors and Executive Officers
Meridian Healthcare Investments, Inc.
Development General Partner
Michael R. Walker
President and Director
Richard R. Howard
Director
George V. Hager, Jr.
Vice President and Treasurer
Brown Healthcare, Inc.
Administrative General Partner
John M. Prugh
President and Director
Peter E. Bancroft
Vice President and Director
Terry F. Hall
Secretary
Timothy M. Gisriel
Treasurer
Form 10-K
A copy of the Fund's Annual Report on Form 10-K for 1998 as filed with the
Securities and Exchange Commission is available to partners without charge on
request by writing to:
Investor Relations
Brown Healthcare, Inc.
225 East Redwood Street
Baltimore, Maryland 21202
Auditors
KPMG LLP
1600 Market Street
Philadelphia, PA 19103-7212
Legal Counsel
Piper & Marbury
1100 Charles Center South
36 South Charles Street
Baltimore, Maryland 21201
Further Information
For further information or questions regarding your investment, please call
Denise Shaduk, Investment Coordinator, at (410) 547-3002.
Please submit changes in name, address, investment representative and
distribution instructions to Investor Relations at the above address.
-15-
<TABLE>
<CAPTION>
EXHIBIT A
LIMITED PARTNERSHIP AGREEMENT
MERIDIAN HEALTH CARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
TABLE OF CONTENTS
Page
<S> <C>
Preliminary Statement ........................................................... A-3
Article I - Defined Terms ................................................... A-3
Article II -Name; Purpose; Term and Certificate ................ A-10
Section 2.1 Name; Formation ............................................ A-10
Section 2.2 Place of Registered Office ................................ A.10
Section 2.3 Purpose ........................................................... A-10
Section 2.4 Term ................................................................ A-10
Section 2.5 Recording of Certificate ................................... A-10
Article III - Partners; Capital ............................................... A-10
Section 3.1 General Partners; Assignor Limited Partner;
Subordinated Limited Partners ....................................... A-10
Section 3.2 Investors .......................................................... A-11
Section 3.3 Partnership Capital .......................................... A-11
Section 3.4 Liability of Partners and Investors .................... A-12
Article IV - Allocations, Distributions and Applicable Rules ............. A-12
Section 4.1 Allocation of Profit or Loss from a Sale .......... A-12
Section 4.2 Distribution of Net Proceeds from a Refinancing or Sale ............... A-13
Section 4.3 Distribution of Net Cash Flow and Allocation of Profit and Loss from
Operations ..................................................................... A-13
Section 4.4 Liquidation or Dissolution ............................... A-14
Section 4.5 General and Special Rules ............................... A-14
Article V - Rights, Powers and Duties of Partners ............... A-18
Section 5.1 Management and Control of the Partnership; Tax Matters Partner ............ A-18
Section 5.2 Authority of General Partners ......................... A-18
Section 5.3 Authority of Investors ...................................... A-21
Section 5.4 Restrictions on Authority ................................. A-21
Section 5.5 Authority of Partners and Affiliated Persons to Deal with Partnership ..........A-22
Section 5.6 Duties and Obligations of the General Partners ....................... A-23
Section 5.7 Compensation of General Partners .................... A-25
Section 5.8 Other Businesses of Partners ..................... ...... A-25
Section 5.9 Liability of General Partners and Assignor Limited Partner to Limited
Partners or Investors ....................................................... A-25
Section 5.10 Indemnification ............................................... A-25
Article VI - Transferability of a General Partner's Interest ............................... A-26
Section 6.1 Removal, Voluntary Retirement or Withdrawal of a General Partner;
Transfer of Interests ........................................................ A-26
Section 6.2 Election and Admission of Successor or Additional General Partners ............A-26
Section 6.3 Events of Withdrawal of A General Partner ............................. A-26
Section 6.4 Liability of a Withdrawn General Partner .............. A-27
Section 6.5 Valuation of Partnership Interest of General Partner ............. A-27
Article VII - Assignment of Assignee Units to Investors; Transferability of Limited
Partner Interests and Units ............................................. A-28
Section 7.1 Assignments of the Assignee Units to Investors ............................. A-28
Section 7.2 Transferability of Units .................................... A-29
Section 7.3 Death, Bankruptcy or Adjudication of Incompetence of an Investor or a
Limited Partner .............................................................. A-30
Section 7.4 Effective Date ........................................ ......... A-30
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 7.5 Substitute Limited Partners ...............................A-30
Section 7.6 Retirement or Withdrawal of a Limited Partner .. A-30
Article VIII - Dissolution, Liquidation and Termination of the Partnership A-31
Section 8.1 Events Causing Dissolution ...............................A-31
Section 8.2 Liquidation .................................................... A-31
Section 8.3 Capital Contribution Upon Dissolution .............. A-32
Article IX - Certain Payments to the General Partners and Affiliates ... A-32
Section 9.1 Reimbursement of Certain Costs and Expenses of the General Partners and
Affiliates ................................................................... .. A-32
Section 9.2 Fees ............................................................... A-33
Article X - Books and Records; Bank Accounts; Reports ................. A-34
Section 10.1 Books and Records ........................................ A-34
Section 10.2 Bank Accounts .............................................. A-34
Section 10.3 Reports ......................................................... A-34
Section 10.4 Federal Tax Elections ................................... . A-35
Article XI - Meetings of Investors ....................................... A-36
Section 11.1 Calling Meetings .............................................. A-36
Section 11.2 Notice; Procedure .......................................... A-36
Section 11.3 Right to Vote ................................................ A-36
Section 11.4 Proxies; Rules ............................................... A-36
Article XII - General Provisions .......................................... A-37
Section 12.1 Appointment of Administrative General Partner as Attorney-in-Fact A-37
Section 12.2 Waiver of Partition ........................................ A-37
Section 12.3 Notification ...................................................... A-37
Section 12.4 Word Meanings ................................................ A-37
Section 12.5 Binding Provisions ............................................ A-37
Sectio 12.6 Applicable Law ................................................ A-37
Section 12.7 Counterparts ................................................. A-38
Section 12.8 Separability of Provisions ................................ A-38
Sectio 12.9 Paragraph Titles ............................................... A-38
Section 12.10 Entire Agreement .......................................... A-38
Section 12.11 Amendments ................................................ A-38
Signatures ............................................................................ A-39
Schedule A ..........................................................................A-41
</TABLE>
A-2
<PAGE>
MERIDIAN HEALTH CARE GROWTH AND INCOME FUND
LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of
December 8, 1987, is by and among Brown Healthcare, Inc., a
Maryland corporation, as the Administrative General Partner,
Meridian Healthcare Investments, Inc., a Maryland
corporation, as the Development General Partner, Realty
Associates 1988 Limited Partnership, a Maryland limited
partnership, and Meridian Healthcare Investments, Inc., a
Maryland corporation, as Subordinated Limited Partners, and
Brown Healthcare Holding Co., Inc., a Maryland corporation,
as the Assignor Limited Partner.
Preliminary Statement
The General Partners, the Subordinated Limited
Partners, and the Assignor Limited Partner desire to form
Meridian Healthcare Growth and Income Fund Limited
Partnership (the "Fund"), pursuant to the Delaware Revised
Uniform Limited Partnership Act.
NOW, THEREFORE, in consideration of the mutual promises
made herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE I
DEFINED TERMS
The defined terms used in this Agreement shall, unless
the context otherwise expressly requires, have the meanings
specified in this Article I.
"Accountants" means such nationally recognized firm of
independent certified public accountants as shall be engaged
from time to time by the General Partners on behalf of the
Fund.
"Acquisition Expenses" means expenses, including, but
not limited to, legal fees and expenses, travel and
communications expenses, costs of appraisals, non-refundable
option payments on property not acquired, accounting fees
and expenses, title insurance, and miscellaneous expenses
related to selection and acquisition of Facilities or
Operating Partnership Interests, whether or not acquired.
"Acquisition Fees" means the total of all fees and
commissions paid by any party on behalf of the Fund or an
Operating Partnership in connection with the selection,
purchase or development of, or investment in, any Facility
by the Fund or an Operating Partnership, including, without
limitation, any real estate commission, selection fee,
non-recurring management fee, development fee, or any fee of
a similar nature, however designated.
"Act" means the Delaware Revised Uniform Limited Fund Act (6 DEL.C 17-101
et. seq.) as amended or modified from time to time. "Additional General Partner"
means any Person who is
admitted as an Additional General Partner of the Fund, under
the provisions of Article VI, after the date of this
Agreement.
"Adjusted Capital Balance" of a Partner or an Investor
means the Capital Contribution of the Partner or the
Assignor Limited Partner made on behalf of an Investor, less
any Net Proceeds of Sale or Refinancing actually distributed
to the Partner or Investor (other than that portion, if any,
which is payment of an unpaid Preferred Return), as provided
in Article IV herein, at the time of reference thereto.
"Administrative General Partner" means Brown
Healthcare, Inc., a Maryland corporation, or any Person who
is designated as the Administrative General Partner in the
Schedule at the time in question.
"Affiliate" means (i) any Person directly or indirectly
controlling, controlled by or under common control with
another Person, (ii) any Person owning or controlling 10% or
more of the outstanding voting securities of such other
Person, (iii) any officer, director or partner of such
Person, and (iv) if
A-3
<PAGE>
such other Person is an officer, director or partner,
any company for which such Person acts in any such
capacity.
"Agreement" means this Limited Partnership
Agreement as originally executed and as amended from
time to time, as the context requires. Words such as
"herein", "hereinafter," "hereof," "hereto," "hereby"
and "hereunder," when used with reference to this
Agreement, refer to this Agreement as a whole unless
the context otherwise requires.
"Assigned Limited Partnership Interest" means a
Partnership Interest which is credited to the
Assignor Limited Partner on the books and records of
the Fund in respect of a purchase of one Unit by an
Investor. Each Assigned Limited Partnership Interest
represents a contribution to the capital of the Fund
equal to $25, regardless of any reduction in Selling
Commissions.
"Assignee Units" means the ownership interests
of an Investor in the Fund at any particular time,
including the right of such Investor to any and all
benefits to which an Investor may be entitled as
provided in this Agreement. The ownership interests
of the Investors in the Fund are sometimes referred
to herein as "Units".
"Assignor Limited Partner" means Brown
Healthcare Holding Co., Inc. which will (i) own any
Assigned Limited Partnership Interests issued
pursuant to Sections 3.2 and 7.1 hereof, and (ii)
transfer and assign to those Persons who acquire
Units all of its rights and interest in Assigned
Limited Partnership Interests in accordance with
Sections 3.2 and 7.1 hereof.
"Capital Account" means (i) the separate account
maintained and adjusted on the books and records of
the Fund for each Partner and (ii) the separate
subaccount of the Capital Account of the Assignor
Limited Partner maintained and adjusted for each
Investor. Each Partner's and Investor's Capital
Account is credited with his Capital Contributions
and his distributive share of Fund Profit (or item
thereof). Each Partner's or Investor's Capital
Account is debited with the cash and the fair market
value of any property distributed to him (net of
liabilities assumed by such Partner or Investor and
liabilities to which such distributed property is
subject), his distributive share of Fund Loss (and
deduction (or item thereof)), and his distributive
share of Fund expenditures described in Section
705(a)(2)(B) of the Code (including losses disallowed
under Section 267(a)(1) or 707(b) of the Code, and
Section 709(a) syndication expenditures applied to
reduce the Capital Accounts of the Partners or
Investor's to whom such expenditures are allocable at
the time such expenditures are paid or incurred).
Each Partner's and Investor's Capital Account shall
also be adjusted pursuant to Sections 4.4 and 4.5
hereof and as required by the Income Tax Regulations
promulgated under Section 704 of the Code. Any
questions concerning a Partner's or Investor's
Capital Account shall be resolved by the General
Partners in their reasonably exercised discretion,
applying principles consistent with this Agreement
and the regulations promulgated under Section 704 of
the Code in order to assure that all allocations
herein will have substantial economic effect or will
otherwise be respected for income tax purposes. For
purposes of this paragraph, a Partner or Investor who
has more than one Partnership Interest or Unit, as
the case may be, shall have a single Capital Account
that reflects all of his Partnership Interests and
Units, regardless of the class of Interests owned
(e.g., general or limited) and regardless of the time
or manner in which the Partnership Interests and
Units were acquired.
"Capital Contribution" means the total amount of
cash and the fair market value of any other assets
contributed to the Fund by a Partner (net of
liabilities assumed by the Fund and liabilities to
which any such contributed assets are subject) and,
with respect to an Investor, the Capital Contribution
of the Assignor Limited Partner made on behalf of
such Investor (without regard to any reduction of
Selling Commissions). Any reference in this Agreement
to the Capital Contribution of a then-Partner or
Investor shall include a Capital Contribution
previously made by any prior Partner or Investor with
respect to the Interest or Unit of such then-Partner
or then-Investor, except to the extent that all or a
portion of the Interest or Unit of any prior Partner
or Investor shall have been terminated and the
portion so terminated not transferred to a successor
Partner or Investor.
"Cash Flow Deficit Guaranty Agreement" means
that certain agreement to be entered into by the Fund
pursuant to which the Development General Partner
will agree to fund, on a monthly basis, up to
$570,000 of the operating deficits generated by the
Development Facilities (on a combined basis)
A-4
<PAGE>
in excess of $570,000 of the aggregate operating deficits
generated in respect of such Facilities during the first two
years of operations of the Development Facilities. Payments
made by the Development General Partner under the Cash Flow
Deficit Guaranty Agreement will be non-interest bearing until
the first quarter after the Commencement Date that Investors
receive distributions equal to the Preferred Return and will
be repaid as provided in Article IV.
"Certificate" means the Certificate of Limited
Partnership establishing the Fund, as filed with the office
of the Secretary of State of the State of Delaware on or
about the date of this Agreement, as it may be amended from
time to time in accordance with the terms of this Agreement
and the Act.
"Code" means the Internal Revenue Code of 1986, as
amended (or any corresponding provision of succeeding law).
"Commencement Date" means the date Facility V commences
operations and the Fund effectively acquires the Operating
Partnership Interest relating to Facility V under the
applicable Development Partnership Interest Acquisition
Agreement.
"Consent of the Investors" shall mean the affirmative
vote of Investors owning more than 50% of the outstanding
Units.
"Controlling Person" of any General Partner or Affiliate
thereof means any person who (a) performs functions for a
General Partner or Affiliate similar to those of (i) a
Chairman or member of the Board of Directors, (ii) executive
management, such as a President, or a Vice-President,
Secretary or Treasurer, or (iii) senior management; or (b)
holds a 5% or more equity interest in the General Partner or
Affiliate, or has the power to direct or cause the direction
of the General Partner, or Affiliate, whether through the
ownership of voting securities, by contract or otherwise.
"Development General Partner" means Meridian Healthcare
Investments, Inc., or any Person who is designated as the
Development General Partner in the Schedule at the time of
reference thereto.
"Development Partnership Interest Acquisition
Agreements" means those agreements pursuant to which the Fund
will acquire, subject to raising sufficient proceeds of the
Offering, Operating Partnership Interests of the Operating
Partnerships that own Facility V, Facility VI and Facility
VII.
"Due Diligence Expense Reimbursement Fee" means the fee
equal to 2% of the Gross Proceeds of the Offering allowed to
the Selling Agent, which may be re-allowed to Soliciting
Dealers, for advisory services, due diligence activities and
the reimbursement of expenses.
"Entity" means any general partnership, limited
partnership, corporation, joint venture, trust, estate,
business trust, cooperative, association or other legal form
of organization.
"Escrow Agent" means Mercantile-Safe Deposit & Trust
Company, or such other escrow agent chosen by the General
Partners to hold funds from Persons who have subscribed to
become Investors pending the assignment of Assignee Units to
them.
"Existing Partnership Interest Acquisition Agreements"
means those agreements pursuant to which the Fund will
acquire, subject to raising sufficient proceeds of the
Offering, Operating Partnership Interests relating to
Facility III and Facility IV.
"Facilities" mean the nursing centers described in the
Prospectus which are to be acquired, developed, owned and
operated by the Operating Partnerships, including all
replacements thereto and all personal property which is used
in connection therewith. Any one of the Facilities may herein
be referred to as a "Facility". The terms "Facility I"
through "Facility VII" shall be defined by reference to the
use of such terms in the Prospectus.
"Front-End Fees" means fees and expenses paid by any
Person for any services rendered during the organization or
acquisition phase of the Fund, including the Offering and
Organization Expense Fee, the Due Diligence Expense
Reimbursement Fee, the Selling Commissions, the Acquisition
Expenses, the Acquisition Fees, mortgage placement, financing
or refinancing fees and any other similar fees.
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"Fund" means the limited partnership formed in
accordance with this Agreement by the parties hereto,
as said limited partnership may from time to time be
constituted.
"Fund Property" means all or any portion of the
assets owned or to be owned by the Fund, including
the Operating Partnership Interests and all
incidental personal property.
"General Partner" means any Person designated as
a General Partner in the Schedule and any Person who
becomes a Successor or Additional General Partner as
provided herein, in each such Person's capacity as a
General Partner of the Fund.
"Gross Proceeds of the Offering" means the
aggregate of the proceeds from the sale of Units in
the Offering, which amount is equal to the total of
all Capital Contributions of the Investors.
"Increased Maximum Offering Amount" means the
total amount of $38,500,000 in Gross Proceeds of the
Offering.
"Interest" or "Partnership Interest" means the
entire ownership interest (which maybe segmented into
and/or expressed as a percentage of various rights
and/or liabilities) of a Partner in the Fund at any
particular time, including the right of such Partner
to any and all benefits to which a Partner may be
entitled as provided in the Agreement and in the Act,
together with the obligations of such Partner to
comply with all the terms and provisions of this
Agreement and of the Act.
"Interest Income" means interest income under the
Purchase Money Financing with respect to an
installment or other deferred Sale.
"Interest Income Cash" means Net Proceeds from a
Sale attributable to an installment or other deferred
Sale.
"Interim Investments" means the short-term
investments made with the Net Proceeds of the
Offering until such Net Proceeds of the Offering are
disbursed for acquisition of the Operating
Partnership Interests.
"Investor" means (i) any Person who holds an
Assignee Unit and is reflected as an Investor on the
books and records of the Fund, and (ii) any Investor
who has been admitted to the Fund as a Substitute
Limited Partner pursuant to Section 7.5 hereof.
"Investment in Properties" means the amount of
Capital Contributions used to make or invest in
mortgage loans or the amount actually paid or
allocated to the purchase and development of the
Facilities or the Operating Partnership Interests
(including the purchase of properties, working
capital reserves allocable thereto (except that
working capital reserves in excess of 5% shall not be
included), and other cash payments such as interest
and taxes but excluding Front-End Fees).
"Limited Partner" means any Person who is
designated as a Limited Partner on the books and
records of the Fund at the time of reference thereto,
in each such Person's capacity as a Limited Partner
of the Fund.
"Limited Partnership Interest" means the
ownership interest of the Assignor Limited Partner
and all other Limited Partners in the Fund.
"Limited Partnership Interest Percentage" in
respect of any Investor means the percentage obtained
by converting to a percentage the fraction having the
number of Assignee Units owned by such Investor as
its numerator and having the number of Assignee Units
owned by all Investors at the time of reference
thereto as its denominator.
"Majority Vote of the Investors" shall mean the
affirmative vote of Investors owning more than 50% of
the outstanding Units.
"Management Agreements" means those certain
agreements to be entered into by the Operating
Partnerships and the Nursing Center Manager pursuant
to which the Nursing Center Manager shall manage each
of the Facilities for a fee of 6% of the total
revenues of the Facilities, provided however, that
one-half of the management fee (3% of total revenues)
payable in respect of a Development
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Facility will be deferred to the extent necessary to support
the Investors' Preferred Return for the first two years
after the Commencement Date.
"Maximum Offering Amount" means the total amount of
$24,500,000 in Gross Proceeds of the Offering.
"Minimum Gain" means with respect to each non-recourse
liability of the Fund (including the Fund's share of the
non-recourse liabilities of the Operating Partnerships) and
subject to certain adjustments pursuant to Income Tax Reg.
ss.1.704-1(b)(4)(iv)(c), the amount of gain (of whatever
character), if any, that would be realized by the Fund, if
the Fund disposed of (in a taxable transaction) any of the
assets subject to such liability in full satisfaction of the
liability. For this purpose, only the portion of the assets'
adjusted basis allocated to non-recourse liabilities of the
Fund shall be taken into account.
"Minimum Offering Amount" means the amount of
$2,830,000 in Gross Proceeds of the Offering.
"Net Cash Flow" means, with respect to any fiscal
period, the excess, if any, of (i) all cash funds derived
from the operations of the Fund during such period,
including the yield from the Interim Investments and excess
cash reserves deemed distributable by the General Partners
pursuant to Section 3.3E hereof, over (ii) all cash
disbursed in the operations of the Fund during such period,
including cash used to pay, or establish reasonable reserves
for, operating expenses, fees, commissions, debt service and
loan repayments (except for repayment of advances under the
Cash Flow Deficit Guaranty Agreement), improvements,
repairs, replacements, contingencies and anticipated
obligations, except to the extent any such payment is made
out of reserves set aside for such purpose. Net Cash Flow
shall not include amounts distributed or to be distributed
under Section 4.2 hereof.
"Net Proceeds of the Offering" means the Gross Proceeds of the Offering
less the Selling Commis- sions, the Due Diligence Expense Reimbursement Fee, and
the Offering and Organization Expense Fee.
"Net Proceeds from a Refinancing" means the gross
proceeds to the Fund of any Refinancing, less any amounts
deemed necessary by the General Partners to be allocated to
the establishment of reserves, the payment of any debts and
liabilities of the Fund to creditors (except for repayment
of the Operating Deficit Loan and the Deferred Management
Fee Loans), and the payment of any reasonable expenses or
costs associated with the Refinancing, including but not
limited to, fees, points, or commissions paid to any
unaffiliated Persons.
"Net Proceeds from a Sale" means the gross proceeds to
the Fund of any Sale, less any amounts deemed necessary by
the General Partners to be allocated to the establishment of
reserves, the payment of any debts and liabilities of the
Fund to creditors (except for repayment of the Operating
Deficit Loan and the Deferred Management Fee Loans), and the
payment of any reasonable expenses or costs associated with
the Sale, including but not limited to, fees or real estate
brokerage commissions paid to any unaffiliated Persons and,
subject to Sections 5.2.A(viii) and 9.2.A(vi), fees or real
estate brokerage commissions paid to the General Partners or
Affiliates.
"Net Proceeds of sale or Refinancing" means the Net
Proceeds from a Sale or Net Proceeds from a Refinancing, as
the case may be.
"Notification" means a writing, containing the
information required by this Agreement to be communicated to
any Person, sent or delivered to such Person in accordance
with the provisions of Section 12.3 of this Agreement.
"Nursing Center Manager" means Meridian Nursing Centers, Inc.
"Offering"means the offering and sale of Units for a
minimum of $2,830,000 and a maximum of $38,500,000, as more
fully described in the Prospectus.
"Offering and Organization Expense Fee" means the fee
paid to the Administrative General Partner equal to 4.35% of
the Gross Proceeds of the Offering, payable at such times as
the Investors
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are recognized as such on the books of the Fund, for
services rendered and costs incurred in connection
with the Organization of the Fund and the offering
of Units.
"Operating Deficit Loan" means the funds
advanced to the Fund by the Development General
Partner under the terms of the Cash Flow Deficit
Guaranty Agreement.
"Operating Partnerships" means the limited
partnerships, each of which will own and operate a
Facility.
"Operating Partnership Interest" means the
98.99% partnership interest of the Fund in an
Operating Partnership.
"Partner" means any General Partner or Limited Partner.
"Partnership Interest Options" means those
agreements pursuant to which the Fund will acquire,
subject to raising sufficient proceeds of this
Offering, Operating Partnership Interests in
respect of Facility I and Facility II.
"Person" means any individual or Entity.
"Preferred Return" means the cumulative,
non-compounded annual return equal to 10. 125% of
the Adjusted Capital Balance of each Investor
commencing on the earlier of (i) the final closing
for the sale of Units or (ii) June 30, 1988. At the
time of a Sale or Refinancing, if any portion of
the Preferred Return of an Investor has not been
paid from Net Cash Flow, such unpaid portion will
be added to the Investor's priority distribution
from the Net Proceeds of Sale or Refinancing, all
as more fully set forth in Article IV.
"Profit" or "Loss" means, for each fiscal
year or other period, an amount equal to the Fund's
taxable income or loss for such year or period,
with the following adjustments:
(i) Any income of the Fund that is exempt
from federal income tax shall be added to
such taxable income or loss;
(ii) Any expenditures of the Fund
described in Section 705(a)(2)(B) of the
Code, or treated as Section 705(a)(2)(B) of
the Code expenditures pursuant to Income Tax
Reg. ss.1.704-1(b)(2)(iv)(i), shall be
subtracted from such taxable income or loss;
and
(iii) In lieu of the depreciation,
amortization and other cost recovery
deductions taken into account in computing
such taxable income or loss, an amount equal
to the depreciation, amortization, or other
cost recovery deduction allowable with
respect to an asset for such year or other
period for federal income tax purposes shall
be taken into account, except that if the
fair market value on the date that the asset
is contributed to the Fund (or if the basis
of such asset for book purposes is adjusted
under the Income Tax Regulations, such
adjusted book basis) differs from its
adjusted basis for federal income tax
purposes at the beginning of such year or
other period, the depreciation, amortization
and other cost recovery deductions taken into
account shall be equal to an amount which
bears the same ratio to such beginning fair
market value (or adjusted book basis) as the
federal income tax depreciation,
amortization, or other cost recovery
deduction for such year or other period bears
to such beginning adjusted tax basis. Except
as otherwise provided herein, each item of
income, gain, loss, deduction, preference or
recapture entering into the computation of Profit
or Loss hereunder shall be allocated to each
Partner in the same proportion as Profit and Loss
are allocated.
"Prospectus" means the Fund's Prospectus
contained in the Registration Statement filed on
Form S-1 with the Securities and Exchange
Commission for the registration of the Units under
the Securities Act of 1933, in the final form in
which it is filed with the Securities and Exchange
Commission and as thereafter supplemented pursuant
to Rule 424 under the Securities Act of 1933. Any
reference herein to "date of the Prospectus" shall
be deemed to refer to the date of the Prospectus in
the form filed pursuant to Rule 424(b) of the
Securities Act of 1933.
"Purchase Money Financing" means a purchase
money note or other form of installment sale
obligation received by the Fund pursuant to a Sale.
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"Refinancing" means the replacement, increase,
consolidation, modification, extension of all or any
component of any loan, debt, obligation or financing of the
Fund or any Operating Partnership.
"Sale" means any transaction entered into by the Fund
or an Operating Partnership resulting in the receipt of cash
or other consideration (other than the receipt of Capital
Contributions) not in the ordinary course of its business,
including, without limitation, sales or exchanges or other
dispositions of Facilities, Operating Partnership Interests
and real or personal property of the Fund, condemnations,
recoveries of damage awards and insurance proceeds (other
than business or rental interruption insurance proceeds),
but excepting any borrowing, mortgage financings or
Refinancings.
"Schedule" means Schedule A annexed hereto as amended
from time to time and as so amended at the time of reference
thereto.
"Selling Agent" means Alex. Brown Realty Securities,
Inc., an Affiliate of the Administrative General Partner,
which will offer the Units on a best efforts basis pursuant
to the Selling Agent Agreement.
"Selling Agent Agreement" means that certain agreement to be entered into
by the Fund, Alex. Brown Realty Securities, Inc., the Administrative General
Partner, and the Development General Partner, pursuant to which Alex. Brown
Realty Securities, Inc. will offer and sell the Units on a best efforts basis.
"Selling Commissions" means the maximum total (or any
portion thereof) of 7.0% of the Gross Proceeds of the
Offering paid to the Selling Agent or other soliciting
dealers for their efforts in offering the Units. The 7.0%
maximum Selling Commissions will be reduced for volume
purchases and purchases by certain Affiliates as specified
in the Prospectus.
"Sponsor" means any Person directly or indirectly
instrumental in organizing, wholly or in part, the Fund or
who will manage or participate in the management of the
Fund, and any Affiliate of such Person, but does not include
(a) any Person whose only relationship with the Fund or the
General Partner is that of an independent property manager
if such person's only compensation from the Fund is in the
form of fees for the performance of property management
services, or (b) wholly- independent third parties such as
attorneys, accountants and broker-dealers whose only
compensation from the Fund is for professional services
rendered in connection with the Offering or the operations
of the Fund.
"Subordinated Limited Partner" means any Person who is
designated as a Subordinated Limited Partner on the books
and records of the Fund.
"Substitute Limited Partner" means any Investor who has
elected to convert from an Investor to a Limited Partner
pursuant to Section 7.5 of this Agreement.
"Successor General Partner" means any Person who is
admitted as a Successor General Partner to the Fund under
the provisions of Article VI after the date of this
Agreement.
"Tax Matters Partner" means the Administrative General
Partner designated in Section 5.1 as the tax matters
partner, as defined in Section 6231(a)(7) of the Code.
"Termination Date of the Offering" means the date upon
which the Offering will terminate, which, if not sooner
terminated by the General Partners, will be one year from
the date of the Prospectus.
"Unit" means (i) an Assignee Unit representing the
assignment by the Assignor Limited Partner of one Assigned
Limited Partnership Interest, and (ii) the Partnership
Interest attributable to one Unit of any Investor who has
become a Substitute Limited Partner pursuant to Section 7.5
hereof.
"U.S. Person" means a Person who is (i) an individual
who is either a United States citizen or a resident of the
United States for federal income tax purposes, (ii) a
corporation, partnership, or other legal entity created or
organized in or under the laws of the United States or any
political subdivision thereof, (iii) a corporation that is
not created or organized in or under the laws of the United
States or any political subdivision thereof but which has
made an election under Section 897(i) of the Code to
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be treated as a domestic corporation for certain
purposes of federal income taxation, or (iv) an
estate or trust whose income from sources without
the United States is includable in its gross income
for federal income tax purposes regardless of its
connection with a trade or business carried on in
the United States.
"Working Capital Reserves" means, initially, the
portion of the Net Proceeds of the Offering set
aside as working capital reserves pursuant to
Section 3.3E, as increased or decreased from time to
time at the discretion of the General Partners.
ARTICLE II
NAME; PURPOSE; TERM AND CERTIFICATE
Section 2.1 Name; Formation
The Partners hereby form the limited partnership
to be known as "Meridian Healthcare Growth and
Income Fund Limited Partnership", and such name
shall be used at all times in connection with the
Fund's business and affairs; provided, however, that
the Fund may use trade names in its business
operations. The Fund shall be governed by the Act.
Section 2.2 Place of Registered Office
The address of the registered office in the
State of Delaware of the Fund is Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware
19801; the name of the registered agent for service
of process on the Fund in the State of Delaware at
that address is The Corporation Trust Company. The
Fund's principal place of business is 555 Fairmount
Avenue, Suite 301, Towson, Maryland 21204, or such
other place(s) as the General Partners may hereafter
determine. Notification of any change in the
location of the principal office shall be given to
the Partners and Investors on or before the date of
any such change.
Section 2.3 Purpose
The purpose of the Fund is to acquire, own,
develop, maintain, finance, encumber, operate as a
business, lease, sell, dispose of and otherwise deal
with the Operating Partnership Interests, and to do
all things necessary, convenient or incidental to
the achievement of the foregoing.
Section 2.4 Term
The Fund shall continue until December 31, 2037,
unless the Fund is sooner dissolved in accordance
with the provisions of this Agreement.
Section 2.5 Recording of Certificate
The General Partners shall take all necessary
action to maintain the Fund in good standing as a
limited partnership under the Act, including,
without limitation, the filing of the Certificate
and such amendments and further certificates as may
be necessary under the Act and necessary to qualify
the Fund to do business in such states as the Fund
owns property. The General Partners shall not be
required to send a copy of the Fund's filed
Certificate to each Partner and Investor.
ARTICLE III
PARTNERS; CAPITAL
Section 3.1 General Partners; Assignor Limited
Partner; Subordinated Limited Partners
The name, address and Capital Contribution of
each General Partner, the Assignor Limited Partner
and the Subordinated Limited Partners are set forth
on the Schedule. Upon the dissolution and
termination of the Fund, each General Partner,
within 90 days after the fiscal year in which the
dissolution of the Fund occurs, shall make a Capital
Contribution to the Fund in an amount equal to the
lesser of (i) the deficit balance, if any, in its
Capital Account or (ii) its proportionate share of
the
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excess of 1.01 % of the Capital Contributions of the
Investors and Limited Partners (excluding capital
contributions of the Assignor Limited Partner on behalf of
Investors) over the Capital Contributions previously
contributed by the General Partners.
Section 3.2 Investors
A. The General Partners are authorized to accept orders
for Units pursuant to the Offering. All orders for Units
shall be held in trust and deposited in an escrow account
with the Escrow Agent. Orders for Units shall be accepted or
rejected by the General Partners within 30 days after their
receipt by the Escrow Agent.
B. Upon the receipt by the Escrow Agent of orders for
an amount equal to the Minimum Offering Amount, the Escrow
Agent shall release the funds in the escrow account to the
Assignor Limited Partner which shall immediately transmit
such funds to the Fund. Subsequent orders for Units that are
accepted by the General Partners shall be released from the
escrow account and transmitted to the Fund or returned to
subscribers in accordance with the Prospectus. Upon release
of an Investor's funds from the escrow account to the Fund,
an Assigned Limited Partnership Interest shall be credited
to the Assignor Limited Partner on the books and records of
the Fund in respect of such Unit and the Assignor Limited
Partner shall assign all of its rights with respect to such
Assigned Limited Partnership Interest to the Investor to the
extent permitted by, and in accordance with, the Agreement
and applicable law. The Assignor Limited Partner hereby
agrees to exercise any and all rights with respect to such
Assigned Limited Partnership Interest as directed by the
Investor. At such times as the General Partners deem
practicable and as required by the Act, the Certificate and
this Agreement shall be amended to reflect the ownership by
the Assignor Limited Partner of Assigned Limited Partnership
Interests in the amount of such purchased Units.
C. Any interest earned on moneys paid by Investors
during the period such moneys are held in escrow by the
Escrow Agent shall be paid to the Fund following the release
of orders and shall be distributed in accordance with
Section 4.5A hereof. Persons whose orders for Units are
rejected by the General Partners shall be returned their
moneys (and interest earned thereon) within10 days after
such rejection.
D. No order for Units sold as part of the Offering
shall be accepted after the Termination Date of the
Offering. If the General Partners do not accept orders
totalling an amount equal to the Minimum Offering Amount on
or before the Termination Date of the Offering, the Escrow
Agent shall promptly return all moneys deposited by
subscribers together with any interest earned on such
moneys.
E. For purposes of this Agreement, an Investor who
acquires Units in the Offering shall be recognized as an
Investor with respect to such Units on the date that the
General Partners accept the order for such Units.
Section 3.3 Partnership Capital
A. Each Partner's and Investor's Capital Contribution
shall be paid in cash on or prior to the date of such
Partner's admission to the Fund or the date of the
recognition of the Investor on the books and records of the
Fund.
B. Except to the extent of any interest income earned
on an Investor's Capital Contribution while it is held in
escrow, and later distributed to such Investor pursuant to
Section 4.5A, no Partner or Investor shall be paid interest
on any Capital Contribution.
C. Except as otherwise provided in this Agreement, no
Partner or Investor shall have the right to withdraw, or
receive any return of, his Capital Contribution prior to
December 31, 2037.
D. Under circumstances requiring a return of any
Capital Contribution, no Partner shall have the right to
receive property other than cash.
E. The Fund shall initially set aside Working Capital
Reserves for contingencies related to ownership of the
Operating Partnership Interests in an amount equal to at
least 3.0% of the Gross Proceeds of the Offering; provided,
however, that if only the Minimum Offering Amount is
received
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by the Fund, Working Capital Reserves shall be
approximately 1.5% of the Gross Proceeds of the
Offering. If in any fiscal quarter, the General
Partners determine that the Working Capital Reserves
of the Fund are in excess of the amount deemed
sufficient in connection with the ownership of the
Operating Partnership Interests and that such
Working Capital Reserves may be reduced, the amount
of such reduction may be distributed to the Partners
and Investors as a portion of the Fund's Net Cash
Flow. If in any fiscal quarter, the General Partners
determine that the Working Capital Reserves are
insufficient in connection with the Fund's
operations and that such Working Capital Reserves
shall be increased, the amount of such increase
shall reduce Net Cash Flow. Upon the Sale or
disposition of a Facility or Operating Partnership,
any Working Capital Reserves maintained for such
Facility or Operating Partnership may be
distributed, in the General Partners' discretion, to
Partners and Investors or applied as Working Capital
Reserves for other Facilities.
Section 3.4 Liability of Partners and Investors
A. Except as provided in the Act, the Limited
Partners and Investors shall be liable only to pay
their Capital Contributions and no Limited Partner
or Investor will be personally liable for the debts,
liabilities, contracts, or other obligations of the
Fund. In accordance with Section 17-608 of the Act,
(i) if a Limited Partner or an Investor has received
the return of any part of his Capital Contribution
in violation of the Agreement or the Act, he shall
be liable to the Fund for a period of six years
thereafter for the amount of the Capital
Contribution wrongfully returned, (ii) if without
violating this Agreement or the Act, a Limited
Partner or an Investor receives a return of any part
of his Capital Contribution, then he shall be liable
to the Fund for a period of one year thereafter for
the amount of the returned contribution, but only to
the extent necessary to discharge liabilities to
creditors who extended credit to the Fund during the
period the Capital Contribution was held by the Fund
and (iii) a Limited Partner or Investor receives a
return of his Capital Contribution to the extent
that a distribution to him reduces his share of the
fair market value of the net assets of the Fund
below the agreed value of his Capital Contribution
that has not been distributed to him.
B. Except as set forth in 3.4A, no Limited
Partner or Investor shall be required to lend any
funds to the Fund or, after his Capital Contribution
has been fully paid, to make any further capital
contribution to the Fund, nor shall any Limited
Partner or Investor be liable for or have any
obligation to restore any negative balance in his
Capital Account.
C. Subject to the provisions of Sections 3.1 and
5.9 of this Agreement, no General Partner shall have
any personal liability for the repayment of the
Capital Contribution or the Preferred Return of any
Limited Partner or Investor or be required to repay
to the Fund all or any portion of any negative
balance of the Capital Accounts of the Limited
Partners or the Investors.
D. The funds advanced by the Development General
Partner under the Cash Flow Deficit Guaranty
Agreement shall not constitute a Capital
Contribution of the Development General Partner or
be credited to the Capital Account of the
Development General Partner.
ARTICLE IV
ALLOCATIONS, DISTRIBUTIONS AND APPLICABLE RULES
Section 4.1 Allocation of Profit or Loss from a Sale
A. Profit from any Sale (and Profit from any
deemed Sale pursuant to Sections 4.4 or 4.5) shall
be allocated in the following order of priority:
(i) First, if one or more Partners or
Investors has a negative balance in his Capital
Account, to such Partners and Investors, in
proportion to their negative Capital Accounts,
until all such Capital Accounts have zero
balances.
(ii) Second, any Profit not allocated
pursuant to Section 4.IA(i) shall be allocated
to the Investors until the Capital Account of
each Investor is equal to the sum of his
Adjusted Capital Balance plus his unpaid
Preferred Return, if any.
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(iii) Third, any remaining Profit shall be
allocated 80.816% to the Investors, 14.143% to the
Development General Partner, 4.041% to Realty
Associates 1988 Limited Partnership, .5% to the
Development General Partner and .5% to the
Administrative General Partner. B. Loss from any Sale
(and Loss from any deemed Sale pursuant to Sections
4.4 and 4.5) shall be
allocated in the following order of priority:
(i) First, if one or more Partners or Investors
has a positive Capital Account, to such Partners or
Investors, in proportion to their positive Capital
Accounts, until all such positive Capital Accounts
have zero balances.
(ii) Any remaining Loss shall be allocated as
follows: 80.816% to the Investors, 14.143% to the
Development General Partner, 4.041% to Realty
Associates 1988 Limited Partnership, .5% to the
Development General Partner and .5% to the
Administrative General Partner.
Section 4.2 Distribution of Net Proceeds of Sale or Refinancing
A. Upon a Refinancing and upon a Sale that does not
constitute a Sale of all or substantially all of the
Facilities or Operating Partnership Interests, Net
Proceeds from a Refinancing or Net Proceeds from a Sale,
as the case may be, shall be distributed, credited and
applied in the following order of priority:
(i) First, to the Investors until each Investor
has received an amount equal to his unpaid Preferred
Return, if any, and then his Adjusted Capital
Balance.
(ii) Second, to repay accrued and unpaid
interest under the Cash Flow Deficit Guaranty
Agreement and the Deferred Management Fee Loans.
(iii) Third, to repay any outstanding principal
under the Cash Flow Deficit Guaranty Agreement and
the Deferred Management Fee Loans.
(iv) Fourth, any remaining Net Proceeds of Sale
or Refinancing shall be distributed 80.816% to the
Investors 14.143% to the Development General Partner,
4.041% to Realty Associates 1988 Limited Partnership,
.5% to the Development General Partner and .5% to the
Administrative General Partner. B. Upon the Sale of
all or substantially all of the Facilities or
Operating Partnership Interests, Net
Proceeds from such Sale, if any, shall be distributed,
credited and applied in the following order of priority:
(i) First, to repay accrued and unpaid interest
under the Cash Flow Deficit Guaranty Agreement and
the Deferred Management Fee Loans.
(ii) Second, to repay any outstanding principal
under the Cash Flow Deficit Guaranty Agreement and
the Deferred Management Fee Loans.
(iii) Third, to the Partners and Investors, in
proportion to their positive Capital Accounts, after
the allocation of Profit and Loss pursuant to
Sections 4.lA and 4.1B, until all such Capital
Accounts have been reduced to zero.
Section 4.3 Distribution of Net Cash Flow and Allocation
of Profit and Loss from Operations A. Net Cash Flow,
if any, for each year shall be distributed and
applied by the Fund in the
following order of priority:
(i) First, 99% to the Investors, .5% to the
Development General Partner, and .5% to the
Administrative General Partner, until each Investor
has received an amount equal to his unpaid Preferred
Return.
(ii) Second, to repay any accrued but unpaid
interest under the Cash Flow Deficit Guaranty
Agreement and the Deferred Management Fee Loans.
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(iii) Third, to repay any outstanding
principal under the Cash Flow Deficit Guaranty
Agreement (but, only (i) if less than four years
have elapsed since the Commencement Date, the
Development Facilities are at least 95% occupied
and at least 27% of the income therefrom is from
private pay sources, or (ii) if four or more
years have elapsed since the Commencement Date,
the Development Facilities are at least 90%
occupied and at least 20% of the income therefrom
is from private pay sources, or (iii) if the
Development Facilities have been sold by the
Fund), and the Deferred Management Fee Loans.
(iv) Fourth, 99% to the Investors, .5% to
the Development General Partner and .5% to the
Administrative General Partner, until each
Investor has received a non-compounded,
non-cumulative return for the current year equal
to 12.5% of his Adjusted Capital Balance.
(v) Fifth, 90.918% to the Investors, 8.582%
to the Development General Partner and.5% to the
Administrative General Partner. To the extent
feasible, the General Partners will endeavor to
distribute any Net Cash Flow on a
quarterly basis.
B. Profit from ordinary operations for each
fiscal year shall be allocated as follows:
(i) First, to the Partners and Investors who
have received a distribution of Net Cash Flow
during such fiscal year, an amount of Profit from
ordinary operations equal to the amount of such
Net Cash Flow, in proportion to the amount of
such distribution received by each of them.
(ii) Second, if there has been no
distribution of Net Cash Flow during such fiscal
year, or to the extent that the Profit from
ordinary operations is in excess of the Net Cash
Flow during such fiscal year, Profit from
ordinary operations shall be allocated 99% to the
Investors, .5% to the Development General Partner
and .5% to the Administrative General Partner. C.
Loss from ordinary operations for each fiscal
year shall be allocated 99% to the Investors, .5%
to the Development General Partner and .5% to the
Administrative General Partner.
Section 4.4 Liquidation or Dissolution
A. If the Fund is liquidated or dissolved, the
net proceeds from such liquidation, as provided in
Article VIII, shall be distributed first to
creditors, including Partners who are creditors, to
the extent otherwise permitted by law (whether by
payment or by establishment of reserves), other than
liabilities for distributions to Partners and
Investors, and any remaining net proceeds shall be
distributed in proportion to the Capital Accounts of
the Partners and Investors, determined after the
allocations in Sections 4.1 A and 4.1 B, unless
applicable law shall otherwise require, in which
event the allocations set forth in Sections 4.1A and
4.1B shall be modified to the extent necessary, but
only to the extent necessary, to comply with such
applicable law.
B. All distributions under this Section 4.4 shall
be made by the end of the taxable year of liquidation
of the Fund or, within 90 days of the date of
liquidation, whichever is later.
Section 4.5 General and Special Rules
A. Except as otherwise provided herein, the
timing and amount of all distributions shall be
determined by the General Partners. No Partner shall
have the right to demand and receive any distribution
of property other than cash. Notwithstanding any
other provision of this Agreement, the General
Partners shall have authority to make the following
distributions to certain of the Investors: First, if
the Fund has realized a savings on Selling
Commissions payable by the Fund with respect to the
purchase of Units (as more fully set forth in the
Prospectus), the General Partners shall make a
distribution to such Investor equal to the amount of
such savings realized by the Fund. Second, if any
interest is earned on an Investors Capital
Contribution while it is held in escrow pending
recognition as an Investor under Article VII, such
interest shall be paid by the Fund to such Investor
and Profit attributable to such interest shall be
allocated in the same manner.
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B. Subject to all of the special rules of this Section
4.5, if any Fund Property is distributed to the Partners in
kind, such Fund Property first shall be valued on the basis
of the fair market value thereof to determine the Profit or
Loss that would have resulted if such Fund Property had been
sold, and then such Profit or Loss shall be allocated as
provided in Section 4.lA and Section 4.1B, and shall be
properly credited or charged to the Capital Accounts in
accordance with Income Tax Reg. ss.1.704- l(b)(2)(iv)(e) or
any successor provision thereto. Any Partner entitled to any
interest in such assets shall receive such interest as a
tenant-in-common with all other Partners so entitled. The
fair market value of such assets shall be determined by an
independent appraiser who shall be selected by the General
Partners.
C. Notwithstanding Sections 4.1 and 4.3 hereof, if an
allocation of Loss (or item thereof) to an Investor or
Partner would cause or increase a deficit balance in his or
its Capital Account in excess of: (i) in the case of an
Investor or Partner other than a General Partner, his
proportionate share of Minimum Gain, or (ii) in the case of
a General Partner, the sum of the amount which it is
obligated to restore to the Fund pursuant to Section 3.1
hereof and its proportionate share of Minimum Gain (in each
case, such excess being referred to hereafter as the "Excess
Deficit Balance"), then the allocation shall not be made to
such Investor or Partner. Instead, such Loss (or deduction
or item thereof) shall be allocated first to the Partners
and Investors having positive Capital Accounts, in
proportion to such positive Capital Accounts, until all such
positive Capital Accounts have been reduced to zero, and any
additional Loss (or deduction or item thereof) shall be
allocated to the General Partners in accordance with their
interests in the Fund. For purposes of making the
determination set forth above, each Investor's and each
Partner's Capital Account balance shall be reduced by
reasonably expected allocations or adjustments of loss (or
item thereof) including Loss from a Sale under Income Tax
Reg. ss.ss.1.704-l(b)(2)(ii)(a)(4) and (5), and by
reasonably expected distributions to the extent not offset
by reasonably expected Capital Account increases ("Account
Reduction Items"). For purposes of calculating reasonably
expected Capital Account increases, the value of the Fund's
assets shall be presumed to be equal to their adjusted basis
for federal income tax purposes.
D. Notwithstanding Sections 4.1 and 4.3 hereof, in
accordance with Income Tax Reg. ss.ss.1.704- 1(b)(2)(ii)(d)
and 1.704-1(b)(4)(iv)(e), (i) if, in any fiscal year of the
Fund, an Account Reduction Item unexpectedly causes or
increases an Investor's or Partner's Excess Deficit Balance,
or (ii) if there is a net decrease in Minimum Gain during a
taxable year, then all Investors or Partners with an Excess
Deficit Balance at the end of such year shall be specially
allocated Profit and, to the extent necessary, gross income
(as defined in Section 61 of the Code) to the extent of such
Excess Deficit Balances, in proportion to the Excess Deficit
Balance of each Investor or Partner. Any remaining Profit or
Loss, after adjustment has been made for allocation of
income or gain pursuant to this Section 4.5D, shall be
allocated in accordance with Sections 4.1 and 4.3 hereof.
The General Partners shall be authorized to interpret and
apply this Section 4.5D so as to satisfy the requirements of
Income Tax Reg.ss.ss.1.704- l(b)(2)(ii)(d) and
1.704-1(b)(4)(iv)(e) and any successor provisions.
E. Any special allocations of Profit, Loss or gross
income under Section 4.5D shall be taken into account in
computing subsequent allocations of Profit or Loss, so that
to the extent possible, the aggregate amounts of Profit or
Loss allocated to each Partner or Investor will be equal to
the aggregate amounts that would have been allocated to them
in the absence of the unexpected Account Reduction Items.
F. For each fiscal year, all Profit and Loss allocated
pursuant to Section 4.3 hereof to the Investors shall be
allocated among the Persons that are recognized as Investors
during such year by determining the Profit and Loss
attributable to each month during such year and by
allocating the amount of such Profit and Loss among Persons
who are recognized as Investors on the books of the Fund on
the first business day of such month. The Profit or Loss
attributable to each month of the fiscal year shall be
determined by dividing the Profit or Loss for such year by
the number of days in such year, and then multiplying such
per diem amount by the number of days in each month.
G. All Net Cash Flow distributable to the Investors attributable to each
month of a fiscal quarter, if any, pursuant to Section 4.3 hereof, shall be
distributed among the Persons recognized as Investors on the books of the Fund
on the first business day of such month during the fiscal quarter. The Net A-15
<PAGE>
Cash Flow attributable to each month of the fiscal
quarter shall be determined by dividing the amount of
Net Cash Flow for such quarter by the number of days
in the quarter, and then multiplying such per diem
amount by the number of days in each month.
H. Notwithstanding Sections 4.5F and 4.5G, the
Fund shall adopt the "interim closing of the books"
method of allocating Fund Profit and Loss, in
accordance with a "semi-monthly convention", among
persons who become Investors pursuant to a closing of
the sale of the Units on or before the Termination
Date of the Offering. Accordingly, if there is more
than one closing of the sale of the Units, Investors
who are recognized on the books of the Fund (i) prior
to the sixteenth day of a calendar month, shall be
treated as an Investor on the books of the Fund on
the first business day of the month of recognition,
and (ii) on or after the sixteenth day of a calendar
month shall be treated as an Investor on the books of
the Fund on the first day of the month following the
month of recognition.
I. Except as provided in Section 4.5M, for each
taxable year, all Profit or Loss allocated pursuant
to Section 4.1 hereof and all Net Proceeds of Sale or
Refinancing, allocable or distributable with respect
to any Unit which is transferred during a taxable
year of the Fund, shall be allocated or distributed,
as the case may be, to the Persons recognized (in
accordance with Section 7.4 hereof) as Investors as
of the first business day of the month that includes
the date on which the Sale or Refinancing occurs;
provided, however, that all such Profit or Loss which
is attributable to, and all Net Proceeds from a Sale
which represent, Net Proceeds from a Sale received by
the Fund as a result of an installment or other
deferred Sale, shall be allocated or distributed, as
the case may be, to the Persons recognized (in
accordance with Section 7.4 hereof) as Investors as
of the first business day of the month that includes
the date on which the deferred Net Proceeds from a
Sale are received by the Fund, and the allocable cash
basis items shall be allocated as required under
Section 706(d) of the Code and the Income Tax
Regulations thereunder.
J. In the event that any Investor fails to
furnish to the General Partners evidence, in form and
substance satisfactory to the General Partners,
establishing that the General Partners have no
obligation under Section 1445 of the Code with
respect to such Investor to withhold and pay over an
amount to the Internal Revenue Service, the General
Partners may, in their sole discretion, withhold with
respect to such Investor the amount they would be
required to withhold pursuant to Section 1445 of the
Code if such Investor were not a U.S. Person, and any
amount so withheld shall be treated as a distribution
under Sections 4.2 or 4.3 of this Agreement, as the
case may be, and shall reduce the amount otherwise
distributable to such Investor thereunder.
Alternatively, the General Partners may at their
option loan the Investor an amount equal to the tax
to be withheld (at an interest rate equal to the
Escrow Agent's announced "prime rate" plus two
percentage points), such loan to be repaid by
retaining such investor's distributions.
K. Nowithstanding anything to the contrary that
may be expressed or implied in this Agreement, if at
any time the allocation provisions of this Article IV
do not result in the allocation to the General
Partners of an aggregate of at least 1% of the Profit
or Loss being allocated, the General Partners in the
aggregate, shall be allocated 1% thereof.
L. It is the intent of the General Partners that
each Investor's and Partner's distributive share of
Profit and Loss shall be determined and allocated in
accordance with this Article IV to the fullest extent
permitted by Sections 704(b) and 706 of the Code.
Therefore, if the Fund is advised by the Accountants
or the Fund's legal counsel, that the allocations
provided in Article IV of this Agreement are unlikely
to be respected for federal income tax purposes, the
General Partners have been granted the power in
Section 12.2.B hereof to amend the allocation
provisions of this Agreement, on advice of the
Accountants or the Fund's legal counsel, to the
minimum extent necessary to conform to Sections
704(b) and 706 of the Code the plan of allocations
and distributions of Profit and Loss, Net Cash Flow
and Net Proceeds of Sale or Refinancing provided in
this Agreement.
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<PAGE>
M. Notwithstanding any other provisions of this
Agreement other than Section 4.5K to the contrary,
"Interest Income" shall be allocated for federal income tax
purposes, and "Interest Income Cash" shall be distributed,
among the Investors and Partners as follows:
(1) Profit or Loss from the Sale to which the
Interest Income relates shall be calculated as if the
Fund had made an election out of installment sale
treatment under Section 453 of the Code, and such
Profit or Loss shall be hypothetically allocated among
the Investors and the Partners and hypothetically
credited or charged to their Capital Accounts as
provided in Section 4.1. The Capital Accounts of the
Investors and the Partners, as hypothetically
adjusted, shall be referred to as the "Hypothetical
Capital Accounts." The Hypothetical Capital Accounts
shall be decreased from time to time by distributions
to the Investors and the Partners and shall be
adjusted from time to time as a result of any
adjustment in the principal amount of the Purchase
Money Financing (e.g., as a result of purchase price
adjustments) to which the Interest Income relates. The
Hypothetical Capital Accounts as so adjusted shall be
referred to as the "Adjusted Hypothetical Capital
Accounts."
(2) Interest Income shall be allocated among the
Investors and the Partners for federal income tax
purposes in proportion to their Adjusted Hypothetical
Capital Accounts and the Capital Accounts of the
Investors and the Partners shall be increased
accordingly.
(3) Interest Income Cash shall be distributed
among the Investors and the Partners in the same
proportion that Interest Income was allocated above
for federal income tax purposes. Such distributions
shall decrease the Capital Accounts accordingly.
(4) The foregoing allocations and distributions
shall be made as of the last day of each taxable year
of the Fund during which the Fund has Purchase Money
Financing, based upon the per diem weighted average
Adjusted Hypothetical Capital Accounts of the
Investors and the Partners during each such taxable
year. N. Notwithstanding any other provision of this
Agreement, the General Partners may, after
giving 90 days' prior Notification to the Investors, (i)
adopt any other method for determining, in the event of
transfers of Units, the Investors entitled to distributions
of Net Cash Flow or Net Proceeds of Sale or Refinancing
that the General Partners, subject to the review and
approval of the Accountants, determine is reasonable, and
(ii) allocate Profit or Loss among the Investors during the
taxable year in any other manner that the General Partners,
determine satisfies the requirements of Section 706 of the
Code, but only to the extent such allocation of Profit and
Loss incorporates the minimum changes required to comply
with such section and is supported by an opinion of counsel
to the Partnership.
0. Allocations and distributions to Investors as a
class shall be made to each Investor entitled to such
allocation or distribution based upon the ratio of the
number of Units owned by each such Investor to the number
of Units owned by all Investors entitled to such allocation
or distribution.
P. In accordance with Section 704(c) of the Code and
the Income Tax Regulations thereunder, income, gain, loss,
and deduction (including depreciation) with respect to any
property contributed to the capital of the Fund shall be
allocated among the Investors and Partners so as to take
account of any variation between the adjusted basis of such
property to the Fund for federal income tax purposes and
its fair market value on the date of contribution. In the
event the value at which Fund assets are carried on its
balance sheet maintained under the terms of this Agreement
are adjusted pursuant to Income Tax Reg.
ss.1.704-1(b)(2)(iv)(f), subsequent allocations of income,
gain, loss and deduction with respect to such assets shall
take account of any variation between the adjusted basis of
such asset for federal income tax purposes and the value
carried on such balance sheet in the same manner as under
Section 704(c) of the Code and the Income Tax Regulations
thereunder. Any elections or other decisions relating to
such allocations shall be made by the General Partners in
any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this
Section are solely for purposes of federal, state and local
taxes and shall not affect, or in any way be taken into
account in computing, any Investor's or Partner's Capital
Account or share of Profit, Loss, Net Cash Flow, Net
Proceeds from a Sale, Net Proceeds from a Refinancing, or
other distributions pursuant to any provision of this
Agreement.
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<PAGE>
ARTICLE V
RIGHTS, POWERS AND DUTIES OF PARTNERS
Section 5.1 Management and Control of the
Partnership; Tax Matters Partner
A. Subject to the Consent of the Investors when
required by this Agreement, the General Partners
shall have the exclusive right to manage and control
the business of the Fund. Except as otherwise
provided herein, decisions to be made by the General
Partners shall be made by the joint agreement of the
Administrative General Partner and the Development
General Partner.
B. Except as otherwise provided herein, the Fund
shall be bound by the signature of any General
Partner.
C. No Limited Partner or Investor (except one who
may also be a General Partner, and then only in his
capacity as General Partner) shall have the right to
participate in the control of the business of the
Fund, or have any authority or right to act for or
bind the Fund.
D. The Administrative General Partner is hereby
designated to serve as the Fund's Tax Matters Partner
and shall have all of the powers and responsibilities
of such position as provided in Sections 6221 et seq.
of the Code. No income tax returns will be filed
until the Development General Partner has had the
opportunity to review such returns. All third party
costs and expenses incurred by the Administrative
General Partner in performing its duties as Tax
Matters Partner shall be borne by the Fund, as shall
all expenses incurred by the Fund and/or the Tax
Matters Partner in connection with any tax audit or
tax-related administrative or judicial proceeding.
Each Partner and Investor shall be responsible for
all costs incurred by such Partner or Investor with
respect to any tax audit or tax related
administrative or judicial proceeding in connection
with such Partner's or Investor's tax returns and all
costs incurred by any such Partner or Investor who
participates in any tax audit or tax- related
administrative or judicial proceeding of or against
the Fund or any Partner. Each Partner and Investor
hereby (i) expressly authorizes the Tax Matters
Partner to enter into any settlement with the
Internal Revenue Service with respect to any tax
matter, tax item, tax issue, tax audit, or judicial
proceeding, which settlement shall be binding on all
Partners and Investors; (ii) waives the right to
participate in any administrative or judicial
proceeding in which the tax treatment of any Fund
item is to be determined; and (iii) agrees to execute
such consents, waivers or other documents as the Tax
Matters Partner may determine are necessary to
accomplish the provisions of this Section 5.1D. The
Tax Matters Partner shall have no liability to any
Partner or Investor or the Fund, and shall be
indemnified by the Fund to the full extent provided
by law, for any act or omission performed or omitted
by it within the scope of the authority conferred on
it by this Agreement, except for acts of negligence
or for damages arising from any misrepresentation or
breach of any other agreement with the Fund. The
liability and indemnification of the Tax Matters
Partner shall be determined in the same manner as is
provided in Sections 5.9 and 5.10 hereof.
E. Anything herein to the contrary
notwithstanding, if the Development General Partner
or its Affiliates shall be in Default (as defined)
under an agreement with the Fund at any time during
the term hereof, then all decisions to be made by the
General Partners shall be made solely by the
Administrative General Partner, provided that such
Default shall not have been caused solely or
primarily by any act or omission of the
Administrative General Partner. If a Default shall
not have been cured within the cure period (if any)
applicable thereto, then for a period of 45 days the
Administrative General Partner shall have the option
to purchase the Interests of the Development General
Partner in the Fund at a price determined and payable
in accordance with Section 6.5 hereunder, and if such
Interests are purchased, it shall constitute a
voluntary withdrawal of the Development General
Partner.
Section 5.2 Authority of General Partners
A. Except to the extent otherwise provided
herein, including, without limitation, Sections 5.3A,
5.4 and 5.5, the General Partners for, and in the
name of, and on behalf of, the Fund are hereby
authorized:
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<PAGE>
(i) to enter into any kind of activity and to
perform and carry out contracts of any kind necessary
to, or in connection with, or incidental to the
accomplishment of the purposes of the Fund, so long as
said activities and contracts may be lawfully carried
on or performed by a limited partnership under
applicable laws and regulations;
(ii) to engage Persons, including the Sponsors as
provided in Article IX, to provide services or goods
to the Fund and the Operating Partnerships, upon such
terms as the General Partners deem fair and reasonable
and in the best interest of the Fund, provided,
however, that, as to services or goods provided by a
Sponsor, (a) the compensation for such services or
goods must be comparable and competitive with that of
any other Person who provides comparable services or
goods and shall be on competitive terms, and will not
exceed 90% of the competitive price that would be
charged by non-affiliated persons or entities
rendering similar types and quality of services in the
same or comparable geographic locations; (b) the
compensation and other terms of such contracts shall
be fully disclosed to the Investors in the reports of
the Fund, (c) the Sponsor must have been previously
engaged in the business of providing such services or
goods, independent of the Fund and as an ongoing
business, (d) all such transactions shall be embodied
in a written contract that describes the services or
goods to be provided and the compensation to be paid,
which contract may only be modified by the Majority
Vote of the Investors, and which contract shall permit
termination without penalty on sixty (60) days notice,
and (e) except for those services to be provided under
agreements referred to in this Agreement or the
Prospectus, any services provided by a Sponsor will be
provided only under extraordinary circumstances where
services are not available elsewhere;
(iii) to acquire by lease or purchase, develop,
own, sell, convey, finance, improve, assign, mortgage,
lease or exchange incident to a tax-free swap any real
estate and any personal property necessary, convenient
or incidental to the accomplishment of the purposes of
the Fund;
(iv) to develop, construct, maintain, finance,
improve, own, grant options with respect to, sell,
convey, assign, mortgage or lease any Fund Property or
any other real estate or personal property necessary,
convenient or incidental to the accomplishment of the
purposes of the Fund;
(v) to execute any and all agreements, contracts,
documents, certifications and instruments necessary or
convenient in connection with the development,
construction, management, maintenance and operation of
any Fund Property, including without limitation,
necessary easements to public or quasi-public bodies
or public utilities;
(vi) to borrow money and issue evidences of
indebtedness in furtherance of any or all of the
purposes of the Fund, and to secure the same by deed
of trust, mortgage, security interest, pledge or other
lien or encumbrance on any Property or any other
assets of the Fund and to borrow money on the general
credit of the Fund for use in the business of the Fund
and to take any action and enter into any agreement
necessary or advisable in connection with such
borrowing;
(vii) to repay in whole or in part, negotiate,
refinance, recast, increase, renew, modify or extend
any secured, or other indebtedness affecting any Fund
Property and in connection therewith to execute any
extensions, renewals or modifications of any evidences
of indebtedness secured by deeds of trust, mortgages,
security interests, pledges or other encumbrances
covering any Fund Property;
(viii) to engage a real estate agent (including a
Sponsor) to sell any Fund Property or portions thereof
upon such terms and conditions as are deemed fair and
reasonable by the General Partners and to be in the
best interest of the Fund, and to pay reasonable
compensation for such services; provided, however,
that any real estate commission paid shall not exceed
the lesser of the competitive real estate commission
for like properties located in the same geographic
area or six percent (6%) of the contract price for the
Sale of any Fund Property, and, in addition, if a
Sponsor provides substantial services in such regard,
to pay the Sponsor up to one-half of such real estate
commission, provided, however, that the payment of
such real estate commission to the Sponsor shall be
subordinated to the payment to Investors of their
Adjusted Capital Balance plus the unpaid portion, if
any, of their Preferred Return.
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(ix) to recognize transferees of Units as
Investors and to admit substitute Limited
Partners in accordance with the terms described
in the Prospectus and Article VII of this
Agreement;
(x) to invest Working Capital Reserves and,
pending the investment of the Fund's assets in
the Operating Partnerships, to invest the Fund's
assets (excluding Working Capital Reserves), in
interest-bearing accounts and short-term
investments, including obligations of federal,
state and local governments and their agencies,
mutual funds, regulated investment companies,
commercial paper and certificates of deposit of
federally-insured commercial banks, savings
banks or savings and loan associations;
provided, however, that such investments are
short-term, highly-liquid and provide
appropriate safety of principal;
(xi) to purchase, cancel or otherwise retire
or dispose of the Partnership Interests of Units
of any Partner or Investor according to the
provisions of this Agreement;
(xii) to execute and deliver all documents
necessary or appropriate for the sale of Units,
including the Prospectus and filings under the
Securities Act of 1933 and any other federal and
state laws relating to the sale of securities;
(xiii) to require Investors to become
Limited Partners (in which case the General
Partners shall have the power to amend this
Agreement without the Consent of the Investors)
and to take such other action with respect to
the manner in which Units are being or may be
transferred or traded as may be necessary or
appropriate to preserve the tax status of the
Fund as a partnership for federal income tax
purposes and the tax treatment of the Investors
as Partners (but such action shall be taken only
to the minimum extent required by an opinion of
Counsel and only with the Consent of Investors
if the changes would adversely affect the
Investors);
(xiv) to take such steps (including
amendment of this Agreement) as the General
Partners determine are advisable or necessary
and will not result in any material adverse
effect on the economic position of a majority in
interest of the Investors with respect to the
Fund in order to preserve the tax status of the
Fund as a partnership for federal income tax
purposes and the tax treatment of the Investors
as Partners, including, without limitation,
removing the Units from public trading markets
and imposing restrictions on transfers of Units
or Interests (provided such restrictions on
transfers do not cause the Fund's assets to be
deemed "plan assets" within the meaning of
ERISA) (but such action shall be taken only to
the minimum extent required by an opinion of
Counsel and only with the Consent of Investors
if the changes would adversely affect the
Investors);
(xv) to establish and maintain the Working
Capital Reserves described in Section 3.3E;
(xvi) to pay or reimburse any reasonable
out-of-pocket expenses incurred by any
Affiliate of
the General Partners in connection with any
report pursuant to Section 10.3, provided that
no fee shall be paid to any Affiliate in
connection with any such report; and
(xvii) after obtaining the Consent of the
Investors to the matters set forth in Sections
5.4A(xvii), 5.4A(xviii) or 5.4A(xix), to take
any actions which they deem appropriate to the
extent authorized by the Investors to facilitate
the purposes described in such sections,
including, without limitation, amendments to
this Agreement to change the dates upon which
transfers of Units will be recognized, and the
General Partners shall give prior written notice
to the Investors of any such amendment. B. Any
person dealing with the Fund or the General
Partners may rely upon a certificate signed
by any General Partner, as to:
(i) the identity of any General Partner or
any Limited Partner;
(ii) the existence or non-existence of any
fact or facts that constitute conditions
precedent to acts by the General Partners or in
any other manner are germane to the affairs of
the Fund;
(iii) the Persons who are authorized to
execute and deliver any instrument or document of
the Fund; or
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(iv) any act or failure to act by the Fund or as
to any other matter whatsoever involving the Fund
or any Partner.
Section 5.3 Authority of Investors A. By the Majority Vote
of the Investors, the Investors, without the consent of
the General Partners, may:
(i) amend this Agreement; provided that such
amendment (a) shall not in any manner allow the
Investors to take part in the control of the Fund's
business in a manner which would subject them to
liability as general partners under the Act or any
other applicable law, and (b) shall not, without the
consent of any General Partner affected, alter the
rights, powers, or duties of the affected General
Partner or its interest in Profit and Loss, Net Cash
Flow, Net Proceeds of Sale or Refinancing, or alter any
of the provisions of Section 8.2 hereof;
(ii) dissolve or terminate the Fund prior to the
expiration of its term; (iii) remove a General
Partner and elect a new General Partner; or (iv)
approve or disapprove of the Sale of all or
substantially all of the Fund Property.
If a General Partner is removed pursuant to Section
5.3A(iii) hereof, such General Partner shall voluntarily
withdraw as a general partner of the Operating Partnerships.
B. Any action taken pursuant to Section 5.3A hereof
shall be void ab initio, if prior to or within 15 days after
such vote either (i) the Fund shall have received an opinion
of counsel, which counsel is approved by the Consent of
Investors, that such action may not be effected without
subjecting the Investors to liability as general partners
under the Act or under the laws of such other jurisdiction
in which the Fund owns properties or is doing business, or
(ii) a court of competent jurisdiction shall have entered a
final judgment to the foregoing effect. For purposes of this
paragraph, counsel will be deemed approved by the Consent of
the Investors if proposed by the General Partners and
affirmatively approved in writing within 45 days; provided
that if the holders of 10% or more of the outstanding Units
propose counsel for this purpose, such proposed counsel, and
not counsel proposed by the General Partners, shall be
submitted for such approval by the Investors. The existence
of such an opinion of counsel or court judgment with respect
to a particular contemplated Fund action shall not affect
the rights of the Investors to vote on other future actions
or the existence of such rights. If the opinion of counsel
or court judgment referred to above has not been obtained
the vote shall proceed as scheduled and it shall not be
delayed or postponed for any reason except as otherwise
permitted by the Act.
Section 5.4 Restrictions on Authority
A. With respect to the Fund and Fund Property, the
General Partners and their Affiliates shall have no
authority to perform any act in violation of any applicable
laws or regulations thereunder, nor shall the General
Partners as such have any authority:
(i) without the Consent of the Investors, to
voluntarily dissolve or terminate the Fund prior to the
expiration of its term;
(ii) to purchase or acquire property other than as
described in the Prospectus; (iii) except as
permitted in this Agreement, to do any act
required to be approved by the
Investors under the Act;
(iv) to reinvest any Net Proceeds of Sale or
Refinancing, except in short-term securities pursuant
to Section 10.2B;
(v) except with respect to the Interim
Investments, to invest in or underwrite securities of
any type or kind for any purpose, or make investments
other than in the Properties and the operations related
and incidental thereto; (vi) to do any act in
contravention of this Agreement;
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<PAGE>
(vii) to do any act that would make it
impossible to carry on the ordinary business
of the Fund;
(viii) to confess a judgment against the Fund;
(ix) to offer Interests or Units in exchange
for property; (x) to possess the Fund
Property, or assign
the Fund's rights in same, for other than the
exclusive use of the Fund;
(xi) to operate in such a manner as to be
classified as an "investment company" under the
meaning of the Investment Company Act of 1940;
(xii) to purchase or lease any property from
or sell or lease property to the General
Partners or their Affiliates (with the exception
of the purchase of the Operating Partnership
Interests in the Operating Partnerships that own
the Facilities or sales under the Management
Agreement as described in the Prospectus at the
time the Registration Statement is declared
effective by the Securities and Exchange
Commission);
(xiii) to admit a Person as a General
Partner, except as provided in this
Agreement; (xiv) to admit a Person as an
Investor or Limited Partner, except as
provided in this
Agreement;
(xv) without the Consent of the Investors,
to sell all or substantially all of the Fund
Property; (xvi) to create or suffer to exist
any lien, security interest or other charge
or encumbrance
upon or with respect to any portion of the
Operating Partnership Interests or Facilities if
the sum of the principal amount of such debt and
the principal amount of all other debts of the
Fund which are secured by all or part of the
Fund Property, would exceed approximately 60% of
the fair market value of all of the Fund
Property, as determined by an independent
appraisal; provided, however, that the General
Partners shall have the authority to create or
suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect
to an Operating Partnership Interest or Facility
with a debt in excess of such limitation, but
not in excess of approximately 75% of the then
fair market value of such asset, as determined
by an independent appraiser;
(xvii) without the Consent of the Investors,
to cause or facilitate the merger or
consolidation of the Fund with other
partnerships, including, but not limited to,
mergers or consolidations in which the Investors
receive in exchange for their Units interests in
the surviving entity, with the objective of
listing the interests of the surviving entity on
a national or regional securities exchange or
NASDAQ;
(xviii) subject to Section 7.2.B, without
the Consent of the Investors, to list the Units
on a securities exchange or enable the Units to
be traded in the over-the-counter market, or
otherwise facilitate the establishment of a
market for the trading of Units, or (except as
set forth in Section 5.2A(xiv)) to withdraw the
Units from such listing; or
(xix) without the Consent of the Investors,
to restructure the Fund as a real estate
investment trust for federal income tax purposes.
B. The General Partners shall not take any
action which, for federal tax purposes, shall
cause the Fund to terminate or to be treated as an
association taxable as a corporation.
Section 5.5 Authority of Partners and Affiliated
Persons to Deal with Partnership
A. The General Partners may, for, in the name of,
and on behalf of, the Fund, acquire property from,
borrow money from, enter into agreements, contracts
or the like (in addition to those set forth herein)
with, or reimburse for reasonable out-of-pocket
expenses incurred in connection with the preparation
of reports by, any Sponsor in an independent
capacity, as distinguished from such capacity (if
any) as a Sponsor, as if such Sponsor were an
independent contractor; provided, however, that any
such agreement shall be subject to the conditions set
forth in Section 5.2A(ii) herein.
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<PAGE>
B. Neither the General Partners nor any Affiliate
thereof shall have the authority:
(i) to cause the Fund to invest in any program,
partnership or other venture (other than the purchase
of the Operating Partnership Interests in the Operating
Partnerships that own or will own the Facilities as set
forth in the Prospectus at the time the Registration
Statement is declared effective by the Securities and
Exchange Commission);
(ii) to receive any compensation, fee or expense
not otherwise permitted to be paid to it under the
terms of this Agreement or the Prospectus;
(iii) to cause the Fund to acquire an Operating
Partnership Interest in an Operating Partnership that
owns a Facility without first having obtained an
appraisal with respect to the value of the Facility,
rendered by an independent appraiser who is a member of
a nationally recognized society of appraisers, in which
the appraised value equals or exceeds the purchase
price paid by the Fund;
(iv) to commingle the Fund's funds with those of
any other person or entity, or to invest any of the Net
Proceeds of the Offering in junior mortgages, junior
deeds of trust or other similar obligations, except
that funds of the Fund may be temporarily retained by
agents of the Fund pursuant to contracts for the
rendering of services to the Fund by such agents or
held in accounts established and maintained for the
purpose of making the Interim Investments and/or
computerized disbursements;
(v) to cause the Fund to lend money or other assets
to the General Partners or any Affiliates thereof;
(vi) to grant to the General Partners or any
Affiliates thereof an exclusive listing for the Sale of
Fund Property;
(vii) to receive any rebate or give-up, or to
participate in any reciprocal business arrangement with
any General Partner or an Affiliate thereof;
(viii) to cause the Fund to acquire a Facility that
is under construction without completion bonds, fixed
price guarantees or other satisfactory arrangements; or
(ix) to cause the Fund to acquire a Facility that
is owned or under development by a Sponsor or a
program, partnership or other venture in which the
Sponsor has an interest, other than the seven
Facilities specifically identified in the Prospectus.
Section 5.6 Duties and Obligations of the General Partners
A. The General Partners shall take all action that may
be necessary or appropriate (i) for the continuation of the
Fund's existence as a limited partnership under the Act (and
under the laws of each other jurisdiction in which such
existence is necessary to protect the limited liability of
the Investors and the Limited Partners or to enable the Fund
to conduct the business in which it is engaged), and (ii)
for the acquisition, maintenance, preservation and operation
of the Operating Partnerships and the Facilities in
accordance with the provisions of this Agreement and
applicable laws and regulations. The General Partners shall
devote to the Fund such time as may be necessary for the
proper performance of their duties hereunder, but neither
the General Partners nor any of their Affiliates shall be
expected to devote their full time to the performance of
such duties. The General Partners or their Affiliates may
act as general or managing partners for other partnerships
engaged in businesses similar to that conducted by the Fund.
Nothing herein shall limit the General Partners or their
Affiliates from engaging in any such business activities, or
any other activities which may be competitive with the Fund,
and the General Partners or their Affiliates shall not incur
any obligation, fiduciary or otherwise, to disclose or offer
any interest in such activities to any party hereto.
B. The General Partners shall at all times conduct their
affairs, the affairs of all their Affiliates and the affairs
of the Fund in such a manner that no Limited Partner or
Investor (except a Limited
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<PAGE>
Partner or Investor who is also a General Partner)
will have any personal liability for Fund debts except
as otherwise set forth herein and in the Prospectus.
C. The General Partners from time to time shall
prepare and file such certificates (or amendments
thereto) and other similar documents as are required
by the Act, and in the proper office or offices in
each other jurisdiction in which the Fund is formed or
qualified, any certificates and other documents
required by the applicable statutes, rules or
regulations of any such jurisdiction.
D. The General Partners shall prepare or cause to
be prepared, and shall file, on or before the due date
(or any extension thereof), any federal, state or
local tax returns required to be filed by the Fund.
The General Partners shall cause the Fund to pay any
taxes payable by the Fund to the extent same are not
payable by any other party.
E. The General Partners shall obtain and keep in
force, or cause to be obtained and kept in force
during the term hereof, fire and extended coverage,
workmen's compensation, and public liability insurance
in favor of the Fund and the Operating Partnerships
with such insurers and in such amounts as the General
Partners deem advisable, but in amounts not less (and
with deductible amounts not greater) than those
customarily maintained with respect to nursing centers
comparable to the Facilities.
F. The General Partners shall be under a
fiduciary duty to conduct the affairs of the Fund in
the best interests of the Fund, including the
safekeeping and use of all Fund funds and assets,
whether or not in the General Partners' possession or
control, and the use thereof for the benefit of the
Fund. The General Partners shall not enter into any
contract or agreement relieving them of their common
law fiduciary duty. The General Partners shall at all
times act in good faith and exercise due diligence in
all activities relating to the conduct of the business
of the Fund. The General Partners shall treat the
Investors as a group and shall not favor the interests
of any particular Investor.
G. The General Partners shall cause the Fund to
commit a percentage of the Gross Proceeds of the
Offering to investment in the Facilities which is
equal to the greater of. (i) 86.5% of the Gross
Proceeds of the Offering reduced by.1625% for each 1%
of financing of the Fund; or (ii) 73.5% of the Gross
Proceeds of the Offering. For the purpose of this
Section 5.6G, the percent of financing of Facilities
owned by the Fund shall be determined by dividing the
amount of financing of the Facilities by the purchase
price of the Facilities, excluding Front-End Fees. The
proceeds of the Offering will be invested in
Facilities within two years of the date of the
Prospectus.
H. Except for payment of the Selling Commissions
and the re-allowance of the Due Diligence Expense
Reimbursement Fee, the General Partners shall not
directly or indirectly pay or award any commission or
other compensation to any Person engaged by a
potential Investor for investment advice as an
inducement to such advisor to advise the purchase of
Units.
I. On loans made available to the Fund by a
General Partner, the General Partner may not receive
interest or similar charges or fees in excess of the
amount which would be charged by unrelated lending
institutions on comparable loans for the same purpose,
in the same locality of the property if the loan is
made in connection with a particular property. No
prepayment charge or penalty shall be required by the
General Partner on a loan to the Fund secured by
either a first or a junior or all-inclusive trust
deed, mortgage or encumbrance on the property, except
to the extent that such prepayment charge or penalty
is attributable to the underlying encumbrance. In no
event shall any loans provided by a General Partner to
the Fund provide for scheduled principal payments over
a period of 48 or more months or provide that less
than 50% of the principal amounts of such loan is
scheduled to be paid during the first 24 months.
J. The General Partners shall not reinvest Net
Cash Flow or Net Proceeds of Sale or Refinancing.
K The General Partners in their capacity as such
or in their capacity as general partners of the
Operating Partnerships which may hold title to a
Facility shall not do or cause such Operating
Partnership to do any act which would not be permitted
under this Partnership Agreement to be done by it as
the General Partner if title to the Facility were held
directly by the Fund and shall in general
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<PAGE>
act and cause the Operating Partnership to act in such
capacity in the same manner as if title to the Facility were
held directly by the Fund.
Section 5.7 Compensation of General Partners
Except as expressly provided in Articles IV and IX
herein, the General Partners shall receive no fees,
salaries, profits, distributions, reimbursement or other
compensation for serving as General Partners.
Section 5.8 Other Businesses of Partners
Neither the Fund nor any Partner or Investor shall have
any rights or obligations, by virtue of this Agreement, in
or to any independent ventures of any nature or description,
or the income or profits derived therefrom, in which a
Partner or Investor may engage, including, without
limitation, the ownership, operation, management,
syndication and development of other real estate projects,
even if in competition with the Facilities.
Section 5.9 Liability of General Partners and Affiliates to
Limited Partners or Investors
The General Partners and the Affiliates of the General
Partners performing certain services on behalf of the Fund
shall not be liable, responsible, or accountable, in
liabilities, damages or otherwise, to any Investor, Limited
Partner or the Fund for any loss, judgment, liability,
expense or amount paid in settlement of any claims sustained
which arise out of any act or omission performed or omitted
by them within the scope of the authority conferred on them
by this Agreement, provided that the General Partners
determine, in good faith, that such act or omission was in
the best interests of the Fund, except for acts of
negligence or misconduct or for damages arising from any
misrepresentation or breach of an agreement with the Fund.
The Fund shall not incur the cost of that portion of any
liability insurance which insures a General Partner or the
Affiliates of the General Partners performing certain
services on behalf of the Fund against any liability as to
which a General Partner or Affiliate may not be indemnified
under Section 5.10 herein.
Section 5.10 Indemnification
A. The General Partners and the Affiliates of the
General Partners performing certain services on behalf of
the Fund shall be indemnified to the full extent provided by
law for any loss, judgment, liability, expense or amount
paid in settlement of any claims sustained by them which
arise out of any act or omission performed or omitted by any
or all of them within the scope of the authority conferred
on them by this Agreement, if the General Partners
determine, in good faith, that such act or omission was in
the best interests of the Fund and that such act or omission
did not constitute negligence or misconduct or breach of any
other agreement with the Fund, provided that any indemnity
under this Section shall be provided out of and to the
extent of Fund assets only, and no Investor or Limited
Partner shall have any personal liability on account
thereof.
B. Notwithstanding Section 5. 10A, the General Partners
and the Affiliates of the General Partners performing
certain services on behalf of the Fund and any person acting
as a Broker-Dealer shall not be 'indemnified by the Fund for
any liability, loss or damage incurred by any or all of them
in connection with (i) any claim or settlement arising under
federal or state securities laws unless (a) there has been a
successful adjudication on the merits of each count
involving such securities laws violations as to the
particular indemnities and the court approves
indemnification of the litigation costs, (b) such claims
have been dismissed with prejudice on the merits by a court
of competent jurisdiction as to the particular indemnities
and the court approves indemnification of the litigation
costs, or (c) a court of competent jurisdiction approves a
settlement of the claims and finds that indemnification of
the settlement and related costs should be made, after being
advised as to the current position of the Securities and
Exchange Commission, the Massachusetts Securities Division,
the California Commissioner of Corporations, the
Pennsylvania Securities Commission, the Tennes- see
Securities Commission and such other state securities
administrators, as shall be required by such court,
regarding indemnification for violations of securities law;
or (ii) any liability imposed by law, including liability
for negligence or misconduct.
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<PAGE>
ARTICLE VI
TRANSFERABILITY OF A GENERAL PARTNER'S INTEREST
Section 6.1 Removal, Voluntary Retirement or
Withdrawal of a General Partner; Transfer of
Interests
A. A General Partner may be removed in the manner
specified in Section 5.3A herein.
B. No General Partner may voluntarily withdraw or
retire from its position as a General Partner of the
Fund unless another General Partner (including any
Additional or Successor General Partner admitted
pursuant to Section 6.2) remains, and unless (i)
counsel for the Fund is of the opinion that such
voluntary retirement or withdrawal from the Fund win
not cause the Fund: (a) to be dissolved under the
Act; (b) to be classified other than as a partnership
for federal income tax purposes; or (c) to terminate
for federal income tax purposes; and (ii) the
approval of the remaining General Partner(s) and the
Consent of the Investors to such voluntary retirement
or withdrawal is obtained.
C. A General Partner who voluntarily retires or
withdraws from the Fund in violation of this Section
6.1 shall be and remain liable to the Fund and the
Partners for damages resulting from the General
Partner's breach of this Agreement, and, without
limitation of remedies, the Fund may offset such
damages against the amounts otherwise distributable
to the retiring or withdrawing General Partner.
D. No General Partner shall have the right to
sell, exchange, or otherwise dispose of all or any
portion of its Interest unless the proposed assignee
or transferee of all or a portion of the Interest of
such General Partner is admitted as a Successor or
Additional General Partner to the Fund pursuant to
the provisions of Section 6.2 prior to any such sale,
exchange or other disposition.
E. The voluntary retirement or withdrawal of a
General Partner shall become effective only upon (i)
receipt by the Fund of the opinions of counsel
referred to in Section 6.1(B)(i); (ii) receipt by the
Fund of the approval and consent referred to in
Section 6.1B(ii); and (iii) the amendment of the
Fund's Certificate to reflect such withdrawal or
retirement and its filing for recordation.
Section 6.2 Election and Admission of Successor or
Additional General Partners
A. By the Majority Vote of the Investors, a
Successor General Partner may be elected to replace a
General Partner removed in the manner described in
Section 5.3A herein.
B. Except as otherwise expressly provided herein,
no Person shall be admitted as a Successor or
Additional General Partner unless (i) counsel for the
Fund is of the opinion that the admission of such
Successor or Additional General Partner will not
cause the Fund to be classified other than as a
partnership for federal income tax purposes or cause
the Fund to terminate for federal income tax
purposes; (ii) the consent of the then existing
General Partner(s) is obtained; and (iii) the Consent
of the Investors to such admission has been obtained.
C. The admission of such Successor or Additional
General Partner shall become effective upon (i)
receipt by the Fund of the opinion referred to in
Section 6.2B(i); (ii) receipt by the Fund of the
consents referred to in Section 6.2B(ii) and (iii),
if applicable; and (iii) the amendment of the
Certificate to reflect the admission of the Successor
or Additional General Partner and its filing for
recordation.
Section 6.3 Events of Withdrawal of a General Partner
A. In addition to a voluntary withdrawal of a
General Partner pursuant to Section 6.lE or Section
5. 1E, a General Partner shall be deemed to withdraw
(i) if the General Partner assigns all of his
Interest in the Fund, (ii) if the General Partner is
removed pursuant to Section 5.3A; and (iii) upon the
following acts or events: (a) if a natural person,
upon his death or the entry by a court of competent
jurisdiction that such General Partner is incompetent
to manage his person or his property; (b) if a
corporation, the filing of a certificate of
dissolution, or its equivalent, for the corporation
or the revocation of its charter; and (c) if a
partnership, the dissolution and commencement of
winding up of the General Partner. To the maximum
extent permitted by the Act, no other act or
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<PAGE>
event shall be deemed an event of withdrawal of a General
Partner or serve to convert a General Partner to a Limited
Partner.
B. In the event of the withdrawal of a General Partner
who is not then the sole General Partner, the remaining
General Partner or General Partners may elect to continue
the Fund, and if such election is made, shall promptly give
Notification of such event and shall make and file such
amendments to the Certificate as are required by the Act to
reflect the fact that the withdrawn General Partner has
ceased to be a General Partner of the Fund.
C. In the event of the withdrawal of a General Partner
and the remaining General Partner does not elect to continue
the Fund or in the event of the withdrawal of a sole General
Partner, the withdrawn General Partner, or its successors,
representatives, heirs or assigns shall promptly give
Notification of such withdrawal to all remaining Partners
and Investors. In such event, the Fund shall be dissolved
unless, within 90 days after the withdrawal of the General
Partner, the Investors, by the Majority Vote of the
Investors, agree in writing to continue the business of the
Fund and to the appointment, effective as of the date of
withdrawal of the sole General Partner, of one or more
Additional General Partners. If the Investors elect to
reconstitute the Fund and agree to admit a substitute
General Partner, the relationship of the Investors and of
substitute General Partner in the Fund shall be governed by
this Agreement.
Section 6.4 Liability of a Withdrawn General Partner
A. Any General Partner who withdraws from the Fund
shall be, and remain, liable for all obligations and
liabilities incurred by it as General Partner' prior to the
time such withdrawal becomes effective. In addition, a
General Partner who voluntarily withdraws in violation of
this Agreement shall be subject to the liability described
in Section 6.l C.
B. Upon the withdrawal of a General Partner, such
General Partner shall immediately cease to be a General
Partner, and, unless a Successor General Partner has
acquired the Interest of the withdrawing General Partner
pursuant to Section 6.5, the withdrawn General Partner's
Interest shall be converted to a limited partner Interest of
a new class. Such conversion shall not affect any rights or
liabilities of the withdrawn General Partner, except that
such General Partner shall no longer participate in the
management of the Fund.
C. The personal representatives, heirs, successors or assigns of any
General Partner who with- draws from the Fund shall be, and remain, liable for
all obligations and liabilities incurred by the General Partner prior to, or in
connection with, its withdrawal. Section 6.5 Valuation of Partnership Interest
of General Partner Upon the voluntary or involuntary withdrawal of a
General Partner, the Fund or a Successor General Partner may
purchase the Fund Interest of the withdrawn General Partner
at any time subsequent to withdrawal. The price of the
withdrawn General Partner's Interest shall be determined by
two (2) independent appraisers, one selected by the
withdrawn General Partner and one selected by the remaining
General Partner, or if none is remaining, by the Investors.
If the two appraisers are unable to agree on the value of
the General Partner's Interest, they shall jointly appoint a
third independent appraiser whose determination shall be
final and binding. The Fund shall then pay the withdrawn
General Partner the price of its Interest as a General
Partner as so determined. The expense of the appraisals
shall be borne equally by the terminated General Partner and
the Fund. If the withdrawal is involuntary, payment shall be
made by delivery of a promissory note bearing interest
payable semiannually at a floating rate of interest equal to
the lowest rate permitted under the Code to avoid the
imputation of interest income to the withdrawn General
Partner, payable in five equal annual installments, the
first installment to be paid as soon as practicable after
the appraisal, and prepayable at any time. If the withdrawal
is voluntary, payment shall be made by delivery of a
promissory note bearing no interest, with principal payable
only from distributions which the withdrawn General Partner
would have received under this Agreement had the General
Partner not withdrawn. Immediately upon receiving the note,
the withdrawn General Partner shall cease to be a Partner of
the Fund for all purposes, except that the withdrawn General
Partner shall continue to be
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<PAGE>
subject to Section 6.4 hereunder. All amounts
received pursuant to this Section 6.5 shall
constitute complete and full discharge for all
amounts owing to the withdrawn General Partner on
account of its Interest in the Fund. Any disputes
regarding valuation or payment pursuant to this
Section which are not resolved in a binding manner by
the provisions of this Section shall be resolved by
arbitration in accordance with the then current rules
of the American Arbitration Association. The expense
of arbitration shall be borne equally by the
terminated General Partner and the Fund.
ARTICLE VII
ASSIGNMENT OF ASSIGNEE UNITS TO INVESTORS;
TRANSFERABILITY OF LIMITED PARTNER INTERESTS AND UNITS
Section 7.1 Assignment of the Assignee Units to Investors
A. Pursuant to Sections 3.2 and 7.1C hereof, the
Assignor Limited Partner shall assign to each
Investor Assignee Units equal to the number of Units
purchased by each Investor in the Offering.
B. Except as provided in Section 7.1.A above,
the Assignor Limited Partner may not transfer a
Limited Partnership Interest without the prior
written consent of the General Partners. The Assignor
Limited Partner shall have no right to vote or
consent with respect to Units owned by the Assignor
Limited Partner for its own account and such Units
shall not be considered outstanding Units for
purposes of determining whether the Majority Vote of
the Investors or the Consent of the Investors has
occurred. The Assignor Limited Partner, by the
execution of this Agreement, acknowledges and agrees
that the Assignor Limited Partners management will
have fiduciary responsibility for the safekeeping and
use of all funds and assets of the Investors, whether
or not in the Assignor Limited Partners management's
possession or control, and that the management of the
Assignor Limited Partner will not employ, or permit
another to employ, such funds or assets in any manner
except for the exclusive benefit of the Investor. The
Assignor Limited Partner agrees not to contract away
the fiduciary duty owed to the Investors by the
Assignor Limited Partner's management under the
common law of agency.
C. Except as set forth in Section 7.1G, the
Assignor Limited Partner, by the execution of this
Agreement, irrevocably transfers and assigns to the
Investors all of the Assignor Limited Partner's
rights and interest in and to the Assigned Limited
Partnership Interests, as of the time that payment
for such Assigned Limited Partnership Interests is
received by the Fund and such Assigned Limited
Partnership Interests are credited to the Assignor
Limited Partner on the books and records of the Fund.
The rights and interest so transferred and assigned
shall include, without limitation, the following:
(i) all rights to receive distributions of
uninvested Capital Contributions pursuant to Sec-
tions 3.2 and 3.3;
(ii) all rights to receive cash
distributions pursuant to Article IV; (iii)
all rights in respect to allocations of
Profit and Loss pursuant to Article IV; (iv)
all other rights in respect of
determinations of allocations and
distributions pursuant to
Article IV;
(v) all rights to consent to the admission
of successor or additional General Partners pursu-
ant to Sections 6.1 and 6.2; (vi) all rights to
receive any proceeds of liquidation of the
Fund pursuant to Section 8.2; (vii) all
rights to inspect books and records and to
receive reports pursuant to Article X;
(viii) all voting rights, rights to attend
or call meetings and other such rights; and
(ix) all rights which the Limited Partners
have, or may have in the future, under the
Act.
D. The General Partners, by the execution of this Agreement, irrevocably
consent to and acknowledge that (i) the foregoing transfer and assignment
pursuant to Section 7.1 by the Assignor
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Limited Partner to the Investors of the Assignor Limited
Partner's rights and interest in the Assigned Limited
Partnership Interests is effective, and (ii) the Investors
are intended to be and shall be third party beneficiaries of
all rights and privileges of the Assignor Limited Partner in
respect of the Assigned Limited Partnership Interests. The
General Partners covenant and agree that, in accordance with
the foregoing transfer and assignment, all the Assignor
Limited Partner's rights and privileges in respect of
Assigned Limited Partnership Interests may be exercised by
the Investors including, without limitation, those cited in
Section 7.l.
E. In accordance with the transfer and assignment
described in Section 7.1, Investors shall have the same
rights that the Limited Partners have under this Agreement
and under the Act.
F. The General Partners shall amend the Certificate to
reflect the crediting of the Assignor Limited Partner with
the Capital Contributions made by Investors on a monthly
basis or at such other intervals as may be required by the
Act.
G. Notwithstanding the assignment of the Assigned
Limited Partnership Interests referred to in this Section
7.1, the Assignor Limited Partner shall retain legal title to
and be and remain a Limited Partner of the Fund.
Section 7.2 Transferability of Units
A. Transfers or assignments of Units are subject to the
consent of the General Partners.
B. The General Partners shall consent to a transfer of a
Unit except the General Partners shall not consent if one or
more of the following transfer restrictions applies:
(i) No sale or exchange of any Units shall be made
if the Units sought to be sold or exchanged, when added
to the total of all other Units sold or exchanged within
a period of 12 consecutive months prior thereto, would,
in the opinion of counsel for the Fund, result in the
Fund being considered to have terminated within the
meaning of Section 708 of the Code. The General Partners
shall give Notification to all Investors in the event
that sales or exchanges should be suspended for this
reason. All deferred sales or exchanges shall be made
(in chronological order to the extent practicable) as of
the first day of the fiscal year beginning after the end
of any such 12-month period, subject to the provisions
of this Article VII.
(ii) No transfer or assignment of any Unit shall be
made if a counsel for the Fund is of the opinion that
the particular transfer or assignment would be in
violation of any federal or state securities laws
(including any investment suitability standards)
applicable to the Fund or would cause the Fund to be
classified other than as a partnership for federal
income tax purposes.
(iii) No transfer or assignment of any Unit shall be
made if, in the opinion of counsel to the Fund, such
transfer would cause the Fund to be treated as a
"publicly traded partnership" under Sections 7704 and
469(k) of the Code.
(iv) No transfer or assignment of Units shall be
made after which any transferor or transferee would hold
(a) less than 200 Units, unless such transferor would
own zero Units or (b) a number of Units not evenly
divisible by four.
(v) No transfer or assignment of any Unit shall be
made if it would result in the assets of the Fund being
treated as "plan assets" or the transactions
contemplated hereunder to be prohibited transactions
under ERISA or the Code.
(vi) No transfer or assignment of a Unit shall be
made to a foreign person under the Code or a minor or
incompetent (unless such transfer or assignment shall be
made to a legal guardian on such person's behalf).
(vii) No transfer or assignment shall be made if
such transfer or assignment would result in the Fund
being disqualified to participate in any government
program involving the business of the Fund or in the
opinion of the General Partners would otherwise
adversely impact upon the business or operations of the
Fund.
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C. In order to record a trade on its books and
records, the Fund may require such evidence of
transfer or assignment and authority of the
transferor or assignor (including signature
guarantees), an opinion of counsel to the effect that
there has been no violation of federal or state
securities laws in the assignment or transfer,
evidence of the transferee's suitability under state
securities laws, and the written acceptance and
adoption by the transferee of the provisions of this
Agreement, as the General Partners may determine. The
Administrative General Partner may charge a transfer
fee (not to exceed $100) sufficient to cover all
reasonable expenses connected with such transfer.
D. In no event shall an Investor be permitted to
transfer a fraction of a Unit.
Section 7.3 Death, Bankruptcy or Adjudication of
Incompetence of an Investor or a Limited Partner
Upon the death of an Investor or a Limited
Partner, his executor, administrator, or trustee,
or, if
he is adjudicated incompetent or insane, his
committee, guardian, or conservator, or, if he
becomes bankrupt, the trustee or receiver of his
estate, shall have all the rights of an Investor or a
Limited Partner for the purpose of settling or
managing his estate and shall have whatever power the
deceased or incompetent Investor or Limited Partner
possessed to assign all or any part of his Units or
Interest. The death, dissolution, adjudication of
incompetence, or bankruptcy of an Investor or a
Limited Partner shall not dissolve the Fund.
Section 7.4 Effective Date
The Fund shall recognize the transferee of a Unit
as an Investor on the Fund's books and records on the
first business day of the next calendar month after
the month in which the Fund receives all necessary
documentation and consents required to effect the
transfer of his Units.
Section 7.5 Substitute Limited Partners
Any Investor may elect to become a Substitute
Limited Partner upon (i) signing a counterpart of
this Agreement and any other instrument or
instruments deemed necessary by General Partners,
including a Power of Attorney in favor of the General
Partners as described in Section 12.l.A hereof, and
(ii) paying a fee equal to the actual costs and
expenses incurred by the Administrative General
Partner for legal and administrative costs and
recording fees. Investors who elect to become
Substitute Limited Partners will receive one Limited
Partnership Interest for each Unit they convert and
will not be able to re-exchange their Limited
Partnership Interests for Units. The Capital Account
of the former Investor attributable to transferred
Units shall be credited to the Capital Account of the
Substitute Limited Partner. The Fund's Certificate
will be amended no less often than quarterly, if
required by applicable law, to reflect the
Substitution of Limited Partners.
Section 7.6 Retirement or Withdrawal of an Investor
A. No Investor shall have the right to
voluntarily retire or withdraw from the Fund unless
the General Partners shall have consented to such
voluntary retirement or withdrawal by an Investor.
Upon the retirement or withdrawal of an Investor: (i)
the Interest of such retiring or withdrawing Investor
shall thereafter belong to the Fund; (ii) such
retiring or withdrawing Investor shall not be
entitled to receive distributions with respect to any
periods after the time of such retirement of
withdrawal; and (iii) such retiring or withdrawing
Investor shall not be entitled to receive any amount
for the fair value of his Units as of the date of his
retirement or withdrawal, other than as agreed to by
the General Partners and the withdrawing Investor.
The General Partners shall not consent to the
voluntary retirement or withdrawal of an Investor if
the General Partners receive an opinion of counsel to
the Fund that such retirement or withdrawal would
cause the Fund to be classified other than as a
partnership for federal income tax purposes, or cause
the Fund to terminate for federal income tax
purposes.
B. At any time after the Termination Date of the
Offering, the Fund may, in its sole discretion, in
response to the request of an Investor, repurchase
any or all of the Units of such Investor upon
mutually agreeable terms, provided that such
repurchase does not materially impair the capital or
operation of the Fund. The determination to
repurchase Units will be made in the sole discretion
of
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the General Partners. The determination of the value of the
repurchased Units will be based upon, among other factors,
the current fair market value of the Facilities and the Fund
Property, less all Fund debts and obligations. The Fund will
not repurchase Units prior to the Termination Date of the
Offering and is not obligated to repurchase Units at any
time. Units acquired by the General Partners and their
Affiliates or by the Assignor Limited Partner will not be
eligible for repurchase by the Fund. Units purchased by the
Fund during any month shall be deemed canceled effective as
of the first day of the month following the effective date of
such purchase.
ARTICLE VIII
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE FUND
Section 8.1 Events Causing Dissolution
A. The Fund shall dissolve and its affairs shall be wound
up upon the first to occur of the following events:
(i) the expiration of its term;
(ii) the withdrawal of a General Partner, unless the
Fund is continued pursuant to Sections 6.3B or 6.3C;
(iii) the Sale of all or substantially all Fund
Property (excepting (a) a disposition thereof which, in
the opinion of counsel to the Fund, qualifies, in whole
or in part, under Section 1031 or Section 1033 of the
Code or (b) a Sale in which the Fund receives Purchase
Money Financing, in which case the Fund shall dissolve
upon receipt of the final payment thereunder);
(iv) the election by the General Partners, with the
Consent of the Investors, to dissolve the Fund;
(v) by the Majority Vote of the Investors pursuant
to Section 5.3A to dissolve the Fund; or (vi) the
happening of any other event causing the dissolution
of the Fund under applicable
law.
B. Dissolution of the Fund shall be effective on the day
on which the event occurs giving rise to the dissolution. A
certificate of cancellation shall be filed under the Act upon
the dissolution and the commencement of winding up of the
Fund; provided, however, that the Fund shall not terminate
until the Fund Property has been distributed as provided in
Section 8.2. Notwithstanding the dissolution of the Fund,
prior to the termination of the Fund, the business of the
Fund and the affairs of the Partners, as such, shall continue
to be governed by this Agreement.
Section 8.2 Liquidation
A. As soon as practical after the dissolution of the
Fund, the General Partners, or if there are no General
Partners, any Limited Partner or the liquidating trustee
under the Act, as the case may be, shall give Notification to
all the Limited Partners and Investors of such fact and shall
prepare a plan as to whether and in what manner the Fund
Property shall be liquidated. By the Majority Vote of the
Investors, the assets of the Fund, subject to its liabilities
(and the establishment of reserves, if necessary, for such
liabilities), may be transferred to a successor Entity, upon
such terms and conditions as are then agreed upon.
B. Unless the Investors agree to transfer the assets of
the Fund, subject to its liabilities, to a successor Entity
pursuant to Section 8.2A, upon dissolution of the Fund, the
General Partners, any Limited Partner or the liquidating
trustee under the Act, as the case may be, shall liquidate
the Fund Property, and apply and distribute the proceeds
thereof in accordance with Section 4.4. A Partner or an
Affiliate of a Partner may purchase such assets with the
Consent of the Investors.
C. Notwithstanding the provisions of Section 8.2B, in the
event the General Partners, any Limited Partner, or the
liquidating trustee under the Act, as the case may be, shall
determine that an immediate sale of all or a portion of the
Fund Property would cause undue loss to the Partners and
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Investors, the General Partners, any Limited Partner,
or the liquidating trustee under the Act, as the case
may be, in order to avoid such loss, may, after
having given Notification to all the Investors and
Limited Partners, either defer liquidation of, and
withhold from distribution for a reasonable time, any
assets of the Fund, or distribute the assets in kind
to a liquidating trust to be held for the benefit of
the Investors and Partners.
Section 8.3 Capital Contribution Upon Dissolution
Subject to the provisions of Section 5.9 of this
Agreement, each Investor and Partner shall look
solely to the assets of the Fund for all
distributions with respect to the Fund and his
Capital Contribution and shall have no recourse (upon
dissolution or otherwise) against any Partner or
Investor; provided, however, that upon the
dissolution and termination of the Fund, the General
Partners will make the Capital Contributions referred
to in Section 3.1. All amounts so contributed by the
General Partners shall be distributed first to the
Fund's creditors entitled thereto, and the balance to
the Investors and Partners in proportion to the
positive balances in their Capital Accounts at the
time of dissolution and termination of the Fund.
ARTICLE IX
CERTAIN PAYMENTS TO THE GENERAL PARTNERS AND AFFILIATES
Section 9.1 Reimbursement of Certain Costs and
Expenses of the General Partners and Affiliates
A. Subject to the provisions of Article V hereof,
the Fund shall be permitted to reimburse the
General Partners for the actual cost to the General
Partners or any of their Affiliates of the Fund's
operating expenses. In determining the actual cost to
a General Partner or an Affiliate of a General
Partner of goods and materials and administrative
services, actual cost means the actual cost to a
General Partner or an Affiliate of a General Partner
of goods and materials used for or by the Fund and
obtained from entities not affiliated with a General
Partner, and actual cost of administrative services
means the pro rata cost of personnel as if such
persons were employees of the Fund. The cost for
administrative services to be reimbursed to a General
Partner or an Affiliate shall be at the lower of the
General Partner's or Affiliate's actual cost or the
amount the Fund would be required to pay to
independent parties for comparable administrative
services in the same geographic location. The General
Partners shall use their best efforts to cause all of
the Fund's expenses to be billed directly to and paid
by the Fund to the extent practicable.
B. Subject to the foregoing, the Fund shall pay
all expenses (which expenses shall be billed directly
to the Fund) of the Fund which may include but are
not limited to: (a) all costs of personnel (excluding
rent or depreciation, utilities, capital equipment,
and other administrative items) employed full- or
part-time by the Fund and involved in the business of
the Fund and allocated pro rata to their
administrative services performed on behalf of the
Fund, including Persons who may also be officers or
employees of the General Partners or their Affiliates
(other than Controlling Persons); (b) all costs of
borrowed money, taxes and assessments on Facilities
and other taxes applicable to the Fund; (c) legal,
audit, accounting, brokerage and other fees; (d)
printing, engraving and other expenses and taxes
incurred in connection with the issuance,
distribution, transfer, registration and recording of
documents evidencing ownership of an Interest or Unit
or in connection with the business of the Fund; (e)
fees and expenses paid to independent contractors,
mortgage bankers, brokers and servicers, leasing
agents, consultants, on-site property managers and
other property management personnel (other than
Controlling Persons and other officers of the General
Partners or their Affiliates), real estate brokers,
insurance brokers and other agents; (f) expenses in
connection with the disposition, replacement,
alteration, repair, remodeling, refurbishment,
leasing, refinancing and operating of the Facilities
(including the costs and expenses of foreclosures,
insurance premiums, real estate brokerage and leasing
commissions and of maintenance of such Facilities);
(g) expenses of organizing, revising, amending,
converting, modifying or terminating the Fund; and
(h) the cost of preparation and dissemination of the
informational material and documentation relating to
potential sale, or other disposition of Facilities or
in connection with any meetings or votes if the
Investors.
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C. Notwithstanding any other provision of this Agreement, no reimbursement
shall be permitted for services for which the General Partners are entitled to
compensation by way of a separate fee.
Section 9.2 Fees and Other Payments
A. The Fund shall cause the following payments and
fees to be paid to the General Partners or their
Affiliates: (i) to the Selling Agent, the Selling
Commissions and the Due Diligence Expense
Reimbursement Fee. (ii) to the Administrative
General Partner, the Offering and Organization
Expense Fee., (iii) to the Administrative General
Partner, the Acquisition Fees and the prepaid
terms and fees related to the acquisition of the
Facilities and paid by the Administrative General
Partner. (iv) to certain Affiliates of the
Development
General Partner and the Administrative Part-
ner, payments pursuant to the Partnership Interest
Options, the Existing Partnership Interest Acquisition
Agreements and the Development Partnership Interest
Acquisition Agreements.
(v) to the Nursing Center Manager on behalf of the
Operating Partnerships, payments pursuant to the
Management Agreements, provided that such payments do
not exceed the lesser of (a) the fees which are
competitive for similar types and quality of services
in the geographic area of the Facility or (b) 6% of
the gross revenues from the Facility to which the
Management Agreement relates. Included in such
management fee shall be bookkeeping services and fees
paid to any party.
(vi) to the Administrative General Partner, the
Development General Partner or their Affiliates, real
estate brokerage commissions, payable upon the Sale of
any Facility, provided that the General Partners or
their Affiliates actually render real estate brokerage
services in connection with such Sale. Any commissions
paid to the General Partners and their Affiliates will
be limited to one-half of the competitive real estate
commission for like properties located in the same
geographic area not to exceed 3% of the contract price
for the Sale of the Facility, and will be subordinated
to the payment to Investors of their Adjusted Capital
Balance plus the unpaid portion, if any, of their
Preferred Return. If more than one of the General
Partners or their Affiliates is involved in rendering
real estate brokerage services to the Fund, the
commission will be divided between them commensurate
with actual services rendered.
(vii) to First Meridian Mortgage Corporation a
Mortgage Placement Fee equal to .5% of the financing
obtained to facilitate the acquisition of Operating
Partnership Interests.
(viii) to the Administrative General Partner a fee
for 1988 equal to (i) $12,500 if the Operating
Partnership Interest relating to Facility I is
acquired, (ii) $25,000 if the Operating Partnership
Interests relating to Facilities I and II are
acquired, (iii) $37,500 if the Operating Partnership
Interest relating to Facilities I, II and III are
acquired or (iv) $50,000 if the Operating Partnership
Interests relating to all of the Existing Facilities
are acquired; and after 1988, a fee equal to the
greater of $75,000 per year or .5% of the Fund's
annual revenues for routine and recurring accounting
and clerical services, communications, services and
reports to Investors, and routine and recurring
reports made to regulatory authorities. B. The total
of the fees owed to the General Partners and their
Affiliates, as set forth in subsection A. (i), (ii)
and (iii) above, shall in no event exceed 16.6% of the
Gross Proceeds of the Offering.
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<PAGE>
ARTICLE X
BOOKS AND RECORDS; BANK ACCOUNTS; REPORTS
Section 10.1 Books and Records
A. Unless otherwise directed by the
Administrative General Partner, the books and records
of the Fund shall be maintained by the General
Partners at the Fund's principal place of business. In
all cases, said books and records shall be available
for examination and copying by any Limited Partner,
Investor or his duly authorized representatives, for
any purpose related to the Limited Partner's or
Investor's interest as a Limited Partner or Investor,
at the expense of such Limited Partner or Investor, at
any and all reasonable times. The Fund shall keep at
its principal place of business, without limitation,
the following records: true and full information
regarding the status of the business and financial
condition of the Fund; -promptly after becoming
available, a copy of the Fund's federal, state and
local income tax returns for each year; a current list
of the names and last known business, residence or
mailing addresses of each Partner and Investor; a copy
of this Agreement and the Certificate and all
amendments thereto; and other information regarding
the affairs of the Fund as is just and reasonable. The
current list of the names and last known business,
residence or mailing addresses of each Partner and
Investor shall be mailed to any Investor upon payment
of a reasonable charge for copy work.
B. The Fund shall keep its books and records in
accordance with the accounting methods followed for
federal income tax purposes, which shall reflect all
Fund transactions and shall be appropriate and
adequate for the Fund's business. The Fund's taxable
year shall be a calendar year.
Section 10.2 Bank Accounts
A. The General Partners shall have fiduciary
responsibility for the safekeeping and use of an funds
and assets of the Fund, whether or not in their
immediate possession or control. The General Partners
shall not employ, or permit any other Person to
employ, such funds in any manner except for the
benefit of the Fund.
B. The bank accounts of the Fund shall be
maintained in such banking institutions as the General
Partners shall determine, and withdrawals shall be
made only in the regular course of Fund business on
the signature of a General Partner or such other
signature or signatures as the General Partners may
determine. All deposits and other funds may be
deposited in interest bearing or non-interest bearing
accounts guaranteed by federal authorities, invested
in short-term United States Government or municipal
obligations, or deposited with a banking institution
selected by the General Partners.
Section 10.3 Reports
A. No later than 75 days after the end of each
calendar year, the General Partners will furnish each
Person who was an Investor or Limited Partner at any
time during the fiscal year with all tax information
relating to the Fund's performance for the preceding
calendar year that is required to be set forth in the
Investors and Limited Partner's federal and state
income tax return.
B. Within 60 days after the end of each of the
first three fiscal quarters of each fiscal year of the
Fund, the General Partners will furnish to each Person
who was an Investor or Limited Partner at any time
during the fiscal quarter then ended, a report setting
forth information with respect to the progress of the
Fund's business, which report shall include:
(i) an unaudited balance sheet of the Fund;
(ii) an unaudited statement of income for
the quarter; (iii) an unaudited cash flow
statement for the quarter; (iv) an unaudited
statement setting forth
the services rendered to, and fees received from,
the Fund by any Sponsor; and
(v) other pertinent information concerning
the Fund and its activities during the quarter.
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<PAGE>
The various reports required pursuant to this Section
10.3.B may be sent earlier than or separately from any of
the other reports required pursuant to this Section 10.3.B,
and the information required to be contained in any of the
reports required pursuant to this Section 10.3.B may be
contained in more than one report.
C. Within 120 days after the end of each fiscal year,
the General Partners will furnish an annual report to each
Person who was a Limited Partner or an Investor as of the
last business day of the fiscal year then ended. Such
annual report will include:
(i) a balance sheet as of the end of the Fund's
fiscal year, statements of income, Partners' equity
and changes in financial position, which shall be
prepared in accordance with generally accepted
accounting principles and accompanied by an auditor's
report containing an opinion of the Accountants;
(ii) the breakdown of any Fund costs reimbursed to
a Sponsor and a statement setting forth in detail the
services rendered to, and fees received from, the Fund
by any Sponsor as verified by a review of the time
records of, and the specific nature of the work
performed by, individual employees, the cost of whose
services were reimbursed (and within the scope of the
annual audit by the Accountants shall be the
obligation to verify the allocations of the costs
reimbursed to a General Partner or Affiliate);
(iii) a cash flow statement; and
(iv) a report of the activities of the Fund during
the fiscal year.
The annual report shall also set forth distributions
to the Investors for the period covered thereby and shall
separately identify distributions from (a) Net Cash Flow
during the period, (b) Net Cash Flow during a prior period
which had been held as reserves, (c) Net Proceeds of Sale
or Refinancing, and (d) Working Capital Reserves.
D. Within 45 days after the end of each fiscal quarter
in which a Sale or Refinancing occurs, the General Partners
shall send to each Person who was an Investor as of the
close of business on the first business day of the month
that includes the date of occurrence of the Sale or
Refinancing, a report as to the nature of the Sale or
Refinancing and as to the Profit or Loss arising from the
Sale or Refinancing.
E. The General Partners will prepare and timely file
with appropriate federal and state regulatory authorities
all reports required to be filed with such entities under
then-applicable laws, rules and regulations. Such reports
shall be prepared on the accounting or reporting basis
required by such regulatory authorities. Upon request,
copies of such reports will be furnished to any Investor or
Limited Partner for any purpose reasonably related to the
Investor's or Limited Partner's interest as an Investor or
a Limited Partner. In the event that any regulatory
authority promulgates rules or amendments thereto that
would permit a reduction in any of the reporting
requirements to which the Fund is subject under this
Agreement at the time of the execution hereof, the Fund may
cease to prepare and file any such reports in accordance
with such rules or amendments.
F. The Administrative General Partner will maintain,
(i) for a period of at least four (4) years, a record of
the information obtained to indicate that an Investor has
met the suitability standards set forth in the Prospectus;
and (ii) for a period of at least five (5) years, records
of the appraisals made of the Properties, which appraisal
records shall be available for inspection and copying by
any Investor or Limited Partner for any purpose reasonably
related to the Investor's or Limited Partner's interest as
an Investor or a Limited Partner.
Section 10.4 Federal Tax Elections
The Fund, in the sole discretion of the General
Partners, may make elections for federal tax purposes as
follows:
(i) In case of a transfer of a Unit, the Fund, in
the sole discretion of the General Partners, may
timely elect pursuant to Section 754 of the Code (or
corresponding provisions of future law)
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and pursuant to similar provisions of applicable
state or local income tax laws, to adjust the
basis of the assets of the Fund.
(ii) The General Partners may elect
accelerated depreciation methods under the Code,
or may elect straight-line depreciation over a
period as long as 40 years if, in their sole
discretion, the determination of the percentage
of tax-exempt Investors becomes too cumbersome.
(iii) All other elections required or
permitted to be made by the Fund under the Code
shall be made by the General Partners in such
manner as will, in their sole opinion, be most
advantageous to a Majority of the Investors. The
Fund shall, to the extent permitted by
applicable law and regulations, elect to treat
as an expense for federal income tax purposes
all amount's. incurred by it for real estate
taxes, interest and other charges which may, in
accordance with applicable law and regulations,
be considered as expenses.
ARTICLE XI
MEETINGS OF INVESTORS
Section I 1.1 Calling Meetings
Meetings of the Investors for any purpose may be
called by the General Partners and shall be called by
the General Partners upon receipt of a request in
writing signed by Investors having in the aggregate
more than 10% of the outstanding Units. Upon receipt
of a written request stating the purpose(s) of the
meeting, the General Partners shall provide all
Investors within IO days after receipt of such
request with notice as described in Section 11.2. The
meeting shall be held at a time and place convenient
to the Investors.
Section 11.2 Notice, Procedure
Notice of any meeting shall be given either
personally or by certified mail, not less than 15
days nor more than 60 days before the date of the
meeting, to each Investor at his record mailing
address. The notice shall be in writing, and shall
state the place, date, hour, and purpose of the
meeting, and shall indicate that it is being issued
at or by the direction of the Partners or Investors
calling the meeting. If a meeting is adjourned to
another time or place, and if any announcement of the
adjournment of time or place is made at the meeting,
it shall not be necessary to give notice of the
adjourned meeting. The presence in person or by proxy
of the holders of more than 50% of the outstanding
Units shall constitute a quorum at all meetings of
the Investors; provided, however, that if there is no
quorum present, holders of a majority in interest of
the Investors present or represented may adjourn the
meeting from time to time without further notice
until a quorum is obtained. No notice of the time,
place or purpose of any meeting of Investors need be
given to any Investor who attends in person or is
present by proxy (except when an Investor attends a
meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any
business on the ground that the meeting is not
lawfully called or convened), or to any Investor
entitled to notice who, in a writing executed and
filed with the records of the meeting, either before
or after the time of the meeting, waives the notice
requirement.
Section 11.3 Right to Vote
For the purpose of determining the Investors
entitled to vote at any meeting of the Fund, the
General Partner or the Investors requesting the
meeting may fix a date, in advance, as the record
date for the determination of Investors entitled to
vote. This date shall be not more than 50 days nor
less than 10 days before any meeting.
Section 11.4 Proxies, Rules
Each Investor may authorize any person or
persons to act for him by proxy in all matters in
which an Investor is entitled to participate, whether
by waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be
signed by the Investor or his attorney-in-fact. No
proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise
provided
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in the proxy. Every proxy shall be revocable at the
pleasure of the Investor executing it. At each meeting of
Investors the General Partners shall appoint officers and
adopt rules as they deem appropriate for the conduct of the
meeting.
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Appointment of Administrative General Partner
as Attorney-in-Fact
A. Each Limited Partner and Investor hereunder hereby
irrevocably appoints and empowers the Administrative
General Partner his attorney-in-fact to consent to or
ratify any act listed in Subsections 5.4A(i) through (xix)
of this Agreement after the Consent of the Investors
thereto has been obtained, and to execute, acknowledge,
swear to and deliver all agreements and instruments and
file all documents requisite to carrying out the intentions
and purposes contemplated in this Agreement, including,
without limitation, the execution and delivery of this
Agreement and all amendments hereto, the filing of all
business certificates and necessary certificates of limited
partnership and amendments thereto from time to time in
accordance with all applicable laws and any certificates of
cancellation. This power of attorney shall be deemed
coupled with an interest, and shall not be affected by the
subsequent disability or incapacity of the principal.
B. The appointment by all Limited Partners and
Investors of the Administrative General Partner as
attorney-in-fact shall be deemed to be a power coupled with
an interest and shall survive the assignment by any Limited
Partners or Investors of the whole or any part of his
Interests or Units in the Fund.
C. The power of attorney granted by this Section 12.1
shall be governed by the laws of the State of Delaware.
Section 12.2 Waiver of Partition
Each Partner and Investor, on behalf of himself, his
successors, representatives, heirs and assigns hereby
waives any right of partition or any right to take any
other action which otherwise might be available to him for
the purpose of severing his relationship with the Fund or
his interest in the assets held by the Fund from the
interest of the other Partners or Investors.
Section 12.3 Notification
Any Notification, in order to be effective, shall be
sent by registered or certified mail, postage prepaid, if
to a Partner or Investor, to the address of the Partner or
Investor set forth in the books and records of the Fund,
and if to the Fund, to the principal place of business of
the Fund set forth in Section 2.2 (unless Notification of a
change of the principal office is given), the date of
registry thereof or the date of the certification thereof
being deemed the date of receipt of Notification; provided,
however, that any written communication sent to a Partner
or Investor or to the Fund and actually received by such
Person shall constitute Notification for all purposes of
this Agreement.
Section 12.4 Word Meanings
In this Agreement, the singular shall include the
plural and the masculine gender shall include the feminine
and neuter and vice versa, unless the context otherwise
requires.
Section 12.5 Binding Provisions
The covenants and agreements contained herein shall be
binding upon, and inure to the benefit of, the heirs,
personal representatives, successors and assigns of the
respective parties hereto.
Section 12.6 Applicable Law
This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware, without
regard to principles of conflict of laws.
A-37
<PAGE>
Section 12.7 Counterparts
This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an
original as against any party whose signature
appears thereon, and all of which shall together
constitute one and the same instrument. This
Agreement shall become binding upon the date hereof.
Each Additional or Successor General Partner shall
become a signatory hereof by signing such number of
counterparts of this Agreement and such other
instrument or instruments, and in such manner as the
General Partners shall determine, and by so signing,
shall be deemed to have adopted and to have agreed
to be bound by all the provisions of this Agreement;
provided, however, that no such counterpart shall be
binding until it shall have been signed by the
Administrative General Partner.
Section 12.8 Separability of Provisions
Each provision of this Agreement shall be
considered separable, and if for any reason any
provision or provisions hereof are determined to be
invalid or contrary to any existing or future law,
such invalidly shall not impair the operation of or
affect those portions of this Agreement which are
valid.
Section 12.9 Paragraph Titles
Paragraph titles are for descriptive purposes
only and shall not control or alter the meaning of
this Agreement as set forth in the text.
Section 12.10 Entire Agreement
This Agreement and the exhibits and documents
referred to herein constitute the entire
understanding and agreement among the parties hereto
with respect to the subject matter hereof, and
supersede all prior and contemporaneous agreements
and understandings, inducements or conditions,
express or implied, oral or written, except as
herein contained. This Agreement may not be modified
or amended other than by an agreement in writing.
Section 12.11 Amendments
A. In addition to the amendments otherwise
authorized herein, amendments may be made to this
Agreement from time to time by the General Partners
with the Consent of the Investors; provided,
however, that without the consent of the Partners or
Investors to be adversely affected by the amendment,
this Agreement may not be amended so as to (i)
convert an Investor's interest into a General
Partner's interest; (ii) modify the limited
liability of an Investor; (iii) alter the interest
of a Partner or Investor in Net Cash Flow, Profit or
Loss, or Net Proceeds of Sale or Refinancing; (iv)
increase the amount of the Capital Contributions
required to be paid by the Investors; or (v) extend
the termination date specified in Section 2.4,
except as provided in Section 12.11B.
B. In addition to the amendments otherwise
authorized herein, amendments may be made to this
Agreement from time to time by the General Partners,
without the consent of any of the Investors, (i) to
add to the duties or obligations of the General
Partners or surrender any right or power granted to
the General Partners herein, for the benefit of the
Investors; (ii) to cure any ambiguity, to correct or
supplement any provision herein which may be
inconsistent with any other provision herein, or to
make any other provisions with respect to matters or
questions arising under this Agreement which will
not be inconsistent with the provisions of this
Agreement; (iii) to delete or add any provision of
this Agreement required to be deleted or added by
the Staff of the Securities and Exchange Commission
or other federal agency or by a state securities
commissioner or similar official and deemed by the
commission, agency, commissioner, or official to be
for the benefit or protection of the Investors; (iv)
to take any actions necessary to cause the assets of
the Fund to come within the exclusions from the
definition of "plan assets" contained in Section
2550.40lb-1 of Title 29 of the Code of Federal
Regulations; and (v) to give effect to any action
permitted pursuant to Section 5.2; provided,
however, that no amendment shall be adopted pursuant
to this Section 12.2.B unless its adoption (1) is
for the benefit of or not adverse to the, interests
of the Investors; (2) is consistent with Section
5.2;
A-38
<PAGE>
(3) does not affect the distribution of Net Cash Flow or
Net Proceeds of Sale or Refinancing or the allocation of
Profit or Loss among the Investors as a class and the
General Partners as a class, except as provided in clause
(y) below; and (4) does not affect the limited liability of
the Investors or the status of the Fund as a partnership
for federal income tax purposes. In addition to the
amendments otherwise authorized herein, amendments may be
made to this Agreement (x) prior to or in connection with
the initial closing of the sale of Units pursuant to the
Offering, so long as purchasers are given notice of the
amendment prior to the closing, and (y) to amend provisions
of Article IV of this Agreement relating to the allocations
of Profit or Loss and to distributions of Net Cash Flow or
Net Proceeds of Sale or Refinancing among the Partners and
Investors if the Fund is advised at any time by the Fund's
Accountants and counsel that the allocations provided in
Article IV of this Agreement are unlikely to be respected
for federal income tax purposes. The General Partners are
empowered to amend the distribution and allocation
provisions of Article IV pursuant to Section 12.11B(y) to
the minimum extent necessary in accordance with the advice
of the Fund's Accountants and counsel to effect the plan of
distribution of Net Cash Flow and Net Proceeds of Sale or
Refinancing, and, consistent therewith, the allocations of
Profit and Loss provided in this Agreement. New allocations
made by the General Partners in reliance upon the advice of
the Fund's Accountants and counsel shall be deemed to be
made pursuant to the fiduciary obligation of the General
Partners to the Fund and the Investors, and no such new
allocations shall give rise to any claim or cause of action
by any Investor. This Section 12.11 shall be subject to the
provisions of Section 5.9 of this Agreement.
C. If this Agreement is amended as a result of adding
or substituting a Limited Partner or increasing the
investment of a Limited Partner, the amendment shall be
signed by the General Partners and by the Person to be
substituted or added, or the Limited Partner increasing his
investment in the Fund, and, if a Limited Partner is to be
substituted, by the assigning Limited Partner. If this
Agreement is amended to reflect the designation of an
additional General Partner, the amendment shall be signed
by the other General Partner or General Partners and by the
additional General Partner. If this Agreement is amended to
reflect the withdrawal of a General Partner when the
business of the Fund is being continued, the amendment
shall be signed by the withdrawing General Partner and by
the remaining or successor General Partner or General
Partners.
D. In making any amendments, there shall be prepared
and filed for recordation by the General Partners all
documents and certificates required to be prepared and
filed under the Act and under the laws of the other
jurisdictions under the laws of which the Fund is then
formed or qualified.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first above written.
GENERAL PARTNERS:
ATTEST: MERIDIAN HEALTHCARE
INVESTMENTS, INC.
(the Development General Partner)
By: (SEAL)
ATTEST: BROWN HEALTHCARE, INC.
(the Administrative General Partner)
By: (SEAL)
A-39
<PAGE>
SUBORDINATED LIMITED PARTNERS:
ATTEST: MERIDIAN HEALTHCARE
INVESTMENTS, INC.
By: (SEAL)
REALTY ASSOCIATES 1988 LIMITED
PARTNERSHIP
By: RESIDUAL INVESTMENT
ASSOCIATES, A MARYLAND
LIMITED PARTNERSHIP,
General Partner
ATTEST: By: A.B. RESIDUAL, INC.,
General Partner
By: (SEAL)
ASSIGNOR LIMITED PARTNER:
ATTEST: BROWN HEALTHCARE HOLDING
CO., INC.
By: (SEAL)
A-40
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with legend, if applicable)
</LEGEND>
<CIK> 0000826682
<NAME> Meridian Healthcare Growth and Income Fund
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,928,000
<SECURITIES> 0
<RECEIVABLES> 7,279,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,654,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,305,000
<CURRENT-LIABILITIES> 6,938,000
<BONDS> 22,616,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50,305,000
<SALES> 0
<TOTAL-REVENUES> 54,108,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,486,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,854,000
<INCOME-PRETAX> 5,768,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,768,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,768,000
<EPS-PRIMARY> 3.710
<EPS-DILUTED> 0.000
</TABLE>
