SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [x]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ARV Assisted Living, Inc.
(Name of Registrant as Specified in Its Charter)
Emeritus Corporation
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PRELIMINARY COPY, DATED NOVEMBER 24, 1997
[EMERITUS CORPORATION]
To the shareholders of ARV Assisted Living, Inc. ("ARV")
Emeritus is prepared to purchase ARV for $16.50 per share in
cash. Although ARV has been aware of our serious interest in pursuing a
merger of ARV and Emeritus since June 1997, the ARV Board has refused to enter
into discussions with us. Nor has any other bidder proposed an acquisition of
the company at a better price. Therefore, we need your support to elect our
nominees to the ARV Board in order to facilitate a merger with Emeritus that
will net you $16.50 per share in cash.
At the ARV Annual Meeting on January 8, 1998, all directors are
standing for reelection. This will be the last time that you can elect the
entire Board. After this Annual Meeting, only a minority of directors will be
up for election at each annual meeting. This is your last opportunity to
require the ARV Board to accept our $16.50 all cash offer.
Please complete the enclosed BLUE and GOLD proxy cards and
return them in the envelope provided. If you have any questions, please call
D.F. King toll-free at 1-800-431-9646. No matter how large or small your
shareholding may be, it is important that you complete and return the BLUE and
GOLD proxy cards today.
We believe that our proposal of $16.50 per share is in the best
interest of ALL shareholders for the following reasons:
o Our proposal represents a 45% premium over ARV's closing
share price of $11.38 on July 14, 1997, the day before ARV
announced its intention to sell 49.9% of its common stock to
Prometheus Assisted Living LLC ("Prometheus") for $14.00 per
share.
o Our proposal represents immediate cash to all ARV
shareholders.
o Our proposal represents a [ ]% premium over ARV's closing
price of $[ ] on December [ ], 1997, the last trading day
before we mailed the attached Proxy Statement.
o Our proposal represents the best opportunity for
shareholders to receive a control premium for their shares
for the foreseeable future.
Since we made our proposal for $16.50 per share on October 12,
1997, ARV has refused to negotiate with us. Instead, your Board has acted to
prevent you, the owners of the company, from considering our proposal.
Without asking for your approval, the Board has structured and consummated
transactions with Prometheus under which Prometheus was permitted to purchase
1,921,012 newly issued ARV shares on July 23, 1997 at $14.00 per share and $60
million of convertible notes on October 30, 1997. These notes are convertible
into an additional 3,478,260 newly issued ARV shares beginning on January 28,
1998 at a conversion price of $17.25, giving Prometheus up to 35.8% of your
company and substantially diluting your share ownership. We believe that ARV
did not act in the best interest of the ARV shareholders when it entered into
the transactions with Prometheus for the following reasons:
o Neither of the transactions with Prometheus included any
payment to you for your shares.
o The ARV Board has secured a three-year contractual commitment
from Prometheus to vote all of its shares in ARV director
elections in favor of the ARV Board's nominees. With
Prometheus currently owning 16.6% of the ARV common stock
and having the right under the convertible notes to acquire
up to 35.8% of the ARV common stock, this voting arrangement
substantially disenfranchises the public stockholders of ARV.
o In addition, the transaction with Prometheus includes a
voting agreement among certain senior members of ARV
management and Prometheus under which an additional 12.4% of
the currently outstanding ARV common stock is committed to
vote for the director nominees of the ARV Board and of
Prometheus. The percentage of common stock committed to
vote for the ARV and Prometheus nominees could increase to
45.4% after January 28, 1998, when Prometheus will be
permitted to exercise its conversion right.
o Prometheus is free to acquire additional shares so that it
can exercise effective sole control over ARV within three
years.
o The Prometheus transactions have included significant
penalties for any acquiror of ARV. For example, Prometheus
is permitted to convert its $60 million of convertible notes
at a conversion price of $16.25 (rather than $17.25) per
share following a change of control.
A more detailed description of the transactions with Prometheus
is contained in the accompanying Proxy Statement, which you are urged to read
carefully.
We believe that shareholders should vote FOR the Emeritus
nominees so that the current Board of Directors may be replaced by a slate of
nominees who are committed to maximizing value for ALL shareholders by
entering into a merger agreement with Emeritus. Please take a moment to vote
your BLUE and GOLD proxy cards today.
Emeritus is a long-term care services company focused on
operating residential-style assisted-living communities. As of the date of
this letter, Emeritus beneficially owns 1,077,200 shares of ARV common stock,
or approximately 9.3% of the outstanding common stock.
Thank you for your support of our effort to combine ARV and
Emeritus.
Emeritus Corporation
PROXY STATEMENT OF EMERITUS CORPORATION
IN OPPOSITION TO BOARD OF DIRECTORS
OF
ARV ASSISTED LIVING, INC.
ANNUAL MEETING OF SHAREHOLDERS
(January 8, 1998)
AND
SPECIAL MEETING OF
SHAREHOLDERS ON JANUARY 16, 1998
This Proxy Statement is furnished in connection with the
solicitation of proxies by Emeritus Corporation, a Washington corporation,
("Emeritus") to be used at the next Annual Meeting of Shareholders of ARV
Assisted Living, Inc., a California corporation, ("ARV" or the "Company") and
at any adjournments, postponements, reschedulings or continuations, or any
other meeting of shareholders held in lieu thereof (the "Annual Meeting").
According to the Company's Preliminary Proxy Statement (the "ARV Proxy
Statement") filed on November 21, 1997 with the Securities and Exchange
Commission (the "Commission"), the Annual Meeting is to be held on January 8,
1998 at 9:00 a.m. local time, at The Doubletree Hotel, Suite _____, 3050
Bristol Street, Costa Mesa, California 92626.
This Proxy Statement is also furnished in connection with the
solicitation of proxies by Emeritus to be used at the Special Meeting of
Shareholders to be held on January 16, 1998 and at any adjournments,
postponements, reschedulings or continuations thereof (the "Special Meeting").
THIS SOLICITATION IS BEING MADE BY EMERITUS AND NOT ON BEHALF
OF THE BOARD OF DIRECTORS OF THE COMPANY.
On October 12, 1997, Emeritus proposed an acquisition of all of
the outstanding common stock of ARV (the "Common Stock") for $16.50 per share
in cash (the "Emeritus Proposal"). The Emeritus Proposal was made to provide
ARV's shareholders with a superior alternative to a transaction that the
Company had entered into with Prometheus Assisted Living LLC ("Prometheus")
(the "Original Prometheus Transaction"), in which ARV was proposing to sell
Prometheus up to 49.9% of its stock for $14 per share.
We believed then, and we continue to believe now, that our
proposal is in the best interest of all ARV shareholders because, among
other things, it offers the ARV shareholders immediate cash for their
shares at a 45% premium over ARV's closing share price on the last trading
day prior to announcement of the Original Prometheus Transaction and a [ ]%
premium over ARV's closing share price on the last trading day prior to the
mailing of this Proxy Statement. The purpose of the Emeritus Proposal is
to acquire control of, and the entire equity interest in, the Company and
to maximize value for all ARV shareholders. Emeritus has had extensive
discussions with prospective sources of financing for this proposal. Based
upon those discussions it is confident that it can conclude the necessary
financing required to effect the combination of the two businesses on a
timely basis. The transaction also would be subject to negotiation and
execution of a definitive acquisition agreement, approval by the ARV
stockholders, and receipt of all necessary regulatory and other approvals.
The definitive agreement would contain terms and conditions customary in
this type of transaction.
In response to the Emeritus Proposal, on October 31, 1997, ARV
announced that it had replaced the Original Prometheus Transaction with a
transaction (the "Amended Prometheus Transaction") whereby Prometheus would
retain 1,921,012 shares of Common Stock it previously purchased at $14 per
share and would purchase $60 million of 6-3/4% Convertible Subordinated Notes
Due 2007 (the "Notes"), convertible after January 28, 1998 at a conversion
price of $17.25 per share. See "BACKGROUND".
Emeritus believes that ARV's transactions with Prometheus harm
you, the ARV shareholders, in several ways: they significantly dilute the
public shareholders by making approximately 5.4 million newly issued shares
(or 35.8% of the Common Stock) available to Prometheus; they offer public
shareholders no payment for their shares in a transaction that could result in
Prometheus acquiring majority control of the Company without providing the
other shareholders with any change of control premium; they significantly
disenfranchise public shareholders by committing up to 45.4% of ARV's stock to
vote in director elections for the directors nominated by the ARV Board of
Directors (the "ARV Board") and Prometheus; and they penalize Emeritus or any
other potential acquiror of the Company.
The ARV Board has rejected the Emeritus Proposal and has
refused to negotiate with Emeritus. Emeritus is soliciting proxies from
the Company's shareholders to defeat the ARV Nominees and elect nine
nominees of Emeritus to the ARV Board. If elected, the Emeritus nominees
will, subject to their fiduciary duties under California law, enter into a
merger agreement with Emeritus. In light of the fact that no other bidder
has come forward since Emeritus publicly announced its $16.50 proposal, the
Emeritus Nominees believe that it is unnecessary to solicit third party
interest and do not intend to do so. The Emeritus Nominees will,
however, evaluate unsolicited third party proposals in accordance with
their fiduciary duties as directors of ARV.
AT THE ANNUAL MEETING, EMERITUS SEEKS TO ELECT NINE EMERITUS
NOMINEES AS DIRECTORS IN LIEU OF THE ARV NOMINEES. NO OTHER BIDDER HAS
PROPOSED AN ACQUISITION OF ARV AT A BETTER PRICE. THIS IS THE LAST
OPPORTUNITY TO REQUIRE THE ARV BOARD TO ACCEPT OUR $16.50 PER SHARE ALL CASH
OFFER. THIS IS THE LAST ANNUAL MEETING AT WHICH ALL DIRECTORS WILL STAND FOR
REELECTION.
At the Annual Meeting, nine members of the ARV Board are to be
elected, three each to serve as Class A Directors, Class B Directors and Class
C Directors, respectively. Emeritus is soliciting proxies to elect its slate
of nine directors (the "Emeritus Nominees") at the Annual Meeting in lieu of
the persons nominated by the incumbent ARV Board (the "ARV Nominees").
Following this Annual Meeting, ARV will have a classified board and only a
minority (approximately one-third) of the directors will stand for election at
each annual meeting thereafter. Therefore, this Annual Meeting is the last
opportunity for ARV's shareholders to require the ARV Board to accept
Emeritus' $16.50 per share all cash offer.
The Company is also seeking shareholder approval at the Annual
Meeting for a proposal to reincorporate the Company as a Delaware corporation
and a proposal to amend the Company's Restated Articles of Incorporation to,
among other things, increase the maximum number of authorized directors from
nine to ten. Emeritus recommends that you vote FOR the proposal to
reincorporate the Company as a Delaware corporation and ABSTAIN from voting on
the proposal to increase the maximum number of authorized directors from nine
to ten.
Emeritus and certain other stockholders have called a Special
Meeting of shareholders of ARV for January 16, 1998 for the purpose of
considering and voting upon an Agreement and Plan of Merger between Emeritus
and ARV pursuant to which Emeritus will acquire all of the outstanding Common
Stock of ARV for $16.50 per share in cash. ARV has not as of the date of this
Proxy Statement fixed a record date for purposes of determining the
stockholders entitled to vote at the Special Meeting. However, pursuant to
the bylaws of the Company that record date will predate the earliest date on
which the Notes issued to Prometheus are convertible. Therefore, Prometheus
will not be able to vote any shares issuable upon conversion of the Notes at
the Special Meeting. Should it be necessary to allow sufficient time to
solicit proxies with respect to the Agreement and Plan of Merger, pursuant to
this Proxy Statement, Emeritus is also soliciting proxies to adjourn the
Special Meeting from time to time. See "THE EMERITUS PROPOSAL".
The record date for determining shareholders entitled to notice
of and to vote at the Annual Meeting is November 14, 1997 (the "Record Date").
Shareholders of record at the close of business on the Record Date will be
entitled to one vote at the Annual Meeting for each share of Common Stock held
on the Record Date. According to the ARV Proxy Statement, there were
11,584,272 shares of Common Stock issued and outstanding as of the Record
Date.
The record date for determining shareholders entitled to notice
of and to vote at the Special Meeting is currently unknown. Shareholders of
record at the close of business on the record date, when set, will be entitled
to one vote at the Special Meeting for each share of Common Stock held on the
record date.
Emeritus is a long-term care services company focused on
operating residential- style assisted-living communities. As of the date of
this Proxy Statement, Emeritus beneficially owns 1,077,200 shares of Common
Stock, or approximately 9.3% of the outstanding Common Stock. The principal
place of business of Emeritus is 3131 Elliott Avenue, Suite 500, Seattle,
Washington 98121, and the telephone number is (206) 298-2909.
IMPORTANT
Your vote is important. No matter how many or how few shares of
Common Stock you own, Emeritus urges you to please mark, sign, date and
promptly mail your BLUE proxy card in the postage prepaid envelope provided to
vote FOR the election of the Emeritus Nominees. Emeritus also urges you to
please mark, sign, date and promptly mail your GOLD proxy card in the postage
prepaid envelope provided to vote FOR the adjournment of the Special Meeting.
Remember, do not return any proxy card sent to you by ARV. If you have
already done so, you may revoke your proxy by delivering a written notice
of revocation or a later dated proxy to Emeritus, c/o Corporate Election
Services, 400 Fairway Road, Suite 110, Moon Township, PA 15108, or by
voting in person at the Annual Meeting. Only your latest dated proxy will
count at the Annual Meeting. See "SOLICITATION OF PROXIES".
A vote FOR the Emeritus Nominees will enable you -- as owners of ARV
- -- to send a message to the ARV Board that you are in favor of a
transaction that maximizes value for all shareholders of the Company.
If your shares are registered in the name of a brokerage firm,
bank, bank nominee or other institution, only it can execute a proxy and
vote your shares and only after receiving your specific instructions.
Please mark, sign, date and mail the enclosed BLUE proxy card and GOLD
proxy card in the envelope provided by your broker or bank. In addition,
you are requested to contact the person responsible for your account and
direct him or her to execute on your behalf today the BLUE proxy card and
GOLD proxy card sent by Emeritus. If you have any questions or need
further assistance in voting, please contact the firm assisting us in the
solicitation of proxies:
D.F. King
Call 1-800-431-9646 (toll free in the United States)
This Proxy Statement, the BLUE proxy card and the GOLD proxy card
are first being mailed or furnished to ARV shareholders on or about
____________, 1997. The principal executive offices of ARV are located at 245
Fischer Avenue, Suite D-1, Costa Mesa, California 92626, telephone number
(714) 751-7400.
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
The ARV Proposals
Based upon the ARV Proxy Statement, in addition to the election
of directors, the following two proposals are to be voted upon at the Annual
Meeting:
1. Approval of the reincorporation of the Company as a Delaware
corporation, which will also be named ARV Assisted Living, Inc., pursuant to a
merger of the Company into a wholly owned Delaware subsidiary and the
conversion of the Common Stock of the Company into the common stock, par value
$.01 per share, of the surviving corporation, which approval shall constitute
approval of all of the provisions set forth in the Certificate of
Incorporation and Bylaws of the Delaware corporation (Proposal 1); and
2. Approval of an amendment to the Restated Articles of
Incorporation of the Company providing for, among other things, an increase in
the maximum number of authorized directors of the Company from nine to ten
(Proposal 2).
EMERITUS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE EMERITUS
NOMINEES, "FOR" PROPOSAL 1 AND MAKES NO RECOMMENDATION ON PROPOSAL 2.
The Emeritus Nominees
Emeritus has nominated fifteen persons for election as
directors from which it is seeking to elect nine individuals to the ARV Board.
If all of the Emeritus Nominees are elected, the Emeritus Nominees would
constitute all of the possible members of the ARV Board. Under the Company's
Restated Articles of Incorporation and Bylaws, a majority of the entire ARV
Board constitutes a quorum and action may be taken by the vote of a majority
of directors, when a quorum is present. If elected, the Emeritus Nominees
will take all action, subject to their fiduciary duties to the Company's
shareholders under California law, to redeem the poison pill (or amend the
related agreement to make the poison pill inapplicable to a transaction with
Emeritus), eliminate its other defenses, enter into a merger agreement for the
acquisition of ARV by Emeritus at $16.50 per share and otherwise facilitate
such a transaction.
Emeritus is seeking to elect the first nine individuals named
in the table below at the Annual Meeting to succeed the current nine directors
(or any director named to fill any vacancy created by the death, retirement,
resignation or removal of any of such nine directors) of the Company. The
Class A Directors elected at the Annual Meeting will hold office until the
1998 annual meeting of shareholders, the Class B Directors elected at the
Annual Meeting will hold office until the 1999 annual meeting of shareholders
and the Class C directors elected at the Annual Meeting will hold office until
the 2000 annual meeting of shareholders. One or more of the other individuals
named in the table below have been nominated to be elected in the event any
of the first nine individuals named in the table below is unable for any
reason to serve as a director. If any nominee for director should be unable
or decline to serve, the authority provided in the proxy to vote for the
election of directors will be exercised to vote for a substitute or
substitutes. As of the date of this Proxy Statement, Emeritus has no
knowledge that any of the nominees will be unable or will decline to serve.
The following table sets forth the names and descriptions of
the backgrounds of the Emeritus Nominees for election as directors of the
Company. Additional information with respect to the Emeritus Nominees is set
forth herein under "COMPENSATION OF THE EMERITUS NOMINEES" and in Schedule I.
This information has been furnished to Emeritus by the respective Emeritus
Nominees. Each Emeritus Nominee has consented to serve as a director of ARV.
<TABLE>
<CAPTION>
Name, Business Address, Principal Occupation; Work Experience During Last
Residence Address and Age of Five Years; Current Directorships; and Ownership of
Emeritus Nominee Capital Stock of ARV
<S> <C>
CLASS A NOMINEES
Frank Ruffo (55) Executive Vice President of Emeritus Corporation since
Business Address 1993. Mr. Ruffo has also served as President of
3131 Elliott Avenue, #500 Somerset Management Group, Inc. since January 1996.
Seattle, WA 98121 Previously Mr. Ruffo served as Vice President of
Columbia Pacific Management, Inc. from May 1992 to
January 1996. Mr. Ruffo will resign as an officer of
Emeritus Corporation if elected to the ARV Board.
Thilo Best (36) Treasurer and Senior Vice President, Finance of Holiday
Business Address Retirement Corp. since 1994. Prior to that, Mr. Best
2250 McGilchrist St. S.E., #200 served as Vice President of the Prudential Realty Group
Salem, OR 97302 from 1987 to 1994.
Al Edmiston (50) Director of Accounting of Emeritus Corporation since
Business Address June 1997. Mr. Edmiston previously served as Vice
3131 Elliott Avenue, #500 President, Management Information Systems of Hillhaven
Seattle, WA 98121 Corporation from July 1985 to August 1996.
CLASS B NOMINEES
Richard Sontgerath (47) Real Estate Acquisitions Consultant of Columbia Pacific
Business Address Management, Inc. and its affiliates since September
3131 Elliott Avenue, #500 1994. From 1979 to 1994, Mr. Sontgerath was self-employed
Seattle, WA 98121 in the real estate development, marketing, leasing,
management and brokerage business.
Martin Roffe (50) Financial Planner. Mr. Roffe served as Corporate Vice
Residence Address President of Financial Planning of Hillhaven Corporation
615 Vista Drive from 1987 to 1996.
Tacoma, WA 98465
Charles Uhlman (52) For the past five years, Mr. Uhlman has been the
Business Address Director of Development at Columbia Pacific
3131 Elliott Avenue, #500 Management, Inc.
Seattle, WA 98465
CLASS C NOMINEES
Stanley Baty (26) Vice President of Columbia Pacific Management, Inc.
Business Address and Associated Vintners, Inc. since January 1996. Prior
3131 Elliott Avenue, #500 to working for Columbia Pacific Management, Inc., Mr.
Seattle, WA 98121 Baty was a financial analyst for Nomura National
Securities Corporation from June 1994 to January 1996.
Mr. Baty is the son of Daniel R. Baty, the Chairman of
the Board and Chief Executive Officer of Emeritus
Corporation. Mr. Stanley Baty purchased 1,000 shares
of ARV Common Stock on March 4, 1997.
Jason Geisenger (64) Semi-retired. Since 1992, Mr. Geisenger has owned and
Residence Address operated Jana Associates, a company that provides
117 Regatta Drive consulting services to long-term care and retirement
Jupiter, FL 33447 communities. Mr. Geisenger retired in 1992 as a Senior
Vice President of Hillhaven Corporation.
Patrick Duff (45) Chief Financial Officer and Vice President of Associated
Business Address Vintners, Inc. since November 1996. Previously, Mr.
P.O. Box 1248 Duff served as Financial Manager of Habitech Ltd. from
Woodinville, WA 98072 August 1994 to September 1996. From 1990 to 1994,
Mr. Duff worked in the bicycle retail business.
SUBSTITUTES
Jonathan Teague (43) Risk Manager of Emeritus Corporation since 1996.
Business Address Previously Mr. Teague served as Director of Loss
3131 Elliott Avenue, #500 Prevention of Hillhaven Corporation from 1990 to 1996.
Seattle, WA 98121 Mr. Teague serves on the Board of Long Term Care
Risk Management Group.
Jim Keller (35) Controller of Emeritus Corporation since July 1994.
Business Address From February 1990 until 1994, Mr. Keller was
3131 Elliott Avenue, #500 employed by The Myers Associates PC, a regional public
Seattle, WA 98121 accounting firm. Mr. Keller will resign as an Officer of
Emeritus Corporation if elected to the ARV Board.
Bill Shorten (29) Financial Analyst of Emeritus Corporation since
Business Address November 1995. Previously, Mr. Shorten served as a
3131 Elliott Avenue, #500 Financial Analyst with Washington Mutual from
Seattle, WA 98121 November 1993 to November 1995. Prior to that, Mr.
Shorten served as a Financial Analyst with Pacific First
Bank from August 1985 to May 1993.
Suzette McCanless (49) Eastern Divisional Director of Emeritus Corporation
Business Address since March 1997. Previously, Ms. McCanless served as
9371 US Hwy 19N, Suite D Group Vice President and Director of Operations of
Pinellas Park, FL 33782 Beverly Health & Rehab Services from July 1996 to
March 1997. Prior to that Ms. McCanless served as
Director of Operations of Hillhaven Corporation from
September 1995 to July 1996. Ms. McCanless also
served as Regional Manager of Delta Health Group from
April 1994 to September 1995. Ms. McCanless was the
Area Manager of Beverly Enterprises from January 1989
to March 1994.
Gary Becker (50) Western Divisional Director of Emeritus Corporation
Business Address since 1997. Mr. Becker previously served as Vice
3131 Elliott Avenue, #500 President of Operations of Sun Health Care from 1993 to
Seattle, WA 98121 1997. Prior to that, Mr. Becker served as Vice President
of Operations of Hillhaven Corporation from 1982 to
1993.
Russ Kubik (43) Texas Regional Director of Emeritus Corporation since
Business Address March 1997. Previously, Mr. Kubik served as Regional
5619 Belmont Avenue Manager of Sunrise Health Care from May 1994 to
Dallas, TX 75206 March 1997. Prior to that Mr. Kubik served as Regional
Manager of Beverly Enterprises from 1991 to 1994.
</TABLE>
The Emeritus Nominees recognize their duties under applicable law, including
federal antitrust laws, and will take all necessary precautions to make
certain that their service as a director of ARV does not violate any such
laws.
According to the Company's public filings, the election of the
Emeritus Nominees as directors of ARV requires a plurality of the votes cast
by the holders of the shares of Common Stock represented in person or by proxy
at the Annual Meeting and entitled to vote in the election of directors,
assuming a quorum is present at the Annual Meeting. Thus, assuming a quorum
is present and that cumulative voting does not apply, the nine persons
receiving the greatest number of votes will be elected to serve as directors,
three persons to serve until each of the next three annual meetings.
Non-voted shares with respect to the election of directors will not affect the
outcome of the election of directors.
The foregoing description of the impact of your vote is
qualified in its entirety by any action that the ARV Board may take between
the date of this Proxy Statement and the date of the Annual Meeting. Emeritus
intends to supplement this Proxy Statement or otherwise publicly disseminate
information regarding any such action by the ARV Board.
WHY YOU SHOULD VOTE FOR THE EMERITUS NOMINEES
The Emeritus Nominees are committed to giving all of the
Company's shareholders the opportunity to receive $16.50 per share in cash for
their shares of Common Stock, and if elected are committed to taking all
necessary actions, subject to their fiduciary duties to the Company's
shareholders under California law, to facilitate consummation of a merger of
ARV and Emeritus.
Emeritus believes that its proposal is in the best interests of
the Company's shareholders.
o The Emeritus Proposal is a proposal to acquire all shares of the
Company's Common Stock at a price of $16.50 per share in cash. This
represents a 45% premium over the closing price on July 14, 1997, the
last trading day prior to the announcement of the Original Prometheus
Transaction. In addition, this price represents a 26% premium over
$13.15, the average closing price of the Company's Common Stock
during the period from and including July 14, 1997 through and
including November 21, 1997, the last trading day before we filed
this proxy with the Securities and Exchange Commission. Furthermore,
since the Original Prometheus Transaction was announced on July 15,
1997, no other party has come forward to offer the shareholders a
higher price than Emeritus' $16.50 per share proposal.
o Although both Prometheus and Emeritus are interested in ARV, only the
Emeritus Proposal provides an immediate cash payment to all ARV
shareholders. By contrast, the Amended Prometheus Transaction
ignores and bypasses the ARV shareholders and allows Prometheus to
purchase a significant portion of ARV without providing any immediate
payment to the ARV shareholders. It also significantly dilutes the
shareholders' interest in ARV.
o The Emeritus Proposal offers you an immediate return on your
investment. Any comparable returns for the ARV shareholders through
the Amended Prometheus Transaction are delayed and uncertain. The
Company intends to use the capital obtained through the Amended
Prometheus Transaction in large part to acquire and develop new
assisted-living facilities. ARV shareholder returns therefore will
depend on, among other factors, the quality of ARV management, the
availability of acquisition properties at attractive prices, the
ability of ARV management to undertake, control and integrate a
substantial program of acquiring existing properties, developing new
properties and operating both acquired and developed properties, the
continued expansion of the assisted-living industry and the response
of the financial markets to the assisted-living segment in general
and to the Company in particular.
WHY YOU SHOULD NOT VOTE FOR THE ARV NOMINEES
Emeritus is a substantial ARV shareholder, owning 1,077,200 shares of Common
Stock, or approximately 9.3% of the outstanding shares. As a shareholder,
Emeritus is seriously concerned about (i) the ability of the public
shareholders to obtain a control premium after the Annual Meeting, (ii) the
ability of the Prometheus transactions to deliver returns superior to the
$16.50 per share all cash proposal being offered by Emeritus, (iii) the impact
of the Prometheus transactions on the public shareholders and (iv) the
motivations of the ARV directors in structuring the Prometheus transactions in
such a way as to entrench their position on the ARV Board.
The Emeritus Proposal offers ARV shareholders the best
opportunity to obtain a control premium for their shares and possibly the last
opportunity to obtain such a premium.
o ARV management has implemented a poison pill that restricts third
parties except for Prometheus from acquiring 10% or more of ARV.
Prometheus may purchase up to 49.9% of the Common Stock over the next
three years and additional shares in excess of 49.9% thereafter, thus
allowing Prometheus, and no other third party, to acquire control of
the Company. The poison pill can be redeemed by the ARV Board, but up
to now, the ARV Board has been unwilling to do so. This Annual
Meeting is your last chance to remove the entire ARV Board and
replace it with a slate of nominees committed to amending or
redeeming the poison pill.
o After the Annual Meeting, if the ARV nominees are elected, it will be
significantly more difficult for the ARV public shareholders to
obtain a control premium for their shares. After this election, ARV
will have in place a poison pill that restricts third parties from
acquiring 10% or more of the Common Stock; a classified board, which
prevents a third party from removing the entire ARV Board and
redeeming the poison pill; and no cumulative voting, which would have
enhanced the ability of minority shareholders to elect directors.
The incumbent ARV Board entered into a transaction with Prometheus
that is not in the best interest of its shareholders.
o Under a stockholders agreement entered into at the time of the Amended
Prometheus Transaction, the ARV Board has secured a three-year
contractual commitment from Prometheus to vote all of its shares,
currently representing approximately 16.6% of the outstanding Common
Stock, for directors nominated by the ARV Board. Upon conversion of
the Notes, which can occur as early as January 28, 1998, Prometheus
will own and be required to vote 35.8% of the Common Stock for the ARV
Board's nominees, substantially disenfranchising the public
stockholders of ARV and making it extremely difficult for the other
shareholders to contest future director elections for the ARV Board.
o The transaction with Prometheus includes a voting agreement among
certain senior managers of ARV and Prometheus under which an
additional 12.4% of the currently outstanding Common Stock is
committed to vote for the directors nominated by the ARV Board and
Prometheus. Aggregating these shares and the 16.6% of Common Stock
currently owned by Prometheus, 29% of the outstanding Common Stock is
committed to vote for the director nominees of the ARV Board and of
Prometheus at this Annual Meeting. If Prometheus were to convert its
Notes, at future director elections 45.4% of the voting power could
be committed to vote for the nominees of the ARV Board and Prometheus.
o In addition, during the next three years, Prometheus may purchase up
to 49.9% of the outstanding Common Stock, and Prometheus has agreed to
vote such shares for the director nominees of the ARV Board and of
Prometheus. Consequently, under the stockholders agreement and the
voting agreement described above and assuming Prometheus converts its
Notes, ARV management and Prometheus could be obligated to vote 57.9%
of the then outstanding Common Stock for the director nominees of the
ARV Board and of Prometheus at any future Annual Meeting, completely
eliminating the other stockholders from contesting director elections.
o After three years Prometheus will no longer be restricted to owning
only 49.9% of the Company and will be in a position to obtain
outright and majority control of ARV with no change of control
premium being paid to ARV's other shareholders.
o The Amended Prometheus Transaction has diluted all other ARV
shareholders. Prior to the transaction with Prometheus there were
approximately 9.7 million shares of Common Stock outstanding. When
Prometheus converts the Notes, there will be approximately 15 million
shares of Common Stock outstanding, an increase of over 50%.
o The Notes, which generally are convertible at a conversion price of
$17.25, are convertible at $16.25 in the event that any third party
acquires control of the Company without the approval of a majority of
the current ARV Board, thus penalizing such third party acquiror for
providing all shareholders with a premium while also rewarding
Prometheus, which has never provided ARV shareholders with any cash.
o On October 12, 1997, Emeritus wrote to the Company proposing to
acquire all the outstanding Common Stock of the Company at $16.50 per
share in cash (the "Emeritus Proposal"). On October 14, 1997, the
Company rejected the Emeritus Proposal without attempting to discuss
the proposed transaction with Emeritus or to meet with Emeritus, and
instead entered into a transaction with Prometheus that provides
current ARV shareholders with no immediate value.
The above points confirm to Emeritus that the motivations of the
current ARV Board lay in completing a transaction that secures their own
positions in the Company and not in seriously discussing and evaluating
alternative transactions that would create immediate shareholder value.
ACCORDINGLY, EMERITUS URGES YOU TO VOTE "FOR" THE ELECTION OF
THE EMERITUS NOMINEES.
BACKGROUND
The following summary of the terms of the Original and Amended
Prometheus Transactions is derived from the information contained in the ARV
Preliminary Proxy Statement (the "First ARV Proxy Statement") filed on August
22, 1997 with the Commission and the Company's Report on Form 8-K dated
October 29, 1997 (the "8-K") and is qualified in its entirety by the
information set forth in the First ARV Proxy Statement and the 8-K. The First
ARV Proxy Statement, the 8-K, the various transaction agreements referred to
herein, as well as the Company's Annual Report on Form 10-K/A, Quarterly
Reports on Form 10-Q and other documents filed with the Commission should be
available for inspection and copies thereof should be obtainable in the manner
set forth in "OTHER INFORMATION".
According to the First ARV Proxy Statement, prior to June 1997,
the Company's investment bankers and advisors held informal meetings with
representatives of Prometheus to discuss Prometheus' interest in making an
investment in the Company. On June 2, 1997, Salomon Brothers Inc ("Salomon
Brothers") arranged a meeting between representatives of the Company and
Prometheus to discuss such a transaction. At the time of the Company's
initial meetings with Prometheus, the Company was in negotiations with another
"potential investor", which had been performing due diligence on the Company
since February 1997. On June 12, 1997, representatives of Prometheus, the
Company and Salomon Brothers met to discuss the proposed terms of Prometheus'
potential investment in the Company. Over the next two weeks, representatives
of the Company met with each of Prometheus and a "potential investor" to
discuss their respective proposals.
In late June 1997, Daniel R. Baty, the Chairman and Chief
Executive Officer of Emeritus, telephoned Gary L. Davidson, the then Chairman,
President and Chief Executive Officer of ARV, and later visited Mr. Davidson
at the ARV headquarters on July 3, 1997. During these interactions, Mr. Baty
stated Emeritus' interest in exploring a business combination between the two
companies.
According to the First ARV Proxy Statement, on June 27, 1997
the Company entered into an exclusivity agreement with Prometheus pursuant to
which the Company agreed not to pursue a transaction with any other investor
prior to August 8, 1997 while negotiations on definitive agreements with
Prometheus were in process. The Company also engaged Salomon Brothers as its
financial advisor on that date with respect to the potential transaction.
Between June 27, 1997 and July 13, 1997, the Company and Prometheus negotiated
the specific terms of the proposed transaction and reached agreement on the
form of the definitive agreements pertaining to the Original Prometheus
Transaction.
The First Emeritus Proposal
On July 10, 1997, prior to the announcement of the Original
Prometheus Transaction, Emeritus delivered the following letter to Mr.
Davidson:
[LETTERHEAD OF EMERITUS]
July 10, 1997
Gary L. Davidson
Chairman of the ARV Board, President,
Chief Executive Officer
ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Re: Proposal
Dear Mr. Davidson:
Starwood Capital Group, LLC ("Starwood") and Emeritus
Corporation ("Emeritus") would like to present to you and your Board of
Directors a detailed proposal for the acquisition of ARV Assisted Living, Inc.
("ARV"). As discussed below, alternative proposals would be designed to
result in a minimum value of $14.00 per share to ARV shareholders, optional
liquidity, and the opportunity to participate in the upside of the combined
entities.
In the first alternative, Emeritus would acquire ARV in a tax
free merger or similar business combination transaction in which ARV
shareholders would receive Emeritus Common Stock equal in value to a minimum
of $14.00 for each share of ARV Common Stock. Starwood, through a significant
investment in Emeritus, would provide ongoing financing for the combined
company.
In the second alternative, the ARV shareholders would be
offered consideration consisting of Emeritus Common Stock and cash. The
consideration would be valued at a minimum of $14.00 per ARV share of Common
Stock and, at the election of ARV shareholders, could consist of up to 50% in
cash. Starwood, through its private $830 million investment fund, would
provide financing for the cash portion of the offer and ongoing financing for
the combined company.
Of course, a number of structuring, tax and regulatory
considerations would have to be addressed before arriving at an agreement in
principle, but the objective would be to achieve a minimum value of $14.00 per
share for ARV shareholders and immediate liquidity if desired. Nevertheless,
both Starwood and Emeritus, are familiar with ARV's assets and operations and
will be in a position to accelerate the due diligence process.
As you know, Starwood has reviewed with your management team
certain information, pursuant to that certain confidentiality agreement dated
April 3, 1997, between ARV and Starwood. Starwood has of course not shared
any such confidential information with Emeritus.
Independent of Starwood, Emeritus has visited and inspected 41
of 48 properties, analyzed publicly available financial information, and
currently owns approximately 4.9% of the outstanding ARV common stock, which
shares were acquired prior to any contact between Emeritus and Starwood.
Starwood and Emeritus believe that the combination of Emeritus,
ARV, and Starwood would create the largest, strongest and fastest growing
company in the assisted living industry. We also believe that these proposals
provide a significant premium value to the ARV shareholders of over 35% above
the current market price, and a superior value and more attractive liquidity
option than other transactions you may be currently contemplating, while
allowing them the flexibility of continuing their investment in what would be
the dominant and fastest growing assisted living concern in the United States.
We propose that a meeting be held as soon as possible to
discuss these proposals and explore possible structures and alternatives. We
and our advisors are available to meet you in Costa Mesa at your earliest
convenience. Please call us at (206) 298-2909 to arrange such a meeting.
Sincerely,
EMERITUS CORPORATION
By
Its Chairman
Starwood Capital Group, LLC
By
Its Managing Director
* * *
Mr. Davidson responded to the above letter by delivering the
following letter to Mr. Baty on July 11, 1997:
[LETTERHEAD OF ARV]
July 11, 1997
Mr. Daniel R. Baty
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121-1031
Dear Dan:
Thank you for your July 10th fax. I have forwarded copies to
each of the directors for their review. We are attempting to schedule a
meeting next week to consider your proposal.
Sincerely yours,
Gary L. Davidson
* * *
The Original Prometheus Transaction
According to the First ARV Proxy Statement, on July 13, 1997, a
special meeting of the ARV Board of Directors was called to discuss the
proposed transaction with Prometheus and the July 10, 1997 letter from
Emeritus. According to the First ARV Proxy Statement, at a meeting of the ARV
Board of Directors on July 14, 1997, after Salomon Brothers delivered its
written opinion to the ARV Board of Directors expressing its opinion that the
cash price of $14.00 per share of Common Stock to be received by the Company
in connection with the Original Prometheus Transaction was fair to the Company
from a financial point of view, the ARV Board of Directors voted unanimously
to approve the Original Prometheus Transaction. The Company then entered into
a Stock Purchase Agreement, dated July 14, 1997, as amended July 20, July 22
and September 30, 1997, (the "Stock Purchase Agreement") among LFREI,
Prometheus and ARV, and related agreements.
Subject to the terms and conditions of the Stock Purchase
Agreement, the Company planned to sell to Prometheus up to 9,653,325 shares of
Common Stock at a purchase price of $14.00 per share, representing an
aggregate investment of $135.1 million (the "Total Equity Commitment"). The
share acquisition was to be consummated in three phases. On July 23, 1997
(the "Initial Closing"), the Company sold to Prometheus 1,921,012 shares,
representing an aggregate investment of $26.9 million. The shares sold to
Prometheus at the Initial Closing represent 16.6% of the outstanding Common
Stock.
Following shareholder approval, the Company planned to sell to
Prometheus 3,078,988 shares (the "Second Closing"). Thereafter, the Company
from time to time at its election could sell additional shares to Prometheus
at $14.00 per share, in minimum increments of 715,000 shares (the "Subsequent
Closings"), until the Total Equity Commitment was invested or, if earlier,
eighteen months after shareholder approval or, if earlier, June 30, 1999
(unless extended by mutual agreement of the parties).
The Second Closing and each Subsequent Closing were subject to
various conditions, including (i) receipt of shareholder approval, (ii)
adoption of certain amendments to the Company's charter and bylaws, (iii)
receipt by the Company of title policies on certain of its properties, a
promissory note from an affiliate of the Company and estoppel certificates from
certain of the Company's landlords and (iv) the satisfaction of various
customary conditions.
From and after the date of the Stock Purchase Agreement, until
such date that Prometheus' remaining equity commitment was zero and either (i)
Prometheus no longer beneficially owned at least five percent of the
outstanding Common Stock, on a fully diluted basis, or (ii) Prometheus no
longer beneficially owned Common Stock having an aggregate market value of at
least $25 million (each, a "Termination Event"), the Original Prometheus
Transaction required the Company to consult with Prometheus prior to acting on
certain matters including those concerning the Company's financing
arrangements, acquisitions, dispositions and employment of executive
management.
Under the Stock Purchase Agreement, the Company agreed not to
solicit any Competing Transaction (as defined below) and to give notice to
Prometheus of any competing proposal that it received. The ARV Board could,
in accordance with the terms of the Stock Purchase Agreement, terminate the
transaction with Prometheus at any time in favor of a Competing Transaction
which it determined in good faith would provide greater value to the Company's
shareholders. Prior to entering into a definitive agreement with respect to a
Competing Transaction, however, the Company had to provide Prometheus with a
minimum of (A) five business days' notice of the competing party's interest in
pursuing a Competing Transaction and (B) two business days' notice of the
superior proposal of the competing party. For purposes of the Stock Purchase
Agreement, a "Competing Transaction" is defined as (i) any acquisition in any
manner, directly or indirectly (including through any option, right to acquire
or other beneficial ownership), of more than 15% of the equity securities, on
a fully diluted basis, of the Company, or assets representing a material
portion of the assets of the Company, other than any of the transactions
contemplated by the Stock Purchase Agreement, or (ii) any merger,
consolidation, sale of assets, share exchange, recapitalization, other
business combination, liquidation or other action out of the ordinary course
of business of the Company, other than any of the transactions contemplated by
the Stock Purchase Agreement.
The Stock Purchase Agreement also provided that (i) if the ARV
Board did not recommend shareholder approval of the Prometheus Transaction and
either (A) the Company's shareholders failed to approve the Transaction or (B)
the Second Closing did not occur on or before March 15, 1998, or (ii) the
Company failed to convene the meeting of its shareholders prior to February
15, 1998, then the Company would have had to pay Prometheus a $6,000,000
adjustment to the purchase price of the shares purchased in the Initial
Closing and a $7,000,000 breakup fee, as well as Prometheus' expenses.
Alternatively, if the ARV Board recommended shareholder approval of the
Transaction and the shareholders failed to approve the Transaction, then the
Company would have had to pay Prometheus an $8,700,000 adjustment to the
purchase price, as well as Prometheus' expenses. If the transactions
contemplated in the Stock Purchase Agreement did not close as a result of a
willful breach of a material representation, warranty or covenant in the Stock
Purchase Agreement, then the Company would have had to pay Prometheus
$13,000,000 as both an adjustment to the purchase price of the shares of
Common Stock purchased in the Initial Closing and a break-up fee, as well as
Prometheus' expenses.
The Stock Purchase Agreement also provided that if the Company
did not receive shareholder approval prior to February 15, 1998, Prometheus
had the right to transfer shares purchased at the Initial Closing without
being subject to the restrictions on transfer set forth in the Stockholders
Agreement (as defined below), so long as it did not transfer any shares of
Common Stock to a competitor of the Company.
Pursuant to the Stock Purchase Agreement, the Company, LFREI
and Prometheus entered into a Stockholders Agreement, dated July 14, 1997,
(the "Stockholders Agreement") simultaneously with the Stock Purchase
Agreement. Under the Stockholders Agreement, Prometheus was entitled to
certain rights, including the following:
(i) the right to nominate up to four directors to the ARV Board; and
(ii) from and after the date of the Stockholders Agreement until a
Termination Event, the right to participate in the Company's future equity
offerings for cash by purchasing its proportionate share of the securities
offered therein.
Pursuant to the Stockholders Agreement, from and after the date
that the Prometheus-appointed directors became members of the ARV Board, an
affirmative vote of eight of the eleven directors of the Company would have
been required to take any action of the ARV Board other than in the ordinary
course of business (with certain exceptions), including (i) the acquisition or
sale of any business or assets having a value in excess of one percent of the
Company's assets, (ii) incurrence of indebtedness having a value in excess of
one percent of the Company's assets, (iii) the approval of any annual
operating budget of the Company, (iv) a material change in the Company's
management, (v) a change in the number of shares of Common Stock authorized
for issuance and (vi) a change in the Company's dividend policy.
Pursuant to the Stockholders Agreement, the Company was to form
an executive committee initially consisting of five members, two of whom were
to be appointed by LFREI. The executive committee would have been delegated
authority to approve certain board actions by the affirmative vote of four of
the five members. In addition, as long as Prometheus maintained a greater
than 30% ownership interest in the Company, at least one LFREI-appointed
director was to serve on each other special committee of the ARV Board,
including the audit and compensation committees. Also, unless a Termination
Event occurred, an LFREI-appointed director was to serve on the nominating
committee, which generally has the authority to nominate directors and the
Chairman, Chief Executive Officer and President of the Company. All nominees
to the ARV Board (other than the LFREI-appointed directors) would have
required the unanimous approval of the nominating committee, provided that if
the nominating committee could not unanimously agree on a nominee, the
nomination would have been referred to the entire ARV Board, which would have
decided the matter based on a simple majority vote.
The Stockholders Agreement also provided for a standstill
period of three years during which Prometheus would have been subject to
certain limitations and restrictions relating to, among other matters: (a)
acquisitions of additional shares of Common Stock (generally limiting
Prometheus to beneficially owning no more than 49.9% of the shares of Common
Stock on a fully diluted basis), (b) acting in concert with others by becoming
a member of a "group" for purposes of Section 13(d) of the Exchange Act, (c)
soliciting, encouraging or proposing certain significant transactions
involving the Company, (d) soliciting, initiating, encouraging or
participating in the solicitation of proxies in connection with any election
contest involving the ARV Board or initiating or proposing or participating
in or encouraging the making of, or soliciting shareholder approval of, any
shareholder proposal, (e) seeking representation on the Company's Board of
Directors other than as contemplated by the Stockholders Agreement, and (f)
requesting any waiver of the foregoing restrictions. For a period of two
years after Shareholder Approval or, if earlier, until a Termination Event,
Prometheus and certain of its affiliates would not have been permitted to sell
any shares of Common Stock. Thereafter, and during the remaining term of the
standstill period, Prometheus and certain of its affiliates, including LFREI,
would have been unable to transfer any shares of Common Stock except (i) in
transactions pursuant to Rule 144 under the Securities Act of 1933, (ii) in
negotiated transfers to third parties other than competitors of the Company,
(iii) to certain affiliates who agreed to be bound by the terms of the
Stockholders Agreement, (iv) in accordance with the registration rights
agreement in a bona fide public offering or (v) subject to certain conditions,
to bona fide financial institutions for the purpose of securing bona fide
indebtedness.
In addition to the Stock Purchase Agreement and the
Stockholders Agreement, the Company, LFREI and Prometheus also executed a
Registration Rights Agreement pursuant to which the Company granted Prometheus
certain demand registration rights to facilitate the resale of the shares of
Common Stock owned by it under certain conditions and certain piggyback rights
to sell a portion of its shares of Common Stock in connection with certain
offerings of securities by the Company. In addition, certain management
shareholders of the Company (representing, in the aggregate, 2,459,474 shares
of Common Stock) and Prometheus executed a voting agreement pursuant to which
such shareholders agreed to vote for the Prometheus Transaction and for the
directors nominated by the ARV Board's nominating committee and Prometheus.
On July 14, 1997, the Company also executed a poison pill
Rights Agreement, as amended, (the "Rights Agreement") between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights
Agent"), pursuant to which the preferred share purchase rights (the "Rights")
were issued. To consummate an acquisition of ARV, Emeritus has to be
satisfied that the Rights have been invalidated or are otherwise inapplicable.
The Rights are described in the Company's Report on Form 8-K
dated July 14, 1997 (the "Company Rights 8-K"). The Rights Agreement provides
that, until the close of business on the Distribution Date (as defined in the
Rights Agreement), the Rights will be evidenced by the certificates for shares
of Common Stock. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
shares of Common Stock will also constitute the surrender for transfer of the
Rights associated with the shares of Common Stock represented by such
certificates. The Rights Agreement further provides that, as soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights will be mailed by the Company or the Rights Agent to holders of
record of shares of Common Stock as of the close of business on the
Distribution Date.
The Rights Agreement provides that, at any time prior to the
time that an Acquiring Person (as defined in the Rights Agreement) has become
such, the ARV Board may redeem the Rights in whole, but not in part, at a
price of $.01 per Right.
Based on publicly available information, Emeritus believes that,
as of the date of the Proxy Statement, the Rights were not exercisable,
certificates for Rights had not been issued and the Rights were evidenced by
the certificates for shares of Common Stock.
The foregoing is a summary of the poison pill and is qualified
in its entirety by reference thereto.
On July 15, 1997, the Company and Prometheus issued a joint
press release announcing the Original Prometheus Transaction.
On July 16, 1997, the Company and Prometheus held a joint
conference call with analysts of the Company to discuss the Original
Prometheus Transaction. The conference call permitted shareholders and
analysts interested in the Company to ask questions about the Original
Prometheus Transaction. Mora Conley of Financial Relations Corp.
introduced Gary Davidson and Robert Freeman, President of Lazard Freres
Real Estate Investors LLC, who each made introductory remarks about the
Original Prometheus Transaction. Graham Espley-Jones, Chief Financial
Officer of the Company, David Collins, Senior Executive Vice President of
the Company and other members of the Company's senior management also
participated in the call. During the question and answer period a number
of issues were discussed pertaining to the Original Prometheus Transaction
including the components of Prometheus' investment, Prometheus' commitment
to invest $135 million in the Company through June 30, 1999, the
significance of certain related transactions and agreements, the plan to
increase the size of the Company's board to 11 members, the extent of
Prometheus' participation in the day-to-day activities of the Company, the
Company's consideration of tender offers or other alternative proposals,
the reasons behind the implementation of the poison pill and other
technical issues related to the transaction.
On July 21, 1997, Emeritus delivered the following letter to
the ARV Board of Directors:
[LETTERHEAD OF EMERITUS]
July 21, 1997
To the Members of the
Board of Directors of
ARV Assisted Living, Inc.
Gentlemen:
We were surprised and disappointed with the press release
issued by ARV Assisted Living, Inc. ("ARV") announcing the terms of the
proposed issuance of a 49.9% equity stake to Prometheus Assisted Living LLC
("Prometheus") and the adoption of a shareholders rights plan (the "Rights
Plan").
As you know, on July 10, 1997, we sent your chairman, Gary
Davidson, a written proposal pursuant to which we would acquire ARV in a
transaction which valued ARV common stock at $14 per share. In Mr. Davidson's
written response to us dated July 11, 1997, he indicated that our proposal had
been forwarded to each of the directors of ARV, and proposed scheduling a
meeting for the following week to consider such proposal.
The Prometheus transaction, and certain statements made by both
Prometheus and Mr. Davidson in connection therewith, raises a number of very
serious concerns:
1) As we understand the proposed Prometheus transaction,
Prometheus may purchase newly-issued ARV common stock over
two years at a price of $14 per share. This, in our view, is
significantly less attractive to the ARV shareholders than
our offer to purchase all of the shares for the same purchase
price per share. We note that the closing price for ARV's
shares two days after the announcement of the Prometheus
transaction was only $12-1/2 per share, reflecting the
market's own tepid reaction to such proposed transaction. As
holders of approximately 4.9% of ARV's common stock, we
consider the proposed Prometheus transaction to be highly
dilutive to the long-term value of the existing shareholders'
common stock.
2) It is apparent that ARV's board never gave serious
consideration to our proposal. We believe that, both in
failing to meet with us regarding our proposal and in
entering into the proposed transaction with Prometheus, the
board of directors of ARV (the "Board") breached its
fiduciary duty to maximize shareholder value.
3) The potential break-up fee of up to $13 million for
Prometheus is enormous in light of the size of the proposed
transaction. . . . Perhaps even more importantly, we do not
see any benefit to ARV in agreeing to pay a break-up fee
to Prometheus, since the proposed transaction with
Prometheus is not itself designed to maximize shareholder
value. Thus, the break-up fee does not satisfy the
primary purpose of such fees, namely to protect the value
created by a transaction. Rather, it merely shifts up to
$13 million of value from any other transaction that
might be proposed away from ARV's shareholders.
4) We believe that the Rights Plan constitutes an inappropriate
attempt to entrench current management, especially in light
of the fact that it was apparently adopted in direct response
to our proposal and in order to deter any challenge to the
proposed Prometheus transaction. In any event, it has the
effect of chilling any other proposals to maximize
shareholder value.
5) In the conference call held with a number of major ARV
shareholders, representatives of Prometheus repeatedly made a
point of telling the participants that they were attracted to
the announced transaction because it was entered into outside
the context of competitive bid situation, thus implicitly
denying the existence of our proposal despite their actual
knowledge of it. Even more surprising, in response to direct
questioning by one of the shareholders, Mr. Davidson
affirmatively denied that ARV had received any other proposal
regarding an acquisition or recapitalization of the company
other than the proposal from Prometheus. Obviously, such
statements by Prometheus and such statement by Mr. Davidson's
are flatly incorrect and in direct contradiction of Mr.
Davidson's written response to our proposal. We believe that
ARV has an affirmative duty to its shareholders to correct
the highly inaccurate and deceptive nature of both
Prometheus' and Mr. Davidson's statements.
6) Also during the conference call, Prometheus explained that
they were only acquiring 49.9% of ARV in order to avoid
certain "technical issues" involved in a change of control.
We can only assume that such technical issues include the
heightened duties of ARV's board in connection with a
transaction involving a change in control. However, it is
clear to us that the proposed transaction does result in a
change in control to Prometheus. First, the transaction will
result in Prometheus designating four out of eleven
directors, and the bylaws of ARV being amended to require the
approval of eight of the eleven directors for any board
action. This obviously gives Prometheus an absolute veto
power over all board actions. Second, the five-man
"executive Committee" [sic] to be formed pursuant to the
proposed transaction will include two of the Prometheus
directors, with actions thereby requiring the approval of
four out of five members. Thus, Prometheus will also have an
absolute veto over executive committee actions. Finally, at
49.9%, Prometheus will be by far the largest shareholder of
ARV, and will have effective voting control of ARV.
As a consequence of the foregoing, we believe that the members
of ARV's board of directors have failed to satisfy their fiduciary duty to
maximize shareholder value, and have taken actions designed to entrench
management to the detriment of shareholders. In addition, we believe that
Prometheus and Mr. Davidson have made affirmative statements which are both
false and misleading, and that ARV has an affirmative duty to correct such
material misstatements.
We believe that the shareholders for ARV have a right to be
informed of our interest in pursuing a transaction with ARV. To that end, we
are prepared to discuss the terms of an all-cash offer which values ARV's
common stock $14 per share, and to proceed very quickly to consummate such a
transaction on mutually agreeable terms.
We hereby request the members of the board of directors of ARV
to authorize and direct the appropriate officers or representatives to meet
with us as soon as possible to discuss a potential transaction with us which
will maximize shareholder value, and to remove any impediments to such a
transaction (including the proposed transaction with Prometheus, the break-up
fee included therein and the Rights Plan).
As a significant shareholder of ARV we intend to protect our
rights and those of your other shareholders.
Very truly yours,
Daniel R. Baty
Chairman
* * *
According to the First ARV Proxy Statement, on July 23, 1997,
Prometheus purchased 1,921,012 shares of Common Stock for an aggregate
purchase price of $26.9 million at the Initial Closing.
On July 25, Mr. Davidson delivered the following letter to Mr.
Baty:
[LETTERHEAD OF ARV]
July 25, 1997
Daniel R. Baty
Chairman
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, WA 98121-1031
Dear Mr. Baty:
The Board of Directors of ARV Assisted Living, Inc. ("ARV") has
asked me to respond to your letter dated July 21, 1997. While we don't think
it is necessary to address each item raised in your letter, the Board wants
you to be aware of the following facts.
First, the Board carefully reviewed and considered the terms
outlined in your letter dated July 10, 1997 expressing an interest in opening
negotiations with ARV. Without going into all of the details, the Board
determined, based on our business judgment, that those terms were
significantly less attractive (and less definitive) for ARV shareholders than
the terms of the Prometheus transaction, which as Starwood knows ARV had been
pursuing for a considerable time. In the Board's view, the Prometheus
transaction maximizes shareholder value over the long term.
Second, the actual break-up fee for the Prometheus transaction
is $7 million, not $13 million. (The $13 million figure includes an
obligation to refund Prometheus $6 million as a purchase price adjustment for
its initial stock purchase.) Still, $13 million is only 3.7% of the total
enterprise value of ARV based on the $14.00 per share price paid by
Prometheus. As you know, this is well within the standard range for
transactions like this one, especially given the fact that Prometheus is
paying a premium in a transaction that does not result in a majority stake.
Thus, in the Board's business judgment, the break-up fee, designed to protect
the value of a transaction that was in shareholders' best interest, was
reasonable.
Third, the Shareholder Rights Plan was not adopted in direct
response to your July 10 letter. ARV has been considering the adoption of
such a plan for some time. The primary purpose of the Shareholder Rights Plan
is to ensure maximum value for all shareholders vis-a-vis any proposed
transaction involving the acquisition of a significant stake in ARV. It
allows the Board an opportunity to carefully consider and evaluate both the
short and long term effects of such transactions on all shareholders. As you
know, many companies have adopted similar rights plans and have subsequently
been acquired. The Rights Plan does not therefore deter other proposals, it
deters only those proposals that do not maximize shareholder value in the view
of the Board of Directors. For these reasons, all seven members of our Board
unanimously approved the Shareholder Rights Plan, including the five
non-management directors.
The Board's decisions were all made based on each Board
member's business judgment after careful consideration of all facts, with the
assistance of sophisticated professional advisors, and taking into account
each Board member's background and experience. Contrary to your reckless
allegations, Board members have acted in good faith to carry out our
respective fiduciary duties under the laws of the State of California.
Accordingly, there is no need to reconsider our decision regarding your July
10 letter.
Finally, please be advised that any attempt by Emeritus or its
partner Starwood Capital Group, LLP to interfere in the ARV-Prometheus
transaction would constitute a blatant disregard of Starwood's commitment and
legal obligation under the Confidentiality Agreement dated April 3, 1997, the
implications of which would go far beyond the context of this transaction.
Moreover, any steps taken by Emeritus/Starwood to interfere with the
ARV-Prometheus transaction would also constitute tortious interference with
contract and economic relations under California law. ARV is prepared to take
whatever steps may be necessary to protect and enforce its rights and the
rights of its shareholders.
Sincerely,
Gary L. Davidson
Chairman, ARV Assisted Living, Inc.
cc: Board of Directors
William J. Cernius, Esq. - Latham & Watkins
Robert P. Freeman - Lazard Freres
Kevin J. Grehan - Cravath, Swaine & Moore
* * *
The Kapson Transaction
On October 2, 1997, an affiliate of LFREI announced that it had
entered into an agreement to acquire substantially all of the stock of Kapson
Senior Quarters Corp. ("Kapson"). Assuming Kapson's shareholders approve the
Kapson transaction, LFREI will offer ARV the option to purchase up to a 19.9%
interest (at LFREI cost) in Kapson out of the LFREI stake. LFREI also
proposed that ARV establish a relationship with Kapson structured as a
strategic alliance, with the two companies remaining independent.
The Emeritus Proposal
After carefully considering a number of options (including
discussing certain transactions with Prometheus), Emeritus sent the following
letter to ARV on October 12, 1997, proposing an acquisition of all of the
outstanding common stock of ARV for $16.50 per share in cash (the "Emeritus
Proposal"):
[LETTERHEAD OF EMERITUS]
October 12, 1997
Mr. Gary L. Davidson
Chairman of the Board,
Chief Executive Officer and President
ARV Assisted Living, Inc.
245 Fisher Avenue, Suite D-1
Costa Mesa, CA 92626
Dear Mr. Davidson:
We have carefully studied your current transaction with Lazard
Freres Real Estate Investors L.L.C. and Prometheus Assisted Living L.L.C. and
believe that we can offer you and your stockholders a far superior transaction.
As you know, the Prometheus transaction contemplates selling
(subject to Stockholder Approval) up to 49.9% of ARV's common stock to
Prometheus at $14 per share, an 8% discount to the closing price of ARV's
stock on Friday. If that transaction proceeds, Prometheus will acquire
effective control of ARV without any value being paid to your stockholders.
Emeritus is prepared to acquire all of the outstanding common
stock of ARV for $16.50 per share in cash, a 45% premium to the $11.38 ARV
stock price the day before the Prometheus transaction was first announced.
Gary, clearly this is a fair price for your stockholders in light of the ARV
valuation analysis disclosed in your proxy statement for the Prometheus
transaction.
This proposal is authorized by Emeritus' board of directors.
Emeritus has had extensive discussions with prospective sources of financing
for this proposal. Based upon those discussions we are confident that we can
conclude the necessary financing required to effect the combination of our two
businesses on a timely basis. In addition, last week we announced a proposed
$25 million equity investment in Emeritus by NorthStar Capital Partners LLC (a
private investment group with financial backing from a Union Bank of
Switzerland securities affiliate and Quantum Realty Partners, a fund advised
by Soros Fund Management LLC), further strengthening our balance sheet.
The transaction would be subject to negotiation and execution
of a definitive acquisition agreement, approval by your stockholders, and
receipt of all necessary regulatory and other approvals. We contemplate that
the definitive agreement would contain terms and conditions customary in this
type of transaction.
ARV and Emeritus are two of the leading companies in the senior
housing services business. Emeritus currently holds interests in 115
communities representing capacity for 10,900 residents in 25 states and
Canada. ARV currently owns and/or operates 49 assisted living facilities with
approximately 6,300 units in 11 states. Together, the strategic business
combination of our two companies would create a powerful critical mass,
positioning the combined enterprise well for its rapid growth both internally
and through acquisitions, providing the finest living facilities for its
thousands of senior citizen residents, and building value for its employees,
business partners, communities and, in turn, investors.
Emeritus has recently increased its ownership position in ARV
stock to approximately 8% which it is required to report to the SEC in a
Schedule 13D filing on Tuesday. Accordingly, we intend to publicly announce
our proposal by press release on Monday.
Emeritus and its advisers are available to meet with you and
your advisers immediately.
Sincerely yours,
Daniel R. Baty
Chief Executive Officer
* * *
On October 14, 1997, the ARV Board of Directors announced that
the Company was not for sale and that the ARV Board of Directors intended to
continue its commitment to its transaction with Prometheus and not to pursue
negotiations with Emeritus.
On October 15, 1997, ARV announced the resignation of Gary
Davidson as President, Chief Executive Officer, Chairman and Director of ARV,
effective October 13, 1997. John J. Rydzewski was appointed Chairman, and
John A. Booty was appointed President and Chief Executive Officer on an
interim basis.
On October 29, 1997, LFREI, Prometheus and ARV amended their
letter agreement regarding the strategic alliance to take effect between ARV
and Kapson upon the consummation of LFREI's acquisition of substantially all
the stock of Kapson. Under the amended letter agreement, LFREI granted ARV
the right to acquire 19.9% of Kapson's stock from LFREI at LFREI's price
during the 30 days after the completion of LFREI's Kapson investment. (ARV
may opt instead to permit its shareholders to purchase the Kapson stock from
LFREI, in which case the right to purchase the Kapson stock expires 30 days
after a registration statement is declared effective with respect to the
option.) Upon the closing of the Kapson investment, ARV has a first right to
negotiate management, lease and purchase arrangements on any new developments
or acquisitions by Kapson on terms commercially reasonable to both parties.
LFREI also agreed to negotiate in good faith with ARV on leasing or management
agreements for all existing or planned Kapson facilities, not to permit Kapson
to enter leasing or management arrangements for its existing facilities with
entities other than ARV or Kapson's controlled affiliates, and to explore a
joint venture arrangement between ARV and Kapson to house top corporate
management of both companies in order to achieve economies of scale.
On October 31, 1997, ARV announced that it had replaced the
Original Prometheus Transaction with a new transaction, the Amended Prometheus
Transaction, under which Prometheus would retain its recently acquired equity
of approximately 1.9 million shares and, rather than consummate the Second
Closing or Subsequent Closings, would purchase $60 million of 6-3/4%
Convertible Subordinated Notes Due 2007 (the "Notes") under an Amended and
Restated Stock and Note Purchase Agreement dated October 29, 1997 among LFREI,
Prometheus and ARV (the "Amended Purchase Agreement").
In connection with the issuance of the Notes, the Company and
The Chase Manhattan Bank, N.A. entered into an indenture dated as of October
30, 1997 (the "Indenture"), and the Company executed a $60 million note in
favor of Prometheus dated as of October 30, 1997 (the "Note"). Pursuant to
the provisions of the Indenture and Note, at any time after 90 days following
the date of issuance, Prometheus may convert the Notes into shares of ARV
Common Stock at the conversion price of $17.25 per share, subject to certain
adjustments. If there is a Change of Control or Termination of Trading (each
as defined in the Indenture), Prometheus may elect to (i) require ARV to
repurchase the Notes at a price of 101% of the principal amount or (ii) if the
Change of Control is not approved by a majority of the continuing directors of
ARV, require the Company to convert the Notes at a conversion price of $16.25.
Prometheus also received certain registration rights under an Amended and
Restated Registration Rights Agreement dated October 29, 1997 (the "Amended
Registration Rights Agreement").
In connection with the Amended Purchase Agreement, LFREI,
Prometheus and ARV also entered into an Amended and Restated Stockholders
Agreement dated October 29, 1997 (the "Amended Stockholders Agreement"), and
LFREI, Prometheus and certain management of ARV entered into a Stockholders'
Voting Agreement dated October 29, 1997 (the "Second Voting Agreement").
Under the Amended Stockholders Agreement, the ARV Board was expanded to nine
members, three of which will be designees of Prometheus. Until Prometheus no
longer owns at least 5% of the Common Stock on a fully diluted basis or at
least $25 million of Common Stock (each, a "Termination Event"), at each
annual or special meeting of shareholders of the Company, Prometheus will have
the right pursuant to the Amended Stockholders Agreement and the Company's
Bylaws to designate three nominees to the ARV Board if the ARV Board is a
single class or one designee per class if the ARV Board is divided into three
classes. The Company has agreed to support the nomination and the election of
each designee of Prometheus to the ARV Board and to exercise all authority
under applicable law to cause each designee of Prometheus to be elected to the
ARV Board. With respect to each meeting of shareholders of the Company at
which directors are to be elected, the Company is required to use its
reasonable efforts to solicit from the shareholders of the Company proxies in
favor of each designee of Prometheus. During the period that Prometheus has
the right to designate nominees to the ARV Board, the number of directors on
the ARV Board may not exceed nine.
Under the Amended Stockholders Agreement, the Company is
required to use commercially reasonable efforts to identify, select and retain
a new President/CEO of the Company by the ninetieth day after the closing
under the Amended Stock and Note Purchase Agreement. In connection with the
retention of such President/CEO, the Company is required to obtain the prior
written consent of Prometheus, which consent may not be unreasonably withheld.
Upon the retention of a new President/CEO of the Company, the Company is
further required under the Amended Stockholders Agreement to use its best
efforts to cause a director who is not a designee of Prometheus to resign from
the ARV Board, and the Company and Prometheus will use their best efforts to
cause such new President/CEO to be elected to the ARV Board.
From and after the date of the Amended Stockholders Agreement
until a Termination Event, Prometheus will generally have the right to
participate in the Company's future equity offerings for cash by purchasing
its proportionate share of the securities offered therein.
During a standstill period of three years (which period is
subject to early termination in certain circumstances) (the "Standstill
Period"), Prometheus will be subject to certain limitations and restrictions
relating to, among other matters: (a) acquisitions of additional shares of
Common Stock (generally limiting Prometheus to beneficially owning no more than
49.9% of the shares of Common Stock on a fully diluted basis (except that
shares of Common Stock issuable upon conversion of the Company's convertible
debt or upon exercise of options granted under management benefit plans shall
not be included), (b) acting in concert with others by becoming a member of a
"group" for purposes of Section 13(d) of the Securities Act of 1934 and the
rules promulgated thereunder, (c) soliciting, encouraging or proposing certain
significant transactions involving the Company, (d) soliciting, initiating,
encouraging or participating in the solicitation of proxies in connection with
any election contest involving the ARV Board or initiating or proposing or
participating in or encouraging the making of, or soliciting stockholder
approval of, any stockholder proposal, (e) seeking representation on the ARV
Board other than as contemplated by the Amended Stockholders Agreement, (f)
entering into or permitting Kapson to enter into sale/leaseback or other
financing arrangements of the type contemplated by the Amended Kapson Letter
Agreement with any company (other than the Company) the principal business of
which is the ownership, management, operation and development of
assisted-living facilities in the United States, (g) requesting any waiver of
the foregoing restrictions or (h) assisting, advising, encouraging or acting
in concert with any person with respect to any of the foregoing.
During the Standstill Period, Prometheus and its affiliates may
not transfer any shares of Common Stock except (a) in transactions pursuant to
Rule 144 under the Securities Act of 1933, (b) in negotiated transfers to
third parties other than certain companies engaged in the business of
operating assisted-living facilities, (c) to certain affiliates who agree to
be bound by the terms of the Amended Stockholders Agreement, (d) in accordance
with the Amended Registration Rights Agreement in a bona fide public offering
and (e) subject to certain conditions, to bona fide financial institutions for
the purpose of securing bona fide indebtedness.
In addition, during the Standstill Period, Prometheus is
required to vote all shares of Common Stock owned by it representing an
aggregate ownership in excess of 35.8% of the outstanding shares of Common
Stock in one of the following two manners: (x) in accordance with the
recommendation of the ARV Board or (y) proportionally in accordance with the
votes of the other holders of Common Stock. Prometheus is also required to
vote its shares of Common Stock in favor of the election of all directors
nominated by the nominating committee of the Company, if any, or the ARV
Board, provided such nominations are in accordance with certain provisions of
the Amended Stockholders Agreement.
The Standstill Period will terminate prior to its stated term
in the event of certain occurrences such as a material event of default by the
Company or any subsidiary under any debt agreement or a material violation of
a material covenant under the Amended Stock and Note Purchase Agreement.
Under the terms of the Amended Stockholders Agreement,
Prometheus and certain of its affiliates, including LFREI, shall be restricted
from owning any equity interest in any public or private company engaged
primarily in the assisted-living business in the United States without the
consent of 75% of the directors of the Company, excluding those nominated by
Prometheus.
Under the Second Voting Agreement, the following management
stockholders of the Company and their affiliates have agreed to vote for the
directors nominated by (a) Prometheus and (b) the nominating committee of the
ARV Board, if any, or the ARV Board: John A. Booty; Booty-Jones Family
Partnership; Booty Family Trust; Karen A. Booty Charitable Remainder Trust;
John A. Booty Charitable Remainder Unitrust; David P. Collins; D&V Collins
Family Limited Partnership; Collins Family Community Property Trust; David P.
Collins Annuity Trust; and Graham P. Espley-Jones.
On November 10, 1997, ARV announced that it transferred its
listing from the NASDAQ National Market System to the American Stock Exchange,
the purported effect of which is to eliminate the availability of cumulative
voting for the public shareholders.
On November 14, 1997, the Company announced a $25 million share
repurchase program. Under this program the Company can reduce the amount of
shares of Common Stock outstanding that are not held by ARV management or
Prometheus, thus effectively increasing the percentage of outstanding Common
Stock owned by ARV management and Prometheus while also decreasing the
likelihood that ARV public shareholders can defeat any future ARV Board
proposal.
COMPENSATION OF EMERITUS NOMINEES
The Emeritus Nominees will not receive any compensation from
Emeritus for their services as directors of the Company. It is expected that
the Emeritus Nominees will, subject to their fiduciary duties, support the
Emeritus Proposal and enter into a merger agreement with Emeritus.
According to the Company's public filings, if elected as
directors of the Company, the Emeritus Nominees who are not employees of the
Company would receive an annual retainer of $12,000, plus $500 for each
meeting of the ARV Board and each committee meeting attended. All directors
of the Company would be reimbursed by the Company for expenses incurred in
connection with their services as directors of the Company. The Emeritus
Nominees, if elected, will be indemnified by the Company for service as
directors of the Company to the extent indemnification is provided to
Directors of the Company under the Restated Articles of Incorporation of the
Company and the Bylaws. In addition, Emeritus believe that upon election, the
Emeritus Nominees will be covered by the Company's officer and director
liability insurance. Emeritus disclaims any responsibility for the accuracy
of the foregoing information, which has been extracted from the Company's
public filings.
According to the Company's public filings, in October 1995, the
Company established the 1995 Stock Option Plan, which provides, among other
things, that each non-employee director who is initially elected or appointed
to the ARV Board will, upon such election or appointment, be automatically
granted an option to purchase 10,000 shares of Common Stock, vesting at the
rate of 2,500 per year measured from the date of grant, at an exercise price
equal to the fair market value of the Common Stock on the date of grant. In
addition, every fourth year following the date on which such non-employee
director is elected or appointed, on the date of the annual meeting of the
shareholders of the Company, if such person has continuously served as a
non-employee director, such non-employee director shall automatically receive
an option to purchase 10,000 shares of Common Stock, at an exercise price
equal to the fair market value of the Common Stock on the date of grant,
vesting at the rate of 2,500 per year measured from the date of grant.
THE EMERITUS PROPOSAL
On October 12, 1997, Emeritus proposed to acquire all of the
outstanding Common Stock of ARV for $16.50 per share in cash (the "Emeritus
Proposal"). If the Emeritus Proposal is accepted by the ARV Board, Emeritus
contemplates entering into a merger agreement with ARV whereby subject to the
terms and conditions of the merger agreement, each outstanding share of Common
Stock (other than shares of Common Stock owned by Emeritus or any of its
affiliates, shares of Common Stock held in the Treasury of the Company and
shares of Common Stock owned by shareholders who perfect any available
appraisal rights) would be converted into the right to receive an amount in
cash equal to $16.50 per share.
To the extent that shareholder approval is required prior to
the consummation of a merger between ARV and Emeritus, Emeritus and certain
other shareholders have called a Special Meeting of shareholders to be held on
January 16, 1998 (the "Special Meeting"), for the purpose of permitting ARV
shareholders to vote on a merger agreement between ARV and Emeritus. As of
the date hereof, no record date has been set for the Special Meeting.
Pursuant to the ARV Restated Articles of Incorporation, the ARV Board may set
a record date of not less than 10 and not more than 60 days prior to the date
of the Special Meeting. Accordingly, the record date for the Special Meeting
will be no later than January 6, 1998, which is two days prior to the Annual
Meeting and therefore two days prior to the earliest date at which Prometheus
will be permitted to convert the Notes into ARV Common Stock. Consequently,
Prometheus will not be able to vote any shares issuable upon conversion of the
Notes at the Special Meeting.
While we currently intend to solicit proxies from ARV
shareholders to vote on a merger agreement at the Special Meeting, we
recognize that, in light of the available time, it may be necessary to adjourn
the Special Meeting until a later date. Accordingly, at this time we are
soliciting your proxy to adjourn the Special Meeting from time to time as
proposed by Emeritus.
The purpose of the Emeritus Proposal is to enable Emeritus to
acquire control of, and the entire equity interest in, the Company. Emeritus
intends to continue to seek to negotiate with the Company with respect to the
acquisition of the Company by Emeritus. If such negotiations result in a
definitive merger agreement between the Company and Emeritus, the
consideration to be received by holders of shares of Common Stock could
include or consist of securities, cash or any combination thereof.
Accordingly, such negotiations could result in, among other things, submission
of a different acquisition proposal to the Company's shareholders for their
approval. To date, the Company has refused to enter into negotiations with
Emeritus regarding any such proposed acquisition. See "BACKGROUND". There can
be no assurance that such negotiations will occur or, if such negotiations
occur, as to the outcome thereof. In addition, there can be no assurance that
all conditions to any merger agreement between the Company and ARV will be
satisfied such that any such merger would be consummated.
ARV Proposals 1 and 2
[disclosure to come from final ARV Proxy Statement]
GENERAL
Voting Your Proxy
Emeritus is soliciting proxies for the Annual Meeting FOR the
Emeritus Nominees and FOR Proposal 1 and makes no recommendation on Proposal
2. If no specification is made, the BLUE proxy will be voted (i) FOR the
Emeritus Nominees, (ii) FOR Proposal 1 to approve the Reincorporation and
(iii) to ABSTAIN on Proposal 2. Emeritus is also soliciting proxies to adjourn
the Special Meeting. If no specification is made, the GOLD proxy will be
voted FOR the adjournment of the Special Meeting.
The Company's Restated Articles of Incorporation provide that
the ARV Board will consist of a minimum of five and a maximum of nine
directors, and that at such time as the Company becomes a listed corporation
within the meaning of Section 301.5 of the California General Corporations
Code, the directors will be divided into classes. According to the ARV Proxy
Statement the Company became a "listed corporation" in May 1997. However, if
for any reason the Company is not a "listed corporation," it would not have a
classified board and cumulative voting would apply. Under cumulative voting
with respect to the election of directors, each shareholder is entitled to
cast a number of votes equal to the number of shares owned multiplied by the
number of directors to be elected. A shareholder may distribute such votes in
any fashion among one or more nominees (up to the number of directors to be
elected at the meeting). The nominees receiving the highest number of votes
are elected, up to the number of directors to be elected. Under Section 708
of the California General Corporations Code, a shareholder may not cumulate
votes unless the shareholder has given notice, at the meeting and prior to the
voting, of the shareholder's intention to cumulate votes. However, if any one
shareholder has given such notice, all shareholders may cumulate their votes.
The attached Annual Meeting Proxy confers on the proxy holder the authority to
request cumulative voting and allocate any or all votes at its discretion as
it deems necessary.
Shareholders are urged to mark, sign and date the enclosed BLUE
Annual Meeting proxy card and return it to Emeritus, c/o Corporate Election
Services, 400 Fairway Road, Suite 110, Moon Township, PA 15108, in the
enclosed envelope in time to be voted at the Annual Meeting. Execution of the
BLUE Annual Meeting proxy card will not affect your right to attend the Annual
Meeting and to vote in person. Any proxy may be revoked at any time prior to
its exercise by (i) prior to the Annual Meeting delivering a written notice of
revocation bearing a later date, (ii) delivering a later dated proxy at the
particular meeting or (iii) attending the Annual Meeting and voting in
person. Only your latest dated proxy for the Annual Meeting will count. The
revocation may be delivered to either (i) Emeritus, c/o Corporate Election
Services, 400 Fairway Road, Suite 100, Moon Township, PA 15108, or (ii) the
Company, 245 Fischer Avenue, Suite D-1, Costa Mesa, California, 92626.
Emeritus requests that if a revocation is delivered to the Company, a
photocopy of the revocation also be delivered to Emeritus, at the address set
forth above, so that Emeritus will be aware of such revocation.
Only holders of record of Common Stock as of the close of
business on the Record Date are entitled to receive notice of, and to vote at,
the Annual Meeting. The outstanding Common Stock constitutes the only class
of securities of the Company entitled to vote at the Annual Meeting, and each
share of Common Stock entitles the holder thereof to one vote. At the close
of business on November 14, 1997, there were 11,584,272 shares of Common Stock
issued and outstanding. Shareholders' votes will be tabulated by the persons
appointed by the chairman of the Annual Meeting to act as inspectors of
election for the Annual Meeting. If inspectors are appointed at the Annual
Meeting on the request of a shareholder, the holders of a majority of shares
or their proxies present at the meeting shall determine whether one or three
inspectors are to be appointed.
Shareholders are also urged to mark, sign and date the enclosed
GOLD Special Meeting proxy card and return it to Emeritus, c/o Corporate
Election Services, 400 Fairway Road, Suite 110, Moon Township, PA 15108, in
the enclosed envelope in time to be voted at the Special Meeting. Execution
of the GOLD Special Meeting proxy card will not affect your right to attend
the Special Meeting and to vote in person. Any proxy may be revoked at any
time prior to its exercise by (i) prior to the Special Meeting delivering a
written notice of revocation bearing a later date, (ii) delivering a later
dated proxy at the particular meeting or (iii) attending the Special Meeting
and voting in person. Only your latest dated proxy for the Special Meeting
will count. The revocation may be delivered to either (i) Emeritus, c/o
Corporate Election Services, 400 Fairway Road, Suite 100, Moon Township, PA
15108, or (ii) the Company, 245 Fischer Avenue, Suite D-1, Costa Mesa,
California, 92626. Emeritus requests that if a revocation is delivered to the
Company, a photocopy of the revocation also be delivered to Emeritus, at the
address set forth above, so that Emeritus will be aware of such revocation.
Only holders of record of Common Stock as of the close of
business on the record date for the Special Meeting are entitled to receive
notice of, and to vote at, the Special Meeting. As of the date hereof, the
record date for the Special Meeting has not been set. The outstanding Common
Stock constitutes the only class of securities of the Company entitled to vote
at the Special Meeting and each share of Common Stock entitles the holder
thereof to one vote.
If any of your shares of Common Stock are held in the name of a
brokerage firm, bank, bank nominee or other institution on a record date, only
it can vote such shares of Common Stock and only upon receipt of your specific
instructions. Please mark, sign, date and mail the enclosed BLUE proxy card
and GOLD proxy card in the envelope provided by your broker or bank. In
addition, you are requested to contact the person responsible for your account
and instruct that person to execute on your behalf the BLUE Annual Meeting
proxy card and GOLD Special Meeting proxy card.
Vote Required
ARV's proposal to reincorporate the Company in Delaware
(Proposal 1) requires the approval of a majority of the outstanding shares
entitled to vote at the Annual Meeting. ARV's proposal to amend the Restated
Articles of Incorporation to, among other things, increase the authorized
number of board members from nine to ten (Proposal 2) requires the approval of
a majority of the outstanding shares entitled to vote at the Annual Meeting.
Emeritus will vote in favor of Proposal 1 and will abstain from voting on
Proposal 2. The election of directors of the Company will be decided by a
plurality of the shares of Common Stock present and entitled to vote.
Accordingly, abstentions or broker non-votes as to the election of directors
will not affect the election of directors. Each of the Proposals will be
voted upon separately.
Adjournment of the Special Meeting will be decided by a
majority of the shares of Common Stock present in person or by proxy and
entitled to vote whether or not a quorum is present.
ENGAGEMENT OF ADVISORS
Deutsche Morgan Grenfell Inc. ("DMG") is acting as Emeritus'
financial advisor in connection with Emeritus' proposed acquisition of the
Company. For its services, Emeritus has agreed to pay DMG a retainer fee of
$250,000 upon the announcement of an offer for ARV, an additional fee of
$500,000 upon the delivery by DMG of an opinion to the Board of Directors of
Emeritus with respect to the fairness from a financial point of view to
Emeritus of the consideration paid in an acquisition of ARV by Emeritus or in
a merger or other business combination of ARV and Emeritus (the "Opinion
Fee"), and a transaction fee of $1,500,000 (against which any Opinion Fee will
be credited) upon the closing of an acquisition of ARV by Emeritus or of a
merger or other business combination of ARV and Emeritus. Emeritus also has
agreed to reimburse DMG for all out-of-pocket expenses incurred by DMG in
connection with its engagement, including fees and disbursements of its
counsel. Emeritus also has agreed to indemnify DMG and certain related
parties against certain liabilities, including liabilities under the federal
securities laws, arising out of DMG's engagement as financial advisor.
SOLICITATION OF PROXIES
Emeritus has retained D.F. King & Co., Inc. (the "Agent") for
solicitation and advisory services in connection with the solicitation, for
which the Agent is to receive a fee not in excess of $__________, together
with reimbursement for its reasonable out-of-pocket expenses. Emeritus has
also agreed to indemnify the Agent against certain liabilities and expenses,
including liabilities and expenses under the federal securities laws. The
Agent will solicit proxies for the Annual Meeting and the Special Meeting from
individuals, brokers, banks, bank nominees and other institutional holders.
It is anticipated that the Agent will employ approximately 40 persons to
solicit shareholders for the Annual Meeting and the Special Meeting.
Proxies may be solicited by mail, advertisement, telephone,
telegram or telecopier or in person. Solicitations may be made by directors,
officers and employees of Emeritus, none of whom will receive additional
compensation for such solicitations. Emeritus has requested banks, brokerage
houses and other custodians, nominees and fiduciaries to forward all their
solicitation materials to the beneficial owners of the shares of Common Stock
they hold of record. Emeritus will reimburse these record holders for
customary clerical and mailing expenses incurred by them in forwarding these
materials to their customers.
Certain information about directors and officers of Emeritus
and its advisors who may also assist in soliciting proxies is set forth in the
attached Schedule I.
The entire expense of soliciting proxies for the Annual Meeting
and the Special Meeting is being borne by Emeritus. Emeritus may seek
reimbursement for such expenses from ARV, but does not expect that the
question of such reimbursement will be submitted to a vote of shareholders.
Costs incidental to this solicitation of proxies include expenditures for
printing, postage, legal, accounting, public relations, advertising and
related expenses and are expected to be approximately $[ ]; costs
incurred to the date of this Proxy Statement are approximately $[ ].
If the Emeritus Nominees are elected, Emeritus may seek to
cause the Emeritus Nominees to have Emeritus reimbursed by ARV for all
expenses paid or incurred, or for which Emeritus or any of its affiliates may
otherwise be liable, in connection with this proxy solicitation and the
proposed acquisition of ARV.
If Emeritus should withdraw, or materially change the terms of,
this solicitation of proxies prior to the Annual Meeting or the Special
Meeting, or such solicitation is terminated pursuant to a settlement with the
Company, Emeritus will supplement this Proxy Statement or otherwise publicly
disseminate information regarding such withdrawal, change or settlement.
OTHER INFORMATION
The information concerning the Company contained herein has
been taken from or based upon publicly available documents on file with the
Commission and other publicly available information. Although Emeritus does
not have any knowledge that any such information is untrue, Emeritus does not
take any responsibility for the accuracy or completeness of such information
or for any failure by the Company to disclose events that may have occurred
and may affect the significance or accuracy of any such information.
Certain information regarding shares of Common Stock held by
ARV's directors, nominees, management and other 5% shareholders is set forth
in Schedule II.
Emeritus and ARV are each subject to the informational
reporting requirements of the Exchange Act and, in accordance therewith, file
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by Emeritus and/or ARV
may be inspected and copied at the public reference facilities of the
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the New York regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
the Chicago regional office of the Commission, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such information may also be
obtained at prescribed rates from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the Commission maintains a web site on the Internet
that can be accessed at http://www.sec.gov and that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission.
Schedule III sets forth all purchases of Common Stock by
Emeritus during the past two years. Other than as set forth herein (including
in the Schedules hereto), none of Emeritus, any of its directors or officers
or the Emeritus Nominees, or any of its associates, owns any securities of the
Company, beneficially or of record, has purchased or sold any of such
securities within the past two years or is or was within the past year a party
to any contract, arrangement or understanding with any person with respect to
any such securities.
PLEASE INDICATE YOUR VOTE FOR THE EMERITUS NOMINEES, FOR
PROPOSAL 1 AND TO ABSTAIN FROM VOTING ON PROPOSAL 2 BY COMPLETING, SIGNING AND
DATING THE ENCLOSED BLUE ANNUAL MEETING PROXY CARD AND RETURNING IT PROMPTLY
TO EMERITUS, C/O CORPORATE ELECTION SERVICES, 400 FAIRWAY ROAD, SUITE 110,
MOON TOWNSHIP, PA 15108.
PLEASE INDICATE YOUR VOTE FOR THE ADJOURNMENT OF THE SPECIAL
MEETING WHENEVER REQUESTED BY EMERITUS BY COMPLETING, SIGNING AND DATING THE
ENCLOSED GOLD SPECIAL MEETING PROXY CARD AND RETURNING IT PROMPTLY TO EMERITUS,
C/O CORPORATE ELECTION SERVICES, 400 FAIRWAY ROAD, SUITE 110, MOON TOWNSHIP, PA
15108.
EMERITUS CORPORATION
, 1997
SCHEDULE I
INFORMATION CONCERNING DIRECTORS, EXECUTIVE OFFICERS AND
NOMINEES OF EMERITUS AND ITS ADVISORS
THAT MAY PARTICIPATE IN THE SOLICITATION OF PROXIES
The name, business address and present principal occupation or
employment of each of the directors and executive officers of Emeritus and its
advisors who may participate in the solicitation of proxies are set forth
below. Unless otherwise indicated, the principal business address of each
director or executive officer of Emeritus is 3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121. Directors are identified by an asterisk.
DIRECTORS AND EXECUTIVE OFFICERS OF EMERITUS
<TABLE>
<CAPTION>
Name and Business Address Position with Emeritus; Principal Occupation or Employment
- ---------------------------------------- ----------------------------------------------------------
<S> <C>
Daniel R. Baty* Mr. Baty has served as its Chief Executive Officer and as a director
since 1993 and became Chairman of the Board in April 1995.
Raymond R. Brandstrom* Mr. Brandstrom has served as its President and Chief Operating
Officer and as a director since 1993.
Motoharn Iue* Director of Emeritus since April 1995. Mr. Iue has served as
Sanyo North America Corporation Chairman of the Board of Sanyo North America Corporation and
2055 Sanyo Avenue President of Three Oceans Inc. since October 1996.
San Diego, CA 92173
Tom A. Alberg* Director of Emeritus since November 1995. Since January 1996,
Madrona Investment Group LLC Mr. Alberg has been principal of Madrona Investment Group, LLC,
1000 Second Avenue, Suite 3700 a private merchant banking firm.
Seattle, WA 98104
Patrick Carter* Director of Emeritus since November 1995. Since 1985, Mr. Carter
Westminster Health Care Holdings, has been Chief Executive Officer and Managing Director of
PLC Westminster Health Care Holdings, PLC, a publicly held operator of
48 Leicester Square skilled-nursing facilities in the United Kingdom.
London, UK WC 2H 7WH
William E. Colson* Director of Emeritus since 1995. Mr. Colson is a founder of
Holiday Retirement Corp. Holiday Retirement Corp. and, since 1987, has been its President
2250 McGilchrist Street, Suite 200 and Chief Operating Officer.
Salem, OR 97302
David T. Hamamoto* Director of Emeritus since 1997. Mr. Hamamoto is the founder of
Northstar Capital Partners, LLC Northstar Capital Partners LLC, an opportunistic real estate fund.
527 Madison Avenue, 17th Floor
New York, NY 10022
Kelly J. Price Vice President, Chief Financial Officer and Secretary. Mr. Price
beneficially owns 200 shares of Common Stock of ARV. The shares
were purchased in open market transactions on February 4, 1997.
Gary D. Witte Vice President, Operations.
Frank A. Ruffo Vice President.
Michelle A. Bickford Vice President of New Business Development.
Sarah J. Curtis Vice President of Sales and Marketing.
James S. Keller Director of Accounting and Controller.
</TABLE>
Because of the nature of the proposals which are to be brought
before the Annual Meeting, the rules of the Securities and Exchange Commission
(the "SEC") require Emeritus to make available to ARV shareholders certain
additional information with respect to "participants" (as such term is defined
in Instruction 3 of Item 4 of Schedule 14A promulgated under the Securities
and Exchange Act of 1934, as amended (the "Exchange Act")) in the Emeritus
solicitation. Pursuant to the rules promulgated under the Exchange Act, the
persons named below together with and including Emeritus and the Emeritus
Nominees named in this Proxy Statement may be deemed to be participants
(each, a "Participant" and collectively, the "Participants") in the
solicitation by Emeritus in favor of the Emeritus Nominees and in
opposition to the ARV Proposals. Accordingly, set forth below is certain
information which would be required to be provided to ARV shareholders
pursuant to the rules promulgated under the Exchange Act if such persons
were deemed to be participants.
Other than as disclosed in this Proxy Statement (including the
Schedules hereto), none of the Participants has purchased or sold or otherwise
obtained or disposed of any securities of the Company within the past two
years. Other than as disclosed in this Proxy Statement (including the
Schedules hereto), none of the Participants or any of their associates (as such
term is defined in Rule 14a-1 promulgated under the Exchange Act) owns any
securities of the Company (or any parent or subsidiary of the Company) of
record or beneficially. Furthermore, except as set forth on Schedule III, to
the knowledge of Emeritus none of the Participants has borrowed or otherwise
obtained funds for the purpose of acquiring or holding any securities of the
Company purchased or sold or otherwise obtained or disposed of within the past
two years.
Other than as disclosed in this Proxy Statement (including the
Schedules hereto), to the knowledge of Emeritus, none of Emeritus or any of
its directors, executive officers or employees named in this Schedule I or any
of the Emeritus Nominees named in this Proxy Statement has any substantial
interest, direct or indirect, by security holdings or otherwise, in any matter
to be acted upon at the Annual Meeting.
Other than as disclosed in this Proxy Statement (including the
Schedules hereto), to the knowledge of Emeritus, none of Emeritus, or any of
its directors, executive officers or employees named in this Schedule I or any
of the Emeritus Nominees named in this Proxy Statement is, or has been within
the past year, a party to any contract, arrangement or understanding with any
person with respect to any securities of the Company, including, but not
limited to, joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profit, division of losses or
profits, or the giving or withholding of proxies.
Other than as set forth in this Proxy Statement (including the
Schedules hereto), to the knowledge of Emeritus, none of Emeritus, or any of
its directors, executive officers or employees named in this Schedule I or any
of the Emeritus Nominees named in this Proxy Statement or any of their
associates, has had or will have a direct or indirect material interest in any
transaction or series of similar transactions since the beginning of the
Company's last fiscal year or any currently proposed transactions, or series
of similar transactions, to which the Company or any of its subsidiaries was
or is to be a party in which the amount involved exceeds $60,000.
Other than as set forth in this Proxy Statement (including the
Schedules hereto), to the knowledge of Emeritus, none of Emeritus, or any of
its directors, executive officers or employees named in this Schedule I or any
of the Emeritus Nominees named in this Proxy Statement or any of their
associates, has any arrangements or understandings with any person with
respect to any future employment by the Company or its affiliates or with
respect to any future transactions to which the Company or any of its
affiliates will or may be a party.
Emeritus has retained Deutsche Morgan Grenfell Inc. ("DMG") to
act as its financial advisor in connection with the transactions described in
this Proxy Statement. DMG is an investment banking firm that provides a full
range of financial services for institutional and individual clients. DMG
does not admit that it or any of its directors, officers or employees is a
Participant in the solicitation by Emeritus or that Schedule 14A requires the
disclosure by DMG in this Proxy Statement or this Schedule I of information
required to be disclosed by Participants.
In connection with DMG's role as financial advisor to Emeritus
with respect to the transactions in this Proxy Statement, DMG and the
following employees of DMG (the "DMG Individuals") will communicate in person,
by telephone or otherwise with a limited number of institutions, brokers or
other persons who are shareholders of ARV:
Name Position
- ---- --------
Federico G.M. Mennella Managing Director
Philip Noblet Vice President
Each DMG Individual is engaged in the investment banking business at Deutsche
Morgan Grenfell Inc., 31 West 52nd Street, New York, New York 10019, and is
employed by DMG in the capacity listed beside his or her name.
In the normal course of its business, DMG and its associates
(as defined in Rule 14a-1 promulgated under the Exchange Act) may from time to
time buy and sell securities issued by ARV and its affiliates ("ARV
Securities") for their own account and for the accounts of their customers,
which transactions may result from time to time in DMG and its associates
having a net "long" or net "short" position in ARV Securities or option
contracts or other derivatives in or relating to ARV Securities.
Additionally, in the normal course of their business, DMG and its associates
may finance their securities positions by bank and other borrowings and
repurchase and securities borrowings transactions. To the knowledge of
Emeritus, none of such borrowings were intended specifically for the purpose
of purchasing any ARV Securities.
To the knowledge of Emeritus, or any of its directors,
executive officers or the employees of Emeritus named in this Schedule I,
except as disclosed elsewhere in this Proxy Statement (including the Schedules
hereto), and except for customary arrangements with respect to ARV Securities
held by DMG for the accounts of its customers, none of the DMG Individuals,
DMG or any associate of such persons is or has been, within the past year, a
party to any contract, arrangement or understanding with any person with
respect to any ARV Securities, including, but not limited to, joint ventures,
loan or option arrangements, puts or calls, guarantees against loss or
guarantees of profit, division of losses or profits, or the giving or
withholding of proxies. To the knowledge of Emeritus, or any of its directors,
executive officers or the employees of Emeritus named in this Schedule I,
except as disclosed elsewhere in this Proxy Statement (including the Schedules
hereto), none of the DMG Individuals, DMG or any associate of such persons has
any arrangement or understanding with any person with respect to any future
employment by the Company or its affiliates or any future transactions to
which the Company or any of its affiliates will or may be a party, nor any
material interest, direct or indirect, in any transaction which has occurred
since the beginning of the Company's last fiscal year or any currently
proposed transaction, or series of similar transactions, to which the Company
or any of its affiliates was or is to be a party and in which the amount
involved exceeds $60,000.
SCHEDULE II
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT OF ARV
The following table sets forth certain information regarding
beneficial ownership of the Common Stock as of November 14, 1997 (based on a
total of 11,584,272 outstanding shares of common stock), to the knowledge of
Emeritus based upon a review of publicly available information, by (i) each of
the Company's directors, (ii) each of the named executive officers and (iii)
all executive officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of
Shares Shares
Beneficially Beneficially
Name of Beneficial Owner(1) Owned Owned
- ------------------------------------------------ ------------ -------------
<S> <C> <C>
Robert P. Freeman(2)............................ 1,921,012 16.6%
Morry N. Gunty(2)............................... 1,921,012 16.6%
Kenneth M. Jacobs(2)............................ 1,912,012 16.6%
Gary L. Davidson(3)............................. 969,826 8.3%
John A. Booty(4)(5)............................. 699,246 6.0%
David P. Collins(4)(6).......................... 558,939 4.8%
Graham P. Espley-Jones(7)....................... 274,964 2.4%
Sheila M. Muldoon(8)............................ 3,500 *
Eric K. Davidson(9)............................. 14,538 *
R. Bruce Andrews(10)............................ 2,500 *
Maurice J. DeWald(10)........................... 3,500 *
James M. Peters(10)............................. 2,500 *
John J. Rydzewski(10)(11)....................... 7,500 *
All directors and executive officers as a group
(13 persons).............................. 4,458,024 38.0%
<FN>
_____________
* Less than 1%
(1) Except where otherwise noted, the address of the Company's directors and
executive officers is c/o ARV Assisted Living, Inc., 245 Fischer Avenue,
Costa Mesa, California 92626.
(2) Messrs. Freeman and Gunty are the President and a Vice President,
respectively, of LFREI, the managing member of Prometheus. Mr. Jacobs
is a Managing Director of Lazard Freres & Co., LLC, the managing member
of LFREI. Each of Messrs. Freeman, Gunty and Jacobs have shared voting
and investment power over the securities held by Prometheus and each may
be deemed to beneficially own Prometheus' shares. Each of Messrs.
Freeman, Gunty and Jacobs disclaims beneficial ownership of Prometheus'
shares except to the extent of their pecuniary interest therein.
(3) Of the 970,126 shares beneficially owned by Mr. Gary Davidson, 593,029
are held of record by the Davidson Family Partnership, 343,102 shares
are held by the Gary L. Davidson Funded Revocable Living Trust, and the
remaining 33,695 shares are subject to options exercisable within 60
days of November 14, 1997. Excludes 9,423 shares beneficially owned by
Mr. Gary Davidson held of record by the ESOP as of November 14, 1997.
(4) Excludes 402,257 shares owned of record by the Company's employee stock
ownership plan (the "ESOP"), of which Messrs. Booty and Collins are
trustees.
(5) Of the 699,246 shares beneficially owned by Mr. Booty, 107,773 are held
of record by the Booty-Jones Family partnership (of which Mr. Booty is
the managing partner and holds a pecuniary interest equal to 1%
thereof), 418,028 shares are held by the Booty Family Trust (as to which
Mr. Booty has shared voting and investment power), 750 shares are held
in Mr. Booty's name alone, 69,500 shares are owned by the Karen A. Booty
Charitable Remainder Trust of which Mr. Booty has sole voting and
investment power, 69,500 shares are owned by the John A. Booty
Charitable Remainder Unit Trust (of which Mr. Booty has sole voting and
investment power), and the remaining 33,695 shares are subject to
options exercisable within 60 days of August 19, 1997. Excludes 9,423
shares beneficially owned by Mr. Booty held of record by the ESOP as of
August 19, 1997.
(6) Of the 558,939 shares beneficially owned by Mr. Collins, 98,678 are held
of record by the D&V Collins Family Limited Partnership (as to which Mr.
Collins has shared voting and investment power), 408,591 shares are held
by the Collins Family Community Property Trust (as to which Mr. Collins
has shared voting and investment power), 11,978 shares are held by the
David P. Collins Annuity Trust, and the remaining 39,692 shares are
subject to options exercisable within 60 days of August 19, 1997.
Excludes 8,531 shares beneficially owned by Mr. Collins held of record
by the ESOP on August 19, 1997.
(7) Of the 274,964 shares beneficially owned by Mr. Espley-Jones, 22,412
shares are subject to options exercisable within 60 days of August 19,
1997. Excludes 5,372 shares beneficially owned by Mr. Espley-Jones held
of record by the ESOP as of August 19, 1997.
(8) Of the 3,500 shares beneficially owned by Ms. Muldoon, 1,000 are held of
record by Charles Schwab & Co. Inc. IRA Rollover and 2,500 shares are
subject to options exercisable within 60 days of August 19, 1997.
(9) Of the 14,548 shares beneficially owned by Mr. Eric Davidson, 4,000 are
held of record by Eric K. Davidson UTA Fidelity 401(k), 103 are held by
Eric K. Davidson UTA Principal Financial 401(k) and 10,435 shares are
subject to options exercisable within 60 days of August 19, 1997.
Excludes 143 shares beneficially owned by Mr. Eric Davidson held of
record by the ESOP on August 19, 1997.
(10) Messrs. Andrews, DeWald, Peters and Rydzewski, as non-employee
directors, have options exercisable within 60 days of November 14, 1997
to purchase 5,000 shares.
(11) 5,000 of the shares beneficially owned by Mr. Rydzewski are held of
record by Merrill Lynch Custodian FBO Benedetto, Gartland & Greene, Inc.
SEP FBO John J. Rydzewski.
</TABLE>
Security Ownership of Certain Beneficial Owners
As of November 14, 1997, to the knowledge of Emeritus based upon a review
of publicly available information, the following persons are the beneficial
owners of more than five percent of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owners Beneficial Ownership of Class
------------------- -------------------- --------
<S> <C> <C>
Prometheus Assisted Living LLC
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020 1,921,012 16.6%
Emeritus Corporation
3131 Elliott Avenue
Suite 500
Seattle, WA 98121 1,077,200 9.3%
Morgan Stanley, Dean Witter,
Discover & Co.(1)
1585 Broadway
New York, NY 10036 965,197 8.3%
Ardsley Advisory Partners(2)
646 Steamboat Road
Greenwich, CT 06836 730,000 6.3%
Wellington Management Company, LLP(3)
75 State Street
Boston, MA 02109 641,356 5.5%
Scudder, Stevens & Clark, Inc.(4)
345 Park Avenue
New York, NY 10154 592,900 5.1%
<FN>
________________
(1) Morgan, Stanley, Dean Witter, Discover & Co. ("Morgan Stanley") a
Delaware corporation and an investment adviser registered under Section
203 of the Investment Advisers Act of 1940, is the beneficial owner of
965,197 shares of the Common Stock of the Company. Accounts managed on
a discretionary basis by wholly owned subsidiaries of Morgan Stanley,
including Miller Anderson & Sherred LLP, a Delaware limited liability
partnership and an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940, are known to have the right to
receive or the power to direct the receipt of dividends from, or the
process from, the sale of such securities. No such account holds more
than 5% of the class.
(2) Ardsley Advisory Partners, a Connecticut general partnership
("Ardsley"), is an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940, as amended. Philip J. Hempleman is
the managing partner of Ardsley. The shares of the Company are held in
discretionary accounts managed by Ardsley and Mr. Hempleman (including
accounts of certain clients, including investment partnerships for which
(i) Ardsley serves as the management company and (ii) a general
partnership comprised of the partners that comprise Ardsley serves as
general partner). As a result of their roles as investment advisor,
Ardsley and Mr. Hempleman may be deemed to be the beneficial owners of
the shares of the Company held in such discretionary accounts. Each
client for whose account Ardsley had purchased shares of the company has
the right to receive or the power to direct the receipt of dividends
from, or the proceeds from the sale of, such shares purchased from his
account.
(3) Wellington Management Company, LLP, a Massachusetts limited liability
partnership ("Wellington"), an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, may be deemed to
beneficially own 641,356 shares of the Common Stock of the Company which
are held of record by clients of Wellington. Those clients have the
right to receive, or the power to direct the receipt of, dividends from,
or the proceeds from the sale of, such securities. The shares of Common
Stock were acquired by Wellington Trust Company, NA, a wholly owned
subsidiary of Wellington and a bank as defined in Section 3(a)(6) of the
Securities Exchange Act of 1934. Wellington has shared power to vote or
direct the vote of 265,500 shares of the Common Stock of the Company,
and shared power to dispose or to direct the disposition of 641,356
shares.
(4) Scudder, Stevens & Clark, Inc. a Delaware corporation, an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940, has sole power to vote or to direct the vote of 259,400 shares of
the Common Stock of the Company, shared power to vote or to direct the
vote of 228,200 shares and sole power to dispose or to direct the
disposition of 592,900 shares.
</TABLE>
SCHEDULE III
ACQUISITIONS OF ARV COMMON STOCK
DURING THE PAST TWO YEARS BY EMERITUS
<TABLE>
<CAPTION>
Purchase Date Shares Acquired(1) Price Per Share(2)(3)
------------- ------------------ ---------------------
<S> <C> <C>
2/25/97 5,000 9.50
2/26/97 23,000 9.50
2/28/97 17,500 9.50
3/4/97 5,000 9.50
3/5/97 5,000 9.61
3/19/97 5,500 9.85
3/25/97 2,000 9.75
3/27/97 1,000 9.62
3/31/97 2,500 9.62
4/1/97 2,500 9.62
4/2/97 10,000 9.50
4/9/97 8,000 9.37
4/10/97 15,000 9.37
4/10/97 5,000 9.50
4/16/97 20,000 9.30
4/22/97 5,000 9.30
4/23/97 7,500 9.19
4/24/97 13,500 9.03
5/2/97 3,000 8.87
5/6/97 5,000 8.92
5/7/97 10,000 9.05
5/9/97 3,500 8.92
5/13/97 2,100 8.97
5/15/97 4,000 9.05
5/15/97 8,000 9.30
5/20/97 4,000 9.05
5/21/97 10,000 9.19
5/23/97 30,000 8.91
5/27/97 8,500 8.94
5/28/97 7,000 8.94
5/29/97 7,000 8.94
5/30/97 23,000 8.02
6/4/97 44,500 9.99
6/5/97 32,000 10.11
6/6/97 8,500 10.19
6/9/97 2,000 10.19
6/10/97 17,000 10.44
6/11/97 30,000 10.72
6/13/97 2,000 11.06
6/13/97 15,000 11.06
6/16/97 20,900 11.06
7/31/97 15,000 11.67
8/1/97 5,000 11.61
8/1/97 10,000 11.55
8/5/97 2,000 11.50
8/5/97 8,000 11.55
8/6/97 10,000 11.50
8/6/97 50,000 11.50
9/11/97 20,000 11.05
10/2/97 25,000 13.22
10/2/97 42,700 13.25
10/3/97 100,000 14.50
10/7/97 30,000 15.17
10/8/97 23,000 15.17
10/10/97 168,000 14.97
10/23/97 20,000 16.30
10/24/97 7,500 16.05
10/27/97 25,000 15.83
10/31/97 32,000 14.98
11/4/97 15,000 15.21
11/6/97 5,000 15.44
11/7/97 14,000 15.44
Total 1,077,200
<FN>
- ------------
(1 ) Purchased in open market transactions executed on Nasdaq.
(2 ) All prices are exclusive of commissions.
(3 ) Approximately $9.1 million of the funds required by Emeritus to purchase
the 1,077,200 shares directly owned by it was obtained through margin
loans from Ragen MacKenzie Incorporated, Seattle, Washington.
</TABLE>
Additionally, Kelly Price, the Chief Financial Officer of Emeritus
beneficially owns 200 shares of ARV Common Stock.
IMPORTANT
Your proxy is important. No matter how many shares you own, please
give Emeritus your proxy FOR the election of the Emeritus Nominees, FOR
Proposal 1 and to ABSTAIN from voting on Proposal 2 by:
MARKING the enclosed BLUE Annual Meeting proxy card,
SIGNING the enclosed BLUE Annual Meeting proxy card,
DATING the enclosed BLUE Annual Meeting proxy card and
MAILING the enclosed BLUE Annual Meeting proxy card TODAY in the
envelope provided (no postage is required if mailed in the United
States).
If you have already submitted a proxy to ARV for the Annual Meeting,
you may change your vote to a vote FOR the election of the Emeritus Nominees,
FOR Proposal 1 and to ABSTAIN from voting on Proposal 2 by marking, signing,
dating and returning the enclosed BLUE proxy card for the Annual Meeting,
which must be dated after any proxy you may have submitted to ARV. Only your
latest dated proxy for the Annual Meeting will count at such meeting.
Also, please give Emeritus your proxy FOR the adjournment of the
Special Meeting by:
MARKING the enclosed GOLD Special Meeting proxy card,
SIGNING the enclosed GOLD Special Meeting proxy card,
DATING the enclosed GOLD Special Meeting proxy card and
MAILING the enclosed GOLD Special Meeting proxy card TODAY in the
envelope provided (no postage is required if mailed in the United
States).
If you have already submitted a proxy to ARV for the Special Meeting,
you may change your vote to a vote FOR the adjournment of the Special Meeting
whenever requested by Emeritus by marking, signing, dating and returning the
enclosed GOLD proxy card for the Annual Meeting, which must be dated after any
proxy you may have submitted to ARV. Only your latest dated proxy for the
Special Meeting will count at such meeting.
If you have any questions or require any additional information
concerning this Proxy Statement or the proposal by Emeritus to acquire ARV,
please contact D.F. King at the address and telephone number set forth below.
If any of your shares are held in the name of a brokerage firm, bank, bank
nominee or other institution, only it can vote such shares and only upon
receipt of your specific instructions. Please mark, sign, date and mail the
enclosed BLUE proxy card and GOLD proxy card in the envelope provided by your
broker or bank. In addition, you are requested to contact the person
responsible for your account and instruct that person to execute the BLUE
annual meeting proxy card and GOLD special meeting proxy card.
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Tel: (212) 269-5550 (call collect)
or
Call Toll-Free (800) 431-9646
ARV ASSISTED LIVING, INC.
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY
EMERITUS CORPORATION
The undersigned shareholder of ARV Assisted Living, Inc. ("ARV")
hereby appoints [ ], and each of them, each with
full power of substitution, to vote all shares of Common Stock that the
undersigned is entitled to vote if personally present at the Annual Meeting of
Shareholders of ARV Assisted Living, Inc. to be held on January 8, 1998 at 9:00
a.m., and at any adjournments, postponements, reschedulings or continuations,
or any other meeting of shareholders held in lieu of the Annual Meeting. In
their discretion the proxies are authorized to vote upon such other business as
may properly come before the meeting or any adjournments, postponements,
reschedulings or continuations, or any other meeting of shareholders held in
lieu thereof, except that in the case of any proposal to adjourn the meeting,
the proxy will vote as indicated on the reverse of this card or, to the extent
that no such indication is given, as set forth herein. The undersigned hereby
revokes any previous proxies with respect to the matters covered by this Proxy.
(Please mark each proposal with an "X" in the appropriate box)
I. The Proposals.
EMERITUS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF ALL EMERITUS NOMINEES
NAMED BELOW, FOR PROPOSAL 1 AND ABSTAIN FROM VOTING ON ARV PROPOSAL 2.
1. ELECTION OF DIRECTORS: To elect to the Board of Directors of ARV
(the "Board") such number of the following Emeritus Nominees as equals the
size of the Board: Martin Roffe, Jason Geisenger, Richard Sontgerath, Stanley
Baty, Charles Uhlman, Thilo Best, Patrick Duff, Al Edmiston, Frank Ruffo,
Jonathan Teague, Jim Keller, Bill Shorten, Suzette McCanless, Gary Becker and
Russ Kubik. The first nine of such individuals will be voted for to be
elected to succeed the current nine Directors (or any Director named to fill
any vacancy created by the death, retirement, resignation or removal of any of
such nine Directors) of ARV. One or more of such other individuals will be
voted for to be elected in the event any of the first nine of such individuals
is unable for any reason to serve as a Director.
[ ] FOR all Emeritus [ ] WITHHOLD
Nominees except AUTHORITY
for as marked below to vote for all
Emeritus Nominees
(INSTRUCTION: To withhold authority to vote for one or more
individual Emeritus nominees, mark FOR above and print the name(s) of the
person(s) with respect to whom you wish to withhold authority in the space
provided below.)
2. ARV PROPOSAL 1: To approve the reincorporation of the Company as a
Delaware corporation, which will also be named ARV Assisted Living, Inc.,
pursuant to a merger of the Company into a wholly owned Delaware subsidiary
(the "Delaware Company") and the
conversion of the Common Stock of the Company into the common stock, par value
$.01 per share, of the Delaware Company, which approval shall constitute
approval of all of the provisions set forth in the Delaware Company's
Certificate of Incorporation and Bylaws.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ARV PROPOSAL 2: To approve an amendment to the Restated Articles
of Incorporation of the Company providing, among other things, an increase in
the maximum number of authorized directors of the Company from nine to ten.
[ ] ABSTAIN [ ] AGAINST [ ] FOR
II. Proposal to Adjourn the 1997 Annual Meeting.
EMERITUS RECOMMENDS THAT YOU VOTE FOR ITEM NO. 4 AND AGAINST ITEM NO. 5.
4. Proposal to adjourn the Annual Meeting to a later date which is
proposed or recommended by Emeritus. (Emeritus recommends that you vote FOR.)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal to adjourn the Annual Meeting to a later date which is
not proposed or recommended by Emeritus. (Emeritus recommends that you vote
AGAINST.)
[ ] AGAINST [ ] FOR [ ] ABSTAIN
This Proxy confers authority to request cumulative voting and to allocate such
votes among the nominees at the discretion of the proxy. Additionally, in
their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment, postponement,
rescheduling or continuation, or any other meeting of shareholders in lieu
thereof.
Please mark, sign, date and return this proxy card promptly in the
enclosed envelope provided.
This Proxy, when properly executed, will be voted in the manner
marked herein by the undersigned shareholder. IF NO MARKING IS MADE, THIS
PROXY WILL BE DEEMED TO BE A DIRECTION TO VOTE FOR ITEMS 1, 2 AND 4, AGAINST
ITEM 5 AND TO ABSTAIN FROM VOTING ON ITEM 3.
Please date and sign this proxy
exactly as your name appears hereon.
_____________________________________
(signature)
_____________________________________
(signature, if held jointly)
Dated:_______________________________
When shares are held by joint tenants, both should sign. When
signing as attorney-in-fact, executor, administrator, trustee, guardian,
corporate officer or partner, please give full title as such. If a
corporation, please sign in corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
To vote in accordance with Emeritus' recommendation, just sign
and date this proxy; no boxes need to be checked. If you need assistance in
voting your shares, please call D.F. King & Co., Inc. toll free at
1-800-431-9646.
ARV ASSISTED LIVING, INC.
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY
EMERITUS CORPORATION
The undersigned shareholder of ARV Assisted Living, Inc. ("ARV")
hereby appoints [ ], and each of them, each with full
power of substitution, to vote all shares of Common Stock that the undersigned
is entitled to vote if personally present at the Special Meeting of
Shareholders of ARV Assisted Living, Inc. to be held on January 16, 1998, and
at any adjournments, postponements, reschedulings or continuations, or any
other meeting of shareholders held in lieu of the Special Meeting. In their
discretion the proxies are authorized to vote upon such other business as may
properly come before the meeting or any adjournments, postponements,
reschedulings or continuations, or any other meeting of shareholders held in
lieu thereof, except that in the case of any proposal to adjourn the meeting,
the proxy will vote as indicated on the reverse of this card or, to the extent
that no such indication is given, as set forth herein. The undersigned hereby
revokes any previous proxies with respect to the matters covered by this Proxy.
(Please mark each proposal with an "X" in the appropriate box)
I. Proposal to Adjourn the January 16, 1998
Special Meeting
EMERITUS RECOMMENDS THAT YOU VOTE FOR ITEM NO. 1 AND AGAINST ITEM NO. 2.
1. PROPOSAL TO ADJOURN THE SPECIAL MEETING TO A LATER DATE WHICH IS
PROPOSED OR RECOMMENDED BY EMERITUS. (EMERITUS RECOMMENDS THAT YOU
VOTE FOR.)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO ADJOURN THE SPECIAL MEETING TO A LATER DATE WHICH IS NOT
PROPOSED OR RECOMMENDED BY EMERITUS. (EMERITUS RECOMMENDS THAT YOU
VOTE AGAINST.)
[ ] AGAINST [ ] FOR [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT,
POSTPONEMENT, RESCHEDULING OR CONTINUATION, OR ANY OTHER MEETING OF
SHAREHOLDERS IN LIEU THEREOF.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE PROVIDED.
This Proxy, when properly executed, will be voted in the manner
marked herein by the undersigned shareholder. IF NO MARKING IS MADE, THIS
PROXY WILL BE DEEMED TO BE A DIRECTION TO VOTE FOR ITEM 1 AND AGAINST ITEM 2.
Please date and sign this proxy
exactly as your name appears hereon.
_____________________________________
(signature)
_____________________________________
(signature, if held jointly)
Dated: _______________________________
When shares are held by joint tenants, both should sign. When
signing as attorney-in-fact, executor, administrator, trustee, guardian,
corporate officer or partner, please give full title as such. If a
corporation, please sign in corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
To vote in accordance with Emeritus' recommendation, just sign
and date this proxy; no boxes need to be checked. If you need assistance in
voting your shares, please call D.F. King & Co., Inc. toll free at
1-800-431-9646.
