ASSET PURCHASE AGREEMENT

 

                            ASSET PURCHASE AGREEMENT

 

 

         THIS ASSET PURCHASE AGREEMENT ("Agreement"), dated as of the 11th day

of February 2005, is made and entered into by and between FC PROPERTIES VI, LLC,

its assigns or designees, a Delaware limited liability company ("Purchaser"),

and PLAINFIELD MERIDIAN LIMITED PARTNERSHIP, CATON MANOR MERIDIAN LIMITED

PARTNERSHIP, FREDERICK MERIDIAN LIMITED PARTNERSHIP, HAMILTON MERIDIAN LIMITED

PARTNERSHIP, RANDALLSTOWN MERIDIAN LIMITED PARTNERSHIP, MOORESVILLE MERIDIAN

LIMITED PARTNERSHIP, and SPENCER MERIDIAN LIMITED PARTNERSHIP, all Maryland

limited partnerships (collectively "Seller"). MERIDIAN HEALTHCARE GROWTH AND

INCOME FUND, L.P. ("MHGIF"), a Maryland limited partnership, joins herein for

the limited purposes (and only for the limited purposes) set forth in Section

12.20 hereof.

 

 

                                    RECITALS

 

 

     A.   Seller   owns   and    operates    certain    skilled    nursing    facilities

("Facilities") located in the States of New Jersey, North Carolina, and Maryland

(collectively,    the   "States"),    together   with   the   real   property   and   all

appurtenances thereto, all as more particularly described on Exhibit A-1.

 

     B. The parties hereto desire to enter into this Agreement pursuant to which

Purchaser   will purchase from each Seller all of its rights in the real property

on which the Facilities are located,   as more particularly   described on Exhibit

B-1 (the "Real   Property"),   and all of its   interest in or rights to use of, if

any, the equipment,   furniture,   furnishings,   fixtures, inventory, vehicles, if

any,   patient   records and   reports,   the   contracts   described   on Section 1.3,

Schedules 2.8(a) and 2.8(b) and 2.11, the trade names, trademarks,   software and

other   intangible   property   described on the   Schedules   referred to in Section

2.19,   all bank   accounts,   cash,   cash   equivalents,   securities   and   accounts

receivable   (including   third party   settlements),   prepaid   accounts,   workers'

compensation   receivables and dividends,   real estate and insurance escrows, and

tangible personal property owned and/or leased by Seller and located at the Real

Property   and/or   used   primarily   in   connection   with   the   operation   of   the

Facilities,   with the exception of certain   "Excluded   Assets",   as   hereinafter

defined (the "Personal Property").

 

     C. Purchaser   shall assume   certain   specified   contractual   obligations of

Seller upon the terms and subject to the conditions set forth herein.

 

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                                     AGREEMENT

 

         NOW, THEREFORE, in consideration of the premises, and of the mutual

agreements, representations, warranties, conditions and covenants herein

contained, the parties hereto agree as follows:

 

                                     ARTICLE I

                                PURCHASE AND SALE

 

         1.1 Transfer of Assets. For the consideration hereinafter provided,

Seller, in accordance with the terms and subject to the conditions hereof, shall

convey, transfer and assign to Purchaser at the Closing (as defined in Section

1.2 below), and Purchaser shall purchase from Seller, the Assets. For purposes

of this Agreement, the term "Assets" shall mean all of the Real Property and the

Personal Property, with the exception of the following items (the "Excluded

Assets"):

 

                  (a) Inventory disposed of in the ordinary course of business

prior to the Closing Date;

 

                  (b) Seller's business and financial records located at or used

in connection with the operation or management of the Facilities;

 

                  (c) Those additional items set forth on Schedule 1.1 attached

hereto;

 

                  (d) Any contracts other than the Contracts (as defined in

Section 1.3).

 

         1.2       Closing.

 

                   (a) General. Subject to Section 1.2(b), unless this Agreement

shall have been terminated or abandoned pursuant to the provisions of Article XI

hereof, or unless otherwise agreed to in writing by the parties hereto, all

documents required from Seller ("Seller Documents") and from Purchaser

("Purchaser Documents") and the cash portion of the Purchase Price in order to

effectuate the consummation of a closing under this Agreement (the "Closing")

shall be delivered by the respective parties at 10:00 a.m., Eastern Standard

Time, on that date which is the last day of the calendar month in which the

Seller receives the Requisite Unitholder Approval described in Section 2.2(a)

hereof, but not later than December 31, 2005 (provided that if receipt of the

Requisite Unitholder Approval is less than ten (10) business days before the end

of the calendar month, then the Closing shall be on the last day of the next

calendar month), at the offices of Purchaser's counsel in Virginia Beach, VA,

effective as of such date, at 11:59:59 p.m., Eastern Standard Time, or at such

other date, time and place as the parties hereto may fix by mutual consent (the

"Closing Date"). Notwithstanding the foregoing, Seller may deliver all of Seller

Documents required hereunder with respect to any Closing to the escrow agent

Lawyer's Title Insurance Corporation and/or Purchaser's counsel on or before the

applicable Closing Date (to hold in escrow in accordance with customary

conveyancing practices subject to the consummation of such Closing) by mail or

overnight courier. In addition, in the event that the Seller's proceeds of the

Purchase Price are not delivered to Seller's account by 2:00 P.M. Eastern

Standard Time on the Closing Date, then the adjustments and prorations described

in Section 10.5 and otherwise herein shall be recalculated as of the next day

(or, if later, the first day on which Seller has such funds by 2:00 P.M. Eastern

Standard Time).

 

 

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     1.3   Purchase   Price.   The   purchase   price for the Assets   (the   "Purchase

Price")   shall be Fifty   Million   Dollars   ($50,000,000.00),   subject to further

adjustments, if any, as provided for in this Agreement. Purchaser agrees that in

addition to the payment of Purchase   Price,   (a) the   Purchaser's   designee will

assume   Seller's   obligations   from and after the   Closing   Date under (i) those

certain   leases set forth on   Schedule   2.9(g)   and on   Schedule   2.11   attached

hereto, and (ii) all contracts set forth on Schedule 2.8(a) and all Patient Care

Contracts   described in Section 2.8(b) and set forth on Schedule 2.8(b); and (b)

Purchaser   shall cause its designee to pay the Seller the Net Working Capital in

accordance    with    Section    10.5(a)    (collectively     "Purchaser    Designee's

Obligations"). The contracts and leases listed on Schedule 2.8(a) and 2.8(b) and

Schedule   2.11 are   collectively   referred   to as the   "Contracts."  

 

     1.4 Earnest   Money.   Within three (3) business   days of the   execution   and

delivery of this   Agreement by all parties   hereto,   Purchaser   shall deliver to

Lawyer's Title Insurance   Corporation ("Escrow Agent") (pursuant to its standard

form escrow   agreement   reasonably   acceptable   to Purchaser   and the Seller) an

earnest money   deposit in the amount of One Million   Dollars   ($1,000,000)   (the

"Deposit").   The   Deposit   shall be held in an   interest   bearing   account.   Any

accrued interest shall be transferred with the Deposit.

 

     1.4.1 In the event the transactions contemplated under this Agreement shall

close as provided   herein,   the Deposit   shall be applied   against the   Purchase

Price at Closing, as provided in Section 10.5(e) hereof.

 

     1.4.2 In the event that the transactions   contemplated under this Agreement

shall fail to close as provided   herein due to a breach of this Agreement by the

Purchaser,   or in   the   event   of any   other   breach   or   default   by   Purchaser

hereunder,   or any   termination of this Agreement by Seller   pursuant to Section

11.1(e), then the Escrow Agent shall pay the Deposit pursuant to Section 11.3 to

the Seller as liquidated damages.

 

     1.4.3 In the event the   Agreement is terminated as a result of (i) a breach

of this Agreement by the Seller (past any   applicable   notice and grace period),

(ii) the   failure of any   condition   to   closing   contained   in Article   VIII or

Article IX to be satisfied (past any applicable   notice and grace period, to the

extent   that the failure of such   condition   relates to any breach or default of

Seller),   unless such failure of condition results from any breach or default on

the part of Purchaser,   or (iii) termination of the Agreement in accordance with

paragraph   11.1(a),   (d) or (f),   then the Escrow Agent shall pay the Deposit to

the Purchaser, and the parties shall have no further liability hereunder (except

as set forth in Section 12.3 or as may be expressly provided herein with respect

to liability of the parties following termination).

 

     1.5       Payment of Purchase Price.

 

                  At Closing, Purchaser shall pay the remainder of the Purchase

Price to Seller, adjusted for any credits and additions to Purchaser or Seller

as specified in this Agreement, by wire transfer of immediately available

federal funds to accounts designated in writing by Seller.

 

     1.6 Assumed Liabilities.   At the Closing, Purchaser shall cause Purchaser's

designee   to   assume   (i)   the   Contracts,    (ii)   the   liabilities   assumed   by

Purchaser's   designee as contemplated by the Net Working Capital calculation set

forth in Section 10.5(a), and (iii) the Purchaser

 

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Designee's Obligations,   (iv) all other obligations of the Purchaser or its

designee   under   Section   10.5   hereof,    and   (v)   all   other   obligations   and

liabilities   expressly   set forth in this   Agreement,   which are expressly to be

assumed by Purchaser (collectively the "Assumed   Liabilities").   Notwithstanding

the foregoing,   neither Purchaser nor Purchaser's designee shall be obligated to

assume (i) certain so-called   "deficit loans" to the Seller from an affiliate of

the Seller, Meridian Healthcare Investments, Inc., which shall be discharged and

extinguished   as of   Closing,   and (ii)   deferred   management   fees   owed to the

Genesis Eldercare Network Services,   Inc.   ("Manager") under separate agreements

which will be paid from the   Seller's   proceeds   of the   Purchase   Price paid at

Closing (the "Excluded Liabilities").

 

     1.7   Allocation of Purchase   Price.   The Purchase   Price shall be allocated

among the Assets   acquired   under this Agreement as provided and as described on

Schedule 1.7 attached   hereto.   Seller and   Purchaser   each hereby   covenant and

agree that   neither   will take a position on any income tax   return,   before any

governmental   agency   charged with the   collection   of any income tax, or in any

judicial   proceeding that is any way inconsistent with the terms of this Section

1.7.

 

         1.8 Due Diligence. Seller and Purchaser hereby acknowledge that, as of

the date of execution of this Agreement by the parties, Purchaser has not yet

completed its due diligence with respect to the Assets. Beginning on the date

hereof and continuing until 5:00 p.m. on that date which is forty-five (45) days

after full execution of this Agreement by Purchaser and Seller (the "Diligence

Period"), if Purchaser determines, in its sole and absolute discretion, that

Purchaser does not desire to purchase the Assets based on the results of

Purchaser's due diligence, Purchaser shall have the right to give written notice

to Seller electing to terminate this Agreement, provided such notice is

delivered to Seller prior to 5:00 p.m. on the last day of the Diligence Period.

If such notice of termination is so delivered on or before 5:00 p.m. on the last

day of the Diligence Period, then this Agreement shall be terminated, Purchaser

shall be entitled to the Deposit, and the parties shall thereafter be released

from all further obligations under this Agreement, except those expressly

provided to survive termination. If Purchaser does not terminate this Agreement,

by timely notice given according to the requirements of this Section 1.8, time

being of the essence with respect thereto, then the Purchaser's right to

terminate this Agreement pursuant to this Section 1.8 shall be automatically

waived and extinguished, and the Purchaser shall be obligated to proceed with

the transaction in accordance with all other provisions of this Agreement.

 

                                   ARTICLE II

                    REPRESENTATIONS AND WARRANTIES OF SELLER

 

         As an inducement to Purchaser to enter into this Agreement, and to

consummate the transactions contemplated herein, Seller, as to itself,

represents and warrants the following:

 

     2.1 Organization and Qualification.   Sellers are limited   partnerships duly

organized and validly   existing and in good   standing   under the laws of each of

their respective States of organization,   with full power and authority to carry

on their business as currently   being   conducted and to own or lease and operate

the Assets they own or lease as and in the places now owned, leased or operated.

 

 

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     2.2       Authority; Binding Effect.

 

                  (a) Subject to the approval of the sale of the Assets as

contemplated by this Agreement by a majority vote of the unitholders of MHGIF

("Requisite Unitholder Approval"), Seller has, and at the Closing will have, the

full and unrestricted corporate right, power and authority to execute, deliver

and perform this Agreement and to consummate the transactions and perform all

obligations contemplated hereby and in all agreements, instruments and documents

being or to be executed and delivered by Seller in connection with such

transactions ("Related Documents").

 

                  (b) Subject to receipt of the Requisite Unitholder Approval,

the consummation of the transactions contemplated herein has been duly

authorized and approved by the requisite partnership action of MHGIF and of

Seller.

 

                  (c) To the Seller's knowledge, set forth on Schedule 2.2(c-1)

are all material permits, licenses, Medicaid, Medicare and other material

provider agreements and other authorizations issued by governmental authorities

in connection with the ownership, maintenance or operation of the Facilities,

including but not limited to each license issued by a State for operation of a

Facility as a skilled nursing facility (collectively the "Licenses"), and to

Seller's knowledge, except as set forth on Schedule 2.2(c-2), the Licenses are

in good standing and Seller has not received written notice that a Seller is in

violation of any restriction, rule or regulation affecting possession and use

thereof.

 

                  (d) This Agreement and each such other agreement, instrument

and document, upon due execution and delivery by Seller, will constitute the

legal, valid, and binding obligation of Seller, enforceable in accordance with

its respective terms.

 

         2.3       [Reserved.]

 

         2.4 Governmental Authorities. Except as set forth on Schedule 2.4

attached hereto, to Seller's knowledge, the Seller is not required to submit any

notice, report or other filing with any federal, state, municipal, foreign or

other governmental or regulatory authority in connection with its execution or

delivery of this Agreement or any of the Related Documents or the consummation

of the transactions contemplated hereby, and to Seller's knowledge, no consent,

approval or authorization of any governmental or regulatory authority is

required to be obtained by a Seller in connection with the execution, delivery

and performance of this Agreement.

 

         2.5 Taxes. Except as set forth in Schedule 2.5 attached hereto, all

real property taxes and assessments, and all personal property taxes and

assessments, in connection with the Assets allocable to the period prior to

Closing have been paid or, by the time of Closing, will be paid or prorated

between the parties under Section 10.5 hereof. To the Seller's knowledge, (i)

all income, sales and franchise taxes due and payable by Seller, if any, and all

interest and penalties thereon, if any, have been paid in full, (ii) all tax

returns required to be filed by the Seller, if any, have been timely filed,

(iii) none of the partnerships constituting Seller is subject to a claim for

 

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deficiency or other action in connection with taxes, and (iv) no tax returns of

Seller have been or are being examined by the Internal Revenue Service or any

state or local taxing authority.

 

         2.6 No Defaults. To the knowledge of the Seller, except as set forth on

Schedule 2.6 attached hereto, and subject to the Requisite Unitholder Approval,

the execution, delivery and performance of this Agreement and any of the Related

Documents by Seller does not and will not:

 

                  (a) Conflict with or result in any breach of the provisions

of, or constitute a default under Seller's limited partnership agreement, as

amended;

 

                  (b) Violate any restriction to which Seller is subject or,

with or without the giving of notice, the passage of time, or both, violate (or

give rise to any right of termination, cancellation or acceleration under) any

mortgage, deed of trust, material lease, indenture or other material agreement

or instrument to which Seller is a party, or by which it or its property is

bound, which will not be satisfied or terminated on or prior to the Closing as a

result of the transactions contemplated in this Agreement, or result in the

termination of any such instrument or termination of any provisions in such

instruments that will have a material adverse effect upon or result in the

creation or imposition of any lien, charge or encumbrance upon the Assets;

 

                  (c) Create any liens or other encumbrances on the Assets in

favor of third parties; or

 

                  (d) Result in the breach or violation of any of the warranties

and representations herein set forth by Seller.

 

         2.7 Absence of Certain Changes or Events. From September 30, 2004, the

date of the most recent consolidated financial statements of Seller, to the date

of execution of this Agreement by the parties, Seller has not suffered any

Material Adverse Change (as defined herein) in the Facilities. For purposes of

this Section 2.7(a), "Material Adverse Change" shall be defined as either (i) a

decrease of 15% or more in the percentage of occupancy of any Facility, or (ii)

a decrease of 5% or more in the aggregate percentage of occupancy at all of the

Facilities.

 

         2.8       Contracts.

 

                  (a) Schedule 2.8(a) attached hereto includes without

limitation a true and correct list as of the date of this Agreement of all

outstanding contracts or agreements to which a Seller is a party relating

primarily to the Facilities, and Seller have provided or made available to

Purchaser true and complete copies of each such written contract. To Seller's

knowledge, there is no material default existing or continuing by Seller, of any

other party, under the terms of any contracts listed on Schedule 2.8(a) hereto,

and to Seller's knowledge, each contract is in full force and effect and is

valid and enforceable by such Seller in accordance with its terms, assuming the

due authorization, execution and delivery thereof by each of the other parties

thereto.

 

                  (b) Included on Schedule 2.8(b) are specimen form patient

admission agreements and/or life care contracts with residents of the

Facilities, if any, or with any other

 

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<PAGE>

 

persons or organizations ("Patient Care Contracts"). Except as set forth on

Schedule 2.8(b) attached hereto, to the knowledge of Seller, no Patient Care

Contract deviates in any substantial respect from such standard forms. To the

knowledge of Seller, all residents of the Facilities have executed Patient Care

Contracts.

 

         2.9       Title to Property and Related Matters.

 

     (a) Except for (i) the Assumed   Liabilities,   (ii) the matters set forth on

Schedule 2.9(a); (iii) statutory liens for taxes and other impositions which are

not yet   delinquent;   (iv) all matters   disclosed   in the Title   Reports and the

Surveys and not timely   objected to by Purchaser in writing,   or timely objected

to by   Purchaser   in writing   but   thereafter   cured or   corrected,   pursuant to

Section 4.12   hereof,   (v) the other   matters   defined as   "Permitted   Liens" in

Section 4.12(b) hereof,   and (vi) all zoning laws,   subdivision   laws,   building

codes and other laws and regulations   (collectively the "Allowed Liens"), to the

Seller's   knowledge,   Seller has received no written   notice of (a) any material

violations of any covenants or restrictions   recorded in the public land records

against the Real Property, or (b) any material violations of any zoning codes or

ordinances   applicable   to the Real   Property.   Seller has no   knowledge   of any

agreements,   documents   or   instruments   which are not   recorded   among the land

records but which materially and adversely affect the   marketability of title to

any Facility.

 

     (b) To Seller's   knowledge,   except for the Allowed Liens, and as set forth

on Schedule 2.9(b),   the Personal Property is not subject to any (A) contract of

sale or lease, or (B) mortgage, security interests, encumbrance, lien or charge.

 

     (c) To Seller's knowledge,   Seller has not received any written notice of a

violation   of any zoning   ordinance   or   regulation   with   respect to any of the

Facilities.

 

     (d)   At the   Closing,   Seller   shall   not be   indebted   to any   contractor,

laborer,   mechanic,   materialman,   architect   or   engineer   for   work,   labor or

services   performed or rendered,   or for   materials   supplied or   furnished,   in

connection with the Real Property for which any such person could lawfully claim

a lien against the Real Property, except for any Assumed Liabilities, and except

to the extent   Purchaser is   indemnified   or   otherwise   protected by bonding or

title   insurance   with   respect   to such   matters   at the   expense   of Seller as

reasonably satisfactory to Purchaser.

 

     (e) There are no condemnation or eminent domain proceedings pending, or, to

the knowledge of Seller, threatened or contemplated against the Real Property or

any part thereof,   and Seller has not received any written   notice of the desire

of any public   authority or other entity to take or use the Real Property or any

part thereof.   Between the date hereof and Closing,   Seller will give   Purchaser

prompt   written   notice   of   any   actual   or   any   threatened   or    contemplated

condemnation   of any part of the Real   Property   of   which it   receives   written

notice.

 

     (f) To Seller's   knowledge,   there are no outstanding   options or rights of

first refusal to purchase the Real Property,   or any portion thereof or interest

therein,   other than the   rights of Manager   under   management   agreements   with

Seller which are to be   extinguished   simultaneously   with the execution of this

Agreement.

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     (g) To Seller's   knowledge,   there are no parties   (other   than   Seller) in

possession of the Real Property, or any portion thereof,   other than (i) parties

under the   Contracts,   (ii) tenants under any leases   listed in Schedule   2.9(g)

hereto   who are in   possession   of space to which they are   entitled   under such

leases,   and (iii) patients pursuant to the Patient Care Contracts   described in

Schedule 2.8(b).

 

         2.10 Hazardous Substances. For purposes of this Agreement,

"Environmental Laws" means the Resource Conservation and Recovery Act (RCRA), 42

U.S.C. Section 6901 et seq., the Comprehensive Environmental Response,

Compensation and Liability Act (CERCLA), 42 U.S.C. Sections 9601 et seq., the

Clean Water Act, 33 U.S.C. Section 1251 et seq., and all other applicable state,

county, municipal, administrative or other environmental, hazardous waste or

substance, health and/or safety laws, ordinances, rules, regulations and

requirements pertaining to the environmental or ecological conditions on, under

or about the Real Property. For purposes of this Agreement, "Hazardous

Substance" means any substance or material which gives rise to liability under

any of the Environmental Laws; but provided that the term "hazardous substances"

as used herein excludes Common Products as herein defined.

 

                   (a) To Seller's knowledge, the Real Property does not contain

any contamination, by spill, leakage, dumping or otherwise, of any Hazardous

Substance in violation of any Environmental Law, except for Hazardous Substances

typically used in, and in quantities necessary for the day-to-day operation of,

the Facilities and which are commonly used in other similar facilities,

including but not limited to cleaning fluids, insecticides, medical waste and

medicines (the "Common Products").

 

                   (b) To Seller's knowledge, Seller has not received any written

notice from any governmental authority that has determined that there is a

presence, release or threat of release or placement on, in or from the Real

Property, or otherwise relating to the generation, transportation, storage,

treatment, or disposal at the Real Property, of any Hazardous Substance. Seller

shall notify Purchaser promptly of its receipt of any such written notice.

 

                  (c) To Seller's knowledge, there are no ongoing or unresolved

actions, written communications or written agreements with any governmental

authority or agency (federal, state or local) or any private entity to which

Seller or, to Seller's knowledge, any prior owner of the Real Property, is a

party relating in any way to the presence, release, threat of release or

placement on, in or from the Real Property, or the generation, transportation,

storage, treatment or disposal at the Real Property, of any Hazardous Substance,

except as may be disclosed in the written reports delivered to Purchaser as

described in Section 2.10(e) below.

 

                  (d) To Seller's knowledge, there are no pending or threatened

investigations, proceedings or litigation with any person, entity or government

agency in which a party alleges the presence of, a release of or threat of any

Hazardous Substance.

 

                  (e) Seller has delivered to Purchaser copies of all reports

relating to the presence of Hazardous Substances (or lack thereof) at the

Facilities which are in the Seller's

 

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possession and prepared in connection with the Seller's financing of the

Facilities in the calendar year 2000.

 

         2.11 Leases. Schedule 2.11 attached hereto contains a true and correct

list of all material leases of all real property, machinery, equipment and other

tangible property leased to Seller which relate primarily to the Facilities. To

Seller's knowledge, except as disclosed on Schedule 2.11, each lease described

thereon is in full force and effect; to Seller's knowledge, there has not been

and there is no ongoing issue or dispute as to past rental payments, and all

rents have been paid when and as due; in each case, such Seller, as lessee, has

been in peaceable possession since the commencement of the original term of such

lease and neither such Seller, nor, to the knowledge of Seller, any other party

to such lease is in default in any material respect thereunder; to Seller's

knowledge, there exists no occurrence, event, condition or act which, upon the

giving of notice or the lapse of time or both, would become a default by any

Seller (or, to the knowledge of Seller, any lessor) under any such lease; and to

Seller's knowledge, except as noted on Schedule 2.11, none of such leases by its

terms requires the consent of the lessor thereof to be obtained in order to

consummate its transfer to Purchaser as contemplated hereby without violation

thereof.

 

         2.12      [Intentionally deleted.]

 

         2.13      Transfer of Assets.   On the Closing Date,   all of the Assets,

except   Excluded   Assets,   will be transferred to Purchaser pursuant to this

Agreement.

 

       2.14 No Litigation. Except as set forth on Schedule 2.14 attached

hereto, to Seller's knowledge, there are no actions, suits, claims,

governmental investigations or other legal or administrative proceedings, or

any orders, decrees or judgments in progress, pending or in effect, or, to the

knowledge of Seller, threatened against or relating to Seller, the Facilities,

Seller's operation of the Facilities, any of the Assets or against or relating

to the transactions contemplated by this Agreement, that if asserted and

decided adversely would materially and adversely affect the Assets, Seller or

Seller's operation of the Facilities (including, but not limited to, class

action or third party suits concerning reimbursements), and there are none

pending in the state courts located in the States, or in any of the federal

courts in the States, or, to the knowledge of Seller, pending in other

jurisdictions or threatened in writing, at law or in equity, by or before any

federal, state or municipal court or other governmental agency, department,

commission, board, bureau or instrumentality.

 

         2.15      Compliance with Medicare and Medicaid Law.

 

                  (a) Except as set forth on Schedule 2.15 attached hereto,

there is no material litigation, claim, proceeding or investigation currently

pending against a Seller or relating to the Facilities for any violation or

alleged violation of, and, to Seller's knowledge, Seller has received no written

notice of any threat of any suit, action, claim, dispute, investigation, agency

review or other proceeding pursuant to or involving, (i) the False Claims Act,

31 U.S.C. ss.ss.3729 et seq., (ii) the Civil Monetary Penalties Law, 42 U.S.C.

ss.1320a-7a, (iii) federal or state anti-kickback statutes, including but not

limited to 42 U.S.C. 1320a-7b, (iv) federal or state referral laws, including

but not limited to 42 U.S.C. ss.1395nn; (v) regulations promulgated pursuant to

any of

 

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the foregoing statutes, or (vi) any other federal or state law or

regulation of general applicability to health care fraud, governing or

regulating the management of health care providers, or governing or regulating

medical billing or reimbursement, including all applicable Medicare and Medicaid

statutes and regulations (collectively the "Medicare/Medicaid Laws").

 

                  (b) To Seller's knowledge, Seller, and each of the Facilities

have timely filed all material forms, applications, reports, statements, data

and other information required to be filed with federal, state or local entities

under federal or state laws or regulations in connection with the

Medicare/Medicaid Laws, including but not limited to cost reports required to be

filed with respect to the Facilities, as more fully set forth in Section 2.23(b)

hereof.

 

         2.16 Surveys. To Seller's knowledge, true and complete copies of all

existing survey reports for Medicare/Medicaid purposes in the possession of

Seller with respect to the Facilities will be provided to Purchaser promptly

following execution of this Agreement.

 

         2.17      No   Employees.   Seller   currently   has,   and to Seller's  

knowledge   Seller has not ever had, any employees.

 

         2.18      [Intentionally deleted.]

 

         2.19 Intellectual Property. Other than rights to use certain names

associated with the Facilities, and any software or other computer programs used

in connection with the operation of the Facilities, Seller has no Intellectual

Property of any kind. For these purposes, "Intellectual Property" shall mean,

collectively, all: (i) United States or foreign patents, patent applications,

patent disclosures, and all renewals, reissues, divisions, continuations,

extensions or continuations-in-part thereof (collectively, "Patent Properties");

(ii) trademarks, service marks, trade dress, trade names, fictitious names,

corporate names, and registrations and applications for registration thereof

(collectively, "Trademark Properties"); and (iii) copyrights (registered or

unregistered), registrations and applications for registration thereof,

including all renewals, derivative works, enhancements, modifications, updates,

new releases or other revisions thereof (collectively, "Copyright Properties")

 

         2.20 Capital Expenditures. Except as set forth in Schedule 2.20, and

except for routine expenditures for repairs and replacements in connection with

the ongoing maintenance and upkeep of the Facilities, which are covered in

Seller's annual budgets for the Facilities and which are to be assumed by

Purchaser, to Seller's knowledge, as of the date hereof, Seller does not have

any outstanding contracts for capital expenditures relating to the Facilities,

nor does it have any agreement, obligations or commitments for capital

expenditures relating to the Facilities, including, without limitation,

additions to property, plant, equipment or intangible capital assets.

 

         2.21 Absence of Notices. Except as disclosed on Schedule 2.21, to

Seller's knowledge, Seller has not received any written notice that any customer

or supplier of a Seller intends to discontinue, substantially alter prices or

terms to, or significantly diminish its relationship with the Facilities as a

result of the transaction contemplated hereby or otherwise.

 

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         2.22      Medicare and Medicaid Participation.

 

                  (a) For purposes of this provision, Medicare, Medicaid,

CHAMPUS, TRICARE and other federal, state or local governmental reimbursement

programs, or successor programs to any of the above, are referred to as

"Government Programs".

 

                  (b) To Seller's knowledge, except as disclosed on Schedule

2.22(b), and except for claims, actions and appeals in the ordinary course of

business, there are no material claims, actions or appeals pending or threatened

before any commission, board or agency, including any fiscal intermediary or

carrier, federal or state agency, with respect to any Government Program cost

reports or claims filed on behalf of Seller with respect to any Facility on or

before the date of this Agreement, or any disallowances by any commission, board

or agency in connection with any audit of such reports.

 

         2.23 Third Party Payor Reimbursement. Seller has received no written

notice that any billing practices of Seller with respect to the Facilities to

all third party payors, including the Government Programs and private insurance

companies, have not been in compliance with any applicable laws, regulations and

policies of such third party payors and Government Programs in any material

respects or that Seller has billed or received any payment or reimbursement in

excess of amounts permitted by applicable law, except to the extent cured or

corrected.

 

         2.24 Patient Records. Except as provided on Schedule 2.24, Seller has

received no written notice that patient records used or developed in connection

with the business conducted at the Facilities have not, prior to the date of

this Agreement, been maintained in accordance with any applicable federal, state

or local laws or regulations governing the preparation, maintenance of

confidentiality, transfer and/or destruction of such records.

 

         2.25 Advance Payments and Patient Funds. The accounting for advance

payments and patient trust fund accounts provided to Purchaser by Seller

pursuant to the provisions of Section 10.4 hereof is accurate in all material

respects.

 

         2.26      [Intentionally deleted.]

 

         2.27      [Intentionally deleted.]

 

         2.28      Licensed   Beds. To Seller's   knowledge,   the count of skilled

nursing and adult care beds at the Facilities is as set forth on Exhibit 2.28.

 

         2.29 Financial Statements. Attached hereto as Exhibit 2.29 are the

following financial statements (collectively, the " Financial Statements"): (a)

audited consolidated financial statements of MHGIF for the year ended December

31, 2003; (b) schedules to such consolidated statements with respect to each

individual Facility (which are not audited) for the year ended December 31,

2003; and (c) unaudited financial statements and scheduled statements for each

Facility for the nine (9) months ended September 30, 2004. To Seller's

knowledge, (i) the Financial Statements (including the notes thereto) and such

additional Financial Statements as may be delivered by Seller to Purchaser prior

to Closing have been prepared in accordance with

 

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GAAP applied on a consistent basis throughout the periods covered thereby,

(ii) present fairly the financial condition of each of the Seller and Facilities

as of such dates and the results of operations of each of the Seller and

Facilities for such periods, (iii) are correct and complete in all material

respects, and (iv) are consistent with the books and records of each of the

Facilities in all material respects.

 

         2.30 Professional Liability Insurance. Seller has professional

liability insurance on a "claims made" basis for all the Facilities with

coverage limits of One Million Dollars ($1,000,000.00) per occurrence and Five

Million Dollars ($5,000,000.00) in the aggregate ("Professional Liability

Insurance"). Attached hereto as Schedule 2.30 is a description of all such

policies, copies of which shall be provided to Purchaser upon request.

 

         Notwithstanding anything else to the contrary herein, any reference in

this Agreement to "knowledge," "actual knowledge" or "best of knowledge" of

Seller, or the receipt of notices or other communications by Seller, shall be

deemed to mean the actual knowledge of, or receipt of notice or communication

by, Robert Huether, the Seller's asset manager with respect to the Facilities.

 

         All representations and warranties set forth above in this Article II

shall survive the Closing for the limited period of, and shall expire at the end

of, twelve (12) months following the Closing Date.

 

         PURCHASER HEREBY ACKNOWLEDGES AND AGREES THAT EXCEPT WITH RESPECT TO

THE FOREGOING REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE II ABOVE,

OR THAT WHICH MAY BE EXPRESSLY SET FORTH ELSEWHERE IN THIS AGREEMENT (IF AT

ALL), THE ASSETS ARE TO BE CONVEYED BY SELLER TO PURCHASER IN "AS-IS, WHERE-IS"

CONDITION WITHOUT WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, AS TO ZONING,

PHYSICAL CONDITION, ENVIRONMENTAL CONDITION, SUITABILITY FOR A PARTICULAR

PURPOSE OR ANY OTHER MATTER WHATSOEVER.

 

                                    ARTICLE III

                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

         As an inducement to Seller to enter into this Agreement and to

consummate the transactions contemplated herein, Purchaser represents and

warrants the following, each of which warranties and representations is material

to and is relied upon by Seller:

 

         3.1 Corporate Organization; Etc. Purchaser is a Delaware limited

liability company duly organized and validly existing under the laws of the

State of Delaware with full power and authority to own all of its properties and

assets and to carry on its business as it is now being conducted.

 

         3.2 Authorization, Binding Effect. Purchaser has, and at the Closing

the Purchaser and any designee or affiliate taking any interest in any of the

Assets will have, the full and unrestricted right, power and authority to

execute, deliver and perform this Agreement and to

 

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consummate the transactions and perform all obligations contemplated hereby and

in all agreements, instruments and documents being or to be executed and

delivered by Purchaser in connection with such transactions. The consummation

of the transactions contemplated herein have been duly authorized and approved

by all necessary corporate action of Purchaser and, at Closing, of Purchaser

and any designee or affiliate taking any interest in any of the Assets. This

Agreement and each such other agreement, instrument and document, upon due

execution and delivery by Purchaser, will constitute the legal, valid, and

binding obligation of Purchaser, enforceable in accordance with its terms.

 

         3.3 No Violation. Purchaser is not subject to or obligated under, and

this Agreement and the transactions contemplated herein, as well as all

documents and agreements to be delivered hereunder, do not and will not conflict

with or violate, any certificate of incorporation, bylaw, law, or rule or

regulation of any governmental authority, or any mortgage, contract, agreement

or instrument, or any license, franchise or permit, or any order, writ,

injunction or decree.

 

         3.4 No Litigation. Purchaser is not a party to, or defending or subject

to, any investigation, litigation, arbitration or other legal proceeding, nor is

any such legal proceeding threatened, which would have a material adverse effect

on Purchaser's ability to execute, deliver and perform this Agreement and the

documents and transactions contemplated hereby.

 

         3.5 Truth of Warranties, Representations, and Statements. Without in

any way affecting the obligation of Purchaser under this Agreement, Purchaser

shall have the obligation throughout the period from the date of this Agreement

through and including the Closing Date to give Seller prompt written notice of

the material inaccuracy or material change in any representation or warranty

made by Purchaser in this Article III or on any Schedule attached hereto which

is disclosed to Purchaser or brought to Purchaser's attention in writing after

the date hereof.

 

         All representations and warranties set forth above in this Article III

shall survive the Closing for the limited period of, and shall expire at the end

of, twelve (12) months following the Closing Date.

 

 

                                    ARTICLE IV

                               COVENANTS OF SELLER

 

          From the date hereof and until the Closing, except as otherwise

consented to or approved by Purchaser in writing, Seller covenants and agrees as

to its own operations as follows:

 

         4.1 Regular Course of Business. Seller shall (a) operate the Facilities

in a manner substantially consistent with applicable law and past practices

(with the understanding that the Seller shall not be required to make any

capital expenditures for extraordinary repairs or replacements); (b) maintain

the Assets so as to meet any regulatory standards of any governmental agencies

with regulatory jurisdiction over the Facilities; (c) timely pay all rents and

other payments due on or before the Closing under, and use its commercially

reasonable

 

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efforts to otherwise maintain (except for expiration due to lapse of

time), all leases and contracts described herein in effect without change except

as expressly provided herein; (d) comply in all material respects with the

provisions of all laws, regulations, ordinances and judicial decrees applicable

to the operation of the Facilities, including, without limitation, compliance

with requirements of all Government Programs; (e) not make any material changes

or modifications in any agreement listed on Schedules 2.8(a) and 2.11 hereof or

incur any further obligations or surrender any rights thereunder other than as

routinely occur in the ordinary course of business; (f) not enter into any

agreements or leases which would have had to be disclosed on Schedule 2.8(a) or

Schedule 2.11 hereof had such agreements or leases been entered into prior to

the date hereof, other than in the ordinary course of business or as terminable

without penalty upon advance notice of thirty days or less; (g) keep in full

force and effect present insurance policies through the Closing Date or other

comparable insurance coverage; and (h) use its commercially reasonable efforts

to maintain all licenses in good standing as necessary to operate the

Facilities.

 

         4.2       Absence of Employees.   Seller will not hire or otherwise

engage any new employees.

 

         4.3 Borrowing. Seller shall not create or permit to become effective

any mortgage, pledge, lien, encumbrance or charge of any kind upon the Assets,

other than (i) Permitted Liens, and (ii) any mortgages or other liens which are

expressly to be assumed by Purchaser and credited against the Purchase Price

hereunder or to be repaid and discharged as of Closing.

 

         4.4       Full Access and Disclosure.

 

(a) Seller shall, upon request and reasonable advance notice from Purchaser,

afford to Purchaser and its counsel, accountants and other authorized

representatives reasonable access during business hours to its properties,

computer systems, books and records, in any way relating to the Assets and/or

the Facilities, including, but not limited to, the roof, all equipment (fixed

and movable), heating and cooling systems, and any and all vehicles, financial

data and records, operating data and other information reasonably requested,

including the most recent financial statements, cost reports, inspection

reports, plans of correction (all with respect to the past three (3) years),

current room rates (including dates and amounts of increases), census data and

patient mix, payroll information, Medicaid reports, employment agreements,

personnel policies, occupancy agreements with patients, leases, and all

contracts, agreements, and other documents relating to outside contractors,

vendors, consultants, or other outside parties relating to the Facilities and to

which any one or more of the Facilities are now or may become a party in order

that Purchaser may have full opportunity to make such reasonable investigations

of the Assets and the Facilities as it shall desire to make. Seller shall

furnish such additional financial and operating data and other information as

Purchaser and/or its representatives shall from time to time reasonably request.

 

     Notwithstanding the foregoing, Purchaser expresslyacknowledges and agrees

that Seller shall not be obligated to furnish, nor shall Purchaser be entitled

to review or have access to, any confidential or proprietary documents or

information connected with the Property, including but not limited to opinions,

appraisals, internal memoranda or other

 

                                       14

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documents, internal work product or other similar documents, which are in the

possession or control of Seller.

 

                           IN   ADDITION,   NOTWITHSTANDING   ANYTHING TO THE  

CONTRARY IN THIS   AGREEMENT,   PURCHASER ACKNOWLEDGES AND AGREES THAT PURCHASER

SHALL BE RESPONSIBLE FOR PURCHASER'S OWN DUE DILIGENCE WITH RESPECT TO ALL

DOCUMENTS AND INFORMATION PROVIDED BY SELLER TO PURCHASER, INCLUDING THAT WHICH

IS MADE AVAILABLE TO PURCHASER AS DESCRIBED ABOVE, AND ANY ANALYSIS OF SUCH

DOCUMENTS AND INFORMATION SHALL BE AT PURCHASER'S OW