<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN RETIREMENT VILLAS PROPERTIES II
(NAME OF SUBJECT COMPANY)
ARV ASSISTED LIVING, INC.
(BIDDER)
LIMITED PARTNERSHIP UNITS
(TITLE OF CLASS OF SECURITIES)
-----------
(CUSIP NUMBER OF CLASS OF SECURITIES)
SHEILA M. MULDOON
VICE PRESIDENT AND GENERAL COUNSEL
ARV ASSISTED LIVING, INC.
245 FISCHER AVENUE, D-1
COSTA MESA, CA 92626
(714) 751-7400
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
COPIES TO:
WILLIAM J. CERNIUS
LATHAM & WATKINS
650 TOWN CENTER DRIVE, SUITE 2000
COSTA MESA, CALIFORNIA 92626
(714) 540-1235
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
================================================================================
TRANSACTION VALUATION* AMOUNT OF FILING FEE
<C> <C>
$25,117,590.24.......................................... $8,662
================================================================================
</TABLE>
* For purposes of calculating amount of filing fee only. This amount
assumes the purchase of 34,855.542 Units (the "Units"), at a price per
Unit of $720 in cash. Pursuant to, and as provided by, Rule 0-11(d), the
amount being paid with the filing of this Schedule 14D-1 is $8,662.
/x/ Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $8,662 Filing Party: ARV Assisted Living, Inc.
Form or Registration No.: 14D-1 Date Filed: May 16, 1996
===============================================================================
<PAGE> 2
14D-1
<TABLE>
CUSIP No.
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1 NAME OF REPORTING PERSON AND S.S. OR
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ARV ASSISTED LIVING, INC. (33-0160968)
- -----------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
- -----------------------------------------------------------------------------------------
3 SEC USE ONLY
- -----------------------------------------------------------------------------------------
4 SOURCES OF FUNDS
WC
- -----------------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(e) OR 2(f) / /
- -----------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
CALIFORNIA
- -----------------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
APPROXIMATELY 109.5 UNITS
- -----------------------------------------------------------------------------------------
8 CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN
UNITS / /
- -----------------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
.3%
- -----------------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON CO
- -----------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The information set forth on the cover page and in "THE OFFER" --
Section 8 ("Certain Information Concerning the Partnership") of the Offer to
Purchase (dated May 16, 1996 as amended by the Supplement to the Offer to
Purchase dated June 11, 1996 (collectively, the "Offer to Purchase") is
incorporated herein by reference.
(b) The information set forth on the cover page and in the INTRODUCTION
of the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in "THE OFFER" -- Section 6 ("Market
Prices of the Units") of the Offer to Purchase is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is being filed by ARV Assisted
Living, Inc. (the "Purchaser"). The information set forth on the cover page and
in the INTRODUCTION, "THE OFFER" -- Section 9 ("Certain Information Concerning
the Company") and Schedule I of the Offer to Purchase is incorporated herein by
reference.
(e)-(f) Neither the Company nor, to the best of its knowledge,
any of the persons listed in Schedule I of the Offer to Purchase has during the
last five years (i) been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors), or (ii) been a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction and as a result
of such proceeding was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT
COMPANY.
(a)-(b) The information set forth in the INTRODUCTION, "SPECIAL FACTORS
- -- Background of the Offer," "SPECIAL FACTORS -- Interests of Certain Persons"
and "THE OFFER" -- Section 9 ("Certain Information Concerning the Company") of
the Offer to Purchase is incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth on the cover page and in the INTRODUCTION,
"SPECIAL FACTORS -- Source and Amount of Funds" and "THE OFFER" -- Section 15
("Fees and Expenses") of the Offer to Purchase is incorporated herein by
reference.
(b) Not applicable.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(g) The information set forth in the INTRODUCTION, "SPECIAL FACTORS
- -- Purpose and Structure of the Offer," "SPECIAL FACTORS -- Plans for the
Partnership after the Offer," "SPECIAL FACTORS -- Interests of Certain Persons,"
"THE OFFER" -- Section 7 ("Effects of the Offer on Non- Tendering Unitholders")
and "THE OFFER" -- Section 9 ("Certain Information Concerning the Company") of
the Offer to Purchase is incorporated herein by reference.
3
<PAGE> 4
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information concerning the ownership and transactions in the
Units set forth on the cover page and in the INTRODUCTION, "SPECIAL FACTORS --
Interests of Certain Persons" and "THE OFFER" -- Section 9 ("Certain Information
Concerning the Company") of the Offer to Purchase is incorporated herein by
reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE SUBJECT COMPANY'S SECURITIES.
Not applicable.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the INTRODUCTION, "SPECIAL FACTORS --
Background of the Offer" and "THE OFFER" -- Section 15 ("Fees and Expenses") of
the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Not applicable. Certain information with respect to the ability of the
Purchaser to finance the Offer is set forth in "SPECIAL FACTORS -- Source and
Amount of Funds" of the Offer to Purchase and is incorporated herein by
reference. The incorporation by reference herein of the above referenced
information does not constitute an admission that such information is material
to a decision by a Unitholder of the Partnership as to whether to sell, tender
or hold Units being bought in the Offer.
ITEM 10. ADDITIONAL INFORMATION.
(a) None.
(b)-(d) The information set forth in "THE OFFER" -- Section 11 ("Certain
Legal Matters and Regulatory Approvals") of the Offer to Purchase is
incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase, the Letter of
Transmittal and the Press Release of May 16, 1996, copies of which are attached
hereto as Exhibits 99.1, 99.2, 99.6 and 99.7, incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
*99.1 Offer to Purchase dated May 16, 1996.
*99.2 Letter of Transmittal.
*99.3 Form of Letter to Unitholders.
*99.4 Letter from the Company to Brokers, Dealers, Banks, Trust
Companies and Other Nominees.
*99.5 Letter to Clients for use by Brokers, Dealers, Banks, Trust
Companies and Other Nominees.
*99.6 Text of Press Release dated May 16, 1996.
99.7 Supplement to the Offer to Purchase dated June 11, 1996.
99.8 Form of Revised Letter to Unitholders.
99.9 Revised Letter from the Company to Brokers, Dealers, Banks,
Trust Companies and Other Nominees.
99.10 Revised Letter to Clients for Use by Brokers, Dealers, Banks,
Trust Companies and Other Nominees.
* Previously filed.
4
<PAGE> 5
Signature
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: June 11, 1996
ARV ASSISTED LIVING, INC.
BY /s/ GARY L. DAVIDSON
---------------------------------
NAME: GARY L. DAVIDSON
TITLE: CHAIRMAN OF THE BOARD
5
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
<S> <C> <C>
*99.1 Offer to Purchase dated May 16, 1996.
*99.2 Letter of Transmittal.
*99.3 Form of Letter to Unitholders.
*99.4 Letter from the Company to Brokers, Dealers, Banks, Trust Companies and
Other Nominees.
*99.5 Letter to Clients for use by Brokers, Dealers, Banks, Trust Companies
and Other Nominees.
*99.6 Text of Press Release dated May 16, 1996.
99.7 Supplement to the Offer to Purchase dated June 11, 1996.
99.8 Form of Revised Letter to Unitholders.
99.9 Revised Letter from the Company to Brokers, Dealers, Banks, Trust
Companies and Other Nominees.
99.10 Revised Letter to Clients for Use by Brokers, Dealers, Banks, Trust
Companies and Other Nominees.
* Previously filed.
</TABLE>
<PAGE> 1
EXHIBIT 99.7
Supplement to
Offer to Purchase for Cash
All of the Limited Partnership Units
of
AMERICAN RETIREMENT VILLAS PROPERTIES II
at
$720 Net Per Unit
by
ARV ASSISTED LIVING, INC.
================================================================================
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 10:00 P.M., DALLAS, TEXAS TIME,
ON FRIDAY, JUNE 21, 1996, UNLESS EXTENDED.
================================================================================
ARV ASSISTED LIVING, INC., A CALIFORNIA CORPORATION (THE "COMPANY"), IS OFFERING
TO PURCHASE ALL OF THE LIMITED PARTNERSHIP UNITS (THE "UNITS") IN AMERICAN
RETIREMENT VILLAS PROPERTIES II, A CALIFORNIA LIMITED PARTNERSHIP (THE
"PARTNERSHIP"), AT A NET CASH PRICE PER UNIT OF $720 (THE "OFFER PRICE"). THE
OFFER IS NOT CONDITIONED UPON A MINIMUM NUMBER OF UNITS BEING VALIDLY TENDERED,
BUT IT IS SUBJECT TO CERTAIN TERMS AND CONDITIONS DESCRIBED IN THE OFFER TO
PURCHASE. See "The Offer" -- Section 12.
THE GENERAL PARTNERS OF THE PARTNERSHIP ARE GARY L. DAVIDSON, THE CHAIRMAN OF
THE BOARD OF THE COMPANY, JOHN A. BOOTY, THE PRESIDENT OF THE COMPANY, JOHN S.
JASON, A SHAREHOLDER OF THE COMPANY, TONY ROTA, A SHAREHOLDER OF THE COMPANY,
AND THE COMPANY (THE "GENERAL PARTNERS"). THE COMPANY IS THE MANAGING PARTNER OF
THE PARTNERSHIP. THE GENERAL PARTNERS BELIEVE THE OFFER PRICE IS FAIR AND IN THE
BEST INTERESTS OF UNITHOLDERS. THE GENERAL PARTNERS HAVE CONFLICTS OF INTEREST
IN THIS TRANSACTION. See "Special Factors -- Unitholder Considerations."
The Offer involves certain risk factors and detriments that should be
considered by Unitholders, including the following:
- - The Offer Price has been established by the Company, which has
substantial conflicts of interest. The General Partners have not
retained an unaffiliated person to represent the Unitholders. See
"Special Factors -- Unitholder Considerations."
- - Based on overall increases in net operating income, the General
Partners believe that the Partnership's properties have increased in
value over the last several years and, although there can be no
assurance, may continue to appreciate in value. See "Special Factors --
Unitholder Considerations."
- - As alternatives to tendering their Units, holders of Units could
retain their Units until liquidation of the Partnership or seek a
private sale of their Units now or later. See "Special Factors --
Unitholder Considerations."
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
June 11, 1996
<PAGE> 2
IMPORTANT
Except as set forth in this Supplement, the Company's Offer continues
to be governed by the terms and conditions set forth in its Offer to Purchase
dated May 16, 1996 and the related Letter of Transmittal, and the information
contained therein continues to be important to each Unitholder's decision with
respect to the Offer. Accordingly, the Supplement should be read in conjunction
with such documents, which have been previously mailed to the Unitholders.
Any Unitholder desiring to tender all or any portion of his or her
Units should either (1) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal and mail or deliver it with any other required documents to the
Depositary or (2) request his or her broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for him or her. Unitholders
having Units registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if they desire to tender such Units.
THE EXPIRATION DATE OF THE OFFER HAS BEEN EXTENDED TO FRIDAY, JUNE 21,
1996.
UNITHOLDERS WHO HAVE PREVIOUSLY VALIDLY TENDERED UNITS AND HAVE NOT
WITHDRAWN SUCH TENDERS HAVE VALIDLY TENDERED SUCH UNITS FOR PURPOSES OF THE
OFFER AND NEED TAKE NO FURTHER ACTION.
Questions and requests for assistance may be directed to the
Information Agent at its address and telephone number set forth on the back
cover of the Offer to Purchase or this Supplement. Requests for additional
copies of the Offer to Purchase, this Supplement and the Letter of Transmittal
may be directed to the Information Agent. A Unitholder may also contact brokers,
dealers, commercial banks and trust companies for assistance concerning the
Offer.
The Company and the Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports and other information with the
Commission. Reports and other information filed by the Company and the
Partnership may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street N.W., Washington,
D.C. 20549, as well as at the Regional Offices of the Commission at the New York
Regional Office, 7 World Trade Center, 12th Floor, New York, New York 10007, and
the Chicago Regional Office, Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such information can
also be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street N.W., Washington, D.C. 20549 at prescribed rates. Such
information for the Company can also be inspected at The Nasdaq Stock Market,
Reports Section, 1735 K Street N.W., Washington, D.C. 20006. The Company's
Commission File Number is 0-26980 and the Partnership's Commission File Number
is 0-26468.
The Company has filed with the Commission a Transaction Statement on
Schedule 13E-3, as amended (the "Schedule 13E-3") pursuant to Rule 13e-3 under
the Exchange Act and a Tender Offer Statement on Schedule 14D-1, as amended (the
"Schedule 14D-1") pursuant to Rule 14d-3 under the Exchange Act furnishing
certain information with respect to the Offer. Pursuant to Rules 14d-9 and 14e-2
under the Exchange Act, the Partnership has filed with the Commission a
statement on Schedule 14D-9, as amended (the "Schedule 14D-9") furnishing
certain information with respect to its position concerning the Offer. Such
Schedules and any amendments thereto should be available for inspection and
copying as set forth above (except that such Schedules and any amendments
thereto will not be available at the regional offices of the Commission).
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION.................................................................................... 1
The Offer.............................................................................. 1
SPECIAL FACTORS................................................................................. 2
Unitholder Considerations.............................................................. 2
Conflicts of Interest......................................................... 2
No Arms' Length Negotiation................................................... 2
Possible Increase in Value.................................................... 2
Alternatives to Tendering Units............................................... 2
Background of the Offer................................................................ 3
The Partnership............................................................... 3
The Company as Managing Partner............................................... 3
Exit Strategies/Proposed Sale of the Fee Properties........................... 3
Fairness of the Offer; Position of the General Partners................................ 5
Appraisals............................................................................. 7
Real Estate Appraisals........................................................ 7
Summary of Methodology........................................................ 7
Conclusions as to Value....................................................... 15
Assumptions, Limitations, and Qualification of the Appraisals................. 15
Compensation and Material Relationships....................................... 15
Purpose and Structure of the Offer..................................................... 15
Plans for the Partnership After the Offer.............................................. 16
Interests of Certain Persons........................................................... 16
Affiliation with the Company.................................................. 16
Management Fees and Expense Reimbursement..................................... 16
Ownership of Units by the General Partners.................................... 16
Source and Amount of Funds............................................................. 16
Certain Federal Income Tax Consequences................................................ 17
Tax Consequences to Tendering Unitholders..................................... 17
Tax Consequences to Non-Tendering and Partially-Tendering Unitholders......... 18
THE OFFER....................................................................................... 19
1. Terms of the Offer............................................................ 19
2. Acceptance for Payment and Payment of Purchase Price.......................... 20
3. Procedure for Accepting the Offer and Tendering Units......................... 21
Valid Tender.................................................................. 21
4. Determination of Validity; Rejection of Units; Waiver of Defects.............. 21
5. Withdrawal Rights............................................................. 22
6. Market Prices of the Units.................................................... 22
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
7. Effects of the Offer on Non-Tendering Unitholders........ 25
Effect on Trading Market................................. 25
Partnership Status....................................... 25
Partnership Business..................................... 25
8. Certain Information Concerning the Partnership........... 25
Certain Financial Information............................ 25
9. Certain Information Concerning The Company............... 26
10. Certain Legal Matters and Regulatory Approvals........... 27
State Takeover Laws...................................... 27
Antitrust................................................ 28
Margin Requirements...................................... 28
11. Extension of the Offer Period; Termination and Amendment. 28
12. Certain Conditions of the Offer.......................... 29
13. Dissenters' Rights and Investors Lists................... 30
14. Distributions............................................ 30
15. Fees and Expenses........................................ 31
16. Miscellaneous............................................ 32
</TABLE>
ii
<PAGE> 5
INTRODUCTION
To the Holders of Units of
American Retirement Villas Properties II:
THE OFFER
The Company hereby amends its offer to purchase all of the outstanding
Units of the Partnership, at a price of $720 per Unit, net to the seller in cash
and without interest, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated May 16, 1996, as amended by this Supplement to Offer
to Purchase (the "Supplement") and in the related Letter of Transmittal. The
Offer to Purchase, this Supplement and such Letter of Transmittal are
hereinafter collectively referred to as the "Offer."
The following amends and supplements the Offer to Purchase. Except as
set forth in this Supplement, the Offer continues to be governed by the terms
and conditions set forth in the Offer to Purchase and related Letter of
Transmittal, and the information contained therein continues to be important to
each Unitholder's decision with respect to the Offer. Accordingly, this
Supplement should be carefully read in conjunction with the Offer to Purchase
and Letter of Transmittal previously mailed to Unitholders.
THE EXPIRATION DATE OF THE OFFER HAS BEEN EXTENDED TO FRIDAY, JUNE 21,
1996.
UNITHOLDERS WHO HAVE PREVIOUSLY VALIDLY TENDERED UNITS AND HAVE NOT
WITHDRAWN SUCH TENDERS HAVE VALIDLY TENDERED SUCH UNITS FOR PURPOSES OF THE
OFFER AND NO FURTHER ACTION IS NECESSARY.
Tendering Unitholders will not be obligated to pay brokerage fees or
commissions or, except as provided in Instruction 4 of the Letter of
Transmittal, any transfer taxes with respect to purchases of Units pursuant to
the Offer. The Company will pay all charges and expenses of The Herman Group,
Inc., as the Depositary and the Information Agent, incurred in connection with
the Offer. See "The Offer" -- Section 15.
THE OFFER IS NOT CONDITIONED UPON A MINIMUM NUMBER OF UNITS BEING
VALIDLY TENDERED. THE OFFER IS SUBJECT TO CERTAIN TERMS AND CONDITIONS DESCRIBED
IN THE OFFER TO PURCHASE. See "The Offer" -- Section 12. THE COMPANY EXPRESSLY
RESERVES THE RIGHT, IN ITS SOLE DISCRETION AND FOR ANY REASON, TO WAIVE ANY AND
ALL OF THE CONDITIONS OF THE OFFER.
THE GENERAL PARTNERS OF THE PARTNERSHIP ARE GARY L. DAVIDSON, THE
CHAIRMAN OF THE BOARD OF THE COMPANY, JOHN A. BOOTY, THE PRESIDENT OF THE
COMPANY, JOHN S. JASON, A SHAREHOLDER OF THE COMPANY, TONY ROTA, A SHAREHOLDER
OF THE COMPANY, AND THE COMPANY (THE "GENERAL PARTNERS"). THE COMPANY IS THE
MANAGING PARTNER OF THE PARTNERSHIP. THE GENERAL PARTNERS BELIEVE THE OFFER
PRICE IS FAIR AND IN THE BEST INTERESTS OF UNITHOLDERS. THE GENERAL PARTNERS
HAVE CONFLICTS OF INTEREST IN THIS TRANSACTION. See "Special Factors --
Unitholder Considerations." THEREFORE, THE GENERAL PARTNERS MAKE NO
RECOMMENDATION TO ANY UNITHOLDER WHETHER OR NOT TO PARTICIPATE IN THE OFFER.
The purpose of the Offer is to provide the Company with the opportunity
to increase its investment in assisted living facilities. The Offer allows
Unitholders an opportunity to liquidate their investment and obtain a return of
cash in the time frame anticipated (five to seven years) when the Units were
initially issued. Each Unitholder has the opportunity to make an individual
decision on whether or not to tender his or her Units in the Offer. The Offer is
not expected to have a material effect on the Partnership's financial condition
or results of operations.
1
<PAGE> 6
If the Company acquires 90% or more of the Units pursuant to the Offer,
it plans to promptly thereafter merge the Partnership into the Company or a
subsidiary of the Company. If the Company acquires less than 90% of the Units,
it may seek to acquire for its own account the remaining Units or the assets of
the Partnership in a subsequent transaction or it may seek to have the
Partnership sell certain or all of its assets to an unaffiliated third party, in
which case the Company may lease back such assets from such purchaser. Although,
as described below, the Company, in its role as Managing Partner, has engaged in
discussions (and in one case, entered into an arrangement) regarding the sale of
certain of the Partnership's properties, the Company does not intend to pursue
any further discussions until after the Offer has been completed. There can be
no assurance, however, that the Company will initiate or complete, or will cause
the Partnership to initiate or complete, any subsequent transaction during any
specific time period following the expiration of the tender period or at all.
As of April 30, 1996, there were 3,501 Unitholders of record owning
34,995 Units. The Company owns approximately 109 Units in the Partnership
(approximately .3% of the outstanding Units). The four individual General
Partners do not hold any Units.
All information contained in the Offer to Purchase concerning the
Partnership has been supplied by the Partnership or is based upon publicly
available documents on file with the Commission. Except as otherwise indicated
in the Offer to Purchase and this Supplement, all other information contained in
the Offer to Purchase and this Supplement has been supplied by the Company.
HOLDERS OF UNITS ARE URGED TO READ CAREFULLY THE OFFER TO PURCHASE AND
SUPPLEMENT INCLUDING THE MATTERS DISCUSSED UNDER "SPECIAL FACTORS," AND THE
ACCOMPANYING LETTER OF TRANSMITTAL BEFORE DECIDING WHETHER TO TENDER THEIR
UNITS.
SPECIAL FACTORS
UNITHOLDER CONSIDERATIONS
In their evaluation of the Offer, Unitholders should carefully consider
the following:
Conflicts of Interest. Because Gary L. Davidson, the Chairman of the
Board of the Company, John A. Booty, the President of the Company, John S.
Jason, a shareholder of the Company, Tony Rota, a shareholder of the Company,
and the Company are the General Partners, and the Company is the Managing
Partner, of the Partnership, the General Partners have substantial conflicts of
interest with respect to the Offer. The four individual General Partners owned
approximately 35% of the shares of common stock of the Company as of March 31,
1996. The Company has an interest in purchasing the Units at the lowest possible
price which conflicts with the Unitholders' interest in selling their Units at
the highest possible price.
No Arms' Length Negotiation. The Offer Price has been established by
the Company, which has substantial conflicts of interest as described above. The
General Partners have not retained any unaffiliated person to represent the
Unitholders. If an unaffiliated person had been engaged to represent the
Unitholders, the terms of the Offer might have been different, and the
unaffiliated person might have been able to negotiate a higher Offer Price. The
Company, one of the largest owners of assisted living facilities in the United
States based on the number of residents, believes that the Offer presents an
opportunity to increase its investment in assisted living properties.
Possible Increase in Value. Based on increases in net operating income,
the General Partners believe that the Partnership's properties have increased in
value over the last several years and, although there can be no assurance, may
continue to appreciate in value.
Alternatives to Tendering Units. As alternatives to tendering their
Units, Unitholders could retain their Units until liquidation of the Partnership
or seek private sales of their Units now or later. Under the Partnership
Agreement, a liquidation of the Partnership or a removal of the General Partners
can be initiated by limited partners and would require approval by holders of
more than 50% of the outstanding Units in the Partnership at a meeting of
limited partners or without a meeting by written consent. Meetings of limited
partners may be called at any time by the General Partners
2
<PAGE> 7
or by one or more limited partners holding 10% or more of the outstanding Units
by delivering written notice to the General Partner.
BACKGROUND OF THE OFFER
The Partnership. The Partnership is a California limited partnership
formed in February 1988. The Partnership raised approximately $35 million from
the sale of approximately 35,019 Units at $1,000 per Unit in a registered public
offering completed in October 1989. The Partnership received net proceeds from
that offering totalling approximately $30 million, all of which were invested in
fee interests in four residential care facilities for the elderly/assisted
living ("RCFE/AL") facilities, Montego Heights Lodge, Retirement Inn of Daly
City, Retirement Inn of Fullerton and the Valley View Lodge of Rossmoor
(collectively, the "Fee Properties"), and leasehold interests in six additional
RCFE/AL facilities, Covina Villa, Retirement Inn of Burlingame, Retirement Inn
of Campbell, Retirement Inn of Freemont, Retirement Inn of Sunnyvale and The Inn
at Willow Glen (collectively, the "Leasehold Properties") (the Fee Properties
and the Leasehold Properties are referred to collectively as the "Properties"
and individually as a "Property").
The Company as Managing Partner. Under the terms of the Partnership
Agreement, the Company, as Managing Partner, is responsible for managing the
business and affairs of the Partnership. The Company currently manages the
Properties for a monthly fee (the "Property Management Fee") equal to five
percent of the gross revenue from operations of such properties. In 1995, 1994
and 1993, the Company received Property Management Fees of $849,033, $800,197
and $754,329, respectively, for managing the Properties. As of March 31, 1996,
the Partnership had paid Property Management Fees of approximately $215,212 for
the 1996 calendar year. In addition, the Company is entitled to receive a
partnership management fee (the "Partnership Management Fee") of 10% of cash
flow before distribution, but such fee is subordinated to a quarterly,
noncumulating distribution to Unitholders of an amount equal to an annualized
return of 7.5% of capital contributions allocated to each Property. Partnership
Management Fees of $95,018, have been paid through March 31, 1996 for the 1996
calendar year. In 1995, 1994 and 1993, the Company received Partnership
Management Fees of $329,905, $251,969 and $227,719, respectively, for managing
the Partnership. The Company is also reimbursed by the Partnership for
administrative services necessary to the prudent operation of the Partnership,
provided that such reimbursement is at the lower of the Company's actual cost or
the amount which the Partnership would be required to pay to independent parties
for comparable administrative services in the same geographic location. During
calendar years 1995, 1994, 1993 and the first quarter of 1996, the Partnership
reimbursed the Company $5,647,746, $5,611,925, $5,141,800, and $1,589,303,
respectively, for expenses incurred in connection with administration of the
Partnership.
Exit Strategies/Proposed Sale of the Fee Properties. During 1995 the
Company considered various exit strategies and means of obtaining liquidity for
Unitholders. At the time the Units were sold, the Partnership was expected to
operate the RCFE/AL facilities for five to seven years from their acquisition by
the Partnership. The liquidity and exit strategies identified by the Company
during 1995 included various combinations of the following options: (i) selling
some or all of the Properties; (ii) making a tender offer for the Units; (iii)
assigning for consideration one or more of the leaseholds on the Leasehold
Properties; (iv) not renewing one or more of the leaseholds on the Leasehold
Properties; (v) refinancing the Properties; and (vi) renegotiation of lease
terms, including rent and duration of leases. The Company has most fully
analyzed and considered the first two of these options. As discussed below, the
Company had reached an agreement to sell the Fee Properties and was prepared to
solicit the consent of the Unitholders to such sale in February 1996. Certain
intervening events described below caused the Company to conclude that this
Offer provided Unitholders with a better exit strategy and opportunity to
achieve liquidity.
Between May and October 1995, other limited partnerships managed by the
Company sold RCFE/AL facilities to a health care real estate investment trust
("REIT"), which, in turn, leased the RCFE/AL facilities to the Company. Because
the limited partners of those limited partnerships had voted in favor of selling
their facilities, the Company decided to explore offering the same opportunity
for liquidity to the Unitholders. In June 1995, the Company entered into
negotiations with two health care REITs, Health Care Property Investors, Inc., a
Maryland corporation, ("HCPI") and Meditrust, a Delaware corporation.
Both HCPI and Meditrust tendered term sheets to the Partnership which
set forth certain parameters under which an offer would be made. Negotiations
with both parties were conducted through a series of telephone calls and
meetings.
3
<PAGE> 8
Both parties were interested in purchasing the Fee Properties only. The term
sheet from HCPI, however, included an offer to loan the Company $6,500,000 in
order for the Company to purchase the leasehold interests in five of the six
Leasehold Properties from the Partnership. The Company could not evaluate the
merits of this part of HCPI's term sheet because the Company was (and continues
to be) in the process of negotiating renewal terms of certain of the leases.
Until these negotiations are complete, the value of the leasehold interests on
the Leasehold Properties could not (and cannot) be established and there was no
means to compare HCPI's financing offer to the Partnership's continued ownership
of the leasehold interests. As a result, the Company decided to pursue
negotiations with the two parties on the Fee Properties only.
Both Meditrust and HCPI offered to purchase the Fee Properties for the
lesser of $25,000,000 or fair market value as established by their own
appraisers. Both also offered terms for long-term operating leases on the Fee
Properties to the Company, whereby the Company would lease the Fee Properties
from the purchaser of the Fee Properties, and manage and operate the Fee
Properties for its own account. Both parties included various other terms which
were essentially the same, but Meditrust included a provision outside of its
term sheet which conditioned the purchase of the Fee Properties on the
completion of an unrelated project between Meditrust and the Company (the
purchase of undeveloped land by Meditrust and the construction of an RCFE/AL
facility under the Company's supervision, which facility the Company would
subsequently lease from and operate for Meditrust). Once the Company determined
that Meditrust would not purchase the Fee Properties without this unrelated
condition, the Company decided not to pursue further discussions with Meditrust.
In the course of evaluating the merits of selling the Fee Properties,
the Company obtained independent appraisals (the "1995 Appraisals") from Senior
Living Valuation Services, Inc. (the "Appraisal Firm") in July 1995. The
Appraisal Firm estimated the market value of each of the Fee Properties as a
going concern based on its investigation of the general economy of the industry,
supply and demand factors, comparable land and property sales, competitive
property rents and occupancy and consideration of the value of each of the Fee
Properties under the Cost Approach, Income Approach and Sales Comparison
Approach, as each of those approaches are defined by the Uniform Standards of
Professional Appraisal Practice ("USPAP"). The Appraisal Firm estimated that the
total going concern value of each of the Fee Properties as of July 1995 was as
follows:
<TABLE>
<S> <C>
Montego Heights Lodge $ 8,825,000
Retirement Inn of Daly City $ 3,025,000
Retirement Inn of Fullerton $ 2,350,000
Valley View Lodge at Rossmoor $10,375,000
-----------
TOTAL $24,575,000
===========
</TABLE>
Unitholders may review the 1995 Appraisals by visiting the Company's primary
business offices in Costa Mesa, California during regular business hours. A copy
of the 1995 Appraisals will be transmitted by the Company to any Unitholder or
his or her representative who has been so designated in writing upon written
request and at the expense of the requesting Unitholder.
The Company and HCPI ultimately signed an agreement among HCPI, the
Partnership and the Company dated as of December 6, 1995, for HCPI to purchase
the Fee Properties (the "Transaction") for an aggregate price of $25,000,000
(the "Purchase Price"). The Fee Properties would have been leased to the Company
concurrently with the close of the sale to HCPI. In accordance with the
Partnership Agreement, the Proceeds of Sale (as defined in the Partnership
Agreement) available for distribution would have totalled approximately
$18,069,000 after deducting approximately $6,931,000 for mortgage debt,
reserves, expenses, and other Partnership liabilities from the Purchase Price.
The Proceeds of Sale would have been distributed 99% to the Unitholders and 1%
to the General Partners in accordance with the Partnership Agreement, which
would have resulted in Unitholders receiving approximately $17,888,310 (or
approximately $510.80 per Unit) and the General Partners receiving $180,690. The
actual distribution would have depended on the actual expenses incurred by the
Partnership and the outstanding Partnership liabilities on the date on which the
Transaction closed.
4
<PAGE> 9
The Company solicited and received only the two offers to purchase the
Fee Properties as discussed above. If additional offers had been solicited or
received it is possible that a higher price might have been obtained. In
addition, the rent to be paid by the Company to HCPI under its long-term leases
of the Fee Properties was tied to the Purchase Price, which created a conflict
of interest for the Company in maximizing the Purchase Price. No independent
person represented the Partnership in the negotiations described above.
The Partnership engaged the services of Robert A. Stanger & Co., Inc.
("Stanger") to render an opinion regarding whether the consideration to be paid
for the Fee Properties by HCPI was fair from a financial point of view. Stanger
did not ultimately render a written fairness opinion because the Transaction was
not consummated for the reasons described below.
If the Transaction had been consummated, the Partnership would have
continued to operate the Partnership with the Leasehold Properties only. The
Partnership would not have received any income from the Fee Properties but also
would not have borne any expenses for the Fee Properties. Partnership expenses
such as the cost of preparing audits and tax returns, filings with the
Commission, and mailings and communications with Unitholders would not have been
significantly reduced by the Transaction. The net effect of the Transaction
would have caused the Partnership to reduce distributions to Unitholders
substantially and possibly operate at a net loss going forward.
The Transaction required the consent of the Unitholders. The Company
prepared a Preliminary Consent Solicitation Statement (the "Solicitation
Statement") designed to seek the required Unitholder consent, and filed the
Solicitation Statement for review with the Commission on December 19, 1995. The
normal course of review by the Commission was not completed before the time in
which the Solicitation Statement was required to be updated with audited
year-end financial statements for the Partnership. This updating delayed the
date the Company planned to seek Unitholder consent and close the Transaction.
During the time the year-end financial statements were being prepared
and audited, the Company asked the Appraisal Firm to prepare appraisal reports
(the "1996 Appraisals") updating the 1995 Appraisals. As of March 29, 1996
(April 5, 1996 for the Retirement Inn of Fullerton), the Appraisal Firm
estimated that the market value of each of the Fee Properties had increased to
the following:
<TABLE>
<S> <C>
Montego Heights Lodge $ 8,975,000
Retirement Inn of Daly City $ 3,475,000
Retirement Inn of Fullerton $ 2,425,000
Valley View Lodge at Rossmoor $10,925,000
-----------
TOTAL $25,800,000
===========
</TABLE>
After receiving and reviewing the 1996 Appraisals, the Company
contacted HCPI to determine if it was willing to increase its purchase price to
$26,000,000. As of late April 1996, HCPI did not increase its purchase price
above $25,000,000. Therefore, the General Partners decided not to solicit the
consent of the Unitholders for the Transaction.
During April 1996, the Company considered whether to re-open
negotiations with the REITs or make a tender offer for the Units itself. In late
April 1996, the Company determined that it would be in the best interests of
Unitholders to make the Offer, particularly in light of the relatively faster
time in which Unitholders would receive consideration for their Units as
compared to completing the process of negotiating with a REIT, finalizing the
consent solicitation statements, obtaining a complete review by the Commission
and soliciting the vote of Unitholders.
FAIRNESS OF THE OFFER; POSITION OF THE GENERAL PARTNERS
The information set forth below regarding the analysis by the General
Partners (including the Company) of the Offer was prepared by the Partnership
and incorporated by reference in the Partnership's Schedule 14D-9 filed with the
Commission.
5
<PAGE> 10
The Offer Price has been established by the Company and is not the
result of arms' length negotiations between the Company and the Partnership. The
General Partners (including the Company) believe the Offer Price is fair and in
the best interests of Unitholders. Since the General Partners have substantial
conflicts of interest with respect to the Offer (See "Special Factors --
Unitholder Considerations"), the General Partners make no recommendations to any
Unitholder to tender or refrain from tendering his or her Units. EACH UNITHOLDER
MUST MAKE HIS OR HER OWN DECISION WHETHER OR NOT TO TENDER, BASED UPON A NUMBER
OF FACTORS, INCLUDING THE UNITHOLDER'S FINANCIAL POSITION, NEED OR DESIRE FOR
LIQUIDITY, OTHER FINANCIAL OPPORTUNITIES AND TAX POSITION. The General Partners
believe that the Offer provides all Unitholders who require or desire liquidity
the opportunity to receive cash for their Units at a price substantially higher
than that currently being paid in the secondary market and without paying the
fees or commissions often paid in connection with transactions through secondary
firms. See "The Offer" -- Section 6.
In determining that the Offer Price is fair to Unitholders, the General
Partners considered a number of factors, including, but not limited to, the
following:
(i) The calculation of the aggregate Offer Price for all Units, which
was based on the appraised value of the Fee Properties (See "-- Appraisals")
according to the 1996 Appraisals ($25,800,000) plus the capitalized projected
net cash flow of the Leasehold Properties ($7,923,186) and the Partnership cash
at March 31, 1996 ($320,935), minus the liabilities of the Partnership at March
31, 1996 ($8,448,578) and the estimated costs of the Offer ($177,524). The
Company believes that basing a portion of the Offer Price on the appraised value
of the Fee Properties is fair because the appraiser is an independent third
party. The projected net cash flow for the Leasehold Properties was prepared
assuming that occupancy would be maintained at approximately 93%, consistent
with historical occupancy for the year ended December 31, 1995, and that rental
rates, assisted living fee revenue and expenses would experience a modest 4%
increase from inflation over the rates at December 31, 1995. Total projected net
cash flow from the Leasehold Properties calculated on this basis equaled
$1,188,478. The Company used a 15% capitalization rate on the projected net cash
flow for the Leasehold Properties for the year ended December 31, 1996 as
compared to an 11.5% capitalization rate used in the 1996 Appraisals of the Fee
Properties. The General Partners (including the Company) believe a higher
capitalization rate for the Leasehold Properties is fair because a fee property
is inherently more valuable than a leasehold and because of the substantial
uncertainty regarding the final results of the negotiations with the
Partnership's landlords in respect of the renewal rental rate of four of the
Leasehold Properties. In reviewing the foregoing discussion of the capitalized
projected cash flow of the Leasehold Properties, the reader should be aware that
the Partnership does not as a matter of course make public forecasts or
projections as to future performance. In the process of evaluating the Offer,
the Company as Managing Partner prepared the foregoing projections relating to
the net cash flow for the Leasehold Properties which are not publicly available.
The projections were prepared solely for internal use and not with a view to
public disclosure or compliance with published guidelines of the Commission
regarding projections or the guidelines established by the American Institute of
Certified Public Accountants regarding projections and are included in this
Supplement only because such information was available to the Company. In
addition, because the estimates and assumptions underlying these projections are
inherently subject to significant economic and competitive uncertainties and
contingencies, which are beyond the control of the Company and the Partnership,
there can be no assurance that the projections will be realized. Actual results
may be higher or lower than those set forth above, possibly by material amounts.
The Company and the Partnership do not presently intend to update or publicly
revise the projections to reflect circumstances existing or developments
occurring after the preparation of such information or to reflect the occurrence
of unanticipated events. KPMG Peat Marwick, LLP, the Partnership's independent
auditor, has not examined, compiled or otherwise applied procedures to the
financial projections presented herein, and, accordingly, does not express any
opinion or any other form of assurance on these projections.
(ii) The General Partners' beliefs that the size of Partnership
distributions will remain about the same as in the recent past and that the
Properties are unlikely to experience significant appreciation in value in the
near future. These beliefs are based on the General Partners' review of the
Partnership's current financial condition and results of operations, the
Partnership's future prospects, and the current and anticipated developments in
the Partnership's industry and the California real estate market. The General
Partners expect Partnership net income will continue to experience modest gains
due to stabilized occupancy, inflation and decreased depreciation and
amortization expense associated with two Leasehold Properties whose leases
expired during 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of American Retirement Villas Properties
II." Increased competition and possible
6
<PAGE> 11
regulatory changes could limit gains in net income in the future. The General
Partners also believe that real estate values in California are showing signs of
improvement but prices are still considerably below their high point in the mid-
to late-1980s.
(iii) The relationship between the consideration to be received by the
Unitholders pursuant to the Offer and the consideration paid for Units in recent
secondary market transactions known to the Company, including the fact that the
consideration to be received pursuant to the Offer represents a premium of
approximately 17.6% over the highest sales price of a Unit known to the Company
since January 1, 1995 (See "The Offer" -- Section 6).
(iv) The fact that the leases and the related rental rates for two of
the Leasehold Properties are currently under negotiation and are subject to
substantial adverse change, and the further risk that such negotiations could
result in changes in the terms of the leases for two other Leasehold Properties.
(v) The ratio of current assets to current liabilities for the
Partnership, which as of March 31, 1996 was 0.24 to 1, indicating an excess of
liabilities coming due within the next 12 months over assets available to
service those liabilities.
(vi) The estimated fees and costs of the Offer as set forth in "The
Offer"--Section 15.
Other than as set forth above, in evaluating these factors, the Company
did not quantify or otherwise attach a particular weight to any of the factors
in establishing the Offer Price.
APPRAISALS
Real Estate Appraisals. The Appraisal Firm has prepared and delivered
written reports of its analysis and appraisal as to the fair market value of the
Partnership's Fee Properties as of March 29, 1996 (Montego Heights Lodge,
Retirement Inn of Daly City and Valley View Lodge at Rossmoor) and April 5, 1996
(Retirement Inn of Fullerton). The Company selected the Appraisal Firm to
provide the 1995 Appraisals and 1996 Appraisals in conjunction with the proposed
Transaction described above because of its experience and reputation in
connection with appraising assisted living retirement properties and its
familiarity with the Fee Properties. The Appraisal Firm is one of the few
appraisal firms in the country which exclusively specializes in the appraisal of
senior housing properties. The Appraisal Firm has completed full narrative
appraisal reports for nearly 400 senior housing properties.
Summaries of the 1996 Appraisals prepared by the Appraisal Firm, which
contain a description of the assumptions and qualifications made, matters
considered and limitations on the review and analysis, are set forth in Schedule
II and should be read in their entirety. As stated in the summaries, the 1996
Appraisals update the full narrative appraisal reports prepared by the Appraisal
Firm for the 1995 Appraisals and cannot be fully understood properly without
reviewing the full 1995 Appraisal reports. Except with respect to dollar values,
all references to the 1996 Appraisals hereinafter made also include the 1995
Appraisals. The complete 1996 Appraisals are available for review at the offices
of the Company in Costa Mesa, California during regular business hours. A copy
of the 1996 Appraisals will be transmitted by the Company to any Unitholder or
his or her representative who has been so designated in writing upon written
request and at the expense of the requesting Unitholder. Certain of the material
assumptions, qualifications and limitations to the 1996 Appraisals are described
below.
The Company used the 1996 Appraisals as one factor in determining the
amount of the Offer.
Summary of Methodology. In connection with the Transaction, the
Appraisal Firm was engaged to inspect and appraise each of the Partnership's Fee
Properties in conformity with USPAP and to estimate the fair market value of the
Partnership's Fee Properties as of April 1995. The Company placed no restriction
or limitations on the 1996 Appraisals, the scope of review and analysis, or the
methodologies employed by the Appraisal Firm to determine the fair market value
of the Fee Properties. The Appraisal Firm had complete and unrestricted access
to all information pertinent to its valuation.
7
<PAGE> 12
Valuation Approaches Utilized. In appraising the Fee Properties, all
three commonly recognized approaches to valuation were considered and utilized
by the Appraisal Firm: the cost approach, the income approach and the sales
comparison approach. The type and age of a property, market conditions and the
quantity and quality of data affect the applicability of each approach in a
specific appraisal situation.
The "Income Approach" estimates a property's capacity to produce income
through an analysis of the rental market, operating expenses and net income. Net
income may then be processed into a value estimate through either (or a
combination) of two methods: direct capitalization or discounted cash flow
analysis.
The "Sales Comparison Approach" is based on the comparison of the
property to be appraised to the actual sales prices of recently sold comparable
properties. The underlying concept of the Sales Comparison Approach is that a
knowledgeable buyer will pay no more for a property than what other buyers
recently paid for properties of similar size, amenities and utility. The Sales
Comparison Approach is based on the actual behavior of buyers and sellers in the
market under normal conditions. However, this approach to property appraisal is
difficult to apply precisely when appraising a special purpose property for
which there are few or no comparables or where very few sales have occurred
recently in the marketplace.
The "Cost Approach" is based on the principal that a property's value
reflects the value of the land plus the value of the depreciated improvements on
the land. The Cost Approach method of valuation generally consists of five
steps, including: valuation of the land as if it were vacant; estimation of the
replacement costs of the improvements as new construction based on current
prices for labor and materials; estimation of accrued depreciation on the
existing improvements due to physical age and deterioration, functional
obsolescence and economic or locational obsolescence; deduction of the estimated
depreciation from the estimated replacement costs to determine the depreciated
value of the building and other improvements; and the summation of the
depreciated value of the building and improvements with the land value to
determine the estimated present depreciated value of the land, building and
improvements.
In applying the "Income Approach," the Appraisal Firm estimated each
Property's income and expenses for the 12-month period ending June 30, 1996
after reviewing historical and budgeted operating results, discussions with
property management and other pertinent information. The Appraisal Firm
estimated each Property's income for the 12-month period ending June 30, 1996
based upon the review of current rent rolls, an analysis of historical and
budgeted income from rents, assisted living and ancillary sources, surveys of
comparable properties and consideration of competitive conditions in local
markets. Expenses were estimated based on historical and budgeted operating
expenses, certain industry expense guidelines, and expenses incurred by
comparable properties. Estimated expenses were then deducted from income to
arrive at each Property's estimated net operating income. Expenses relating
solely to corporate overhead, Partnership administration, and investor reporting
and accounting were excluded.
The Appraisal Firm then employed a direct capitalization analysis to
determine the value of each Property. The direct capitalization rate used by the
Appraisal Firm, 11.5%, was based on current acquisition criteria among
investors, rates reflected in specific sales transactions, and required yields
for debt and equity financing sources for similar properties. Where appropriate,
the capitalization rate used for an individual Property was adjusted to reflect
valuation factors unique to the property and local market conditions.
In applying the "Sales Comparison Approach," The Appraisal Firm
investigated and analyzed the sale of similar senior housing projects to the Fee
Properties within California during the last 24 months. These sales were
analyzed as to their conditions of sale, location, age and condition,
competitive market position, occupancy and net income producing ability. From
this analysis, comparative capitalization rates were estimated. Each of the
comparable sales was adjusted for differences in occupancy and net income
producing ability.
In applying the "Cost Approach," the Appraisal Firm estimated the value
of each of the Fee Property sites through comparison and adjustment of recent
comparable vacant land sales in each location. To estimate the replacement cost
new of each of the Fee Properties, including furniture and equipment, the
Marshall Valuation Service, a nationally recognized cost manual, was utilized
and compared to the specific building costs of recently constructed comparable
properties. To these estimates, adjustments were made for indirect costs and
entrepreneurial profit to arrive at an
8
<PAGE> 13
estimated total replacement cost new at the appraisal date for each of the Fee
Properties. Deductions for depreciation were made considering each Property's
age, condition, and highest and best use.
The Appraisal Firm estimated the following values or range of values
for each of the Fee Properties using each of the methodologies discussed above
for the 1995 Appraisals and the Income Approach for the 1996 Appraisals:
<TABLE>
<CAPTION>
==============================================================================================================
VALUATION METHOD RETIREMENT INN RETIREMENT INN MONTEGO VALLEY VIEW TOTAL
AT DALY CITY AT FULLERTON HEIGHTS LODGE LODGE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cost Approach $3,350,000 $2,825,000 $8,700,000 $8,625,000 $23,500,000
(1995)
- --------------------------------------------------------------------------------------------------------------
Sales Comparison $2,950,000 - $2,350,000 - $7,950,000 - $9,800,000 - $23,050,000
Approach $3,675,000 $2,750,000 $10,050,000 $12,350,000 -
(1995) $29,275,000
- --------------------------------------------------------------------------------------------------------------
Income Approach $3,025,000 $2,350,000 $8,200,000 $10,100,000 $23,675,000
(1995)
- --------------------------------------------------------------------------------------------------------------
Income Approach $3,475,000 $2,425,000 $8,975,000 $10,925,000 $25,800,000
(1996)
==============================================================================================================
</TABLE>
The aggregate value for the four Fee Properties is approximately $664.81 per
Unit under the Cost Approach, $652.08 to $828.18 per Unit for the Sales
Comparison Approach, $669.76 per Unit for the Income Approach as determined by
the 1995 Appraisal and $729.88 per Unit for the Income Approach as determined by
the 1996 Appraisal. These per Unit values do not take into account the value per
Unit of the Leasehold Properties, the Partnership cash, the liabilities of the
Partnership or the costs necessary for Unitholders to realize such value per
Unit.
With respect to Valley View Lodge and Montego Heights Lodge, the values
indicated above did not include an addition of value of favorable financing,
determined by the Appraisal Firm to be in the amount of $50,000 and $275,000,
respectively. The financing on Valley View Lodge is in the form of a promissory
note with a remaining balance of approximately $2,800,000 with interest accruing
at the rate of 8.25% per annum. The financing on Montego Heights Lodge is in the
form of a promissory note with interest accruing at the rate of 7.25% per annum.
The Appraisal Firm believes the exclusion of the value of favorable financing is
proper because no further encumbrances can be placed against these properties
while the existing financing is in place.
The projected income and expenses, and assumptions thereto, used by the
Appraisal Firm in applying the Income Approach to each of the Fee Properties is
as follows:
9
<PAGE> 14
RETIREMENT INN - DALY CITY
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
<TABLE>
<CAPTION>
1995 1996
Appraisal Appraisal
----------- -----------
Projected Projected
Stabilized Stabilized
(7/95-6/96) (4/96-3/97)
----------- -----------
<S> <C> <C>
Average Occupancy (All Beds) 93.0%(100.4 Beds) 90.0%(96.3 Beds)
Average Net Rental (All Beds) $ 1,053 $ 1,085
Potential Gross Rent Income -
Studio Private - 82 Units @ $1,160/Mo. Avg. (1995) $1,141,184 $1,176,734
83 Units @ $1,164/Mo. Avg. (1996)
Semiprivate - 7 Beds @ $791/Mo. Avg. (1995) 66,402 98,658
10 Beds @ $810/Mo. Avg. (1996)
SSI - 19 Beds @ $690/Mo. Avg. (1995) $ 157,320 $ 117,432
14 Beds @ $699/Mo. Avg. (1996)
---------- ----------
Potential Gross Rent Income $1,364,906 $1,392,824
Plus: Assisted Living Surcharges (28 Beds @ $320/mo.) (1995) $ 107,520 $ 162,000
(30 Beds @ $450/mo.) (1996)
Plus: Miscellaneous Income (1.5% of PGRI) (1995) $ 20,474 $ 20,892
(1.5% of PGRI) (1996)
---------- ----------
Potential Gross Income $1,492,900 $1,575,716
Less: Stabilized Vacancy & Collection Losses - 7% (1995) ($ 104,503) ($ 157,572)
10% (1996)
---------- ----------
Effective Gross Income $1,388,397 $1,418,144
Expenses -
Real Estate Taxes $ 43,104 $ 47,354
Insurance 13,884 17,727
Management 69,420 70,907
G&A 166,608 141,814
Utilities 90,246 92,179
Maintenance 55,536 56,726
Activity & Trans. 41,652 42,544
Marketing 27,768 28,363
Housekeeping 83,304 85,087
Dietary 329,814 316,346
Personal Care 69,420 85,089
Replacement Reserves $ 35,625 $ 35,625
---------- ----------
Total Expenses $1,026,381 $1,019,761
(73.9%) (71.9%)
Stabilized Net Operating Income $ 362,016 $ 398,383
Capitalization Rate .12 .115
---------- ----------
Capitalized Value $3,018,800 $3,464,200
========== ==========
Called $3,025,000 $3,475,000
</TABLE>
10
<PAGE> 15
RETIREMENT INN - FULLERTON
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
<TABLE>
<CAPTION>
1995 1996
Appraisal Appraisal
----------- -----------
Projected Projected
Stabilized Stabilized
(7/95-6/96) (4/96-3/97)
<S> <C> <C>
Average Occupancy (All Beds) 93.0%(78.1 Beds) 90.0%(76.5 Beds)
Average Net Rental (All Beds) $ 1,115 $ 1,110
Potential Gross Rent Income -
Studio Private - 52 Units @ $1,339/Mo. Avg. (1995) $ 835,686 $ 819,468
51 Beds @ $1,319/Mo. Avg. (1996)
Semiprivate - 10 Beds @ $881/Mo. Avg. (1995) 105,754 127,744
12 Beds @ $874/Mo. Avg. (1996)
SSI - 22 Beds @ $688/Mo. Avg. (1995) $ 181,632 $ 184,536
22 Beds @ $699/Mo. Avg. (1996) ---------- ----------
Potential Gross Rent Income $1,123,072 $1,131,748
Plus: Assisted Living Surcharges (35 Beds @ $400/mo.) (1995) $ 168,000 $ 135,000
(25 Beds @ $450/mo.) (1996)
Plus: Miscellaneous Income (1% of PGRI) (1995) $ 11,231 $ 11,317
(1% of PGRI) (1996) ---------- ----------
Potential Gross Income $1,302,303 $1,278,065
Less: Stabilized Vacancy & Collection Losses - 7% (1995) ($ 91,161) ($ 127,806)
10% (1996) ---------- ----------
Effective Gross Income $1,211,142 $1,150,259
Expenses -
Real Estate Taxes $ 29,735 $ 30,240
Insurance 12,111 14,378
Management 60,557 57,513
G&A 145,337 138,031
Utilities 78,724 74,767
Maintenance 60,557 57,513
Activity & Trans. 36,334 34,508
Marketing 24,223 23,005
Housekeeping 72,669 69,016
Dietary 285,065 279,225
Personal Care 96,891 69,016
Replacement Reserves $ 25,500 $ 25,000
---------- ----------
Total Expenses $ 927,703 $ 872,712
(76.6%) (75.9%)
Stabilized Net Operating Income $ 283,439 $ 277,547
Capitalization Rate .12 .115
---------- ----------
Capitalized Value $2,361,992 $2,413,452
========== ==========
Called $2,350,000 $2,425,000
</TABLE>
11
<PAGE> 16
MONTEGO HEIGHTS LODGE
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
<TABLE>
<CAPTION>
1995 1996
Appraisal Appraisal
----------- -----------
Projected Projected
Stabilized Stabilized
(7/95-6/96) (4/96-3/97)
----------- -----------
<S> <C> <C>
Average Occupancy (All Beds) 90.0%(172.8 Beds) 90.0%(168.3 Beds)
Average Net Rental (All Beds) $ 1,305 $ 1,362
Potential Gross Rent Income -
1BR Private - 24 Units @ $1,811/Mo. Avg. (1995) $ 521,669 $ 540,792
24 Units @ $1,850/Mo. Avg. (1996)
Studio Private - 122 Units @ $1,367/Mo. Avg. (1995) 2,000,934 $2,129,028
127 Units @ $1,376/Mo. Avg. (1996)
Semiprivate - 31 Beds @ $970/Mo. Avg. (1995) 360,856 275,938
23 Beds @ $985/Mo. Avg. (1996)
SSI - 15 Beds @ $691/Mo. Avg. (1995) $ 124,380 $ 109,512
13 Beds @ $702/Mo. Avg. (1996) ---------- ----------
Potential Gross Rent Income $3,007,839 $3,055,270
Plus: Assisted Living Surcharges (60 Beds @ $450/mo.) (1995) $ 324,000 $ 309,600
(60 Beds @ $430/mo.) (1996)
Plus: Miscellaneous Income (1.5% of PGRI) (1995) $ 45,118 $ 38,191
(1.25% of PGRI) (1996) ------------- ----------
Potential Gross Income $3,376,957 $3,403,061
Less: Stabilized Vacancy & Collection Losses - 10% (1995) ($ 337,696) ($ 340,306)
10% (1996) ---------- ----------
Effective Gross Income $3,039,261 $3,062,755
Expenses -
Real Estate Taxes $ 86,215 $ 91,401
Insurance 30,393 38,284
Management 151,963 153,138
G&A 364,711 367,531
Utilities 212,748 214,393
Maintenance 121,570 122,510
Activity & Trans. 60,785 61,255
Marketing 60,785 61,255
Housekeeping 182,356 183,765
Dietary 536,112 522,151
Personal Care 182,356 183,765
Replacement Reserves $ 63,375 $ 63,375
---------- ----------
Total Expenses $2,053,369 $2,062,823
(67.6%) (67.4%)
Stabilized Net Operating Income $ 985,892 $ 999,932
Capitalization Rate .12 .115
---------- ----------
Capitalized Value $8,215,767 $8,695,061
========== ==========
Called $8,200,000 $8,700,000
</TABLE>
12
<PAGE> 17
VALLEY VIEW LODGE
PRO FORMA INCOME/EXPENSE & CAPITALIZATION
<TABLE>
<CAPTION>
1995 1996
Appraisal Appraisal
----------- -----------
Projected Projected
Stabilized Stabilized
(7/95-6/96) (4/96-3/97)
----------- -----------
<S> <C> <C>
Average Occupancy (All Beds) 95.0%(121.6 Beds) 95.0%(118.75 Beds)
Average Net Rental (All Beds) $ 1,705 $ 1,766
Potential Gross Rent Income -
1BR Private - 10 Units @ $1,982/Mo. Avg. (1995) $ 237,823 $ 263,941
11 Units @ $1,970/Mo. Avg. (1996)
Studio Private - 112 Units @ $1,710/Mo. Avg. (1995) 2,297,595 $ 2,385,477
114 Units @ $1,718/Mo. Avg. (1996) ----------
Semiprivate - 6 Beds @ $1,165/Mo. Avg. (1995) $ 83,868 --
----------- -----------
Potential Gross Rent Income $ 2,619,286 $ 2,649,418
Plus: Assisted Living Surcharges (70 Beds @ $575/mo.) (1995) $ 483,000 $ 468,000
(65 Beds @ $600/mo.) (1996)
Plus: Miscellaneous Income (1% of PGRI) (1995) $ 26,193 $ 33,118
(1.25% of PGRI) (1996) ----------- -----------
Potential Gross Income $ 3,128,479 $3,150,536
Less: Stabilized Vacancy & Collection Losses - 5% (1995) ($ 156,424) ($ 157,527)
10% (1996) ----------- ----------
Effective Gross Income $ 2,972,055 $ 2,993,009
Expenses -
Real Estate Taxes $ 120,966 $ 129,201
Insurance 29,721 29,930
Management 148,603 149,650
G&A 297,206 269,371
Utilities 163,467 164,615
Maintenance 89,162 89,790
Activity & Trans. 59,441 59,860
Marketing 59,441 59,860
Housekeeping 129,318 134,685
Dietary 377,264 368,422
Personal Care 237,764 239,441
Replacement Reserves $ 46,875 $ 46,875
----------- -----------
Total Expenses $ 1,759,224 $ 1,741,700
(59.2%) (58.2%)
Stabilized Net Operating Income $ 1,212,831 $ 1,251,309
Capitalization Rate .12 .115
----------- -----------
Capitalized Value $10,106,925 $10,880,948
=========== ===========
Called $10,100,000 $10,875,000
</TABLE>
13
<PAGE> 18
The foregoing pro forma information was prepared by the Appraisal Firm and has
been extracted from the 1995 Appraisal and 1996 Appraisal for each Fee Property.
The Appraisal Firm reconciled the values indicated from the Cost, Sales
Comparison and Income Approach to arrive at a final valuation conclusion. In the
1995 Appraisals, the Appraisal Firm noted that the Sales Comparison Approach was
given little to no weight due to the illiquidity of the market, shifting market
trends and the wide range of indicated values. The Cost Approach was also given
little to no weight based on the deductions for depreciation necessary due to
the age of the Fee Properties. The Income Approach was considered by the
Appraisal Firm to be the most appropriate for the purposes of the 1995
Appraisals. For these same reasons the Appraisal Firm exclusively used the
Income Approach for the 1996 Appraisals.
Local Market Research and Property Review. In performing the 1996
Appraisals the Appraisal Firm analyzed the individual properties and local
market conditions for each property. The Appraisal Firm performed site
inspections of each Fee Property during July 1995 and March 1996 (April 1996 for
the Retirement Inn of Fullerton). During these visits, the Appraisal Firm
inspected the physical facilities, obtained current income, occupancy and
resident census and rent roll information, gathered information on competing
properties, and interviewed each local property administrator concerning
performance of the subject property, competitive conditions, area trends and
other factors. Such inquiries included ascertaining for each individual property
any deferred maintenance, capital budget issues, status of on-going or planned
improvements, licensing issues and other factors affecting the property. The
Appraisal Firm's analysis also included, among other things: (a) reviewing each
property's previous three years' operating statements; (b) reviewing information
submitted to the Appraisal Firm by the Partnership which included rental and
occupancy data, subject facility descriptions, area trends and other factors;
(c) developing information from a variety of sources about market conditions for
each individual property that included population, employment and housing trends
within the neighborhood; (d) considering income and expense data for comparable
facilities; (e) considering supply/demand conditions for assisted living
facilities in each local market based on identification and surveys of competing
properties and market saturation analyses; and (f) contacting local and state
authorities to determine tax rates, zoning, any planned development of competing
properties, and licensing of the subject and competing properties.
To assess each Fee Property's competitive position, the Appraisal Firm
considered such variables as property income growth patterns and potential,
quality of location and construction, tenant appeal, property appearance,
security and potential competition, and assisted living services and
utilization.
The Appraisal Firm also interviewed management personnel responsible
for the Partnership's properties to discuss competitive conditions, area
economic trends and industry trends affecting the Fee Properties, historical and
budgeted operating revenues and expenses, business and marketing plans for each
of the Fee Properties, occupancy rates, and assisted living services
utilization. These interviews included ascertaining information on items of
deferred maintenance, planned capital improvements and other factors affecting
the physical condition of the Fee Properties.
The Appraisal Firm also evaluated each Fee Property's highest and best
use both as currently improved and as vacant. In each instance the highest and
best use, as improved, of the Fee Properties was their continued use as licensed
assisted living retirement properties.
Other Market Research. Each year the Appraisal Firm conducts a survey
the results of which are tabulated in the Senior Housing Investment Survey, a
newsletter of industry capitalization and discount rates, which is requested and
distributed to over 200 senior housing lenders, investors, owner/operators and
other appraisers. To define the occupancy, income and expense, and valuation
parameters to be used in developing income and cash flow projections and
valuations, the Appraisal Firm reviewed the acquisition criteria and projection
parameters in use in the marketplace by major investors, owners, operators,
appraisers and financing sources for assisted living facilities. To obtain such
data, the Appraisal Firm conducted a survey of approximately 300 owners,
operators, appraisers and brokers of senior housing during April 1995. The
survey provides other information such as capitalization rates, operating
expense ratios and cash flow growth factors which was used by the Appraisal Firm
in evaluating the Fee Properties. The survey indicated that
14
<PAGE> 19
overall capitalization rates, as of April 21, 1995, ranged from 10% to 16%, with
an average of 12.1%. After deducting the 5% highest and 5% lowest responses, the
range was from 10% to 15%, with an average of 12%.
In addition, the Appraisal Firm reviewed other published information
concerning acquisition and financing criteria in use by property investors and
lenders during 1995. Further, the Appraisal Firm screened tax records and
interviewed various sources in regional markets to identify sales of retirement
housing properties within the past 24 months in order to derive certain
valuation indicators. Sources for data concerning such transactions included
appraisers, property owners, real estate brokers, tax assessors and others.
These sales of similar improved properties were one of the more important
factors used by the Appraisal Firm in evaluating proper capitalization rates for
the Fee Properties. The Appraisal Firm has reviewed information compiled by the
Company identifying sales and acquisitions of retirement housing properties.
Conclusions as to Value. Based on the valuation methodology described
above, the Appraisal Firm determined that the total market value of the Fee
Properties is $25,800,000.
Assumptions, Limitations, and Qualification of the Appraisals. The 1996
Appraisals reflect the Appraisal Firm's valuation of the Partnership's real
estate assets as of April 1996, and is based on information available as of such
date. Events occurring after April 1996 and before the closing of the Offer
could affect the Fee Properties or assumptions used in preparing the 1996
Appraisals. The Appraisal Firm has no obligation to update the Appraisals on the
basis of subsequent events.
In appraising the Fee Properties, the Appraisal Firm made certain
standard assumptions and operated under standard limiting conditions which are
listed in the 1996 Appraisals. Included in those limiting conditions was the
fact that the Appraisal Firm had not been given title reports on three of the
Fee Properties and had received a 1989 title report on the fourth Fee Property.
The Company has received current title reports and has determined that there
were no exceptions to title which would limit the use of the Fee Properties as
appraised. In addition, the Appraisal Firm noted that each Fee Property is
licensed as a residential care facility for the elderly (assisted living) with
the California Department of Social Services. The Appraisal Firm assumes that
the Fee Properties meet all physical plant and operating requirements as
assisted living facilities. Finally, the estimates of market value set forth in
the 1996 Appraisals are partially based on current rent rolls, historical
operating statements and limited building drawings and building statistical data
provided by the Company.
Compensation and Material Relationships. The Partnership paid a fee of
$18,000 to the Appraisal Firm for preparing the 1995 Appraisals and subsequently
paid a fee of $8,000 to the Appraisal Firm for preparing the 1996 Appraisals,
and reimbursed the Appraisal Firm for all related out-of-pocket expenses. The
Appraisal Firm is also entitled to indemnification against certain liabilities
by the Partnership. The fee was negotiated with the Appraisal Firm by the
Company and payment is not dependent upon the closing of the Offer. The
Appraisal Firm has previously prepared appraisals for the Company and its
affiliates, and is likely to be engaged to prepare similar appraisals in the
future for RCFE/AL facilities owned by or to be acquired by the Company and its
affiliates. With the exception of one appraisal of the Montego Heights Lodge
done in 1990 in connection with the acquisition of the Property by the
Partnership (to establish the fair market value as it related to the purchase
price), no previous appraisals have been prepared for the Partnership or
concerning any of the Partnership Properties.
PURPOSE AND STRUCTURE OF THE OFFER
The purpose of the Offer is for the Company ultimately to increase its
investment in assisted living facilities. The Company also believes that it will
benefit from ownership of Units acquired in the Offer and from distributions
attributable to them. The Company believes that the acquisition of Units through
the Offer represents a good investment to the Company.
The Offer has been structured as a cash tender offer in order to
expedite the receipt by the selling Unitholders of cash for their Units. The
primary benefit of the Offer to the Unitholders is the opportunity to sell their
Units at a price which, in the opinion of the Company, is fair to such
Unitholders and which represents a premium over recent prices
15
<PAGE> 20
paid for the Units in trades which have been reported and of which the Company
has knowledge. See "The Offer" -- Section 6. Also, the Offer allows Unitholders
an exit strategy to receive cash for their Units within the five to seven year
time frame anticipated (five to seven years) when the Units were originally
sold. The Company does not believe that alternative exit strategies, including
those discussed in "Special Factors -- Background of the Offer," would be
significantly more advantageous, if at all, to the Unitholders. Each Unitholder
has the opportunity to make an individual decision on whether or not to tender
his or her Units in the Offer.
PLANS FOR THE PARTNERSHIP AFTER THE OFFER
The Offer is not expected to have a material effect on the
Partnership's financial condition or results of operations. If the Company
acquires 90% or more of the Units, it plans to promptly thereafter merge the
Partnership into the Company or a subsidiary of the Company. If the Company
acquires less than 90% of the Units, it may seek to acquire for its own account
the remaining Units or the assets of the Partnership in a subsequent transaction
or it may seek to have the Partnership sell certain or all of its assets to an
unaffiliated third party, in which case the Company may lease back such assets
from such purchaser. Although, as described above, the Company, in its role as
Managing Partner, has engaged in discussions (and in one case, entered into an
arrangement) regarding the sale of certain of the Partnership's properties, the
Company does not intend to pursue any further discussions until after the Offer
has been completed. There can be no assurance, however, that the Company will
initiate or complete, or will cause the Partnership to initiate or complete, any
subsequent transaction during any specific time period following the expiration
of the tender period or at all.
INTERESTS OF CERTAIN PERSONS
In considering whether to tender Units, Unitholders should be aware
that the General Partners have interests which present them with actual or
potential conflicts in connection with the Transaction.
Affiliation with the Company. The Company is the Managing Partner of
the Partnership. Gary L. Davidson and John A. Booty, both individual general
partners, are the Chairman of the Board and the President of the Company,
respectively. Each of the individual General Partners are shareholders of the
Company and, collectively, owned approximately 35% of the shares of common stock
of the Company as of March 31, 1996.
Management Fees and Expense Reimbursement. The Company receives certain
fees and is reimbursed for certain expenses for managing the business and
affairs of the Partnership. See "Special Factors -- Background of the Offer."
Interest of General Partners in the Partnership. The Partnership
Agreement provides that the General Partners own a one percent interest in the
Partnership's profits, losses and distributions, but it does not specify how
that interest is to be divided among the General Partners. By agreement of the
General Partners, the four individual General Partners each own a .2475%
interest in the Partnership's profits, losses and distributions and the Company
owns a .01% interest in the Partnership's profits, losses and distributions.
Ownership of Units by the General Partners. Of the 34,995 Units
outstanding, the Company owns a total of approximately 109 Units (approximately
.3%). The four individual General Partners do not hold any Units. The Company
acquired all of the Units it currently owns in two secondary market
transactions. The first of these transactions was a purchase of 3.5 Units from
an unaffiliated limited partner in September 1994 for $1,750 ($500 per Unit).
The second transaction was a purchase of 105.958 Units from American Senior
Housing Fund, a California limited partnership ("ASHF"), in November 1995 for
$64,870.30 ($612.23 per Unit). Certain of the General Partners and other
affiliates of the Company were partners of ASHF, which was recently dissolved.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Company to acquire 34,885.542
Units (100% of the outstanding Units not owned by the Company) pursuant to the
Offer is expected to be approximately $25 million. The Company also
16
<PAGE> 21
expects that it will require approximately $178,000 to pay fees and expenses to
be incurred in connection with the completion of the Offer. The Company expects
to pay for all the Units tendered and all fees and expenses of the Offer with
cash on hand.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences to Unitholders relating to the Offer. This discussion is based on
the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury Regulations thereunder, and current administrative
interpretations and court decisions. State, local and foreign tax consequences,
and the tax consequences to certain types of investors (including insurance
companies, financial institutions or broker-dealers, tax-exempt organizations
and, except to the limited extent described below under "Withholding," foreign
corporations and persons who are not citizens or residents of the United States)
subject to special treatment under the federal income tax laws are not
considered in this discussion.
This discussion addresses the material federal income tax
considerations that are generally applicable to all Unitholders. The specific
tax consequences relating to the Offer will vary for each Unitholder, however,
depending on each Unitholder's personal investment and tax circumstances. It is
not possible or practical to discuss here all aspects of federal income tax law
that may have relevance with respect to the transactions described herein based
on the individual circumstances of particular Unitholders in light of their
personal investment or tax circumstances. The following description is general
in nature, and is not exhaustive of all possible tax considerations. This
analysis is not tax advice to specific investors, and is not intended as a
substitute for careful tax planning.
The discussion set forth below is based upon the assumption that Units
held by the Unitholders constitute capital assets in the hands of such investors
and that the Partnership is classified for federal income tax purposes as a
partnership, rather than an association taxable as a corporation. Upon the
formation of the Partnership in 1988, the Partnership received an opinion of its
tax counsel, Donald J. Regan, P.C., that the Partnership was properly classified
as a partnership for federal income tax purposes. The Partnership did not
request a ruling from the Internal Revenue Service as to its tax status as a
partnership, however. Moreover, the opinion of counsel referred to above was and
is subject to the continuous satisfaction by the Partnership of certain factual
conditions. If, for any reason, the Partnership is or was classified for tax
purposes as an association taxable as a corporation, the tax consequences of the
proposed transactions would differ materially from that described below.
UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
TRANSACTIONS DESCRIBED HEREIN IN LIGHT OF THEIR OWN CIRCUMSTANCES AND
WITH RESPECT TO POTENTIAL CHANGES IN APPLICABLE LAW.
Tax Consequences to Tendering Unitholders.
Sale of Units. The sale of Units by a Unitholder to the Company will be
a fully taxable transaction in which the Unitholder will recognize taxable gain
or loss in an amount equal to the difference between the amount realized and the
Unitholder's adjusted tax basis in the transferred Units. In addition, a selling
Unitholder will be allocated taxable income and losses of the Partnership deemed
to accrue in the relevant period up to the sale of the Units. The amount
realized on a sale of Units equals the amount of cash received in the Offer plus
the Unitholder's share of the Partnership's liabilities. If the Unitholder's
adjusted tax basis is less than his or her share of the Partnership's
liabilities (e.g., as a result of the effect of net loss allocations and
distributions exceeding the cost of his or her Units) the Unitholder's gain
would exceed the cash proceeds realized upon the sale of Units.
Gain or loss recognized on the sale of Units held for more than twelve
months will generally be taxable as long-term capital gain or loss. A Unitholder
will recognize ordinary income or loss, however, in an amount equal to the
difference between (i) the portion of the amount realized by the Unitholder that
is attributable to his or her share of the Partnership's "unrealized
receivables" and "substantially appreciated inventory items" (including
depreciation recapture),
17
<PAGE> 22
as such terms are defined in Section 751 of the Code and (ii) the portion of the
Unitholder's tax basis in his or her Units that is attributable to such Section
751 property of the Partnership.
Gain or loss recognized on the sale of Units will generally be treated
as passive activity income or loss, under the passive activity loss rules of
Section 469 of the Code, for Unitholders who do not materially participate in
the activity in which the Partnership is engaged. The passive activity loss
rules of the Code provide that certain taxpayers (including individuals) may not
deduct their "passive activity loss" for a taxable year (i.e., the amount by
which their aggregate losses from all passive activities for the taxable year
exceed their aggregate income from all such activities for such year). A
Unitholder with available carry forwards of suspended passive activity losses
may be able to offset all or a portion of any gain recognized on the sale of
Units with such losses. Based on Partnership operations through December 31,
1995, and without giving effect to Partnership operations since then, the
Company estimates that a taxable Unitholder subject to the passive activity loss
rules who acquired his or her Units on January 1, 1989 would have suspended
passive activity losses of approximately $175 per Unit (subject to reduction to
the extent such Unitholder used any of such losses to offset passive activity
income from other investments). Under certain circumstances, Unitholders who
dispose of their entire interest in the Partnership may be permitted to use
carry forwards to offset other (non-passive) taxable income if the holder owns
no other interest in the type of passive activity engaged in by the Partnership.
The application of the passive activity loss rules will vary based on the
particular tax circumstances of each Unitholder. Unitholders are advised to
consult their own tax advisors concerning the application to them of the passive
activity loss rules.
Withholding. As noted in the discussion below under the heading "The
Offer -- Procedures for Accepting the Offer and Tendering Units" a Unitholder
(other than certain types of "exempt recipients" including a corporation) that
receives cash in exchange for Units may be subject to United States federal
backup withholding tax at a rate equal to 31% unless such Unitholder provides
its taxpayer identification number and certifies that such Unitholder is not
subject to backup withholding tax by submitting a completed Substitute Form W-9
to the Depositary. Accordingly, each Unitholder should review, complete, sign
and submit the Substitute Form W-9 included as part of the Letter of Transmittal
in order to avoid the imposition of such backup withholding tax.
Special rules were added to the Code by the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Those rules generally subject foreign
investors to United States taxation at regular United States rates on the gain
from the sale or other disposition of United States real property interests
which include interests in certain entities (including partnerships) holding
United States real estate. Those rules also impose withholding on such sales or
other dispositions. Under FIRPTA, foreign Unitholders who tender Units in the
Offer will generally be subject to withholding on the gross amount realized at a
rate of 10%.
Tax Consequences to Non-Tendering and Partially-Tendering Unitholders.
Termination of the Partnership. Section 708 of the Code provides that
if, within any 12-month period, there is a sale or exchange of 50% or more of
the total interest in capital and profits of a partnership, such partnership
will be treated as terminated for federal income tax purposes. If the purchase
of Units by the Company results in a termination of the Partnership, the
Partnership's taxable year will close for all Unitholders, the Partnership will
be deemed to have distributed its assets to the Company and the remaining
Unitholders in proportion to their respective interests in the Partnership and,
immediately thereafter, the Company and the other remaining Unitholders will be
deemed to have contributed such assets to the Partnership which will then be
treated as a new partnership. In the case of a non-tendering or partially
tendering Unitholder reporting on a tax year other than a calendar year, the
closing of a tax year of the Partnership may result in more than 12 months'
taxable income or loss of the Partnership being includable in his or her taxable
income for the year of termination. In addition, each non-tendering or partially
tendering Unitholder will recognize taxable gain to the extent that any money
considered distributed to him (including any net reduction in his or her share
of Partnership liabilities) exceeds the adjusted tax basis of his or her Units.
Other consequences of a constructive termination of the Partnership are: (i) the
reconstituted partnership's tax basis for its properties may change and (ii) new
tax elections required to be made at the partnership level must be made by the
reconstituted partnership. Any such technical termination may also subject the
property in the Partnership to extended depreciable lives as compared
18
<PAGE> 23
with the depreciable lives currently applicable to the Partnership, which would
increase the taxable income or decrease the taxable loss otherwise allocable to
each non-tendering or partially tendering Unitholder.
Publicly Traded Partnership. Section 7704 of the Code provides
generally that certain "publicly traded partnerships" will be treated as
corporations for federal income tax purposes. A partnership is a publicly traded
partnership if (1) interests in such partnership are actually traded on an
established securities market or (2) interests in such partnership are "readily
tradable on a secondary market (or the substantial equivalent thereof)."
Treasury Regulations provide that interests in a partnership are readily
tradable on a secondary market or the substantial equivalent thereof if (a)
interests in the partnership are regularly quoted by any person, such as a
broker or dealer, making a market in the interests; (b) any person regularly
makes available to the public bid or offer quotes with respect to interests in
the partnership and stands ready to effect buy or sell transactions at the
quoted prices; (c) the holder of an interest in the partnership has a readily
available, regular, and ongoing opportunity to sell or exchange the interest
through a public means of obtaining or providing information of offers to buy,
sell, or exchange interests in the partnership; or (d) prospective buyers and
sellers otherwise have the opportunity to buy, sell, or exchange interests in
the partnership in a time frame and with the regularity and continuity that is
comparable to that described in (a), (b), or (c) above.
The Treasury Regulations provide a number of "safe harbors" pursuant to
which certain transfers ("Private Transfers") are disregarded in determining
whether interests in a partnership are readily tradable on a secondary market or
the substantial equivalent thereof. Private Transfers include, among others,
transfers by one or more partners of interests representing in the aggregate 50%
or more of the total interests in partnership capital and profits in one
transaction or a series of related transactions. Therefore if, pursuant to the
Offer, the Company acquires 50% or more of the Units, such transfers will be
disregarded in determining whether interests in the Partnership are readily
tradable on a secondary market or the substantial equivalent thereof. If,
however, the Company acquires less than 50% of the Units pursuant to the Offer,
such transfers will not be disregarded in determining whether interests in the
Partnership are readily tradable on a secondary market, and the Partnership will
not fall within the safe harbor set forth in the Treasury Regulations.
The Treasury Regulations provide that the fact that a transfer of a
partnership interest is not within one or more of the safe harbors is
disregarded in determining whether interests in the partnership are readily
tradable on a secondary market or the substantial equivalent thereof. Therefore,
even if the Company acquires less than 50% of the Units, the Partnership will
not necessarily be taxable as a publicly traded partnership, in particular
because the Offer is a one-time only event that does not give the Unitholders an
ongoing regular opportunity to sell their Units.
If, however, the Offer were to cause the Partnership to be treated as a
publicly traded partnership, then unless certain requirements concerning the
nature of the Partnership's gross income have been satisfied, the Partnership
would be taxable on its net income at regular corporate income tax rates, which
would reduce the cash available for distribution to Unitholders. Moreover, in
such a case distributions to Unitholders would be taxable as ordinary dividend
income (qualifying, with respect to corporate Unitholders, for the dividends
received deduction, subject to the exceptions and restrictions concerning such
deduction as set forth in the Code) to the extent of current or accumulated
earnings and profits of the Partnership. Distributions in excess of current or
accumulated earnings and profits would not be currently taxable to Unitholders
to the extent that such distributions were not in excess of the adjusted tax
basis of holder's Units, but rather would reduce the adjusted tax basis of such
Units. To the extent that such distributions exceeded the adjusted basis of a
holder's Units, they would be included in income as long-term capital gain (or
short-term capital gain if the Units were held for one year or less).
Unitholders would not be permitted to include in their individual income tax
returns any net operating losses or capital losses of the Partnership.
THE OFFER
1. TERMS OF THE OFFER. Upon the terms and subject to the conditions of
the Offer, the Company will accept for payment and purchase all of the Units
which are validly tendered prior to the Expiration Date (as defined in the
following sentence) and not properly withdrawn in accordance with "The Offer" --
Section 5. The term "Expiration Date" shall mean 10:00 p.m., Dallas, Texas time,
on Friday, June 14, 1996, unless and until the Company, in its sole
19
<PAGE> 24
discretion, shall have extended the period of time for which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date at
which the Offer, as so extended by the Company, shall expire. See "The Offer" -
- - Section 11 for a description of the Company's rights to extend the period of
time during which the Offer is open and to terminate the Offer.
The Partnership will provide the Company with the Partnership's
Unitholder list, a non-objecting beneficial owners list, if any, and security
position listings for the purpose of disseminating the Offer to holders of
Units. The Offer to Purchase, Supplement and the related Letter of Transmittal
will be mailed by the Company to record holders of Units and will be furnished
to brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the Partnership's Unitholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Units.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT OF PURCHASE PRICE. Upon the terms
and subject to the conditions of the Offer (including, if the Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
Company will accept for payment, and will pay for, all of the Units validly
tendered and not properly withdrawn prior to the Expiration Date promptly after
the later to occur of (i) the Expiration Date and (ii) the satisfaction or
waiver of the conditions to the Offer set forth in "The Offer" -- Section 12.
For purposes of the Offer, the Company shall be deemed to have accepted
for payment (and thereby purchased) all Units properly tendered to the Company
and not withdrawn if, as and when the Company gives oral or written notice to
the Depositary of the Company's acceptance of such Units for payment pursuant to
the Offer. Payment for Units accepted for payment pursuant to the Offer will be
made through the Depositary, which will act as agent for the tendering
Unitholders for the purpose of receiving payment from the Company and
transmitting payments to tendering Unitholders.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE OF
THE UNITS TO BE PAID BY THE COMPANY, REGARDLESS OF ANY DELAY IN MAKING SUCH
PAYMENT. UPON THE DEPOSIT OF FUNDS WITH THE DEPOSITARY FOR THE PURPOSE OF MAKING
PAYMENTS TO TENDERING UNITHOLDERS, THE COMPANY'S OBLIGATION TO MAKE SUCH
PAYMENTS SHALL BE SATISFIED AND TENDERING UNITHOLDERS MUST THEREAFTER LOOK
SOLELY TO THE DEPOSITARY FOR PAYMENT OF AMOUNTS OWED TO THEM BY REASON OF THE
ACCEPTANCE FOR PAYMENT OF UNITS PURSUANT TO THE OFFER.
If any tendered Units are not accepted for payment pursuant to the
terms and conditions of the Offer, the Letter of Transmittal with respect to
such Units not purchased will be destroyed by the Depositary. If, for any reason
whatsoever, acceptance for payment of, or payment for, any Units tendered
pursuant to the Offer is delayed or the Company is unable to accept for payment,
purchase or pay for Units tendered pursuant to the Offer, then, without
prejudice to the Company's rights under the Offer (but subject to compliance
with Rule 14e-1(c) under the Exchange Act), the Depositary may, nevertheless, on
behalf of the Company, retain tendered Units, subject to any limitations of
applicable law, and such Units may not be withdrawn except to the extent that
the tendering Unitholders are entitled to withdrawal rights as described in the
Offer.
If, on or prior to the Expiration Date, the Company increases the
consideration offered to holders of Units pursuant to the Offer, such increased
consideration will be paid to all holders of Units that are accepted for payment
pursuant to the Offer.
The Company reserves the right to transfer or assign, in whole or in
part, to one or more affiliates or direct or indirect subsidiaries of the
Company, the right to purchase Units tendered pursuant to the Offer, but no such
transfer or assignment will relieve the Company of its obligations under the
Offer or prejudice the rights of tendering Unitholders to receive payment for
Units validly tendered and accepted for payment pursuant to the Offer.
20
<PAGE> 25
3. PROCEDURE FOR ACCEPTING THE OFFER AND TENDERING UNITS.
Valid Tender. In order for a holder of Units to validly tender Units
pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, together with any other documents required
by the Letter of Transmittal, must be received by the Depositary at its address
set forth on the back cover of the Offer to Purchase and this Supplement on or
prior to the expiration date.
In order for a tendering Unitholder to participate in the Offer, Units
must be validly tendered and not withdrawn prior to the Expiration Date, which
is 10:00 p.m., Dallas, Texas time, on June 14, 1996 (unless extended).
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING UNITHOLDER. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY TO THE DEPOSITARY. EXCEPT AS OTHERWISE PROVIDED IN THE LETTER OF
TRANSMITTAL, THE DELIVERIES REFERRED TO ABOVE WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE DEPOSITARY.
By executing the Letter of Transmittal as set forth above, a tendering
Unitholder irrevocably appoints designees of the Company as such Unitholder's
attorneys-in-fact and proxies, each with full power of substitution, in the
manner set forth in the Letter of Transmittal, to the full extent of such
Unitholder's rights with respect to the Units tendered by such Unitholder and
accepted for payment by the Company. All such powers of attorney and proxies
shall be considered coupled with an interest in the tendered Units. Such
appointment will be effective when, and only to the extent that, the Company
accepts such Units for payment. Upon such acceptance for payment, all prior
powers of attorney and proxies given by such Unitholder with respect to such
Units will be revoked without further action, and no subsequent proxies nor any
subsequent written consent executed by such Unitholder with respect thereto may
be given (and, if given or executed, will not be deemed to be effective). The
designees of the Company will, with respect to the Units for which the
appointment is effective, be empowered to exercise all voting and other rights
of such Unitholder as they in their sole discretion may deem proper at any
meeting of the Partnership's Unitholders (whether annual or special and whether
or not an adjourned meeting), by written consent in lieu of any such meeting or
otherwise. The Company reserves the right to require that, in order for Units to
be deemed validly tendered, the Company must be able to exercise full voting
rights with respect to such Units immediately upon the Company's acceptance for
payment of such Units.
A tender of Units pursuant to any of the procedures described above
will constitute a tendering Unitholder's acceptance of the terms and conditions
of the Offer and a binding agreement between the tendering Unitholder and the
Company upon the terms and subject to the conditions of the Offer.
TO PREVENT FEDERAL INCOME TAX BACKUP WITHHOLDING WITH RESPECT TO
PAYMENT OF THE PURCHASE PRICE OF UNITS PURCHASED PURSUANT TO THE OFFER, A
UNITHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH UNITHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND CERTIFY THAT SUCH UNITHOLDER IS NOT SUBJECT TO BACKUP
FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE
LETTER OF TRANSMITTAL. OTHERWISE, UNDER THE BACKUP WITHHOLDING PROVISIONS OF THE
FEDERAL INCOME TAX LAWS, UNLESS AN EXCEPTION APPLIES UNDER APPLICABLE LAWS AND
REGULATIONS, THE DEPOSITARY WILL BE REQUIRED TO WITHHOLD 31% OF THE AMOUNT OF
ANY PAYMENTS MADE TO UNITHOLDERS PURSUANT TO THE OFFER. SEE INSTRUCTION 4 OF THE
LETTER OF TRANSMITTAL. See "Special Factors -- Certain Federal Income Tax
Consequences."
4. DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS.
All questions as to the validity, form, eligibility (including time of receipt)
and acceptance for payment of any tender of Units will be determined by the
Company in its sole discretion, which determination shall be final and binding.
The Company reserves the absolute right to reject any and all tenders determined
by it not to be in proper form or the acceptance for payment of which may, in
the opinion of its counsel, be unlawful. The Company also reserves the absolute
right to waive any condition of the Offer, or any defect or irregularity in the
tender of any Units of any particular Unitholder, whether or not similar defects
21
<PAGE> 26
or irregularities are waived in the case of other Unitholders. No tender of
Units will be deemed to have been validly made until all defects and
irregularities have been cited or waived. None of the Company, the Depositary,
the Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. The Company's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
5. WITHDRAWAL RIGHTS. Tenders of Units made pursuant to the Offer are
irrevocable, except that such Units may be withdrawn at any time prior to the
Expiration Date and, unless theretofore accepted for payment by the Company
pursuant to the Offer, may also be withdrawn at any time after July 15, 1996. If
the Company extends the Offer, is delayed in its acceptance for payment of Units
or is unable to accept Units for payment pursuant to the Offer for any reason,
then, without prejudice to the Company's rights under the Offer, the Depositary
may nevertheless, on behalf of the Company, retain tendered Units, and such
Units may not be withdrawn except to the extent that tendering Unitholders are
entitled to withdrawal rights as described in this Section 5, subject to Rule
14e-1(c) under the Exchange Act. Any such delay will be accompanied by an
extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at its address
set forth on the back cover page of the Offer to Purchase and this Supplement.
Any such notice of withdrawal must specify the name(s) of the person(s) who
tendered the Units to be withdrawn, the number of Units to be withdrawn and the
name(s) of the registered holder(s) of such Units, if different from that of the
person(s) who tendered such Units. The signature(s) on the notice of withdrawal
must be guaranteed by a bank, broker, dealer, credit union, savings association
or other entity that is a member in good standing of a recognized Medallion
Program approved by The Securities Transfer Association, Inc. (each of the
foregoing being referred to as an "Eligible Institution"), unless such Units
have been tendered for the account of an Eligible Institution.
All questions as to the form and validity (including time of receipt)
of any notice of withdrawal will be determined by the Company, in its sole
discretion, whose determination will be final and binding. None of the Company,
the Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
Any Units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Units may be
re-tendered at any time prior to the Expiration Date by following the procedures
described in "The Offer" -- Section 3.
6. MARKET PRICES OF THE UNITS. The Units are not listed on any national
or regional securities exchange or quoted on the NASDAQ system, and there is no
established public trading market for the Units. Secondary sales activity for
the Units has been limited and sporadic. The Company monitors transfers of the
Units (a) because the admission of the transferee as a substitute Limited
Partner requires the consent of the General Partners under the Partnership
Agreement, and (b) in order to track compliance with safe harbor provisions to
avoid treatment as a "publicly traded partnership" for tax purposes.
Set forth in the following tables is certain information regarding sale
transactions in the Units. The information set forth below was obtained from the
sources indicated. The transactions reflected in the tables below represent only
some of the sales transactions in the Units. There have been other secondary
sale transactions in the Units, although specific information regarding such
transactions is not readily available. Because the information regarding sale
transactions in the Units included in the tables below is provided without
verification by the Company and because the information provided does not
reflect sufficient activity to cause the prices shown to be representative of
the values of the Units, such information should not be relied upon as
indicative of the ability of the Unitholders to sell their units in secondary
sale transactions or as to the prices at which such Units may be sold.
Therefore, the information presented should not necessarily be relied upon by
Unitholders in determining whether to tender their Units.
The Company is offering to purchase all of the outstanding Units at a
net cash price of $720 per Unit. The secondary market price per Unit from
January 1, 1995 through March 31, 1996 ranged from $440 to $612. Limited
22
<PAGE> 27
partner interests are generally traded on a sporadic basis. Sale prices can vary
dramatically based on the number of interests sold at once or over time.
Additionally, the Tax Reform Act of 1986 contained provisions which caused
limited partnerships to place restrictions on transfers of interests in order to
avoid taxation of income at the partnership and partner levels. Accordingly,
secondary sales of limited partnership interests have not been well received by
investors and secondary sale prices have been adversely affected.
While the Company receives some information regarding the prices at
which secondary sale transactions in the Units have been effectuated, the
Company does not receive or maintain comprehensive information regarding the
activities of all broker/dealers and others known to facilitate from time to
time, or on a regular basis, secondary sales of the Units. Therefore, the
details of some transactions may not be reflected in the transfer records of the
Partnership. The Company provides the following information regarding the sale
transactions (i.e., excluding transactions believed to be between related
parties, family members or the same beneficial owner) reported to it by selling
Unitholders:
SECONDARY MARKET PARTNERSHIP UNIT SALES
FROM JANUARY 1, 1993 THROUGH MARCH 31, 1996
AS TRACKED BY THE COMPANY
<TABLE>
<CAPTION>
NUMBER OF UNITS
FOR WHICH SALE
TRANSACTION PRICE PER UNIT PRICES WERE TRACKED
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C> <C> <C>
1993 $1,000* $510 67.000
1994 $900** $422 90.500
1995 $612*** $451 213.958
1996**** $580 $540 59.055
</TABLE>
* Only 3 Units were sold for $1,000.
** Only 2 Units were sold for $900.
*** One hundred and five Units were sold for $612. These Units were sold by
American Senior Housing Fund, a partnership of which certain of the
General Partners and other affiliates of the Company were partners, to
the Company in November 1995. See "Special Factors -- Interests of
Certain Persons." The next highest sales price of a Unit during this
period was $520.
**** Through March 31, 1996.
Other Secondary Market Information. The information below was obtained
from Stanger, which maintains the data for publication, and summarizes
secondary-market prices for the Units based on actual transactions during the
reporting periods indicated. When no information is reported for a particular
period, it means that no trade during that period was reported to Stanger. The
Company does not know which of the secondary-market firms reported the
transactions, or the number or size of transactions, or whether the transaction
prices are before or after commissions.
The information set forth below is provided without verification by the
Company and is subject to the following qualifications:
"Limited partnerships are designed as illiquid, long-term investments.
Secondary-market prices generally do not reflect the current value of
partnership assets, nor are they indicative of total return since prior
cash distributions and tax benefits received by the original investor
are not reflected in the price. Transaction prices are not verified by
Robert A. Stanger & Company."
23
<PAGE> 28
<TABLE>
<CAPTION>
TRANSACTION PRICE PER UNIT NUMBER OF
REPORTING PERIOD HIGH LOW UNITS TRADED
---------------- ---- --- ------------
1991
<S> <C> <C> <C>
Quarter 1 $625.00 $440.00 30
Quarter 2 --- --- --
Quarter 3 $600.00 $425.00 14
Quarter 4 $675.00 $475.00 75
1992
Quarter 1 $550.00 $550.00 3
Quarter 2 $550.00 $450.00 105
Quarter 3 $620.00 $375.00 62
Quarter 4 $600.00 $393.33 63
1993
Quarter 1 $500.00 $462.83 77
Quarter 2 $545.00 $545.00 5
Quarter 3 $545.00 $490.00 40
Quarter 4 $529.70 $385.00 41
1994
Quarter 1 $509.64 $509.64 20
Quarter 2 $540.00 $400.00 75
Quarter 3 $550.00 $410.00 120
Quarter 4 $565.45 $420.00 116
1995
Quarter 1 $480.00 $440.00 81
Quarter 2 $561.67 $460.00 35
Quarter 3 --- --- ---
Quarter 4 $561.76 $490.00 107
1996
Quarter 1* $580.00 $544.94 15
</TABLE>
*Through February 29, 1996
Other Information About the Partnership. The Partnership is subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Partnership may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549 and its
regional offices. Copies of such information also can be obtained by mail from
the Public Reference Section of the Commission at 450 Fifth Street N.W.,
Washington, D.C. 20549 at rates prescribed by the Commission. The Partnership's
Commission file number is 0-26468.
24
<PAGE> 29
7. EFFECTS OF THE OFFER ON NON-TENDERING UNITHOLDERS.
Effect on Trading Market. There is no established public trading market
for the Units, and, therefore, a reduction in the number of Unitholders should
not materially further restrict the Unitholders' ability to find purchasers for
their Units. See "The Offer--Section 6" for certain limited information
regarding secondary sales of the Units.
Partnership Status. The Company believes the purchase of Units by the
Company, as proposed, should not adversely affect the issue of whether the
Partnership is classified as a partnership for federal income tax purposes.
Partnership Business. The Offer will not materially affect the
operation of the properties owned by the Partnership since the Properties will
continue to be managed by the Company.
Registration of the Units. The Units are currently registered under the
Exchange Act. Such registration may be terminated upon application of the
Partnership to the Commission if the Units are neither listed on a national
securities exchange nor held by 300 or more holders of record of the Units. The
termination of the registration of the Units under the Exchange Act would
substantially reduce the information required to be furnished by the Partnership
to the Unitholders and to the Commission and would render inapplicable certain
provisions of the Exchange Act, including requirements that the Partnership file
periodic reports and furnish Unitholders with proxy materials regarding meetings
of Unitholders of the Partnership, the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions, requirements that the
Partnership's executive officers, directors and ten-percent Unitholders file
certain reports concerning ownership of the Partnership's equity securities and
provisions that any profit by such officers, directors and Unitholders through
purchases and sales of the Partnership's equity securities within any six-month
period may be recaptured by the Partnership. In addition, the ability of
"affiliates" of the Partnership and other persons to dispose of Units which are
"restricted securities" under Rule 144 of the Securities Act of 1933, as
amended, may be impaired or eliminated. The Company intends to seek to cause the
Partnership to make an application for termination of registration of the Units
under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of registration of the Units have been satisfied.
8. CERTAIN INFORMATION CONCERNING THE PARTNERSHIP. The Partnership is a
California limited partnership formed in February 1988. The principal offices of
the Partnership are located at 245 Fischer Avenue, Suite D-1, Costa Mesa,
California 92626. Except as otherwise indicated herein, the information
concerning the Partnership contained in the Offer to Purchase and this
Supplement has been furnished by the Partnership or has been taken from or is
based upon publicly available documents on file with the Commission and other
public records. The Company does not assume any responsibility for the accuracy
or completeness of the information concerning the Partnership furnished by the
Partnership or contained in such documents and records or for any failure by the
Partnership to disclose events which may have occurred and may affect the
significance or accuracy of such information but which are unknown to the
Company.
Certain Financial Information. The following selected consolidated
financial information relating to the Partnership has been taken or derived from
the audited consolidated financial statements contained in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1995 and the
Partnership's Quarterly Report on Form 10-Q for the three months ended March 31,
1996, and other public documents of the Partnership. More comprehensive
financial information is contained in Schedule III hereto which contains
excerpts of the 1995 Form 10-K and March 31, 1996 Form 10-Q, and the financial
information below is qualified by reference to such Schedule and the financial
information contained therein. Such reports and other documents may be examined
and copies may be obtained from the offices of the Commission as described on
the cover page hereof.
25
<PAGE> 30
AMERICAN RETIREMENT VILLAS PROPERTIES II
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the three months
ended For the years ended December 31,
------------------------ ---------------------------------------------------------------------
3/31/96 3/31/95 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Rent $ 3,695,509 $ 3,696,826 $14,768,855 $14,055,979 $13,578,122 $13,036,104 $12,417,377
Assisted Living 555,018 495,679 2,018,661 1,728,953 1,307,323 867,583 322,647
Interest 4,230 3,998 20,434 14,577 15,704 22,687 51,401
Other 48,268 58,714 174,347 203,248 183,435 180,026 253,069
-----------------------------------------------------------------------------------------------
Total Revenue 4,303,025 4,225,217 16,982,297 16,002,757 15,084,584 14,106,400 13,044,494
-----------------------------------------------------------------------------------------------
Costs and Expenses:
Rental property operations 2,182,267 2,256,135 9,993,572 10,001,328 9,326,559 8,706,574 7,894,180
Assisted Living 240,401 204,209 859,322 748,148 577,606 420,187 183,453
General and administrative 465,770 454,862 800,482 695,970 725,814 707,148 794,910
Facilities rent 292,805 286,699 1,178,331 1,175,414 1,155,307 1,147,426 1,119,671
Depreciation and amortization 478,391 526,902 2,076,480 2,359,826 2,713,413 2,683,267 3,702,879
Property taxes 98,921 128,343 487,722 434,178 533,019 516,023 534,514
Advertising 30,548 31,433 141,031 112,348 117,961 131,432 127,276
Interest 148,384 147,550 572,061 583,017 606,699 567,589 544,345
-----------------------------------------------------------------------------------------------
Total costs and 3,937,487 4,036,133 16,109,001 16,110,229 15,756,378 14,879,646 14,901,228
expenses -----------------------------------------------------------------------------------------------
Net income (loss) $ 365,538 $ 4,036,084 $ 873,296 ($107,472) ($671,794) ($773,246) ($1,856,734)
-----------------------------------------------------------------------------------------------
Net income (loss) per
Unit $10.34 $6.19 $24.69 ($3.04) ($19.00) ($21.87) ($52.53)
===============================================================================================
Balance Sheet Data:
Total Assets $21,058,149 $22,287,569 21,523,874 $22,764,837 $24,627,621 $26,956,737 $29,574,874
Notes Payable 6,847,192 6,660,629 7,211,460 7,189,166 7,305,980 7,416,777 7,415,662
Partners' Capital 12,609,571 14,326,673 12,818,856 13,764,639 15,832,217 18,184,070 20,916,769
Distribution per Unit $16.69 $15.86 $64.28 $55.45 $47.53 $55.43 $63.28
Return of Capital per Unit $6.36 $9.67 $39.57 $55.45 $47.53 $55.43 $63.28
Net Book Value Per Unit $352.25 $358.17 $358.17 $397.71 $456.16 $519.26 $597.30
===================================================================================================================================
</TABLE>
9. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company was
incorporated under the laws of the State of California in December 1985. The
principal offices of the Company are located at 245 Fischer Avenue, Suite D-1,
Costa Mesa, California 92626. The Company is one of the largest operators of
licensed assisted living facilities in the United States based on the number of
residents. The Company currently operates 37 assisted living facilities
containing 4,636 units. Specifically, the Company operates 17 assisted living
facilities under long-term operating leases with publicly-traded health care
REITs and also manages 13 assisted living facilities which are owned by
affiliated limited partnerships, for which the Company serves as managing
general partner and facility manager. In addition, the Company owns fee title to
seven assisted living facilities. The Company's Common Stock is traded on The
Nasdaq National Market under the symbol "ARVI."
The name, business address, current principal occupation or employment,
five-year employment history and citizenship of each executive officer and
director of the Company are set forth in Schedule I hereto.
26
<PAGE> 31
Except as set forth in the Offer to Purchase and this Supplement, none
of the Company nor, to the best knowledge of the Company, any person listed on
Schedule I hereto, or any majority-owned subsidiary or associate of the Company
or of any person so listed, beneficially owns or has a right to acquire any
equity securities of the Partnership, nor, except as set forth in the Offer to
Purchase and this Supplement, has the Company or, to the best knowledge of the
Company, any of the persons or entities referred to above, or any of the
respective executive officers, directors or subsidiaries of any of the
foregoing, effected any transactions in the Units of the Partnership during the
past 60 days.
Except as described in the Offer to Purchase or this Supplement,
neither the Company nor, to the best knowledge of the Company, any person listed
on Schedule I hereto, has any present or proposed contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Partnership, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any securities of the Partnership, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties against loss or the
giving or withholding of proxies. Except as disclosed herein, there have been no
contacts, negotiations or transactions since January 1, 1993 between the Company
or, to the best knowledge of the Company, any person listed on Schedule I
hereto, on the one hand, and the Partnership or its affiliates, on the other
hand, concerning a merger, consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets. Except as set forth herein, none of the Company
nor, to the best knowledge of the Company, the persons listed on Schedule I
hereto, has had any business relationships or has entered into any transactions
with the Partnership or the General Partner or affiliates which are required to
be disclosed herein pursuant to the rules and regulations of the Commission.
10. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. Except as described
in this Section 10, the Company is not aware of any license or other regulatory
permit which appears to be material to the business of the Partnership and its
subsidiaries taken as a whole and which is likely to be adversely affected by
the Company's acquisition of Units pursuant to the Offer or of any approval or
other action by any domestic or foreign governmental or administrative agency
that would be required prior to the acquisition of Units by the Company pursuant
to the Offer. Should any approval or other action be required, the Company
presently intends to seek such approval or take such action (except as described
below under "State Takeover Laws"). The Company does not presently intend to
delay the purchase of Units tendered pursuant to the Offer pending the outcome
of any such action or receipt of such approval (subject to the Company's right
to decline to purchase Units if any of the conditions in "The Offer" -- Section
12 shall have occurred). There can be no assurance that any such approval or
action, if needed, would be obtained, or, if obtained, that it will be obtained
without substantial conditions, or that adverse consequences might not result to
the Partnership's or its affiliates' businesses, or that certain parts of the
Partnership's or its affiliates' businesses might not have to be disposed of or
other substantial conditions might not have to be complied with in order to
obtain such approval or other action in the event that such approvals were not
obtained or such other actions were not taken. The Company's obligations under
the Offer are subject to certain conditions, among them conditions which might
not be satisfied if there were a failure to obtain regulatory approval and such
failure were material. See "The Offer" -- Section 12.
State Takeover Laws. A number of other states have adopted laws and
regulations applicable to attempts to acquire securities of corporations which
are incorporated, or have substantial assets, stockholders, principal executive
offices or principal places of business, or whose business operations otherwise
have substantial economic effects, in such states. In Edgar v. MITE Corp., the
Supreme Court of the United States invalidated on constitutional grounds the
Illinois Business Takeover Statute, which, as a matter of state securities law,
made takeovers of corporations meeting certain requirements more difficult.
However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court
held that the State of Indiana may, as a matter of corporate law and, in
particular, with respect to those aspects of corporate law concerning corporate
governance, constitutionally disqualify a potential acquiror from voting on the
affairs of a target corporation without the prior approval of the remaining
stockholders. The state law before the Supreme Court was by its terms applicable
only to corporations that had a substantial number of stockholders in the state
and were incorporated there.
The Partnership was formed under the laws of the State of California,
which currently has no statute applicable to partnerships that is similar to
that approved in the CTS Corp. case, and the Company does not expect any such
statute
27
<PAGE> 32
to be enacted in that state during the pendency of the Offer. There can be no
assurance, however, that California will not, prior to the completion of the
Offer, adopt such a statute which impairs the ability of the Company to vote its
Units. The Company does not believe any of the statutes adopted by states in
which the Partnership conduct business by their terms apply to the Offer, and
the Company has not complied with any state takeover law.
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, amended (the "HSR Act"), and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. Under the provisions of the HSR Act applicable to the purchase of
Units pursuant to the Offer, if 100% of the Units are tendered to the Company,
the Offer cannot be consummated until the expiration of a 15-day waiting period
after the date on which certain required information and documentary material is
furnished to the Antitrust Division and the FTC with respect to the Offer,
unless both the Antitrust Division and the FTC terminate the waiting period
prior thereto. If, within such 15-day waiting period, either the Antitrust
Division or the FTC requests additional information or documentary material
relevant to the Offer, the waiting period will be extended for an additional
period of ten calendar days following the date of substantial compliance with
such request. Thereafter, the waiting period could only be extended by court
order or with the consent of the filing party.
If it appears that 100% of the Units will be tendered, the Company will
promptly file with the Antitrust Division and the FTC certain required
information and documentary material with respect to the Offer. The required
waiting period would expire at 11:59 p.m., New York City time, on the fifteenth
day following such filing date, unless a request has been made pursuant to the
HSR Act for early termination of the waiting period applicable to the Offer.
There can be no assurance, however, that the 15-day HSR Act waiting period would
be terminated early. If 100% of the Units are tendered, the Company will not
accept for payment Units tendered pursuant to the Offer unless and until the
waiting period requirements imposed by the HSR Act have been satisfied.
The Antitrust Division and the FTC frequently scrutinize the legality
under the antitrust laws of transactions such as the acquisition of Units
pursuant to the Offer. At any time before or after the Company's acquisition of
Units pursuant to the Offer, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchases of Units pursuant to the
Offer or seeking divestiture of the Units so acquired or divestiture of
substantial assets of the Partnership, Company or its respective subsidiaries.
Private parties and state attorneys general may also bring legal action under
the antitrust laws under certain circumstances.
The Company believes that the acquisition of Units pursuant to the
Offer will not violate the antitrust laws. However, there can be no assurance
that a challenge to the Offer on antitrust grounds will not be made, or if such
a challenge is made, what the result will be. See "The Offer" -- Section 12 for
certain conditions of the Offer, including conditions with respect to litigation
and certain governmental actions.
Margin Requirements. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, such regulations generally are not applicable to the Offer.
11. EXTENSION OF THE OFFER PERIOD; TERMINATION AND AMENDMENT. The
Company expressly reserves the right (but will not be obligated), in its sole
discretion, at any time or from time to time, to extend the period of time
during which the Offer is open by giving oral or written notice of such
extension to the Depositary and by making a public announcement of such
extension. During any such extension, all Units previously tendered and not
accepted for payment or withdrawn will remain subject to the Offer and may be
accepted for payment by the Company at the conclusion of the Offer, except to
the extent such Units may be withdrawn as set forth in "The Offer" -- Section 5.
There can be no assurance that the Company will exercise its right to extend the
Offer. In addition, the Offer may be extended, amended or terminated upon the
occurrence of any event described in "The Offer" -- Section 12.
28
<PAGE> 33
If the Company shall decide, in its sole discretion to establish a
limit for or increase or decrease the number of Units being sought (in the case
of an increase by more than 2% of the outstanding Units) or to increase or
decrease the consideration offered in the Offer to holders of Units and, at the
time that notice of such increase or decrease is first published, sent or given
to holders of Units in the manner specified below, the Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the tenth
business day following, and including, the date that such notice is first so
published, sent or given, then the Offer will be extended until the expiration
of such period of ten business days.
The Company also expressly reserves the right (i) to terminate the
Offer and not accept for payment or pay for any Units not theretofore accepted
for payment or paid for or to delay the acceptance for payment of, or payment
for, any Units validly tendered and not withdrawn, upon the occurrence of any of
the conditions specified in Section 12, by giving oral or written notice of such
termination or delay to the Depositary and (ii) at any time, or from time to
time, to amend the Offer in any respect. Any extension, delay in payment,
termination or amendment will be followed as promptly as practicable by public
announcement thereof, such announcement in the case of an extension to be issued
no later than 9:00 a.m., Dallas, Texas time, on the next business day after the
previously scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c) and Rule 14d-6(d) under the Exchange Act. Without
limiting the obligations of the Company under such rules or the manner in which
the Company may choose to make any public announcement, the Company currently
intends to make announcements by issuing a release to the Dow Jones New Service
and making any appropriate filing with the Commission.
If the Company extends the Offer or if the Company is delayed in its
acceptance for payment of, or payment for, Units or is unable to accept for
payment or pay for Units pursuant to the Offer for any reason, then, without
prejudice to the Company's rights pursuant to the Offer (including without
limitation, as set forth in "The Offer" -- Sections 11 and 12), the Depositary
may nevertheless, on behalf of the Company, retain tendered Units subject to
withdrawal rights as described in "The Offer" -- Section 5. The ability of the
Company to delay payment for Units which it has accepted for payment is limited
by Rule 14e-1(c) under the Exchange Act, which requires any person making a
tender offer to pay the consideration offered or return the tendered securities
promptly after the termination or withdrawal of a tender offer.
12. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other
provision of the Offer, the Company shall not be required to accept for payment,
purchase or pay for any Units tendered and, in its sole discretion, may postpone
the purchase of or payment for Units tendered and to be purchased by the
Company, and, in its sole discretion, may terminate or amend the Offer if on or
after May 16, 1996 and at or before payment for any such Units (whether or not
any Units have theretofore been accepted for payment or paid for pursuant to the
Offer) any of the following shall occur:
(a) There shall be threatened, instituted or pending any
action or proceeding before any domestic or foreign court or
governmental agency or other regulatory or administrative agency or
commission (i) challenging the acquisition by the Company of the Units,
seeking to restrain or prohibit the making or consummation of the
Offer, seeking to obtain any material damages or otherwise directly or
indirectly relating to the transactions contemplated by the Offer, (ii)
seeking to prohibit or restrict the Company's ownership or operation of
any material portion of the Company's business or assets, or to compel
the Company to dispose of or hold separate all or any material portion
of its business or assets as a result of the Offer, (iii) seeking to
make the purchase of, or payment for, some or all of the Units illegal,
(iv) resulting in a delay in the ability of the Company to accept for
payment or pay for some or all of the Units, (v) imposing material
limitations on the ability of the Company effectively to acquire or
hold or to exercise full rights of ownership of the Units, including,
without limitation, the right to vote the Units purchased by the
Company on all matters properly presented to the limited partners of
the Partnership, (vi) which, in the sole judgment of the Company, could
materially and adversely affect the treatment of the Offer for federal
income tax purposes, (vii) which otherwise is reasonably likely to
materially adversely affect the Partnership or value of the Units or
(viii) which imposes any material condition unacceptable to the
Company;
(b) Any statute, rule, regulation or order shall be enacted,
promulgated, entered or deemed applicable to the Offer, any legislation
shall be pending, or any other action shall have been taken, proposed
or threatened,
29
<PAGE> 34
by any domestic government or governmental authority or by any court,
domestic or foreign, which, in the sole judgment of the Company, is
likely, directly or indirectly, to result in any of the consequences
referred to in paragraph (a) above; or
(c) There shall have occurred (i) any general suspension of,
or limitation on prices for, trading in securities on the Nasdaq
National Market, (ii) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii)
the commencement of a war, armed hostilities or other international or
national calamity materially affecting the United States, (iv) any
limitation by any governmental authority or any other event which is
reasonably likely to affect the extension of credit by banks or other
leading institutions in the United States, (v) any material decline in
security prices on the Nasdaq National Market or (vi) in the case of
any of the foregoing existing at the time of the Offer, any material
worsening thereof;
which, in the sole judgment of the Company, in any such case and regardless of
the circumstances (including any action or inaction by the Company giving rise
to any such condition) makes it inadvisable to proceed with such acceptance for
payment or payment.
The foregoing conditions are for the sole benefit of the Company any
may be asserted regardless of the circumstances giving rise to any such
conditions (including without limitation any action or inaction by the Company)
or may be waived by the Company in whole or in part at any time or from time to
time at the in the sole discretion of the Company. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, the waiver of any such right with respect to any particular
facts or circumstances shall not be deemed a waiver with respect to any other
facts or circumstances and each right shall be deemed a continuing right which
may be asserted at any time and from time to time. Any determination by the
Company with respect to the foregoing conditions shall be final and binding.
13. DISSENTERS' RIGHTS AND INVESTORS LISTS. Neither the Partnership
Agreement nor California law provides any right for Unitholders to have their
respective Units appraised or redeemed in connection with or as a result of the
Offer. Each Unitholder has the opportunity to make an individual decision on
whether or not to tender in the Offer. Under the Partnership Agreement, any
Unitholder is entitled, upon reasonable request, to inspect the books and
records of the Partnership during normal business hours. Any Unitholder is
entitled to a copy of the list of names and addresses of limited partners of the
Partnership, including the number of Units held by each of them.
14. DISTRIBUTIONS. For the period from inception of the Partnership
through March 31, 1996, cash distributions from operations have totalled $401.10
per Unit based on the weighted number of Units outstanding over the life of the
Partnership. A summary of distributions is as follows.
Annual Distributions Paid Per Unit.
<TABLE>
<CAPTION>
==========================================================================================================
6/1/88- 4TH
9/30/89 QUARTER
(1) 1989(2) 1990 1991 1992 1993 1994 1995 1996(3)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTIONS(4) $28.45 $12.50 $57.49 $63.28 $55.43 $47.53 $55.45 $64.28 $16.69
- ----------------------------------------------------------------------------------------------------------
RETURN OF CAPITAL (5) $28.45 $12.50 $57.49 $63.28 $55.43 $47.53 $55.45 $39.57 $6.36
==========================================================================================================
</TABLE>
(1) Based on the weighted number of Units outstanding during years 1988 and
1989.
(2) Fourth quarter distribution only.
(3) First quarter distribution only.
(4) Distributions per weighted average of all Units outstanding.
(5) $366.06 of distributions per Unit from 1988 through March 31, 1996
represented a return of capital on a GAAP basis, while $35.04 of the
distributions made in 1995 and 1996 represent a distribution of
earnings on a GAAP basis.
30
<PAGE> 35
The numbers set forth above are for an average Unit and reflects actual cash
distributions made by the Partnership for the periods represented. Due to
differences in timing between declarations of distributions and payment thereof,
payments to individual Unitholders may be more or less than as set forth above.
Unitholders entitled to quarterly distributions will receive a distribution
equal to $16.25 per Unit for the first quarter of 1996 on or around May 15,
1996. The discrepancy between the quarterly distribution and the amount noted
above results from additional distributions made to Unitholders receiving
monthly distributions in order to equalize Unitholder distributions for calendar
year 1995 (during which Unitholders receiving quarterly distributions received
amounts in excess of those paid to Unitholders receiving monthly distributions).
The sum of $401.10 per Unit distributions from operations since the
inception of the Partnership (based on the weighted number of Units) outstanding
over the life of the Partnership and the Offer Price of $720 net cash per Unit
will result in a return of approximately $1,121.10 on the original $1,000
investment per Unit invested by each initial Unitholder.
If, on or after May 16, 1996, the Partnership should (i) split, combine
or otherwise change the Units or its capitalization, (ii) issue or sell any
additional securities of the Partnership or otherwise cause an increase in the
number of outstanding securities of the Partnership, or (iii) acquire currently
outstanding Units or otherwise cause a reduction in the number of outstanding
Units, then, without prejudice to the Company's rights under Sections 1 and 12,
the Company, in its discretion, may make such adjustments in the purchase price
and the other terms of the Offer as it deems appropriate to reflect such split,
combination or other change, including the amount and type of securities offered
to be purchased.
If, on or after May 16, 1996, the Partnership should declare or pay any
distribution on the Units (other than any distribution declared and unpaid which
was accrued during the first calendar quarter of 1996) or make any distribution
(including, without limitation, the issuance of additional Units pursuant to a
Unit distribution or Unit split, the issuance of other securities or the
issuance of rights of the purchase of any securities) with respect to the Units,
that is payable or distributable to Unitholders of record on a date prior to the
transfer to the name of the Company or its nominee or transferee on the
Partnership's Unit transfer records of the Units purchased pursuant to the
Offer, then, without prejudice to the Company's rights under Section 12, (i) the
purchase price per Unit payable by the Company pursuant to the Offer shall be
reduced by the amount of any such cash dividend or cash distribution and (ii)
the whole of any non-cash dividend, distribution or right (including additional
Units or rights as aforesaid) to be received and held by a tendering Unitholder
will be received and held by the tendering Unitholders for the account of the
Company and will be required to be promptly remitted and transferred by the
tendering Unitholder to the Depositary for the account of the Company,
accompanied by appropriate documentation of transfer. Pending such remittance or
appropriate assurance thereof, the Company shall be entitled, subject to
applicable law, to all rights and privileges as owner of any such non-cash
dividend, distribution or right and may withhold the entire purchase price or
deduct from the purchase price the amount or value thereof, as determined by the
Company in its sole discretion. Distributions declared and unpaid which were
accrued during the first calendar quarter of 1996 shall be paid to each
Unitholder without reducing the purchase price per Unit payable to such
Unitholder.
15. FEES AND EXPENSES. Except as set forth below, the Company will not
pay any fees or commissions to any broker, dealer or other person for soliciting
tenders of units pursuant to the Offer. The Company will reimburse the prior
approved expenses of brokers, dealers, commercial banks and trust companies for
customary handling and mailing expenses incurred in forwarding the Offer to
their customers.
31
<PAGE> 36
Estimated costs and fees in connection with the Offer and the related
transactions are as follows:
<TABLE>
<S> <C>
Legal Fees........................................... $90,000
Accounting Fees...................................... 10,000
Printing, Mailing and Solicitation Services . . 65,000
Filing Fees.......................................... 5,024
Depositary and Tax Reporting .................. 7,500
-------
Total........................................... 177,524
</TABLE>
The Company has retained The Herman Group, Inc. to act as the
Information Agent and Depositary in connection with the Offer. The Information
Agent may contact holders of Units by mail, telephone, telex, telegraph and
personal interview and may request brokers, dealers and other nominee
Unitholders to forward materials relating to the Offer to beneficial owners of
the Units. The Information Agent and the Depositary each will receive reasonable
and customary compensation for their services in connection with the Offer, will
be reimbursed for their reasonable out-of-pocket expenses and will be
indemnified by the Company against certain liabilities and expenses in
connection with the Offer, including certain liabilities under the Federal
securities laws.
16. MISCELLANEOUS. The Offer is being made to all holders of Units. The
Company is not aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to a state statute. If the Company
becomes aware of any state where the making of the Offer is so prohibited, the
Company will make a good faith effort to comply with any such statute or seek to
have such statute declared inapplicable to the Offer. If, after such good faith
effort, the Company cannot comply with any applicable statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of Units in such state.
No person has been authorized to give any information or make any
representation on behalf of the Company or Parent not contained in this Offer,
and, if given or made, such information or representation must not be relied
upon as having been authorized. In those jurisdictions where securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the Company by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
32
<PAGE> 37
Manually signed facsimiles of the Letter of Transmittal will be
accepted. A Letter of Transmittal and any other required documents should be
sent or delivered by each Unitholder or his or her broker, dealer, commercial
bank, trust company or other nominee to the Depositary at one of its addresses
set forth below.
The Depositary for the Offer is:
THE HERMAN GROUP, INC.
--------------------------------
By Mail/Hand Delivery: By Facsimile: For Information:
2121 San Jacinto Street (214) 999-9348 (800) 747-2966
26th Floor
Dallas, Texas 75201
Any questions or requests for assistance or additional copies of the
Offer to Purchase, this Supplement and the Letter of Transmittal may be
directed to the Information Agent at its telephone number and location listed
below. You may also contact your broker, dealer, commercial bank or trust
company for assistance concerning this Offer.
The Information Agent for the Offer is:
THE HERMAN GROUP, INC.
--------------------------------
By Mail/Hand Delivery: By Facsimile: For Information:
2121 San Jacinto Street (214) 999-9348 (800) 747-2966
26th Floor
Dallas, Texas 75201
<PAGE> 1
EXHIBIT 99.8
[ARV Assisted Living, Inc. Letterhead]
================================================
IF YOU HAVE ANY QUESTIONS ABOUT THIS OFFER OR IF
YOU NEED HELP IN COMPLETING THE LETTER OF
TRANSMITTAL, PLEASE CALL THE INFORMATION AGENT,
THE HERMAN GROUP, INC., AT (800) 747-2966
================================================
June 11, 1996
Re: Tender Offer for Any and All Units of
American Retirement Villas Properties II
Dear Unitholder:
ARV Assisted Living, Inc. (the "Company") hereby amends its offer to
purchase any and all of the limited partnership units (the "Units") in American
Retirement Villas Properties II, a California limited partnership (the
"Partnership"), at a net cash price per Unit of $720 (the "Offer Price"). This
offer to purchase Units is made upon the terms and subject to the conditions set
forth in the Offer to Purchase dated May 16, 1996, as amended by the enclosed
Supplement to Offer to Purchase (the "Supplement") and in the related Letter of
Transmittal. The Offer to Purchase, this Supplement and such Letter of
Transmittal are hereinafter collectively referred to as the "Offer."
The Supplement amends and supplements the Offer to Purchase. Changes
have been made to "Special Factors -- Unitholder Considerations", "-- Fairness
of the Offer; Position of the General Partners" and "-- Appraisals", and to "The
Offer" -- Section 8. Except as set forth in the Supplement, the Offer continues
to be governed by the terms and conditions set forth in the Offer to Purchase
and related Letter of Transmittal, and the information contained therein
continues to be important to each Unitholder's decision with respect to the
Offer. Accordingly, the Supplement should be carefully read in conjunction with
the Offer to Purchase and Letter of Transmittal previously mailed to you.
If you wish to sell your Units and receive a net cash price of $720 per
Unit, please complete the enclosed Letter of Transmittal and return it in the
enclosed postage-paid envelope to the address set forth on the back cover of the
Offer to Purchase. The Offer will expire on Friday, June 21, 1996, unless
extended.
PLEASE NOTE THAT THE EXPIRATION DATE OF THE OFFER HAS BEEN EXTENDED TO
FRIDAY, JUNE 21, 1996.
UNITHOLDERS WHO HAVE PREVIOUSLY VALIDLY TENDERED UNITS AND HAVE NOT
WITHDRAWN SUCH TENDERS HAVE VALIDLY TENDERED SUCH UNITS FOR PURPOSES OF THE
OFFER AND NO FURTHER ACTION IS NECESSARY.
We thank you for your prompt attention to this matter.
Very truly yours,
ARV ASSISTED LIVING, INC.
By: /s/ Gary L. Davidson
---------------------------------------
Gary L. Davidson, Chairman of the Board
<PAGE> 1
EXHIBIT 99.9
Supplement to
Offer to Purchase for Cash
All Outstanding Limited Partnership Units
of
AMERICAN RETIREMENT VILLAS PROPERTIES II
at
$720.00 NET PER LIMITED PARTNERSHIP UNIT
by
ARV ASSISTED LIVING, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 10:00 P.M., DALLAS, TEXAS TIME,
ON FRIDAY, JUNE 21, 1996, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
June 11, 1996
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
ARV Assisted Living, Inc. (the "Company") hereby amends its offer to
purchase any and all of the limited partnership units (the "Units") in American
Retirement Villas Properties II, a California limited partnership (the
"Partnership"), at a net cash price per Unit of $720 (the "Offer Price"). This
offer to purchase Units is made upon the terms and subject to the conditions set
forth in the Offer to Purchase dated May 16, 1996, as amended by the enclosed
Supplement to Offer to Purchase (the "Supplement") and in the related Letter of
Transmittal. The Offer to Purchase, this Supplement and such Letter of
Transmittal are hereinafter collectively referred to as the "Offer."
For your information and for forwarding to your clients for whom you
hold Units registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Supplement to Offer to Purchase dated June 11, 1996;
2. Letter of Transmittal to tender Units for your use
and for the information of your clients, together with Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9;
3. A form of letter which may be sent to your clients for
whose accounts you hold Units registered in your name or in the name of
your nominee, with space provided for obtaining such clients'
instructions with regard to the Offer; and
4. Return envelope addressed to The Herman Group, Inc.
(the "Depositary").
<PAGE> 2
Except as set forth in the Supplement, the Offer continues to be
governed by the terms and conditions set forth in the Offer to Purchase and
related Letter of Transmittal, and the information contained therein continues
to be important to each Unitholder's decision with respect to the Offer.
Accordingly, the Supplement should be carefully read in conjunction with the
Offer to Purchase and Letter of Transmittal previously mailed to you. Changes
have been made to "Special Factors -- Unitholder Considerations", "-- Fairness
of the Offer; Position of the General Partners" and "-- Appraisals", and to "The
Offer" -- Section 8.
We are asking you to contact the clients for whom you hold Units
registered in your name (or in the name of a nominee) or who hold Units
registered in their own name. Please bring the Supplement to the Offer to
Purchase to the attention of your clients as promptly as possible. The Company
will not pay any fees or commissions to any broker or dealer or any other person
(other than the Depositary and the Information Agent) in connection with the
solicitation of tenders of Units pursuant to the Offer. You will be reimbursed
by the Company, upon request, for customary mailing and handling expenses
incurred by you in forwarding any of the enclosed materials to your clients. The
Company will pay or cause to be paid all Unit transfer taxes applicable to the
purchases of Units pursuant to the Offer.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or a facsimile copy thereof), and any other
required documents, should be sent to the Depositary, in accordance with the
instructions set forth in the Letter of Transmittal and the Offer to Purchase.
UNITHOLDERS WHO HAVE PREVIOUSLY VALIDLY TENDERED UNITS AND HAVE NOT
WITHDRAWN SUCH TENDERS HAVE VALIDLY TENDERED SUCH UNITS FOR PURPOSES OF THE
OFFER AND NO FURTHER ACTION IS NECESSARY.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 10:00 P.M.,
DALLAS, TEXAS TIME, ON FRIDAY, JUNE 21, 1996, UNLESS EXTENDED.
PLEASE NOTE THAT THE COMPANY HAS EXTENDED THE EXPIRATION DATE FOR THE
OFFER TO FRIDAY, JUNE 21, 1996.
Any inquiries you may have with respect to the Offer should be
addressed to, and additional copies of the enclosed materials may be obtained
from, the Information Agent at the address and telephone number set forth on the
back cover of the Offer to Purchase.
Very truly yours,
ARV ASSISTED LIVING, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY OTHER PERSON AS THE AGENT OF THE COMPANY, ANY AFFILIATE OF THE
COMPANY OR THE INFORMATION AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE
ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH
THE OFFER EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE OFFER TO PURCHASE, THE
SUPPLEMENT OR THE LETTER OF TRANSMITTAL.
2
<PAGE> 1
Exhibit 99.10
Supplement to
Offer to Purchase for Cash
All Outstanding Limited Partnership Units
of
AMERICAN RETIREMENT VILLAS PROPERTIES II
at
$720.00 NET PER LIMITED PARTNERSHIP UNIT
by
ARV ASSISTED LIVING, INC.
To Our Clients:
Enclosed for your consideration is a supplement dated June 11, 1996 to
the Offer to Purchase dated May 16, 1996 and the related Letter of Transmittal
(which together constitute the "Offer") in connection with the offer by ARV
Assisted Living, Inc., a California corporation (the "Company"), to purchase all
of the outstanding limited partnership units ("Units") of American Retirement
Villas Properties II, a California limited partnership (the "Partnership"), at a
price of $720.00 per Unit, net to the seller in cash and without interest (the
"Offer Price").
WE ARE THE HOLDER OF RECORD OF UNITS HELD FOR YOUR ACCOUNT. A TENDER OF
SUCH UNITS CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS. THE SPECIMEN LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER UNITS HELD BY US FOR YOUR
ACCOUNT.
We request instructions as to whether you wish us to tender any or all
of the Units held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Please note the following:
1. Except as set forth in the Supplement, the Offer continues
to be governed by the terms and conditions set forth in the Offer to
Purchase and related Letter of Transmittal, and the information
contained therein continues to be important to each Unitholder's
decision with respect to the Offer. Accordingly, the Supplement should
be carefully read in conjunction with the Offer to Purchase and Letter
of Transmittal previously mailed to you. Changes have been made to
"Special Factors -- Unitholder Considerations", "-- Fairness of the
Offer; Position of the General Partners" and "-- Appraisals", and to
"The Offer" -- Section 8.
2. The tender price is $720.00 per Unit, net to you in cash
and without interest.
3. The Offer and withdrawal rights expire at 10:00 p.m.,
Dallas, Texas time, on Friday, June 21, 1996, unless the Offer is
extended. PLEASE NOTE THAT THE EXPIRATION DATE OF THE OFFER HAS BEEN
EXTENDED FROM FRIDAY, JUNE 14, 1996 TO FRIDAY, JUNE 21, 1996.
<PAGE> 2
4. The Offer is not conditioned upon a minimum number of
Units being validly tendered.
5. The general partners of the Partnership are Gary L.
Davidson, the Chairman of the Board of the Company, John A. Booty, the
President of the Company, John S. Jason, a shareholder of the Company,
Tony Rota, a shareholder of the Company, and the Company (the "General
Partners"). The Company is the managing partner of the Partnership. The
General Partners believe the Offer Price is fair and in the best
interests of Unitholders. THE GENERAL PARTNERS HAVE CONFLICTS OF
INTEREST IN THIS TRANSACTION.
6. Tendering Unitholders will not be obligated to pay
brokerage fees or commissions or Unit transfer taxes on the purchase of
Units by the Purchaser pursuant to the Offer.
If you wish to have us tender all or any of the Units held by us for
your account, please so instruct us by completing, executing, detaching and
returning to us the instruction form on the detachable part of this letter. An
envelope to return your instructions to us is enclosed. If you authorize tender
of your Units, all such Units will be tendered unless otherwise specified on the
detachable part of this letter. Your instructions should be forwarded to us in
ample time to permit us to submit a tender on your behalf by the expiration of
the Offer.
UNITHOLDERS WHO HAVE PREVIOUSLY VALIDLY TENDERED UNITS AND HAVE NOT
WITHDRAWN SUCH TENDERS HAVE VALIDLY TENDERED SUCH UNITS FOR PURPOSES OF THE
OFFER AND NO FURTHER ACTION IS NECESSARY.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, Unitholders in any jurisdiction in which the making of the Offer or
acceptance thereof would not be in compliance with the laws of such
jurisdiction. In any jurisdiction the securities laws or blue sky laws of which
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Company by one or more registered brokers or
dealers which are licensed under the laws of such jurisdiction.
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<PAGE> 3
INSTRUCTIONS WITH RESPECT TO
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING LIMITED PARTNERSHIP UNITS
OF
AMERICAN RETIREMENT VILLAS PROPERTIES II
The undersigned acknowledge(s) receipt of your letter, the Offer to
Purchase dated May 16, 1996, the enclosed Supplement to Offer to Purchase
dated June 11, 1996 and the related Letter of Transmittal, in connection with
the offer by ARV Assisted Living, Inc. to purchase all outstanding limited
partnership units (the "Units") of American Retirement Villas Properties II.
This will instruct you to tender the number of Units indicated below
held by you for the account of the undersigned upon the terms and subject to the
conditions set forth in the Offer to Purchase and the related Letter of
Transmittal.
- ------------------------------- -------------------------------------------
Number of Units to be tendered: SIGN HERE
Units*
- ------------------ -------------------------------------------
Signature(s)
-------------------------------------------
-------------------------------------------
-------------------------------------------
Please print name(s) and address(s) here
Dated:
------------------------- -------------------------------------------
Taxpayer identification or
Social Security Number(s)
- ------------------------------- -------------------------------------------
- --------------------------
* Unless otherwise indicated, it will be assumed that all Units held by us for
your account are to be tendered.
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