WILMER CUTLER PICKERING HALE AND DORR LLP
100 light Street
Baltimore, MD 21202
410-986-2820
410-986-2828
May 26, 2005
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549-0303
Attention: Michele M. Anderson, Esq.
Division of Corporation Finance
Re: Meridian Healthcare Growth and Income Fund Limited Partnership (the "Fund")
Preliminary Consent Solicitation Statement on Schedule 14A
File No. 0-17596
Dear Ladies and Gentlemen:
Attached hereto for electronic filing on behalf of the Fund pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14A-101 thereunder, is Amendment No. 2 to the Fund's Preliminary Consent
Solicitation Statement on Schedule 14A (the "Amendment").
This letter responds to comments of the staff of the Commission
transmitted by letter dated May 17, 2005 relating to the Fund's Revised
Preliminary Consent Solicitation Statement on Schedule 14A filed April 28, 2005.
For the staff's convenience, its comments are restated below, followed by the
Fund's responses.
The Sale, page 13
Comment 1. We note your response to comment 14. Please provide expanded
information pursuant to Item 1015(b)(6) with respect to the analysis provided by
Mr. Cortese, particularly the procedures he followed and the bases and methods
of arriving at his findings. In this regard, please provide more detail how Mr.
Cortese valued the company's portfolio at approximately $45 million. Also
indicate whether the Fund shared the results of Mr. Cortese's analysis with the
Purchaser.
Response. Item 1015(b)(6) of Regulation M-A requires disclosure of any
report, opinion or appraisal from an outside party that is materially related to
the transaction, including disclosure of the procedures followed, the findings
and recommendations, the bases for and methods of arriving at such findings and
recommendations, instructions received from the subject company or affiliate,
and any limitation imposed by the subject company or affiliate on
Page 2 of 6
the scope of the investigation.
As revised, the section of the Solicitation Statement entitled "The
Sale -- Negotiations Regarding the Facilities" discloses that Mr. Cortese valued
the Facilities during a meeting with representatives of the Administrative
General Partner on March 19, 2004. During this meeting, the representatives of
the Administrative General Partner presented information to Mr. Cortese
regarding the Facilities and the Fund's financial results through 2003 and asked
Mr. Cortese to estimate the market value of the Facilities based upon such
information and Mr. Cortese's knowledge and understanding of the market for
skilled nursing facilities, particularly in the New Jersey, Maryland and North
Carolina markets. The representatives of the Administrative General Partner did
not impose any limitations on Mr. Cortese other than to request that Mr. Cortese
provide his evaluation orally during the meeting. The revised Solicitation
Statement specifies that Mr. Cortese considered a variety of factors including
the age and location of the Facilities, the number of patient beds and occupancy
rate for each Facility and the level of deferred capital expenditures at the
portfolio of Facilities. Mr. Cortese considered valuation of the Facilities as a
multiple of the Fund's net operating income and as a price per patient bed. Mr.
Cortese estimated that the Facilities, as a portfolio, had a value in the range
of $45,000,000. Furthermore, Mr. Cortese suggested that market conditions should
permit the Fund to retain (or be paid for) a portion of its working capital. He
advised that the market would allow the Fund to retain working capital in excess
of a ratio of current assets to current liabilities equal to 1.2 to 1. Mr.
Cortese also advised that Formation Capital had recently been very active in
acquiring skilled nursing facilities and had a good track record with respect to
closing such acquisitions. The representatives of the Administrative General
Partner did not request and did not receive any written report from Mr. Cortese
and did not pay Mr. Cortese any fee in connection with his valuation. The
General Partners did not share the results of Mr. Cortese's analysis with the
Purchaser. During the course of negotiations with the Purchaser, the General
Partners rejected offers and made counteroffers reflecting their opinion of the
value of the Facilities.
Comment 2. Disclose the substance of the preliminary budget for 2005
that the Fund gave to the Purchaser or advise us why it is not material. Please
note the staff's position that projections must generally be disclosed and are
considered material when they are also provided to third parties.
Response. Pursuant to Rule 101(c)(2) of Regulation S-T under the
Exchange Act and 17 C.F.R. ss. 200.83 the Fund has provided to the staff
summaries of the preliminary 2005 budget information previously provided to the
Purchaser. As described in the revised Solicitation Statement, this information
was part of a larger set of historical financial and operating information
provided to the Purchaser. Given the fact that such preliminary information was
based primarily upon historical results, was prepared during the second and
third quarter of 2004 (approximately 6-12 months prior to unit holders'
investment decision pursuant to the Solicitation Statement and prior to the
availability of audited 2004 results), the fact that the preliminary budget
information did not differ materially from 2004 results of operations, and the
fact that audited financials for calendar year 2004 and interim financial
information for the first quarter of 2005 are now available to Investors, the
Fund believes that such information is not
Page 3 of 6
material to Investors in evaluating whether to approve the Proposals presented
in the Solicitation Statement.
Comment 3. Please quantify Mr. Robinson's aggregate offering price for
the Fund's limited partnership interests. Expand to explain the basis for the
General Partners' concerns with respect to his offer. Why were the General
Partners concerned that the offer would be reduced following a due diligence
examination or that the financing was not assured?
Response. The section entitled "The Sale -- Negotiations Regarding the
Facilities" has been revised to provide additional detail regarding the
expression of interest from Mr. Robinson and the General Partners' assessment
thereof. As described in the revised Solicitation Statement, Mr. Robinson
presented a preliminary term sheet and proposed discussion points to the Fund.
The preliminary term sheet expressly disclaimed being a binding offer. Mr.
Robinson's proposal did not state an aggregate offering price, but was stated as
"up to $21.50 per Unit" based upon the Fund's 2003 audited balance sheet and
subject to adjustment to account for any changes between the 2003 audited
balance sheet and the Fund's balance sheet as of the closing date.
Notwithstanding, based upon 1,540,040 Units outstanding, the General Partners
estimate that a transaction ultimately consummated pursuant to the proposed
terms could have been worth as much as $33,110,860, although the General
Partners can provide no assurances that Mr. Robinson would have ultimately
entered into a contract upon the terms and conditions outlined in his proposed
term sheet.
The General Partners were not concerned that any specific fact or facts
relating to Facilities would cause Mr. Robinson to reduce his offer price
following completion of his due diligence review. Rather, it has been the
General Partners' experience in the purchase and sale of commercial real estate
and real estate-owning entities that preliminary offers made by potential
purchasers prior to the completion of due diligence are frequently intended to
serve as a starting point for negotiations and often are not reflective of the
final purchase price. In the General Partners' experience, potential purchasers
frequently seek to negotiate a final purchase price that is lower than such
initial offer following the completion of their due diligence review. Rather,
the General Partners believed that Mr. Robinson's preliminary offer represented
a relatively high price designed to get the General Partners' "attention." The
General Partners believed that Mr. Robinson would likely attempt to negotiate a
lower final purchase price following his completion of due diligence.
The revised Solicitation Statement details the General Partners'
concerns with Mr. Robinson's offer such as the fact that it was subject to
several substantial conditions including with respect to termination of the
management agreements with Manager, lender consent to Mr. Robinson's assumption
of the Fund's debt, and the Fund's guarantee of collectability of its accounts
receivable. In addition, the General Partners considered the fact that Mr.
Robinson was and individual with no apparent access to the amount of capital
necessary to acquire the limited and general partner interests and no known
history of success in acquiring skilled nursing facilities. Finally, the General
Partners advised Mr. Robinson that any acquisition of the limited partner
interests would require a tender directly offer to Investors of the Fund, which
transaction Mr. Robinson did not undertake.
Page 4 of 6
Comment 4. Please provide more detail why the General Partners chose
the Purchaser's offer over Nexion's final offer. For example, discus the
parties' abilities to finance the purchase price including why you believed that
the Purchaser's financing was more certain than Nexion's. In addition, please
explain why the General Partners were concerned that Nexion's offer might be
reduced following a due diligence review. Address why these concerns outweighed
the fact that Nexion offered a higher price than the Purchaser.
Response. The section "The Sale -- Negotiations Regarding the
Facilities" has been revised to provide more detail regarding the General
Partners determination in December 2004 that it was not in the best interests of
the Fund or its Investors to terminate the letter of intent with the Purchaser
in order to pursue negotiations with Nexion in view of its December 20, 2004
offer. The revised Solicitation Statement describes the factors the General
Partners considered in exercise of their business judgment, including the
difference in purchase price between the two offers (including the likelihood of
either offer being reduced), the costs associated with termination of the letter
of intent and with the commencement of negotiations with Nexion, the fact that
pursuing a Nexion transaction would require additional negotiations with the
Manager regarding its right of first offer, and an evaluation of the abilities
of the parties to finance and consummate the purchase of the Facilities relative
to each other.
Comment 5. Revise to provide an expanded description of the "financial
and valuation analysis of the Fund" referenced on page 19 as requested in prior
comments 14 and 15.
Response. The Solicitation Statement has been revised in clarify that
during February 2005 representatives of the General Partners, including its
legal advisors, presented the material terms and conditions of the Purchase
Agreement and the contemplated Transaction to the General Partners, and other
information including the 2003 and 2004 financial statements, Mr. Cortese's
valuation, the expected future capital expenditures, information regarding the
lifespan of the facilities, the substantial uncertainty regarding Medicare and
Medicaid reimbursement and the proposed Transaction all as described in the
revised Solicitation Statement.
The Liquidation, page 26
Comment 6. We note various statements relating to your inability to
provide any assurances regarding the amount that will be distributed to unit
holders in the liquidation. Advise us whether you will resolicit consents in the
event the distribution is materially less than the estimated $20 per unit, and
if not, why. Can you at least provide a range of amounts by which the final
distribution may be reduced?
Response. The Solicitation Statement has been revised to indicate that,
assuming approval of Investors, the General Partners currently believe that
following consummation of the Sale approximately $20 to $21 per Unit will be
available for distribution. The General Partners have committed to resolicit the
consents of Investors in the event the distribution is less than $15 per Unit.
Pae 5 of 6
General Partners' Recommendation, page 30
Comment 7. Please expand the second and third bullet points on page 31
to more thoroughly describe the nature of the information the General Partners
considered. For example, disclose the specific comparable sales and secondary
market prices that the General Partners considered.
Response. The fourth bullet point under "General Partners'
Recommendation" has been revised to clarify that the General Partners considered
the items indicated above in response to Comment 5.
Comment 8. We note your revisions in response to prior comment 8.
Revise the last bullet on page 31 to acknowledge that a potential conflict of
interest exists as a result of the management fees payable to the affiliate of
the Development General Partner.
Response. The bullet point has been revised to indicate that if
Purchaser and Manager are successful in negotiating a management agreement or
agreements, the Manager will receive management fees.
Description of the Sale, page 15
Comment 9. Revise the third bullet point on page 32 to indicate what
consideration the General Partners gave to the fact that the units have traded
at a level higher than the anticipated $20 per unit distribution amount, and as
high as $21.50, as indicated on page 38.
Response. The bullet point has been revised to indicate that the $20 to
$21 per Unit the General Partners currently expect to be available for
distribution upon the Liquidation exceeds the amounts that have been paid in the
limited secondary market for Units, with the exception of a single transaction
between Mr. Robinson and an affiliate or affiliates of Formation Capital, which
the General Partners believe is not necessarily the value of the Units.
Per the staff's request and pursuant to the Commission's recently
published press release 2004-89, "SEC Staff to Publicly Release Comment Letters
and Responses," the Fund notes that the adequacy and accuracy of the disclosure
in the filing is the responsibility of the Fund. The Fund acknowledges that
staff comments or changes to disclosure in response to staff comments in the
filing do not foreclose the Commission from taking any action with respect to
the filing and may not be asserted as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United
States.
Page 6 of 6
If you have any questions or comments, please do not hesitate to
contact me at (410) 986-2820, or Sean Mulcahy of our office at (202) 663-6462.
Very truly yours,
/s/
John B. Watkins