ILM II SENIOR LIVING, INC.
28 State Street, Suite 1100
Boston, Massachusetts 02109
June 17, 1998
Dear Shareholder:
You will be receiving materials shortly (if you have not already received
them) from Redwood Investors, LLC, a Delaware limited liability company
("Redwood"), offering (the "Offer") to purchase up to 500,000 shares (the
"Shares") (approximately 9.65%) of the issued and outstanding shares of common
stock (the "Common Stock") of ILM II Senior Living, Inc. (the "Company") at a
purchase price of $8.00 per Share (the "Offer Price"). Enclosed is a copy of the
Company's Statement on Schedule 14D-9 which was filed with the Securities and
Exchange Commission and sets forth the Company's response to the Offer.
THE BOARD OF DIRECTORS BELIEVES THAT THE PURCHASE PRICE OF $8.00 PER SHARE
IS FINANCIALLY INADEQUATE RELATIVE TO THE UNDERLYING NET ASSET VALUE OF YOUR
SHARES AND THAT REDWOOD IS INTERESTED IN PAYING THE LOWEST POSSIBLE PRICE FOR
YOUR SHARES, IN ORDER TO MAXIMIZE ITS PROFITS AT YOUR EXPENSE. WE BELIEVE THAT
BY ACCEPTING REDWOOD'S OFFER FOR YOUR SHARES, YOU WILL NOT BE ABLE TO FULLY
REALIZE THE VALUE OF YOUR SHARES.
The Company engaged the investment banking firm of Schroder & Co. Inc.
("Schroders") to render its opinion to the Company's Board of Directors as to
the fairness of the Offer Price from a financial point of view. On June 17,
1998, Schroders rendered its opinion to the effect that, as of the date of such
opinion, the Offer Price is inadequate, from a financial point of view, to the
shareholders of the Company.
References in this letter to Schroders' opinion are qualified in their
entirety by reference to the full text of Schroders' opinion letter which is
annexed to the Schedule 14D-9 which accompanies this letter. Shareholders should
read Schroders' opinion letter in its entirety for information with respect to
the procedures followed, assumptions made, matters considered and limitations on
the review undertaken by Schroders in rendering its opinion. Schroders' opinion
was provided at the request and for the information of the Board of Directors in
evaluating the Offer Price and does not constitute a recommendation as to any
action any shareholder should take or refrain from taking in connection with the
tender offer or any aspect thereof or alternatives thereto. Specifically,
Schroders' opinion does not constitute a recommendation that
<PAGE>
any shareholder not tender stock and should not be relied on by any shareholder
as such. In rendering its opinion, Schroders was not engaged as an agent or
fiduciary of the shareholders of the Company and Schroders' opinion does not
confer any rights or remedies upon the shareholders.
The Company shall pay Schroders a mutually agreed upon fee not in excess
of the fees customarily paid for similar services. The Company also agreed to
reimburse Schroders' for its out-of-pocket expenses and to indemnify Schroders
against certain expense and liabilities in connection with its engagement.
Schroders previously had been retained by the Company as its financial
advisor (the "Engagement") in connection with an examination of various
alternatives for maximizing shareholder values, and in connection therewith any
sale of the Company to a third party which the Company may determine to pursue.
Contingent upon the consummation of such a transaction, the Company agreed to
pay to Schroders a customary success fee. Schroders is an internationally
recognized investment banking firm with experience in the valuation of companies
and their securities in connection with mergers, acquisitions, sales and
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The extensive experience of
Schroders' health care investment banking group in providing corporate finance
and advisory services to companies in the long-term care industry and, more
specifically, to the Company were the significant factors in the Company's
decision to select Schroders to render its opinion in connection with the Offer.
The Company has achieved substantial increases in cash flow and value for
ILM II shareholders during fiscal year 1997:
o Property revenues were up by more than 9%;
o Cash flow from the properties after capital expenditures improved by
more than 20%;
o Property management fees were 2% lower than the fees for the
previous year;
o The dividend rate has been increased by 50% since the end of fiscal
year 1996.
As reported in its quarterly reports, the Company is implementing several
programs which are designed to further increase cash flow and value for the
shareholders. As a result, the Company expects to achieve further dividend
increases during the current fiscal year.
Before making a decision to tender your Shares to Redwood, you should
carefully read the enclosed Schedule 14D-9 in its entirety and consider all the
information that we have previously provided to you, including our most recent
quarterly report. Bear in mind especially the following:
o The Offer Price offered by Redwood is inadequate from a financial
point of view based on the Schroders opinion.
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o Redwood did not retain an independent person to evaluate or render
any opinion with respect to the fairness of the Offer Price or the
terms of the Offer.
o The Offer Price offered by Redwood is significantly below the 1996
year-end estimated net asset valuation that was prepared by
PaineWebber Properties Incorporated of $9.69 per Share. This
estimated net asset value is based on the Company's interests in its
real estate investments and was reviewed by an independent
appraiser. Although this valuation is not recent, based on the
improved financial performance of the Company as described above,
the Company believes that the Share value has increased since the
PaineWebber valuation. Even taking into account that this is an
estimate and is not necessarily indicative of the amount you would
receive upon a liquidation of the Company's assets, Redwood's Offer
Price of $8.00 per Share is so significantly below this estimate
that we believe that the Offer Price is inadequate.
o The Purchaser's Offer Price is also lower than recent secondary
market resale prices. According to information cited in Redwood's
Offer to Purchase, the Company's Shares were sold between March 1,
and April 30, 1998 at a high of $9.08 a low of $8.05 and a weighted
average of $8.55. Because these numbers are based on only 10,493
Shares being traded in 6 transactions, prices obtained from such
secondary market transactions, may not reflect a current estimated
value of the Shares nor what shareholders would receive upon
liquidation of the Company.
o Shareholders who sell their Shares to Redwood will be foregoing the
possibility of participating in any future dividends or other
distributions from the Company or in any appreciation in the value
of the Shares, even though there can be no assurance that Redwood
will pay for the Shares on a timely basis.
o There have been two other recent limited tender offers to purchase
Shares, one for $7.50 per share and the second for $7.25 per share,
both by third parties believed to be unrelated to Redwood.
o Other options may be available to you if you are interested in
selling your Shares. To sell your Shares, you should contact a
registered securities broker who may assist you in listing your
Shares for sale on a secondary resale market. There can, however, be
no assurance as to whether, when or at what price you will be able
to sell your Shares through a secondary market resale.
You should weigh these factors against the following:
- If you need immediate liquidity, a sale of your Shares to Redwood may be
your fastest means of liquidating your investment because there is no
public market for the Shares and there are very few trades.
- Continuing to hold the Shares subjects you to the risk of loss or
decrease in value of your investment. The Company is subject to, among
other things, the risks related to the
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health care industry and the risks resulting from pending litigation
which, although the Company believes these claims are without merit and is
appealing certain decisions, nevertheless such litigation could affect the
value of the Shares.
Please consider all of the factors discussed in this letter before
deciding how to respond to the Offer. On balance your Board of Directors
recommends that you not tender your Shares to Redwood pursuant to the Offer.
If you tender your Shares according to the agreement of sale which you
would be entering into with Redwood, all dividend payments and distributions
following May 1, 1998 will be payable to Redwood even though you may not receive
full payment from Redwood for your Shares until a later date. You should consult
your personal tax and legal advisors as to your personal situation prior to
accepting the Offer and tendering your Shares. No action regarding the Offer is
necessary if you wish to retain your Shares.
Your Board of Directors will continue to act in the manner that it
believes is in the best interests of the Company and the shareholders. We
encourage you to call our Information Agent, D.F. King & Co. Inc., at
800-431-9629, with any questions you may have.
Sincerely,
The Board of Directors of
ILM II Senior Living, Inc.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to Section
14(d)(4) of the Securities Exchange Act of 1934
-------------------
ILM II SENIOR LIVING, INC.
(Name of Subject Company)
-------------------
ILM II SENIOR LIVING, INC.
(Name(s) of Person(s) Filing Statement)
Shares of Common Stock $.01 Par Value
(Title of Class of Securities)
-------------------
None
(CUSIP Number of Class of Securities)
-------------------
Lawrence A. Cohen
President and Chief Executive Officer
ILM II Senior Living, Inc.
28 State Street, Suite 1100
Boston, MA 02109
(888) 257-3550
(Name, Address and Telephone Number of Persons Authorized
to Receive Notices and Communications on Behalf of the
Person(s) Filing Statement)
-------------------
With a copy to:
Judith D. Fryer, Esq.
Greenberg Traurig Hoffman Lipoff Rosen & Quentel
200 Park Avenue
New York, New York 10166
(212) 801-9200
<PAGE>
Item 1. Security and Subject Company.
This Schedule 14D-9 (the "Statement") relates to shares of common stock,
$.01 par value per share (the "Common Stock"), of the subject company, ILM II
Senior Living, Inc., a Virginia corporation (the "Company"). The address of the
principal executive offices of the Company is 28 State Street, Suite 1100,
Boston, Massachusetts 02109.
Item 2. Tender Offer of the Bidder.
This Statement relates to an unsolicited tender offer disclosed in a Tender
Offer Statement on Schedule 14D-1, dated June 4, 1998, filed by Redwood
Investors, LLC, a Delaware limited liability company (the "Purchaser"), to
purchase up to 500,000 outstanding shares of Common Stock (the "Shares")
representing approximately 9.65 percent of the outstanding shares of Common
Stock, at a price of $7.00 per share, as amended by Amendment No. 1 to the
Schedule 14D-1 dated June 11, 1998 (the "Schedule 14D-1") to increase the price
to $8.00 per Share (the "Offer Price"), net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in an Amended
Offer to Purchase dated June 11, 1998 (the "Offer to Purchase") and the related
cover letter and agreement of sale, as each may be supplemented or amended from
time to time (which together constitute the "Offer"). The Offer to Purchase
states that the Purchaser was organized for the purpose of acquiring the Shares
pursuant to the Offer. The Manager of the Purchaser is Arlen Capital, LLC, a
California limited liability company (the "Manager"), which is controlled by its
two members, Don Augustine and Lynn T. Wells. None of the Purchaser, its Manager
or their affiliates are affiliated with the Company. The Offer to Purchase
states that the address of the principal executives offices of the Purchaser and
its Manager is 1650 Hotel Circle North, Suite 200, San Diego, California 92108.
Item 3. Identity and Background.
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements, or understandings
between the Company and its executive officers, directors or affiliates are
described in the sections entitled "Related Transactions" and "Compensation of
Directors and Executive Officers" on pages 9-11 of the Company's Proxy Statement
for the Annual Meeting of Shareholders (the "Annual Meeting") to be held on July
7, 1998 (the "Proxy Statement"). A copy of the relevant portions of the Proxy
Statement is filed as Exhibit 1 hereto and the portions of such Proxy Statement
referred to above are incorporated herein by reference.
(2) To the best knowledge of the Company, there are no material contracts,
agreements, arrangements or understandings, or any actual or potential conflicts
of interest, between the Company, its executive officers, directors or
affiliates, on the one hand, and the Purchaser, the Manager, or the executive
officers, directors or affiliates of either the Purchaser or the Manager, on the
other hand.
Item 4. The Solicitation or Recommendation.
(a) At a meeting of the Board of Directors of the Company (the "Board")
held on June 16, 1998 (the "June 16 Meeting"), the Board carefully considered
the Company's business, financial condition and prospects, the terms and
conditions of the Offer and other matters, including presentations by its legal
and financial advisors.
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<PAGE>
At the June 16 Meeting, the members of the Board unanimously
concluded, among other things, that the Offer is inadequate and not in the best
interests of the Company and its shareholders. Accordingly, the Board
unanimously recommends that the Company's shareholders reject the Offer and not
tender their Shares pursuant to the Offer.
(b) In reaching the conclusions referred to in Item 4(a), the Board took
into account numerous factors, including but not limited to the following:
(i) The Board considered, among other things, the business,
financial condition, prospects and current business strategy of the
Company, and the nature of the Company's properties and concluded that the
Offer does not reflect the underlying net asset value of the Shares. In
this regard, the Board particularly considered the fact that the Company
has achieved substantial increases in cash flow and value for the
Company's shareholders during fiscal year 1997:
o The Company's property revenues were more than 9% higher than
the prior year.
o Cash flow from the Company's properties after capital
expenditures improved by more than 20% from the prior year.
o Property management fees were 2% lower than the fees for the
prior year.
o The Company's dividend rate has been increased by 50% since
the end of fiscal year 1996.
(ii) The opinion of Schroder & Co. Inc. ("Schroders"), the Company's
financial advisor, that the Offer Price is inadequate, from a financial
point of view, to the shareholders (the "Schroders Opinion"). Such opinion
is based on various assumptions and subject to various limitations as
discussed in the opinion. A copy of the Schroders Opinion is attached
hereto as Exhibit 3 and is incorporated herein by reference. Shareholders
are urged to read the Schroders Opinion carefully in its entirety.
(iii) All dividend payments and distributions by the Company from
May 1, 1998 and later will be payable to the Purchaser rather than the
tendering shareholders who otherwise would be entitled to such payment.
(iv) The Offer Price is lower than recent secondary market resale
prices of the Shares.
(v) There are other options available to shareholders who are
interested in selling their Shares.
(vi) As previously disclosed by the Company in its Annual Report on
Form 10-K for the fiscal year ended August 31, 1997 (the "Form 10-K"), the
Company is continuing to review various transactions in order to enhance
shareholder equity, including mergers and other business combinations
which, based on evaluations of its financial advisor, would provide
greater value to the Company's shareholders than the Offer Price under the
Offer.
3
<PAGE>
(vii) The Offer is subject to conditions which are in the discretion
of the Purchaser, and can be changed.
(viii) The Offer Price offered by the Purchaser is significantly
below the 1996 year-end estimated net asset valuation of $9.69 per Share
that was prepared by PaineWebber Properties Incorporated.
(ix) There have been other recent limited tender offers for the
Shares which have been at equal or higher prices. In May 1998, an offer
was made by an unaffiliated party at $7.50 per Share and in November 1997,
an offer was made by an unaffiliated party at $7.25 per Share.
The foregoing discussion of the information and factors considered
by the Board is not intended to be exhaustive but includes all material factors
considered by the Board. The Board did not assign relative merits to the
foregoing factors or determine that any factor was of particular importance, and
individual directors may have given differing weights to different factors.
Rather, the Board viewed its position and recommendation as being based on the
totality of the information presented to and considered by it.
Item 5. Persons Retained, Employed or to Be Compensated.
The Company has retained Schroders as the Company's financial
advisor in connection with the evaluation of and response to the Offer and other
matters arising in connection therewith. In addition, the Company has retained
D.F. King & Co., Inc. ("D.F. King") to assist the Company in connection with its
communications with shareholders with respect to, and to provide other services
to the Company in connection with, the Offer.
(a) Schroders & Co. Inc.
Pursuant to a letter agreement dated June 16, 1998 which confirms
arrangements made on June 11, 1998 (the "Letter Agreement"), the Company
retained Schroders as its financial advisor with respect to the Offer and such
engagement is limited to Schroders rendering an opinion with respect thereto.
Pursuant to the Letter Agreement, the Company shall pay to Schroders a mutually
agreed upon fee not in excess of the fees customarily paid for similar services
(the "Advisory Fee").
The Company has also agreed to reimburse Schroders for all
reasonable out-of-pocket expenses, including the fees and disbursements of legal
counsel arising in connection with its engagement by the Company. In addition,
the Company has agreed to indemnify Schroders against certain liabilities,
including liabilities under the federal securities laws.
The Company previously engaged Schroders (the "Engagement") as its
financial advisor in connection with an examination of various alternatives for
maximizing shareholder values, and in connection with any sale of the Company to
a third party, which the Company determines to pursue. Contingent upon the
consummation of such a transaction, the Company agreed to pay Schroders a
customary success fee. The Advisory Fee will not be credited against any fees
payable to Schroders pursuant to the Engagement.
(b) D.F. King & Co., Inc.
The Company has also retained D.F. King to assist the Company in
connection with its communications with shareholders with respect to, and to
provide other services to the Company in
4
<PAGE>
connection with, the Offer. The Company will pay D.F. King reasonable and
customary compensation for its services and will reimburse D.F. King for its
reasonable out-of-pocket expenses incurred in connection therewith. In addition,
D.F. King has been engaged to solicit proxies for voting at the Company's 1998
Annual Meeting for a fee of approximately $5,000.
Except as disclosed herein, neither the Company nor any person
acting on its behalf currently intends to employ, retain or compensate any other
person to make solicitations or recommendations to shareholders on its behalf
concerning the Offer.
Item 6. Recent Transactions and Intent with Respect to Securities.
(a) To the best of the Company's knowledge, no transaction in the Common
Stock has been effected during the past 60 days by the Company or by any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, none of the Company's
executive officers, directors, affiliates or subsidiaries presently intends to
tender to the Purchaser pursuant to the Offer or sell any shares of Common Stock
that are held of record or beneficially owned by such persons, but rather such
persons presently intend to continue to hold such securities.
Item 7. Certain Negotiations and Transactions of the Subject Company.
(a) The Company had been considering a merger of the Company and its
affiliate, ILM Senior Living, Inc., and other business combinations prior to
commencement of the Offer and continues to consider alternative structures for
enhancing shareholder value. Such alternative structures could also include a
reorganization, strategic acquisition or transfer of assets or stock. Pursuant
to the Engagement, Schroders is serving as the Company's financial advisor in
connection with this analysis and Schroders has performed in depth analysis of
such alternatives. The Company has stated in the Form 10-K that the Company has
not fully evaluated any of these alternatives and is not in a position at this
time to recommend any actions to the shareholders.
Except as contemplated by the prior paragraph, no negotiation is
being undertaken or is underway by the Company in response to the Offer which
relates to or would result in:
(1) An extraordinary transaction such as a merger or
reorganization, involving the Company or any subsidiary of the
Company;
(2) A purchase, sale or transfer of a material amount of assets by
the Company or any subsidiary of the Company;
(3) A tender offer for or other acquisition of securities by or of
the Company; or
(4) Any material change in the present capitalization or dividend
policy of the Company.
(b) The Company has not entered into any transaction, board resolution,
agreement in principle or signed contract in response to the Offer which relates
to or would result in one or more of the matters referred to in Item 7(a)(1),
(2), (3) or (4).
5
<PAGE>
Item 8. Additional Information to Be Furnished.
(a) Articles of Incorporation and By-laws.
The Company's Articles of Incorporation and By-laws restrict any
single shareholder from holding more than 9.8 percent of the Company's total
outstanding shares of Common Stock, unless the person acquiring such "excess
shares" provides the independent directors of the Company's Board with evidence
that the Company's qualification as a Real Estate Investment Trust will not be
jeopardized.
(b) Virginia Affiliated Transactions Statute.
The Virginia affiliated transactions statute (Article 14, Va. Code
Sec. 13.1-725 et seq.) (the "Virginia Affiliated Transactions Statute") is not
expected to affect the Purchaser's Offer because the Purchaser is seeking to
acquire less than 10% of the outstanding shares of Common Stock and, with one
exception, the Company's By-Laws restrict ownership of more than 9.8% of the
Company's outstanding shares of Common Stock by one investor. Nevertheless, were
the Purchaser and its affiliates to acquire more than 10% of the Company's
outstanding Common Stock, the Virginia Affiliated Transactions Statute, could
have the effect of significantly delaying the Purchaser's ability to acquire the
entire equity interest in the Company.
In general, the Virginia Affiliated Transactions Statute prevents
the Company from engaging in any "affiliated transaction" (defined as a variety
of transactions, including mergers, as set forth below) with any "interested
shareholder" (defined generally as a person who "beneficially owns" (as such
term is defined in the Virginia Affiliated Transactions Statute) more than ten
percent (10%) of any class of the Company's outstanding voting shares or an
"affiliate" or "associate" (as such terms are defined in the Virginia Affiliated
Transactions Statute) of the Company and at any time within the preceding three
years was an interested shareholder of the Company) for three years following
the date such person became an interested shareholder (the "determination date")
unless such transaction is approved by the affirmative vote of a majority (but
not less than two) of the "disinterested directors" of the Board of Directors of
the Company and by the affirmative vote of the holders of two-thirds of the
voting shares other than shares beneficially owned by the interested
shareholder. For purposes of the Virginia Affiliated Transactions Statute, a
"disinterested director" means with respect to any interested shareholder (i)
any member of the Board of Directors of the Company who was a member of the
Board of Directors before the later of January 1, 1988 and the determination
date, and (ii) any member of the Board of Directors of the Company who was
recommended for election by, or was elected to fill a vacancy and received the
affirmative vote of, a majority of the disinterested directors then on the
Board.
The Virginia Affiliated Transactions Statute provides that during
the three-year period following the date a person becomes an interested
shareholder, the Company may not merge with an interested shareholder or with
any other corporation that immediately after the merger would be an "affiliate"
(as such term is defined in the Virginia Affiliated Transactions Statute) of any
interested shareholder that was an interested shareholder immediately before the
merger. In addition, during this three-year period, the Company may not engage
in certain other transactions, including, without limitation, (i) any share
exchange pursuant to Sec. 13.1-717 of the Virginia Stock Corporation Act in
which an interested shareholder acquires voting shares of the Company or any of
its subsidiaries, (ii) except for transactions in the ordinary course of
business, any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
interested shareholder of any assets of the corporation or of any of its
subsidiaries having an aggregate market value in excess of five percent (5%) of
the Company's consolidated net worth as of the date of the most recently
available financial statements, or any guaranty by the Company or any of its
subsidiaries of indebtedness of any interested shareholder in an amount in
excess of five percent (5%) of the Company's consolidated net worth as of the
date of the most
6
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recently available financial statements, (iii) the sale or other disposition by
the Company or any of its subsidiaries to an interested shareholder (in one
transaction or in a series of transactions) of any voting shares of the Company
or any of its subsidiaries having an aggregate fair market value in excess of
five percent (5%) of the aggregate fair market value of all outstanding voting
shares of the Company as of the determination date except pursuant to a share
dividend or the exercise of rights or warrants distributed or offered on a basis
affording substantially proportionate treatment to all holders of the same class
or series of voting shares, (iv) the dissolution of the Company if proposed by
or on behalf of an interested shareholder, or (v) any reclassification of
securities, including any reverse stock split, or recapitalization of the
Company, or any merger of the Company with any of its subsidiaries or any
distribution or other transaction, whether or not with or into or otherwise
involving an interested shareholder, which has the effect, directly or
indirectly (in one transaction or a series of transactions), of increasing by
more than five percent (5%) the percentage of the outstanding voting shares of
the Company or any of its subsidiaries beneficially owned by any interested
shareholder.
According to the Offer to Purchase, the Purchaser beneficially owns
less than 1% and is seeking to acquire approximately 9.65% of the total number
of shares of Common Stock outstanding as of June 4, 1998. Although the Purchaser
has stated in the Offer to Purchase that it does not have any present plans or
intentions to effect a change in management or any plans with respect to a
liquidation, sale of assets or refinancing of the Company's properties, it also
states that the Purchaser and its affiliates may acquire additional shares of
Common Stock. If the Purchaser makes any acquisition of shares of Common Stock
that causes it to become an interested shareholder without approval by a
majority of the disinterested directors prior to the Purchaser's determination
date or if the Purchaser proposes a merger not approved by the affirmative vote
of a majority (but not less than two) of the disinterested directors of the
Board of Directors of the Company and by the affirmative vote of the holders of
two-thirds of the voting shares other than shares beneficially owned by the
interested shareholder, the Purchaser will be unable to effect a merger with the
Company until three years after such determination date and will be prevented
from engaging, or causing the Company to engage, in certain transactions during
such period.
The foregoing description of the Virginia Affiliated Transactions
Statute is qualified in its entirety by reference to the Virginia Affiliated
Transactions Statute.
(c) Virginia Control Share Acquisitions Statute.
Under certain circumstances, the Virginia Control Share Acquisitions
Statute (Article 14, Va. Code Secs. 13.1-728.1 et seq.) (the "Virginia Control
Share Acquisitions Statute") may have the effect of eliminating all voting
rights attached to shares acquired by the Purchaser, and may subject such shares
to redemption by the Company.
In summary terms, a "control share acquisition" is the direct or
indirect acquisition, other than an "excepted acquisition" (as defined in the
Virginia Control Share Acquisitions Statute), by any person of "beneficial
ownership" (as defined in the Virginia Control Share Acquisitions Statute) of
shares of the Company that, except for the Virginia Control Share Acquisitions
Statute, would have voting rights and would, when added to all other shares of
the Company which then have voting rights and are beneficially owned by such
person, cause such person to become entitled, immediately upon acquisition of
such shares, to vote or direct the vote of, shares having voting power within
any of
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<PAGE>
the following ranges of the votes entitled to be cast in an election of
directors: (i) one-fifth or more but less than one-third of such votes; (ii)
one-third or more but less than a majority of such votes; or (iii) a majority or
more of such votes.
Pursuant to the Virginia Control Share Acquisitions Statute, shares
acquired in a control share acquisition have no voting rights unless voting
rights are granted by resolution of the shareholders of the Company. For such a
resolution to be adopted, it must be approved by a majority of all the votes
which could be cast in a vote on the election of directors by all the
outstanding shares other than "interested shares." Interested shares are not
entitled to vote on the resolution and, for purposes of determining whether a
quorum exists, are disregarded. "Interested shares" means the shares of the
Company the voting power of which in an election of directors may be exercised
or directed by any of the following persons: (i) a person who has made or
proposes to make a control share acquisition (an "acquiring person") with
respect to a control share acquisition, (ii) any officer of the Company, or
(iii) any employee of the Company who is also a director of the Company.
An acquiring person may, after any control share acquisition or
before any proposed one, deliver a control share acquisition statement to the
Company setting forth, among other things, certain information regarding the
acquiring person, its holdings of shares of the Company and details of such
person's control share acquisition or proposed control share acquisition. If the
acquiring person so requests at the time of delivery of a control share
acquisition statement and gives an undertaking to pay the Company's expenses of
a special meeting, within ten (10) days thereafter the directors of the Company
shall (subject to certain limited exceptions) call a special meeting of
shareholders for the purposes of considering the voting rights to be granted the
shares acquired or to be acquired in the control share acquisition. Such a
special meeting shall be held within fifty days after receipt by the Company of
such request (subject to certain conditions and notice requirements set forth
therein).
Although the Purchaser has stated in the Offer to Purchase that it
and its affiliates may acquire additional shares of the Common Stock, the
Purchaser and/or its affiliates must make a "control share acquisition" in order
for this statute to be applicable to the Purchaser's shares of Common Stock.
The foregoing description of the Virginia Control Share Acquisitions
Statute is qualified in its entirety by reference to the Virginia Control Share
Acquisitions Statute.
(d) Litigation.
There is currently no pending litigation filed against the Company
or by the Company in connection with the Offer. There is, however, other pending
litigation against the Company.
On July 29, 1996 ILM II Lease Corporation ("Lease II") and ILM II
Holding, Inc. ("ILM II Holding"), a subsidiary of the Company (collectively for
this discussion, with Lease II and ILM II Holding, the "Companies") terminated
the property management agreement ("Agreement") with Angeles Housing Concepts,
Inc. ("AHC") covering the six senior housing facilities (the "Senior Housing
Facilities") then leased by the Companies. Such Agreement was terminated for
cause pursuant to Sections 1.05(a)(i), and (iii) and (iv) of the Agreement.
Simultaneously with the termination of the Agreement, the Companies, together
with certain affiliated entities, filed suit against AHC in the United States
District Court for the Eastern District of Virginia for breach of contract,
breach of fiduciary duty and fraud (the "Virginia Litigation"). In November
1996, AHC filed with Virginia District Court an Answer in response to the
litigation initiated by the Companies and a Counterclaim against ILM Holding.
The Counterclaim alleges that the Agreement was wrongfully terminated for cause
and requested damages which include
8
<PAGE>
the payment of the termination fee in the amount of $750,000, payment of
management fees pursuant to the Agreement from August 1, 1996 through October
15, 1996, which is the earliest date that the Agreement could have been
terminated without cause, and recovery of attorney's fees and expenses. The
aggregate amount of damages against all parties are requested in AHC's
Counterclaim exceeds $2,000,000. The Company has guaranteed the payment of the
termination fee at issue in these proceedings to the extent that any termination
fee is deemed payable by the court and in the event that Lease II fails to
perform pursuant to its obligations under the Agreement. On June 13, 1997 and
July 8, 1997, the court issued orders purporting to enter judgement against the
Company and ILM Senior Living Inc. ("ILM") in the amounts of $1,000,000 (the
"Orders"). On July 10, 1997, the Company, ILM, Lease II and ILM I Lease
Corporation ("Lease I") filed a notice of appeal to the United States Court of
Appeals for the Fourth Circuit from the Orders.
On February 4, 1997, AHC filed a complaint in the Superior Court of
the State of California against Capital Senior Living, Inc., an affiliate of
Capital Senior Management 2, Inc. ("Capital"), the Company's property manager,
Lawrence A. Cohen, a director and the President and Chief Executive Officer of
the Company, and others alleging that the defendants intentionally interfered
with AHC's Agreement (the "California Litigation"). The complaint sought damages
of at least $2,000,000. On March 4, 1997, the defendants moved the case to the
Federal District Court in the Central District of California. At a Board meeting
on February 26, 1997, the Company's Board of Directors concluded that since all
of Mr. Cohen's actions relating to the California Litigation were taken either
on behalf of the Company under the direction of the Board or as a PaineWebber
employee, the Company or its affiliates should indemnify Mr. Cohen with respect
to any expenses arising from the California Litigation, subject to any insurance
recoveries for those expenses. The Company's Board also concluded that, subject
to certain conditions, the Company or its affiliates should advance up to
$20,000 to pay reasonable legal fees and expenses incurred by Capital in the
California Litigation. Subsequently, the boards of directors of Lease I and
Lease II voted to increase the maximum amount of the advance to Capital to
$100,000. By the end of November 1997, Capital had incurred $100,000 of legal
expenses in the California Litigation. On February 2, 1998, the amount to be
advance to Capital was increased to include 75% of the California Litigation
legal fees and costs incurred by Capital for December 1997 and January 1998,
plus 75% of cash legal fees and costs incurred by Capital thereafter, not to
exceed $500,000. The Company intends to vigorously defend its interests in the
Virginia Litigation.
On May 8, 1998, Andrew A. Feldman and Jeri Feldman, as Trustees for
the Andrew A. & Jeri Feldman Revocable Trust Dated 9/18/90, commenced a
purported class action on behalf of that trust and all other shareholders of the
Company and ILM Senior Living, Inc ("ILM I") in the Supreme Court of the State
of New York, County of New York against the Company, ILM I and the directors of
both corporations. Andrew A. Feldman and Jeri Feldman, as Trustees for the
Andrew A. & Jeri Feldman Revocable Trust Dated 9/18/90, on behalf of themselves
and other similarly situated, v. Lawrence A. Cohen, Jeffry R. Dwyer, J. William
Sharman, Jr., Carl J. Schramm, Julien G. Redele, ILM Senior Living, Inc. and ILM
II Senior Living, Inc. (N.Y. Sup. Ct. N.Y. County). The class action complaint
alleges that the directors engaged in wasteful and oppressive conduct and
breached fiduciary duties in preventing the sale or liquidation of the assets of
the Company and ILM I, diverting certain of the funds' assets and changing the
nature of the Company and ILM I. The complaint seeks damages in an unspecified
amount, punitive damages, the judicial dissolution of the Company and ILM I, an
order requiring the directors to take all steps to maximize shareholder value,
including either an auction or liquidation, and rescinding certain agreements,
and attorneys' fees. The Company, ILM I and the directors have not yet been
required to respond to the complaint in this action. The Company and ILM I
believe that the action is without merit and intend vigorously to contest this
action.
9
<PAGE>
(e) Reporting Requirements
The Company has not timely filed all of the reports required to be
filed under the Securities Exchange Act of 1934 and has not yet filed a
quarterly report on Form 10-Q for the quarter ended February 28, 1998.
Item 9. Materials to Be Filed as Exhibits.
Exhibit 1 Excerpts from the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held on July 7, 1998.
Exhibit 2 Letter to Shareholders dated June 17, 1998.
Exhibit 3 Opinion of Schroder & Co. Inc. dated June 17, 1998.
10
<PAGE>
SIGNATURE
After reasonable 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 17, 1998
ILM II SENIOR LIVING, INC.
By: /s/ Lawrence A. Cohen
-------------------------------------
Lawrence A. Cohen
President and Chief Executive Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
1 Excerpts from the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held on July 7, 1998.
2 Letter to Shareholders dated June 17, 1998.
3 Opinion of Schroder & Co. Inc. dated June 17, 1998.
Exhibit 1
Excerpts from the Company's Proxy Statement
Related Transactions
Through June 18, 1997, and subject to the supervision of the Company's
Board of Directors, assistance with the management of the business of the
Company was provided by PaineWebber [Group, Inc. and certain affiliates
("PaineWebber")].
For its services in finding and recommending investments, PaineWebber
received a mortgage placement fee equal to 2% of the capital contributions of
the Company. Mortgage placement fees totaling $1,036,248 were earned by
PaineWebber during the Company's investment acquisition period. In connection
with construction loans, a construction loan administration fee of 1% of each
construction loan was paid by AHC [Angeles Housing Concepts, Inc.] to
PaineWebber for administering such loan. In connection with acquisition loans, a
due diligence fee of 1% of the principal amount of each such loan was paid by
AHC to PaineWebber for conducting due diligence activities. Loan administration
and due diligence fees totaling $425,141 were paid to PaineWebber during the
Company's investment acquisition period from 1989 to 1992.
Under the former advisory agreement, PaineWebber was entitled to receive
1% of disposition proceeds, as defined, until the Company's shareholders
received dividends of net cash equal to their adjusted capital investments, as
defined, plus a 12% non-compounded annual return on their adjusted capital
investments, as defined, and all disposition proceeds thereafter until
PaineWebber received an aggregate of 5% of disposition proceeds; and thereafter,
5% of disposition proceeds.
Under the former advisory agreement, PaineWebber had specific management
responsibilities: to perform day-to-day operations of the Company and to act as
the investment advisor and consultant for the Company in connection with general
policy and investment decisions. PaineWebber received an annual base fee and an
incentive fee of 0.25% and 0.25%, respectively, of the capital contributions of
the Company, as defined, as compensation for such services. Incentive fees are
subordinated to Company shareholders' receipt of distributions of net cash
sufficient to provide a return equal to 10% per annum. PaineWebber earned base
management fees totaling $103,000, $130,000 and $130,000 for the years ended
August 31, 1997, 1996, and 1995, respectively. Payment of incentive management
fees was suspended effective April 15, 1993 in connection with a reduction in
the Company's quarterly dividend payments.
PaineWebber was reimbursed for direct expenses relating to the offering of
shares of Company common stock, the administration of the Company and the
acquisition and operations of the Company's real estate investments.
PaineWebber performed certain accounting, tax preparation, securities law
compliance and investor communications and relations services for the Company.
Total costs incurred by PaineWebber in providing these services were allocated
among several entities, including the Company. Included in general and
administrative expenses on the consolidated statements of income included in the
Annual Report accompanying this Proxy Statement for the years ended August 31,
1997, 1996 and 1995 is $118,000, $107,000 and $121,000, respectively,
representing reimbursements to PaineWebber for providing such services to the
Company.
<PAGE>
Mitchell Hutchins Institutional Investors, Inc. ("Mitchell Hutchins")
provided cash management services with respect to the Company's cash assets.
Mitchell Hutchins is a subsidiary of Mitchell Hutchins Asset Management Inc., an
independently operated subsidiary of PaineWebber. Mitchell Hutchins earned
$5,000, $6,000 and $3,000 (included in general and administrative expenses) for
managing the Company's cash assets during fiscal 1997, 1996 and 1995,
respectively. Fees charged by Mitchell Hutchins were based on a percentage of
invested cash reserves which varies based on the total amount of invested cash
which Mitchell Hutchins manages on behalf of PaineWebber.
The advisory relationship with PaineWebber ceased on July 18, 1997;
therefore the payment of advisor fees ceased as of that date. Other services,
such as accounting, compliance, investor communications and relations, and cash
management services ceased on August 31, 1997; therefore, the Company was not
obligated to pay services fees past August 31, 1997 to PaineWebber or Mitchell
Hutchins. Lease II [ILM II Lease Corporation] has retained Capital [Capital
Senior Management 2, Inc.] to be the property manager of the Senior Housing
Facilities and the Company has guaranteed the payment of all fees due to Capital
under the terms of the management agreement which commenced on July 29, 1996. In
November, 1996, Lawrence A. Cohen, President, Chief Executive Officer and
Director of the Company and a Director of Lease II, was also named Vice Chairman
and Chief Financial Officer of Capital Senior Living Corporation, an affiliate
of Capital. On September 18, 1997, Lease II entered into an agreement with
Capital Senior Development, Inc., an affiliate of Capital, to manage the
development process for the potential expansions of several of the Senior
Housing Facilities. Capital Senior Development, Inc. will receive a fee equal to
7% of the total development costs of these expansions, including fees to Capital
Senior Development, Inc. During the quarter ended November 30, 1997, Capital
Senior Development, Inc. earned fees of $40,318 for managing pre-construction
development activities for potential expansions of the Senior Housing
Facilities.
Jeffry R. Dwyer is an employee of Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A., which acts as Counsel to the Company and its affiliates.
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., received fees from the
Company of $46,000 for the year ended August 31, 1997.
Each Director of the Company, other than Messrs. Schramm and Redele, is
also a Director of Lease II, the Company that leases and operates the senior
housing facilities owned by the Company through a subsidiary.
Compensation of Directors and Executive Officers
The Company's Directors each receive an annual fee of $12,000 plus $500 for
attending each board of directors meeting and reimbursement for expenses
incurred in attending meetings, and as a result of other work performed for the
Company. [If as a result of the vote taken at the 1998 Annual Meeting the number
of directors is reduced, then the compensation to the Board members will be
affected as follows:] Other than the Chairman of the Board, who after the date
of the 1998 Annual Meeting will receive an annual fee of $27,000, plus $500 for
attending each Board of Directors meeting, as well as reimbursement for expenses
incurred in attending meetings and other compensation as a result of other work
performed for the Company, officers of the Company are not compensated. Despite
the $15,000 increase in compensation to Mr. Sharman as Chairman of the Board, by
reducing the Company's Board of Directors from five members to three members the
Company will save $9,000 in annual compensation and $1,000 in attendance fees
per meeting, plus reduce its expense reimbursements for meeting attendance.
Lawrence A. Cohen, President and Chief Executive Officer of the Company through
the date of the Annual Meeting, is an employee of Capital Senior Living
Corporation, an affiliate of Capital, and his employment with Capital Senior
Living Corporation states that without Capital Senior Living
<PAGE>
Corporation's prior consent he can spend only a limited amount of time on
non-Capital Senior Living Corporation activities. Capital Senior Living
Corporation had consented to Mr. Cohen serving as President and Chief Executive
Officer of the Company and ILM I. Jeffry R. Dwyer is an employee of Greenberg
Traurig Hoffman Lipoff Rosen & Quentel, P.A., which acts as Counsel to the
Company. The former officers of the Company, who were also officers of
PaineWebber, received compensation from PaineWebber which indirectly related to
services to the Company, because the Company was required to pay certain fees to
PaineWebber as described in "Related Transactions," above. When PaineWebber
resigned as advisor to the Company, the former officers resigned effective the
same date. Therefore, no services have been provided by such persons subsequent
to June 18, 1997. Following the date of the Annual Meeting, J. William Sharman,
Jr. will become the President, Chief Executive Officer and Chairman of the Board
of the Company.
Exhibit 2
ILM II SENIOR LIVING, INC.
28 State Street, Suite 1100
Boston, Massachusetts 02109
June 17, 1998
Dear Shareholder:
You will be receiving materials shortly (if you have not already received
them) from Redwood Investors, LLC, a Delaware limited liability company
("Redwood"), offering (the "Offer") to purchase up to 500,000 shares (the
"Shares") (approximately 9.65%) of the issued and outstanding shares of common
stock (the "Common Stock") of ILM II Senior Living, Inc. (the "Company") at a
purchase price of $8.00 per Share (the "Offer Price"). Enclosed is a copy of the
Company's Statement on Schedule 14D-9 which was filed with the Securities and
Exchange Commission and sets forth the Company's response to the Offer.
THE BOARD OF DIRECTORS BELIEVES THAT THE PURCHASE PRICE OF $8.00 PER SHARE
IS FINANCIALLY INADEQUATE RELATIVE TO THE UNDERLYING NET ASSET VALUE OF YOUR
SHARES AND THAT REDWOOD IS INTERESTED IN PAYING THE LOWEST POSSIBLE PRICE FOR
YOUR SHARES, IN ORDER TO MAXIMIZE ITS PROFITS AT YOUR EXPENSE. WE BELIEVE THAT
BY ACCEPTING REDWOOD'S OFFER FOR YOUR SHARES, YOU WILL NOT BE ABLE TO FULLY
REALIZE THE VALUE OF YOUR SHARES.
The Company engaged the investment banking firm of Schroder & Co. Inc.
("Schroders") to render its opinion to the Company's Board of Directors as to
the fairness of the Offer Price from a financial point of view. On June 17,
1998, Schroders rendered its opinion to the effect that, as of the date of such
opinion, the Offer Price is inadequate, from a financial point of view, to the
shareholders of the Company.
References in this letter to Schroders' opinion are qualified in their
entirety by reference to the full text of Schroders' opinion letter which is
annexed to the Schedule 14D-9 which accompanies this letter. Shareholders should
read Schroders' opinion letter in its entirety for information with respect to
the procedures followed, assumptions made, matters considered and limitations on
the review undertaken by Schroders in rendering its opinion. Schroders' opinion
was provided at the request and for the information of the Board of Directors in
evaluating the Offer Price and does not constitute a recommendation as to any
action any shareholder should
<PAGE>
take or refrain from taking in connection with the tender offer or any aspect
thereof or alternatives thereto. Specifically, Schroders' opinion does not
constitute a recommendation that any shareholder not tender stock and should not
be relied on by any shareholder as such. In rendering its opinion, Schroders was
not engaged as an agent or fiduciary of the shareholders of the Company and
Schroders' opinion does not confer any rights or remedies upon the shareholders.
The Company shall pay Schroders a mutually agreed upon fee not in excess
of the fees customarily paid for similar services. The Company also agreed to
reimburse Schroders' for its out-of-pocket expenses and to indemnify Schroders
against certain expense and liabilities in connection with its engagement.
Schroders previously had been retained by the Company as its financial
advisor (the "Engagement") in connection with an examination of various
alternatives for maximizing shareholder values, and in connection therewith any
sale of the Company to a third party which the Company may determine to pursue.
Contingent upon the consummation of such a transaction, the Company agreed to
pay to Schroders a customary success fee. Schroders is an internationally
recognized investment banking firm with experience in the valuation of companies
and their securities in connection with mergers, acquisitions, sales and
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The extensive experience of
Schroders' health care investment banking group in providing corporate finance
and advisory services to companies in the long-term care industry and, more
specifically, to the Company were the significant factors in the Company's
decision to select Schroders to render its opinion in connection with the Offer.
The Company has achieved substantial increases in cash flow and value for
ILM II shareholders during fiscal year 1997:
o Property revenues were up by more than 9%;
o Cash flow from the properties after capital expenditures improved by
more than 20%;
o Property management fees were 2% lower than the fees for the
previous year;
o The dividend rate has been increased by 50% since the end of fiscal
year 1996.
As reported in its quarterly reports, the Company is implementing several
programs which are designed to further increase cash flow and value for the
shareholders. As a result, the Company expects to achieve further dividend
increases during the current fiscal year.
Before making a decision to tender your Shares to Redwood, you should
carefully read the enclosed Schedule 14D-9 in its entirety and consider all the
information that we have previously provided to you, including our most recent
quarterly report. Bear in mind especially the following:
2
<PAGE>
o The Offer Price offered by Redwood is inadequate from a financial
point of view based on the Schroders opinion.
o Redwood did not retain an independent person to evaluate or render
any opinion with respect to the fairness of the Offer Price or the
terms of the Offer.
o The Offer Price offered by Redwood is significantly below the 1996
year-end estimated net asset valuation that was prepared by
PaineWebber Properties Incorporated of $9.69 per Share. This
estimated net asset value is based on the Company's interests in its
real estate investments and was reviewed by an independent
appraiser. Although this valuation is not recent, based on the
improved financial performance of the Company as described above,
the Company believes that the Share value has increased since the
PaineWebber valuation. Even taking into account that this is an
estimate and is not necessarily indicative of the amount you would
receive upon a liquidation of the Company's assets, Redwood's Offer
Price of $8.00 per Share is so significantly below this estimate
that we believe that the Offer Price is inadequate.
o The Purchaser's Offer Price is also lower than recent secondary
market resale prices. According to information cited in Redwood's
Offer to Purchase, the Company's Shares were sold between March 1,
and April 30, 1998 at a high of $9.08 a low of $8.05 and a weighted
average of $8.55. Because these numbers are based on only 10,493
Shares being traded in 6 transactions, prices obtained from such
secondary market transactions, may not reflect a current estimated
value of the Shares nor what shareholders would receive upon
liquidation of the Company.
o Shareholders who sell their Shares to Redwood will be foregoing the
possibility of participating in any future dividends or other
distributions from the Company or in any appreciation in the value
of the Shares, even though there can be no assurance that Redwood
will pay for the Shares on a timely basis.
o There have been two other recent limited tender offers to purchase
Shares, one for $7.50 per share and the second for $7.25 per share,
both by third parties believed to be unrelated to Redwood.
o Other options may be available to you if you are interested in
selling your Shares. To sell your Shares, you should contact a
registered securities broker who may assist you in listing your
Shares for sale on a secondary resale market. There can, however, be
no assurance as to whether, when or at what price you will be able
to sell your Shares through a secondary market resale.
You should weigh these factors against the following:
- If you need immediate liquidity, a sale of your Shares to Redwood may be
your fastest means of liquidating your investment because there is no
public market for the Shares and there are very few trades.
3
<PAGE>
- Continuing to hold the Shares subjects you to the risk of loss or
decrease in value of your investment. The Company is subject to, among
other things, the risks related to the health care industry and the risks
resulting from pending litigation which, although the Company believes
these claims are without merit and is appealing certain decisions,
nevertheless such litigation could affect the value of the Shares.
Please consider all of the factors discussed in this letter before
deciding how to respond to the Offer. On balance your Board of Directors
recommends that you not tender your Shares to Redwood pursuant to the Offer.
If you tender your Shares according to the agreement of sale which you
would be entering into with Redwood, all dividend payments and distributions
following May 1, 1998 will be payable to Redwood even though you may not receive
full payment from Redwood for your Shares until a later date. You should consult
your personal tax and legal advisors as to your personal situation prior to
accepting the Offer and tendering your Shares. No action regarding the Offer is
necessary if you wish to retain your Shares.
Your Board of Directors will continue to act in the manner that it
believes is in the best interests of the Company and the shareholders. We
encourage you to call our Information Agent, D.F. King & Co. Inc., at
800-431-9629, with any questions you may have.
Sincerely,
The Board of Directors of
ILM II Senior Living, Inc.
4
Exhibit 3
[Schroders]
June 17, 1998
Board of Directors
ILM II Senior Living, Inc.
28 State Street, Suite 1100
Boston, MA 02109
Gentlemen:
We refer to the tender offer (the "Tender Offer") commenced by Redwood
Investors, LLC for 500,000 shares of common stock (the "Stock") of ILM II Senior
Living, Inc. (the "Company") at a price of $8.00 per share (the "Price"). You
have requested our opinion, as of the date hereof, as to the adequacy of the
Price, from a financial point of view, to the holders of the Stock (the
"Stockholders").
In arriving at our opinion herein we assumed, with your approval, that the
Company will effect certain contemplated restructuring alternatives intended to
increase shareholder value and liquidity. We have (1) reviewed the Tender Offer;
(2) reviewed historical consolidated financial and operating data with respect
to the Company; (3) reviewed internal business plans and financial and operating
forecasts with respect to the Company as restructured, as prepared by the
management of the Company; (4) analyzed publicly available information of
selected comparable companies and compared the Company, from a financial point
of view, with such companies; (5) considered the terms, to the extent publicly
available, of selected transactions comparable to the acquisition of the
Company; (6) considered certain proposals to acquire the Company which have been
made by third parties; and (7) conducted such other financial studies and
financial investigations as we deemed appropriate.
We were not engaged to verify independently the accuracy or completeness
of any information furnished by the Company or any publicly available
information which we reviewed in arriving at our opinion expressed herein, and,
with your approval, we assumed and relied, without independent verification,
upon the accuracy and completeness of all such information. We assumed further,
with your approval, that the financial and operating forecasts of the Company
reviewed by us were reasonably prepared on bases reflecting the best current
estimates and good faith judgments of the management of the Company as to the
future financial and operating performance of the Company. We were not engaged
to conduct a physical inspection of any properties or make an independent
valuation or appraisal of any assets or liabilities, contingent or otherwise, of
the Company and we were not furnished with any such valuations or appraisals. We
were not engaged to review any legal, accounting or tax aspects of the Tender
Offer.
<PAGE>
Our opinion herein is based on our assessment of economic, monetary,
market and regul- atory conditions as they exist and can be evaluated on the
date of this letter and such other factors as we deem relevant. We express no
opinion concerning the price or trading range at which the Stock will trade
following the date of this letter or the price which any Stockholder may
ultimately realize for the Stock. We were not requested to conduct any review or
analysis with respect to the Company after the date of this letter and we do not
intend to do so.
Our opinion herein is provided at the request and for the information of
the Board of Directors of the Company in evaluating the Price and does not
constitute a recommendation as to any action the Board of Directors or any
Stockholder should take in connection with the Tender Offer or any aspect
thereof or alternatives thereto. Without limiting the foregoing, this letter
does not constitute a recommendation to any Stockholder with respect to whether
or not to take or refrain from taking any action in connection with the Tender
Offer and should not be relied on by any Stockholder as such. In rendering our
opinion, we have not been engaged as an agent or fiduciary of the Stockholders
or any other persons and our opinion does not confer any rights or remedies upon
the Stockholders or any other persons.
This letter may not be quoted or referred to in any filing, report,
document, release or other communication, whether written or oral, made,
prepared, issued or transmitted by the Company without the prior written
approval of Schroders, which shall not be unreasonably withheld; provided,
however, this letter may be reproduced in full in any Schedule 14D-9 filed by
the Company or as an attachment to any letter sent by the Company to the
Stockholders in response to the Tender Offer, and if reproduced in full therein
or as an attachment to such a letter, may be quoted from or referred to in such
filing or letter with our prior written approval, which shall not be
unreasonably withheld.
On the basis of and subject to the foregoing assumptions and other matters
set forth herein, it is our opinion, as of the date hereof, that the Price is
inadequate, from a financial point of view, to the Stockholders.
Very truly yours,
/s/ Schroder & Co. Inc.
2
