10-K: Annual report pursuant to Section 13 and 15(d)

EXHIBIT 10.7









PURCHASE AGREEMENT

AND

AGREEMENT OF LEASE

BETWEEN

DELTA INVESTORS I, LLC,

DELTA INVESTORS II, LLC

AND

SUBSIDIARIES OF REGENCY HEALTH SERVICES, INC.

As of OCTOBER 7, 1997






PURCHASE AGREEMENT AND AGREEMENT OF LEASE
This Purchase Agreement and Agreement of Lease ("Agreement") is entered
into as of October 7, 1997 by and between DELTA INVESTORS I, LLC, a Maryland
limited liability company ("Delta I"), DELTA INVESTORS II, LLC, a Maryland
limited liability company ("Delta II") (the "Purchasers") and each of the
entities identified, and whose capacity as a "Seller" or "Lessee" or both a
"Seller" and a "Lessee" is set forth, on the signature page hereto.

RECITALS

A. Capitalized terms used but not otherwise defined herein have the
respective meanings given them in Article I, below.
B. Sellers are corporations that are wholly owned by Regency Health
Services, Inc. ("Regency").
C. Each Seller is the owner or lessee of certain Real Property,
Personal Property and Related Rights (collectively, as to each Seller, the
"Seller's Assets") which it has agreed to sell either to Delta I or Delta II and
which either Delta I and Delta II has agreed to simultaneously lease back to
such Seller or an Affiliate thereof pursuant to a Facility Lease. The Seller's
Assets to be purchased and leased back by Delta I are listed on Exhibit A-1
attached hereto; the Seller's Assets to be purchased and leased back by Delta II
are listed on Exhibit A-2 attached hereto.
B. Immediately after the consummation of the transactions hereinafter
set forth, Sun Healthcare Group, Inc. ("Sun") will be acquiring all of the
issued and outstanding stock of Regency, and as a condition precedent to Delta I
and Delta II entering into this transaction, Sun has agreed to


- 1 -




guaranty the obligations and undertakings of the Sellers herein and in the other
Transaction Documents and the payment of all amounts due and the performance of
all obligations of the Sellers and Affiliates of Sellers under the Facility
Leases to which they are parties.
C. As a condition precedent to the obligations of the Sellers and Sun
hereunder and in the other Transaction Documents, Omega Healthcare Investors,
Inc. ("Omega"), as the sole Member of Delta I and Delta II, has agreed to
guaranty the obligations of Delta I and Delta II hereunder and in the other
Transaction Documents to which Delta I or Delta II is a party and will execute
this Agreement for the purpose of setting forth such guaranty.
D. The parties hereto desire to create a definitive Purchase Agreement,
reducing to writing the terms which have been the subject of the negotiations
among them.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I

DEFINITIONS
As used in this Agreement, the following capitalized terms have the
respective meaning set forth after them.
Appraisal - An MAI appraisal obtained by Delta I or Delta II.
Assignment - A form of assignment of leasehold interest meeting the
requirements of Section 2.8.
Bill of Sale - A Bill of Sale in the form described in Section 2.5
Closing - The consummation of the transactions contemplated by this
Agreement.


- 2 -




Closing Date - October 7, 1997, or such other time and date as shall be
agreed upon by the parties for the acquisition and leasing of a Seller's Assets
pursuant to this Agreement.
Contamination - The presence, release or threatened release in
violation of any Environmental Law of any Hazardous Substance , including but
not limited to the existence of any injury or potential injury to public health,
safety, natural resources or the environment associated therewith, or any other
environmental condition at, in, about, under or migrating from or to the Real
Property.
Deed - A deed meeting the requirements of Section 2.8.
Environmental Assessment - A Phase I Environmental Report with respect
to the Real Property included in a Seller's Assets.
Environmental Law - All federal, state and local laws (including,
without limitation, common law), statutes, codes, ordinances, regulations,
rules, orders, permits or decrees relating to the introduction, emission,
discharge or release of Hazardous Substances into the indoor or outdoor
environment (including without limitation air, surface, water, groundwater, land
or soil) or otherwise related to the manufacture, processing, distribution, use,
treatment, storage, transportation or disposal of Hazardous Substances, or to
the investigation, removal, restoration, remediation and/or elimination of, or
other response to, Contamination.
Escrow Agent - Chicago Title Insurance Company.
Escrow Instructions - Written Escrow Instructions to the Escrow Agent
from the Purchasers and the Sellers in the form of Exhibit "B" attached hereto.
Facility - The licensed nursing home or other health care facility
being operated on Real Property covered by this Purchase Agreement, including
such Real Property and associated Personal Property and Related Rights.



-3-

Facility Lease - A lease of Real Property, Personal Property and
Related Rights, substantially in the designated form for the Facility that is
attached hereto as one of Exhibits "C-1" through "C- 4".
Financial Statement - For a fiscal year or other accounting period, a
statement of earnings and retained earnings and of changes in financial position
and profits and loss for such period and for the period from the beginning of
the respective fiscal year to the end of such period and the related balance
sheet as at the end of such period, together with the notes thereto, all in
reasonable detail and setting forth in comparative form the corresponding
figures for the corresponding period in the preceding fiscal year, and prepared
in accordance with GAAP and reported on by a "Big Six" accounting firm or other
qualified certified public accounting firm acceptable to Omega.
GAAP - Generally accepted accounting principles.
Government Authorizations - As defined in Section 3.17(ii).
Guarantor - Sun.
Guaranty - The Amended and Restated Guaranty, dated as of October 7,
1997, between Sun and Omega.
Hazardous Substances - Any and all dangerous, toxic or hazardous
material, substance, pollutant, contaminant, chemical, or waste (including
medical waste), including petroleum products, asbestos and PCBs, defined, listed
or described as such under any Environmental Law.
Lessee - A party identified as a lessee on the signature page hereof.
Letter of Credit Agreement - The Amended and Restated Letter of Credit
Agreement dated as of October 7, 1997 between Omega and Sun.
Permitted Encumbrances - With respect to the Seller's Assets owned by a
Seller, the title exceptions and other matters set forth under its name on
attached Exhibit "D".



-4-

Permitted Exceptions - With respect to the Seller's Assets owned by a
Seller, the liens and encumbrances, including equipment leases, affecting the
Personal Property as of the Closing Date, listed by Facility on attached Exhibit
"E".
Personal Property - All personal property, including without
limitation, furniture, equipment, rugs, carpeting, drapes and linens, owned or
leased by a Seller and located in and upon such Seller's Real Property, or used
in connection with the operation of such Seller's Facility, and the Certificate
of Need with respect to such Facility, if and to the extent in existence as of
the date hereof and transferable by such Seller.
Purchaser - Delta I, with respect to each Facility listed on Exhibit
A-1, and Delta II, with respect to each Facility listed on Exhibit A-2.
Real Property - All of a Seller's right, title and interest in and to
the real property owned by it, the legal description of which is set forth under
its name in the applicable Exhibit "A1" or "A2" attached hereto, including the
buildings, structures, landscaping, paving, fencing, Fixtures (as defined in the
Standard Terms and Conditions) and Improvements (as defined in the Standard
Terms and Conditions) thereon.
Related Rights - As defined in the Standard Terms and Conditions.
Security Agreements - The two Security Agreements between the
Purchasers, as secured parties, and the Lessees, as debtors, granting security
interests in any and all Personal Property of such Lessees that for any reason
was not leased to Lessees on the Closing Date, or thereafter during the term of
the Facility Leases is acquired by such Lessees but is not Lessor's Personal
Property (as defined in the Standard Terms and Conditions), as herein required.




-5-

Seller's Assets - The Real Property, Personal Property and Related
Rights owned or being leased by a Seller .
Standard Terms and Conditions: The Standard Terms and Conditions
attached hereto as Exhibit "F", which are to be incorporated in each Facility
Lease by reference.
State - the State in which a Seller's Assets are located. Surrounding
Area - The area within a one half mile radius of a Facility. Survey -
A current Real Property survey meeting the requirements of
Section 3.16 and delivered in connection with the issuance of the
Title Policy. Title Commitment - The commitment of the Title Company
to issue the Title Policy. Title Company - Chicago Title Insurance
Company. Title Policy - The standard form of ALTA extended coverage
owner's (or, with respect to the assignment of a leasehold interest,
lessee's) policy of
title insurance in use on the Closing Date in the State in which a
Facility is located, with the survey and other standard exceptions deleted,
subject only to Permitted Encumbrances, and with such endorsements as may be
required by Delta I or Delta II if and to the extent available in the State.

Transaction Documents - This Agreement, each Facility Lease, each
Security Agreement, the Guaranty, the Letter of Credit Agreement, each Bill of
Sale, each Deed, and each and every other document, instrument, certificate and
financing statement required by the foregoing documents.




-6-

ARTICLE II
TERMS OF THE SALE AND LEASE
Section 2. 1. Agreement to Sell and Acquire. On the Closing Date, each
Seller listed on Exhibit A-1 shall sell, warrant and convey the Seller's Assets
owned by it to Delta I and Delta I shall purchase the same from each such
Seller, and each Seller listed on Exhibit A-2 shall sell, warrant and convey the
Seller's Assets owned by it to Delta II and Delta II shall purchase the same
from each such Seller, provided, however, that if a Seller's Assets consist of
or include a leasehold interest therein such leasehold interest shall be
assigned to the applicable Purchaser as hereinafter provided.
Section 2.2. Purchase Price. The Purchasers will purchase all of the
Sellers Assets for a total purchase price of Ninety Million Three Hundred Twenty
Two Thousand Dollars ($90,322,000.00) (the "Purchase Price"), which shall be
allocated among the Sellers and Purchasers as set forth on Exhibit "G" attached
hereto. The Purchase Price, adjusted as set forth in this Agreement, shall be
paid in immediately available funds (wire transfer or other form acceptable to
Omega) at the Closing.
Section 2.3. Escrow. The Closing of the transactions contemplated by
this Agreement and the Transaction Documents shall occur through an escrow with
the Escrow Agent. Each Purchaser and Seller shall execute and deliver this
Agreement and the other Transaction Documents to which it is a party into escrow
with the Escrow Agent, along with the Escrow Instructions. The Purchase Price
shall be deposited by the Purchasers into escrow with the Escrow Agent in
immediately available funds for disbursement in accordance with the Escrow
Instructions. The Closing shall be deemed completed when the Escrow Agent
disburses the entire Purchase Price (excluding any agreed-upon holdbacks)
pursuant to the Escrow Instructions and this Agreement.




-7-

Section 2.4. Adjoining Streets. The conveyance to Omega of the Real
Property shall include all right, title and interest, if any, of the Seller
thereof in and to any land lying in the bed of any street opened or proposed in
front of or adjoining the Real Property owned by such Seller to the centerline
thereof, and the Seller thereof shall execute or obtain and deliver to Omega, on
the Closing Date or thereafter, on demand, all proper instruments for the
conveyance of such title.
Section 2.5. Bill of Sale. Each Seller shall convey to Omega the
Personal Property owned by it pursuant to a Bill of Sale, which shall be in the
form attached hereto as Exhibit "H", free and clear of any and all encumbrances
of any nature whatsoever (except the Permitted Exceptions), and shall include an
assignment of all of the right, title and interest of the Seller thereof, if
any, in all warranties, guarantees and sureties relating to the Real Property or
Personal Property as may be provided in the Bill of Sale.
Section 2.6. Permitted Encumbrances. Each Seller shall convey the Real
Property or assign the leasehold interest owned by it to the Purchaser thereof
subject only to the Permitted Encumbrances applicable to such Real Property.
Section 2.7. No Violations. Each Seller shall convey its Seller's
Assets, or assign its leasehold interest, to the Purchaser thereof free of all
known material violations of applicable law or municipal ordinances or of any
material rule or regulation of any federal, state or local government agency or
authority having jurisdiction over such Seller's Assets or use thereof for the
business presently conducted by the Seller thereof, except as disclosed in
Exhibit "I" attached hereto.
Section 2.8. Deed; Assignment. Each Seller holding a fee interest in
Real Property shall convey to the Purchaser thereof good marketable title in fee
simple by a deed in a conventional form used in the State in which such Real
Property is located, and each Seller whose interest in Real Property is a
leasehold shall assign all its right, title and interest in such Real




-8-
Property to the Purchaser thereof, in each case subject only to
Permitted Encumbrances, and each such instrument shall be duly executed and
acknowledged and delivered to the applicable Purchaser in recordable form.

Section 2.9. No Prorations. Each Seller shall be obligated for all Real
Property and Personal Property taxes, assessments, water charges, sewer rents,
utilities or for premiums on existing insurance policies or any other items
relating to its Seller's Assets; it being understood by the parties that each
Seller is responsible for such expenses prior to Closing, and after Closing each
Lessee shall be obligated to pay the same under the terms of the Facility Lease
applicable to such Seller's Assets.
Section 2.10. Expenses. All costs and expenses of conveying all of the
Seller's Assets covered by this Agreement to the Purchasers as contemplated by
this Agreement and the Transaction Documents, including without limitation the
following costs and expenses, shall be paid for by the Sellers thereof:
(i) all taxes, including, without limitation, any transfer taxes,
documentary stamp taxes, and sales and similar taxes, applicable to the sale of
any or all of the Seller's Assets to the Purchasers and the simultaneous
lease-back thereof by the Purchasers to the Lessees, together with interest and
penalties, if any, thereon;
(ii) all recording costs, fees and charges and all escrow fees; (iii) all
legal and accounting fees and disbursements for or to the attorneys and
accountants for Sellers;
(iv) all costs relating to the Title Commitments and Title Policies;
(v) all costs relating to the Surveys;




-9-

(vi) all costs relating to the Appraisals;
(vii) all costs relating to the Environmental Assessments and to any
remediation required thereby;
(viii) all legal fees of legal counsel to the Purchasers and
reasonable disbursements for costs incurred by such counsel;
(ix) the Purchasers' physical inspection costs, including travel
and out-of-pocket expenses and a site inspection fee, not to
exceed $1,000.00 in the aggregate, per Facility;
(x) any prepayment premium, fees or charges, recording fees or
charges, legal fees, reconveyance or release fees or charges,
and other costs associated with the
discharge and payment of any debt against the Seller's Assets, other
than any such debt incurred by the Purchasers; and
(xi) Omega's commitment fee of Six Hundred Sixty Three Thousand One
Hundred Eighty Dollars ($663,180), the receipt of Fifty Thousand
Dollars ($50,000.00) of which is acknowledged by Omega.
Section 2.11. Facility Lease and Transaction Documents. At the Closing,
(a) each Lessee shall enter into a Facility Lease of the Seller's Assets which
are to be leased by such Lessee with the Purchaser thereof and (b) the
Purchasers, Sellers and Lessees shall execute the other Transaction Documents to
which they are parties.
Section 2.12. Guaranty. At the Closing, Sun shall execute and deliver
the Guaranty.
Section 2.13.No Severance; Default. It is a condition precedent to any
liability of any Seller, Lessee or Purchaser under this Agreement that Sun,
Omega, each Seller, each Lessee and




-10-

each Purchaser execute the Transaction Documents to which they
are a party. A material default by any Seller or Lessee hereunder shall
constitute a material default hereunder by all Sellers and Lessees and a
material default hereunder by one Purchaser shall constitute a material default
hereunder by both Purchasers. In the event of a material default by any party,
the non-defaulting party shall have the right, but shall not be required, to
terminate this Agreement (which shall have the effect of terminating all
Transaction Documents) and seek against the defaulting party or any guarantor of
its obligations hereunder such remedies as may be provided by this Agreement and
the Transaction Documents. If the non-defaulting party does not terminate this
Agreement, it shall continue in full force and effect.
Section 2.14. Other Documents. Sellers, Lessees and Purchasers agree
that they will execute and deliver all other documents, and take all actions, as
any party may reasonably request in order to effectuate the purpose and carry
out the terms of this Agreement and the Transaction Documents.

ARTICLE III
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligations of the Purchasers are subject to the following
conditions. If any condition is not fulfilled or waived on the Closing Date to
the satisfaction of the Purchasers, the Purchasers will, at their option, but
without waiving any rights, be relieved of all obligations under this Agreement
and the other Transaction Documents.
Section 3.1. Compliance. Sellers and Lessees must comply in all
material respects with all provisions of this Agreement and the other
Transaction Documents.



-11-

Section 3.2. Conveyance. Each Seller shall convey to the Purchaser
thereof good and marketable fee simple title to, or shall assign to the
Purchaser thereof its leasehold interest in, the Real Property and Related
Rights owned by it, free and clear of all liens and encumbrances except the
Permitted Encumbrances.
Section 3.3. Documents. This Agreement, together with the applicable
Deed, Assignment, Bill of Sale, Facility Lease, other Transaction Documents, and
all other documents to be executed by a Seller or a Lessee must be duly
authorized, validly executed and delivered by all such Sellers and Lessees.
Section 3.4. Recordation. Sellers must have (a) made arrangements for
the Assignments, Deeds and Short Form Memoranda of Facility Lease to be duly
recorded or filed for recordation in the manner required by the laws of the
States in which the Facilities are located, and (b) paid, or arranged to be
paid, all costs and fees to be paid by Sellers pursuant to this Agreement, and
such arrangements must be satisfactory to the Purchasers and their counsel.
Section 3.5. Title Commitment. A "Pro-Forma" Title Policy with respect
to each Facility, issued by the Title Company, must be delivered to the
Purchaser thereof, dated as of the Closing Date, in current form. The Pro-Forma
Title Policy shall provide that the Title Policy, when issued, shall:

(a) insure, as part of the Real Property, any easements required for
ingress and egress or otherwise required for operation of the Real Property;
(b) not take exception to parties in possession except patients
receiving health care services pursuant to written admission agreements;




-12-

(c) be in the amount requested by Purchasers, provided the aggregate
amount of all Title Policies does not exceed the Purchase Price; and
(d) include such endorsements as the Purchaser of the Facility shall
reasonably require and are available in the State.
The Pro-Forma Title Policy shall be accompanied by copies of all
documents affecting the Real Property as disclosed thereby. Title to (or, as the
case may be, the Purchaser's leasehold interest in) to the Real Property shall
be insured subject only to the Permitted Encumbrances. On or prior to the
Closing Date, Sellers shall remove any encumbrances other than Permitted
Encumbrances.
Section 3.6. Facility Lease. Each Lessee must have delivered to the
Escrow Agent a duly executed Facility Lease and Short Form Memorandum of Lease
(together with the other documents or instruments required under the Facility
Lease).
Section 3.7. Insurance. Certificates of insurance must be delivered to
the applicable Purchaser fulfilling the insurance requirements set forth in the
Facility Lease.
Section 3.8. Improvements. Each Lessee must accept the Real Property
leased to it for all purposes under the Facility Lease, and there must be no
material damage to the buildings and improvements thereon. No condemnation or
eminent domain proceedings may be pending with respect to the Real Property.
Section 3.9. Representations. The representations and warranties made
by the Sellers in this Agreement and in the other Transaction Documents to which
any Seller or Lessee is a party and in any certificates delivered by any Seller
must be true and correct in all material aspects on and as of the Closing Date
as if they had been made on the Closing Date.




-13-

Section 3.10. Authority. All corporate proceedings of Sellers and
Lessees in connection with the transactions contemplated herein and all
documents and certificates incident thereto must be satisfactory in form and
substance to Purchasers and their counsel. Purchasers must have received such
other documents and certificates incident to the transaction as Purchasers or
their counsel may reasonably request.
Section 3.11. Opinion. An opinion of counsel for Sellers and Lessees
must be delivered to Purchasers dated as of the Closing Date in the form
attached hereto as Exhibit "J".
Section 3.12. Health Care Law Opinion. Intentionally omitted.
Section 3.13. Financial Statements. Purchasers must have received
Financial Statements reasonably satisfactory to Purchasers.
Section 3.14. Bill of Sale. Each Seller must deliver a Bill of Sale to
the Purchaser of such Seller's Assets, together with any other documents
reasonably required to perfect such Purchaser's ownership interest in the
Personal Property. The Personal Property shall be free and clear of all liens
and encumbrances, other than the Permitted Exceptions. Purchasers shall obtain,
at Sellers' expense, UCC searches in each State and in each county where a
Facility is located and in the state in which each Seller has its principal
place of business, verifying that the Personal Property is free and clear of all
liens and encumbrances other than Permitted Exceptions.
Section 3.15. Financing Statements. Financing Statements executed
pursuant to the provisions of the Security Agreements must be duly filed in each
governmental office in which filing is necessary to perfect the security
interests granted to the Purchasers pursuant to the Security Agreements and with
the New Mexico Secretary of State.




-14-

Section 3.16. Survey. Sellers shall deliver to Purchasers final,
"as-built," surveys of all of the Real Property, showing the Real Property in
reasonable detail, with all encroachments, setbacks, utilities, and easements
shown, including a Surveyor's Certificate in favor of the applicable Purchaser
and the Title Company dated after the date hereof and in form acceptable to
Purchasers. If the legal description of any of the Real Property on the Survey
differs from the legal description contained in the applicable Exhibit hereto,
the legal description set forth on the Survey (subject to the applicable
Purchaser's review and approval) will be used on all Transaction Documents.
Section 3.17. Verification. Each Seller must deliver to the Purchaser
of such Seller's Facility evidence, satisfactory to such Purchaser in its sole
discretion, verifying with respect to such Facility that:
(i) All certificates of need, licenses, permits, franchises, approvals
and provider agreements to (a) lawfully operate all beds contained in
the Facility as they are currently being operated; (b) provide the
services offered at the Facility; and (c) receive payment under the
Medicare and respective State Medicaid programs and for the continued
operation of the Facility as it is currently being operated
("Government Authorizations") have been obtained and are and will
continue to be in full force and effect at Closing;
(ii) There are no outstanding violations of any law, code, rule,
regulation, writ, injunction, decree, certificate, agreement, condition
for participation or standard (or their separate and respective terms
and conditions) affecting the Seller's Assets or the current operations
thereof, or, if any such violations exist, that there is a detailed
explanation of each such violation, together with a Plan of Correction
approved by the body alleging such violation, which Plan of Correction
shall be subject to the applicable Seller's reasonable




-15-

satisfaction and approval, such verification to be provided by
delivering to the applicable Seller copies of the most recent licensure
survey and Plan of Correction.
(iii) That the current zoning of the Real Property allows for use of
the Facility as currently operated, which evidence may include a zoning
endorsement to the Title Policy for such Facility; and
(iv) That with respect to such Facility, all utilities enter the Real
Property from public rights-of-way or from uninterrupted private
utility company easements.
Section 3.18. Environmental. Environmental Assessments, prepared by
environmental consultants acceptable to Purchasers, must be received by
Purchasers stating, with respect to all of the Real Property, that there is no
Contamination and that all of the Real Property is in strict compliance with
Environmental Laws or Purchasers and Lessees have agreed upon such corrective
action as will be taken after Closing with respect to any non-compliance with
such environmental laws.
Section 3.19. Engineer's Reports. Written reports as to the physical
condition of all of the Improvements, in form acceptable to Purchasers and
prepared by structural engineers satisfactory to Purchasers, must be received by
Purchasers or Purchasers and Lessees have agreed upon such corrective action as
will be taken after Closing with respect to any structural problems identified
in such reports.
Section 3.20. Assumed Names. Each Seller must have furnished to the
Purchaser of its Facility a list of all assumed or fictitious names under which,
to such Seller's knowledge, the Facility owned by it has been operated during
the twelve (12) months prior to the date on which the parties enter into this
Agreement.




-16-

Section 3.21 Other Leases. The following leases:

Lease dated February 28, 1997 between Omega and Mediplex
Management of Palm Beach County, Inc.(Sun Health
of the Palm Beaches)
Lease dated February 28, 1997 between Omega and Mediplex
of Massachusetts, Inc. (Milford Meadows)
Lease dated February 28, 1997 between Omega and Sunrise
Healthcare Corporation (Holly Hills)
Lease dated March 25, 1997 between Omega and Sunrise
Healthcare Corporation (Laurelwood)
must be amended by the parties thereto to (a) increase the First Extension Term
and Second Extension Term (as defined therein) from ten (10) to fourteen (14)
years; (b) Change the definition of the term "Related Leases" to include all of
the leases listed above on Exhibit A-1 hereto, and (c) add the following
definition: "Transaction Documents: As defined in the Purchase Agreement." In
addition, the Laurelwood lease must be amended to change the Expiration Date to
February 28, 2011.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF
SELLERS AND LESSEES
To induce Purchasers to enter into this Agreement and the other
Transaction Documents, to purchase the Seller's Assets from Sellers and to lease
the Seller's Assets as provided herein, each Seller represents, warrants and
covenants to Omega as of the date hereof, and as of the Closing Date, as follows
with respect to itself and to the Facility or Facilities owned by it and being
conveyed to a Purchaser in accordance with the terms hereof:

Section 4.1. Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State set opposite
its name on the signature page of this



-17-

Agreement, and properly qualified to do business and in good standing in the
State in which the Facility or Facilities it owns is or are located.
Section 4.2. Financial Statements. To Seller's knowledge, no material
adverse change has occurred in the operation, physical condition, licensing, or
financial results of the Facility or Facilities owned by it following any
statements or reports delivered to Purchasers pertaining thereto. The Financial
Statements for the Seller and Facility are true and correct copies of the
Facility Financial Statements furnished to Purchasers by Seller. The Financial
Statements prepared by Seller and its Affiliates:

(a) are in all material respects prepared in accordance with the books
and records of the applicable entities and any consolidated subsidiaries;
(b) are in all material respects true and complete statements of the
financial conditions and results of operations of the applicable entities and
any consolidated subsidiaries as, at and for the periods therein specified, all
prepared in accordance with GAAP applied on a basis consistent with the
financial statements of prior years;
(c) contain and reflect all material adjustments so as to present a
fair and accurate statement of the results of operations and financial
conditions for the periods covered by said Financial Statements on the basis of
the applicable methods of accounting; and (d) contain and reflect reserves, if
any, for contingent and known liabilities and for all reasonably anticipated
losses and costs in excess of the expected receipts.
Section 4.3. Facility. The Facility or Facilities owned or leased by
the Seller is or are (or shall be as of the Closing) duly licensed. Except as
disclosed on Exhibit "K" attached hereto and made a part hereof, each such
Facility is fully-equipped with all necessary equipment, properly




-18-

licensed, and in compliance with all applicable laws, ordinances, rules and
regulations, operating as a Medicare and Medicaid provider under a valid
Provider Agreement therefor.
Section 4.4. Improvements. To Seller's knowledge and except as
disclosed in the Survey, the Environmental Assessment and the reports described
in Section 3.19:
(a) The buildings and improvements on the Real Property owned by the
Seller have been constructed in substantial compliance with the requirements of
all material laws, ordinances, rules, regulations and restrictions of record
applicable thereto, except as disclosed on Exhibit "L" attached hereto, and
except as disclosed to the Title Company all bills for labor and materials in
connection with the construction thereof have been paid in full or provided for;
(b) All public utilities, including, but not limited to, water, sewer,
gas and electricity, to the extent necessary for the operation of the Facility
or Facilities owned by the Seller, have been connected to the Facility or
Facilities and are adequate for the intended use of the Facility or Facilities;
(c) Means of ingress and egress, streets, parking and drainage
facilities are available to service the Facility or Facilities owned by the
Seller and will be adequate for the continuation of the current use of such
Facility or Facilities;
(d) All permits, licenses, conditional use permits and other
certificates (including, if issued in the applicable jurisdiction, permanent,
unconditional certificates of occupancy) and certificates of need or any other
governmental approvals or authorizations, which are necessary to permit the use
of the Facility or Facilities owned by the Seller in accordance with the
provisions of this Agreement and the other Transaction Documents and the
Facility Lease or Leases, have been obtained and are in full force and effect,
and Seller has not received any notice of any default





-19-

under any such permits and licenses, other than deficiencies, if any, cited in
the most recent State surveys of the Facility or Facilities, complete and
correct copies of which have been provided to Purchasers, as to each of which
deficiencies a Plan of Correction approved by the applicable Purchaser has been
submitted and accepted by the State. There are no unresolved citations which
have been issued to Seller by any local public health, Medicare or Medicaid
agencies (except for any citations that may have been issued in the ordinary
course and are being duly appealed and would not have a material adverse effect
on the Purchaser if such appeal were determined in a manner adverse to the
Seller or Lessee thereof), and except as disclosed to Purchasers there are no
temporary or permanent waivers which have been issued to Seller as to any
condition or fact respecting the Facility or Facilities under the laws or
regulations of the foregoing;
(e) Except as disclosed on Exhibit "M" attached hereto, under
applicable zoning and use laws, ordinances, rules and regulations, the current
use of the Facility owned by the Seller may be continued;
(f) No event has occurred and no condition exists which would ripen
into an Event of Default under a Facility Lease with respect to the Facility or
Facilities owned by the Seller either with or without notice or lapse of time,
or both.
Section 4.5. No Proceedings. No actions, suits, claims or proceedings
have been instituted or threatened against or affecting Seller at law or in
equity or before any federal, state or municipal governmental department or
agency or instrumentality thereof, which action, suit, claim or proceeding, if
decided adversely to Seller, would have a material adverse affect on the
operation of its business or its financial condition. All litigation pending
against Seller with respect to the Facility is described in detail in Exhibit
"N".




-20-

Section 4.6. Personal Property. As of the Closing Date, upon delivery
of the Bill of Sale, the Purchaser thereof will be the owner of the Personal
Property free and clear of all liens, encumbrances, pledges or leases, other
than the Permitted Exceptions.
Section 4.7. No Defects. Except as disclosed in the engineer's report
under Section 3.19 and in the Environmental Assessment, Seller has no knowledge
of any latent or patent material defect or deficiency with regard to the
structures, roofs, soils, furniture, fixtures, or equipment of the Facility or
Facilities owned by it which would materially impair the continuation of the
current use of such Facility or Facilities or the value of such Facility or
Facilities, and the same are in good working order and condition. Except as
disclosed in the engineer's report under Section 3.19 and in the Environmental
Assessment, Seller has no knowledge of any latent or patent material defect or
deficiency with regard to the plumbing, electrical, mechanical or other systems
of the Facility or Facilities owned by it which would materially impair the
continuation of the current use of such Facility or the value of such Facility,
and (except as shown on Exhibit "O") the same are in good working order. Each
Seller shall inform the Purchaser of its Facility or Facilities of any latent or
patent defect in the structures, roofs, soils, furniture, fixtures or equipment,
or the plumbing, electrical, mechanical or other systems, of such Facility or
Facilities which comes to such Seller's attention between the execution of this
Agreement and the Closing Date.
Section 4.9. No Encroachments. To Seller's knowledge, there exist no
encroachments onto the Real Property owned by it or by the Real Property owned
by it onto any adjoining property, other than as reflected in the Survey with
respect to such Real Property and approved by the Purchaser thereof.




-21-

Section 4.10. No Condemnation. Seller knows of no pending, contemplated
or threatened condemnation of the Real Property or Related Rights owned by it or
any part thereof.
Section 4.11. Insurance. Each Lessee shall have as of the Closing Date
policies of insurance which satisfy the requirements of its Lease; and there
have been no gaps or lapses in the insurance coverage at any time during
ownership by Seller of the Facility or Facilities owned by it.
Section 4.12. Taxes. To the best of Seller's knowledge, all taxes,
including, but not limited to, employee withholding taxes and individual taxes,
for all periods prior to the Closing with respect to its Seller's Assets have
been paid or the Purchaser thereof has been given satisfactory evidence that
reasonable reserves for their payment have been established.
Section 4.13. No Defaults. The transactions contemplated by this
Agreement and the Transaction Documents will not constitute or result in any
default or event that, with a notice or lapse of time, or both, would be a
default, breach or violation of any lease, mortgage, deed of trust, covenant or
other agreement, instrument or arrangement by which the Seller's Assets will be
bound as of the Closing Date. No consent or joinder by any governmental agency
or any other person is required for the execution of this Agreement and the
other Transaction Documents by Seller, for the performance of Seller's
obligations as herein contemplated, except as set forth in Exhibit "P".
Section 4.14. No Assessments. To the best of Seller's knowledge, no
assessments for public improvements have been made or threatened against the
Facility or Facilities owned by it which are not of record and which remain
unpaid, including, without limitation, those for extension and/or continuation
of sewer and water lines and mains, retaining walls, streets, sidewalks and
curbs.




-22-

Section 4.15. Non-Foreign Persons. Seller is not a "foreign person" as
that term is defined in Section 1445 of the United States Internal Revenue Code
of 1986, as amended.
Section 4.16. No Release of Discharge. To Seller's knowledge, and
except as disclosed in the Environmental Assessment, the land on which the
Facility or Facilities owned by it is located has not been used as a landfill,
and there is no Contamination.
Section 4.17. No Hazardous Substances. Except as disclosed in the
Environmental Assessment and approved by the Purchaser thereof, none of the
following is used, generated, transported, treated, constructed, deposited,
stored, disposed, placed or located in, on or under the Real Property owned by
Seller in violation of an Environmental Law or in a condition or quantity that
would give rise to any affirmative cleanup or other remedial obligation under an
Environmental Law:
(a) asbestos;
(b) ureaformaldehyde foam insulation;
(c) transformers or other equipment which contain dialectic fluid
containing levels of polychlorinated biphenyls in excess of fifty (50) parts per
million; or
(d) any other chemical, material, substance or other matter of any kind
whatsoever.
Section 4.18. Information is Accurate. All written information
heretofore or hereafter given prior to Closing by Seller to the Purchasers
concerning Seller and the Facility or Facilities owned by it is true and
complete in all material respects.
Section 4.19. Representations are True. No warranty or representation
by Seller set forth herein, or in any certificate or other document furnished to
a Purchaser by Seller, contains any




-23-

untrue statement of material fact or omits to state a material fact necessary to
make the warranty or representation not misleading in light of the circumstances
under which it was made.
Section 4.20. No Commissions. Sellers and Purchasers represent and
warrant to each other that no real estate commission, finder's fee or the like
is due and owing to any person other than Omega in connection with this
Agreement. Sellers jointly and severally agree to save, indemnify and hold
Purchasers harmless from and against any and all claims, liabilities or
obligations for brokerage, finder's fees or the like in connection with this
Agreement or the transactions contemplated hereby, asserted by any person on the
basis of any statement or act alleged to have been made or taken by any Seller.
Purchasers jointly and severally agree to save, indemnify and hold the Sellers
harmless from and against any and all claims, liabilities or obligations for
brokerage, finder's fees or the like in connection with this Agreement or the
transactions contemplated hereby, asserted by any person on the basis of any
statement or act alleged to have been made or taken by Purchasers.
Section 4.21. Survival. In addition to the foregoing representations,
warranties and covenants, it shall be a condition to Purchasers' obligations
hereunder that each Seller and Lessee shall represent and warrant as of the
Closing Date that to its knowledge each of the conditions to the obligations of
the Purchasers under this Agreement and the other Transaction Documents for
which it is responsible under the terms hereof which have not been waived by
Purchasers has been fulfilled as of the Closing Date. The representations,
warranties and covenants contained in or to be made pursuant to this Agreement
and the other Transaction Documents shall be deemed to be continuing and shall
survive the Closing. If Omega discovers after the Closing any material




-24-

violation of any of the foregoing representations, warranties or covenants,
such violation shall be a default hereunder and an Event of Default under and as
defined in the Facility Lease.
ARTICLE V
MISCELLANEOUS

Section 5.1. Indemnity. Sellers agree, with counsel selected by Omega
and reasonably acceptable to Sellers, to defend Purchasers and their members
against, and to indemnify, protect and hold Purchasers and their members
harmless from and against, any and all claims, demands, obligations, losses,
liabilities, damages, recoveries and deficiencies (including but not limited to
interest, penalties, attorneys' fees, costs and expenses) which Purchasers or
their members may suffer as a result of the untruth of any of the
representations and breach of the warranties of any Seller herein or given
pursuant hereto, or which Purchasers or their members may suffer as a result of
any default by any Seller in the performance of any of its commitments,
covenants or conditions under this Agreement and the other Transaction
Documents, or with respect to the ownership and operation of the Seller's Assets
prior to the Closing Date, or (notwithstanding the inclusion thereof in the list
of Permitted Encumbrances onExhibit D) with respect to the Deed of Trust dated
November 8, 1993 from Braswell Enterprises, Inc., as Trustor, for the benefit of
C. Allen Braswell, Braswell Management, Inc., Dorothy Braswell and Cecil Mays,
as Beneficiary, which encumbers the Facilities known as: Laurel Park, St.
Theresa Rehabilitation Center, Sierra Vista, Olive Vista, Vista Knoll and
Claremont. The rights of the Purchasers and their members expressed in this
Agreement are without prejudice to any other remedies at law or in equity which
they may have. Purchasers and Omega agree, with counsel selected by Sellers and
Lessees and reasonably acceptable to Omega and Purchasers, to defend Sellers and
Lessees against, and to indemnify, protect and hold Sellers and




-25-

Lessees harmless from and against, any and all claims, demands, obligations,
losses, liabilities, damages, recoveries and deficiencies (including but not
limited to interest, penalties, attorneys' fees, costs and expenses) which
Sellers or Lessees may suffer as a result of any default by either Purchaser or
Omega in the performance of any of its commitments, covenants or conditions
under this Agreement and the other Transaction Documents. The rights of the
Sellers and Lessees expressed in this Agreement are without prejudice to any
other remedies at law or in equity which they may have.

Section 5.2. Defense. Upon receiving notice of a claim which is the
subject of the indemnity provisions of Section 5.1, Sellers shall jointly defend
and contest the claim at their own cost and expense.
Section 5.3. Risk of Loss. Each Seller shall bear the risk of loss or
damage to any of the Seller's Assets owned by it from fire or other casualty
until the Closing Date. In the event of any damage to or destruction of all or
any part of any of the Seller's Assets by fire or other casualty, whether or not
insured, or the taking of all or any part of the Seller's Assets by power of
eminent domain or deed in lieu thereof, prior to the Closing Date, the Purchaser
thereof may, at its option:
(a) terminate this Agreement and all of its obligations
hereunder with respect to the Facility or Facilities that was damaged or
destroyed, in which event the Purchase Price shall be reduced by the portion
thereof allocated to the Facility or Facilities as to which this Agreement is
terminated; or
(b) elect to proceed with the purchase of the damaged or
destroyed Facility or Facilities, in which event the applicable Seller shall
deliver possession of such Facility or Facilities to



-26-

Omega at the close of the escrow together with: (i) all insurance proceeds
received by such Seller(s) in connection with the damage or destruction; and
(ii) an assignment of all rights and claims of such Seller(s) under any
applicable insurance policies.
If the applicable Purchaser or Purchasers elect to proceed
with the purchase of the Facility or Facilities, such election shall be
conditioned upon the agreement of the applicable Seller(s) thereof to fully
cooperate with and assist such Purchaser or Purchasers in adjusting any loss and
perfecting and pursuing any claims under any applicable insurance policy or
policies.
Section 5.4. Statements. All statements contained in any certificate or
other instrument delivered by or on behalf of a Seller or Lessee pursuant to
this Agreement and the other Transaction Documents, or in connection with the
transaction contemplated hereby, shall be deemed representations and warranties
by such Seller or Lessee with respect to any matters of fact set forth therein.
Section 5.5. Attorneys' Fees. If any legal action, arbitration or other
proceeding is brought for the enforcement or interpretation of this Agreement,
or because of an alleged or actual dispute, breach, default or misrepresentation
in connection with any of the provisions of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, and in any post judgment proceedings or appeals,
in addition to any other relief to which it may be entitled.
Section 5.6. No Assignment. Neither this Agreement nor the rights,
duties or obligations arising hereunder shall be assignable or delegable by any
Seller or Lessee without the express prior written consent of Purchasers. All
the terms and provisions of this Agreement and the other



-27-

Transaction Documents shall be binding upon and inure to the benefit of and be
enforceable by Purchasers and each and every Seller and their respective
permitted successors and assigns.
Section 5.7. No Third Party Beneficiaries. Nothing in this Agreement,
whether express or implied, is intended to confer any rights or remedies on any
persons other than Purchasers, their members, Sellers, Lessees and their
respective permitted successors and assigns. Nothing in this Agreement is
intended to relieve or discharge the obligation or liability of any third
persons to any party to this Agreement, nor shall any provisions give any third
persons any right of subrogation or action over or against any party to this
Agreement.
Section 5.8. Public Announcements. Any public announcement concerning
this Agreement before the Closing Date or any of the terms hereof may be made
only with the prior written approval of Purchasers and Sellers.
Section 5.9. Exhibits. All exhibits, schedules, and documents referred
to in or attached to this Agreement are integral parts of this Agreement as if
fully set forth herein.
Section 5.10. Further Assurances. Sellers shall give further assurances
and execute further documents as are necessary or desirable to effectuate the
purpose of this Agreement and the other Transaction Documents.
Section 5.11. Notices. Except as required by law for the posting of
notices, all notices, requests, demands and other communications hereunder must
be in writing and shall be personally served or mailed (by registered or
certified mail, return receipt requested and postage prepaid), or delivered by a
national overnight delivery service such as Federal Express or D.H.L., or by
facsimile transmission addressed to the respective parties, as follows:
(a) if to any Seller or Lessee:




-28-

c/o Sunrise Healthcare Corporation
101 Sun Lane N. E.
Albuquerque, New Mexico 87109
ATTN: Mr. Warren McInteer
Telephone No.: (505) 821-3355
Fax No.: (505) 822-0747

with a copy to:

The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
ATTN: Randi S. Nathanson, Esq.
Telephone No.: (206) 623-6239
Fax No.: (206) 623-1738

(b) if to Omega:

Omega Healthcare Investors, Inc.
905 W. Eisenhower Circle, Suite 1 10
Ann Arbor, Michigan 48103
ATTN: Essel W. Bailey, Jr.
Telephone No.: (313) 747-9790
Fax No.: (313) 996-0020

with a copy to:

Dykema Gossett PLLC
1577 North Woodward Ave.
Bloomfield, Michigan 48304-2820
ATTN: Fred J. Fechheimer, Esq.
Telephone No.: (248) 540-0743
Fax No.: (248) 540-0763

In the event of service by mail, service shall be deemed to be complete
on the day of actual delivery as shown by the addressee's certified mail receipt
or at the expiration of five (5) days after such mailing, whichever is earlier
in time. In the event of service by personal delivery, overnight




-29-

delivery or facsimile transmission, service shall be deemed to be complete on
the day of the confirmed receipt or refusal of the receipt thereof.
Section 5.12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, EXCEPT THAT AS
TO EACH FACILITY THE LAWS OF THE STATE SHALL GOVERN THIS AGREEMENT TO THE EXTENT
NECESSARY (I) TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN
WITH RESPECT TO THE FACILITY AND (II) FOR PROCEDURAL REQUIREMENTS WHICH MUST BE
GOVERNED BY THE LAWS OF THE STATE.
Section 5.13. Counterparts. This Agreement and the other Transaction
Documents may be executed simultaneously in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Section 5.14. Captions. The captions of sections and subsections of
this Agreement have been inserted solely for convenience and reference, and
shall not control or affect the meaning or construction of any of the provisions
of this Agreement.
Section 5.15. Entire Agreement. This Agreement, the other Transaction
Documents and the exhibits hereto and thereto constitute the entire agreement
between Purchasers and Sellers pertaining to the subject matter contained in
them, and supersede all prior agreements, representations and understandings of
the parties. No supplement, modification or amendment of this Agreement will be
binding unless expressed as such and executed in writing by each Purchaser and
Seller. No waiver of any of the provisions of this Agreement will be deemed or
constitute a waiver of any other




-30-

provision, whether or not similar, nor will any waiver constitute a continuing
waiver. No waiver will be binding unless expressed as such in a document
executed by the party granting the waiver.





-31-



SIGNATURE PAGES TO PURCHASE AGREEMENT
AND AGREEMENT OF LEASE

IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
day and year first set forth above.

DELTA INVESTORS I, LLC, a Maryland
limited liability company

By: Omega Healthcare Investors, Inc.,
a Maryland corporation


By: ______________________________
F. Scott Kellman, Executive
Vice President

DELTA INVESTORS II, LLC, a Maryland
limited liability company

By: Omega Healthcare Investors, Inc.,
a Maryland corporation


By: ______________________________
F. Scott Kellman, Executive
Vice President

SELLERS:

Beckley Health Care Corp., a West Virginia
corporation
Braswell Enterprises, Inc., a California
corporation
Care Enterprises, Inc., a Delaware
corporation
Care Enterprises West, a Utah corporation
Putnam Health Care Corp., a West Virginia
corporation
Regency Health Services, Inc., a Delaware
corporation
Regency - North Carolina, Inc., a North
Carolina corporation
Regency Rehab Properties, Inc., a
California corporation
Salem Health Care Corp., a West Virginia
corporation




-32-

LESSEES:

Care Enterprises West, a Utah corporation
Circleville Health Care Corp., an Ohio
corporation
Coalinga Rehabilitation Center, a
California corporation
Dunbar Health Care Corp., a West Virginia
corporation
Fullerton Rehabilitation Center, a
California corporation
Marion Health Care Corp., an Ohio
corporation
Meadowbrook Rehabilitation Center, a
California corporation
Newport Beach Rehabilitation Center, a
California corporation
Regency Rehab Hospitals, Inc., a
California corporation
San Bernardino Rehabilitation Hospital,
Inc., a California corporation
Shandin Hills Rehabilitation Center,
a California corporation
Vista Knoll Rehabilitation Center,
Inc., a California corporation


By:__________________________________________
David A. Grant, Vice President

MEGA HEALTHCARE INVESTORS, INC., a
Maryland corporation (solely for the purpose
of guaranteeing the obligations of the
Purchasers hereunder pursuant to Recital C)



By:__________________________________________
F. Scott Kellman, Executive Vice President

SUN HEALTHCARE GROUP, INC., a Delaware
corporation (solely for the purpose of
delivering the guaranty pursuant to
Paragraph 2.12)


By:_________________________________________
Warren McInteer, Vice President




-33-

EXHIBITS
--------


A-1 Seller's Assets to be Purchased by Delta I (including legal descriptions)
A-2 Seller's Assets to be Purchased by Delta II (including legal descriptions)
B. Escrow Instructions
C-1 Facility Lease Form for Continental Rehab Hospital of San Diego
C-2 Facility Lease Form for St. Theresa
C-3 Facility Lease Form for All Other Facilities to be purchased by Delta I
C-4 Facility Lease Form for All Other Facilities to be purchased by Delta II
D. Permitted Encumbrances
E. Permitted Exceptions
F. Standard Terms and Conditions
G. Purchase Price Schedule
H. Bill of Sale
I. Violations of Laws, Rules, Regulations and Ordinances (if any)
J. Form of Opinion of Legal Counsel for Seller
K. Schedule of License or Permit Irregularities (if any)
L. Schedule of Construction Regulatory Exceptions
M. Zoning
N. Schedule of Facility Litigation (if any)
O. Schedule of Construction Deficiencies (if any)
P. Required Consents and Joinders



-34-