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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section
14(d)(1) of the Securities Exchange Act of 1934
and
SCHEDULE 13D
under the Securities Exchange Act of 1934
(Amendment No. 3)
ARV ASSISTED LIVING, INC.
(Name of Subject Company)
EMERITUS CORPORATION
and
EMAC CORP.
(Bidder)
COMMON STOCK, NO PAR VALUE PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
(Title of Class of Securities)
------------
00204C107
(CUSIP Number)
RAYMOND R. BRANDSTROM
EMERITUS CORPORATION
3131 ELLIOT AVENUE
SUITE 500
SEATTLE, WASHINGTON 98121
Telephone: (206) 298-2909
(Name, Address and Telephone Number of Persons Authorized to Receive Notices
and Communications on Behalf of Bidder)
Copies to:
PHILLIP R. MILLS, ESQ. MICHAEL STANSBURY, ESQ.
Davis Polk & Wardwell Perkins Coie
450 Lexington Avenue 1201 Third Avenue
New York, New York 10017 Suite 4000
Telephone: (212) 450-4000 Seattle, Washington 98101
Telephone: (206) 583-8888
CALCULATION OF FILING FEE
Transaction valuation* Amount of filing fee**
---------------------------- ----------------------------
$297,821,195 $59,564.24
* Based upon $17.50 cash per share for 17,018,354 shares.
** 1/50 of 1% of Transaction Valuation.
[ ] 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: Not applicable.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
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- -------------------
CUSIP No. 00204C107
- -------------------
1 NAMES OF REPORTING PERSONS
Emeritus Corporation
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
WA
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
1,077,200
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES [X]
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
7%
10 TYPE OF REPORTING PERSON
CO
- -------------------
CUSIP No. 00204C107
- -------------------
1 NAMES OF REPORTING PERSONS
EMAC Corp.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(e) OR 2(f) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DE
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH
REPORTING PERSON
1,077,200
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES [X]
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
7%
10 TYPE OF REPORTING PERSON
CO
Item 1. Security and Subject Company
(a) The name of the subject company is ARV Assisted Living,
Inc., a California corporation (the "Company"), and the address of its
principal executive offices is 245 Fisher Avenue, Suite D-1, Costa Mesa, CA
97626.
(b) The class of securities to which this statement relates is
the Common Stock, no par value per share (the "Common Stock"), of the Company,
including the associated preferred share purchase rights (the "Rights") issued
pursuant to the Rights Agreement dated as of July 14, 1997, as amended,
between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent (the Common Stock and Rights are referred to collectively herein as the
"Shares"). The information set forth in the Introductory Section and Section
1 of the Offer to Purchase (the "Offer to Purchase") annexed hereto as Exhibit
1 is incorporated herein by reference.
(c) The information set forth in Section 6 of the Offer to
Purchase is incorporated herein by reference.
Item 2. Identity and Background
(a)-(d); (g) The information set forth in Section 8 of the
Offer to Purchase is incorporated herein by reference. The name, business
address, present principal occupation or employment, the material occupations,
positions, offices or employments for the past five years and citizenship of
each director and executive officer of EMAC Corp., a Delaware corporation (the
"Purchaser"), and Emeritus Corporation, a Washington corporation ("Emeritus"),
and the name, principal business and address of any corporation or other
organization in which such occupations, positions, offices and employments are
or were carried on are set forth in Schedule I of the Offer to Purchase and
incorporated herein by reference.
(e)-(f) During the last five years, none of the Purchaser or
Emeritus or, to the best of the Purchaser's knowledge, any of the directors or
executive officers of the Purchaser or Emeritus has been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
was a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which any such person was or is subject
to a judgment, decree or final order enjoying future violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of such law.
Item 3. Past Contacts, Transactions or Negotiations with the
Subject Company
(a)-(b) The information set forth in the Introduction and
Section l0 of the Offer to Purchase is incorporated herein by reference.
Item 4. Source and Amount of Funds or Other Consideration
(a)-(b) The information set forth in Section 9 of the Offer to
Purchase is incorporated herein by reference.
Item 5. Purpose of the Tender Offer and Plans or Proposals of
the Bidder
(a)-(g) The information set forth in the Introduction and
Sections 11 and 13 of the Offer to Purchase is incorporated herein by
reference.
Item 6. Interest in Securities of the Subject Company
(a)-(b) The information set forth in the Introduction, Section
10 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
The information set forth in the Introduction and Section 10 of
the Offer to Purchase is incorporated herein by reference.
Item 8. Persons Retained, Employed or to be Compensated
The information set forth in Section 16 of the Offer to
Purchase is incorporated herein by reference.
Item 9. Financial Statements of Certain Bidders
The information set forth in Section 8 of the Offer to Purchase
is incorporated herein by reference.
Item 10. Additional Information
(a) Not applicable.
(b)-(c) The information set forth in Section 15 of the Offer
to Purchase is incorporated herein by reference.
(d) The information set forth in Section 13 of the Offer to
Purchase is incorporated herein by reference.
(e) The information set forth under Section 15 of the Offer to
Purchase is incorporated herein by reference. See Exhibit (g).
(f) The information set forth in the Offer to Purchase and the
Letter of Transmittal, to the extent not otherwise incorporated herein by
reference, is incorporated herein by reference.
Item 11. Material to be Filed as Exhibits
(a)(l) Offer to Purchase, dated December 19, 1997.
(a)(2) Letter of Transmittal with respect to the Shares and
Rights (including IRS Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9).
(a)(3) Letter, dated December 19, 1997, from Deutsche Morgan
Grenfell to brokers, dealers, banks, trust companies and nominees.
(a)(4) Letter to be sent by brokers, dealers, banks, trust
companies and nominees to their clients.
(a)(5) Notice of Guaranteed Delivery.
(a)(6) Press Release, dated December 19, 1997.
(a)(7) Form of summary advertisement, dated December 19, 1997.
(b) Highly confident letter from Northstar Capital Partners,
L.L.C. dated December 9, 1997.
(c) None.
(d) None.
(e) Not applicable.
(f) None.
(g) (1) Complaint in Emeritus Corporation v. ARV Assisted
Living, Inc., David P. Collins, John A. Booty, R. Bruce Andrews, James
M. Peters, Maurice J. DeWald, John J. Rydzewski, Robert P. Freeman,
Kenneth M. Jacobs, Murry N. Gunty and Howard G. Phanstiel filed on
December 9, 1997 in Superior Court for the State of California for the
County of Orange, Case No. 787788.
(g) (2) Stipulation Pursuant to Section 2021 of the Code
of Civil Procedure Modifying Discovery Procedures.
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: December 19, 1997
EMERITUS CORPORATION
By: /s/ Raymond R. Brandstrom
-----------------------------------
Name: Raymond R. Brandstrom
Title: President
EMAC Corp.
By: /s/ Raymond R. Brandstrom
-----------------------------------
Name: Raymond R. Brandstrom
Title: President
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER EXHIBIT NUMBERED PAGE
- ---------- ------------------------------------------------------------------------- -------------
<S> <C> <C>
(a)(1) Offer to Purchase, dated December 19, 1997...............................
(a)(2) Letter of Transmittal with respect to the Shares and Rights
(including IRS Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9)............................ ..............
(a)(3) Letter, dated December 19, 1997, from Deutsche Morgan Grenfell to
brokers, dealers, banks, trust companies and nominees....................
(a)(4) Letter to be sent by brokers, dealers, banks, trust companies and
nominees to their clients................................................
(a)(5) Notice of Guaranteed Delivery............................................
(a)(6) Press Release, dated December 19, 1997...................................
(a)(7) Form of summary advertisement, dated December 19, 1997...................
(b) Highly confident letter from Northstar Capital Partners, L.L.C. dated
December 9, 1997.........................................................
(c) None.....................................................................
(d) None.....................................................................
(e) Not applicable...........................................................
(f) None.....................................................................
(g) (1) Complaint in Emeritus Corporation v. ARV Assisted Living, Inc., David P.
Collins, John A. Booty, R. Bruce Andrews, James M. Peters, Maurice J.
DeWald, John J. Rydzewski, Robert P. Freeman, Kenneth M. Jacobs, Murry N.
Gunty and Howard G. Phanstiel filed on December 9, 1997 in Superior Court
for the State of California for the County of Orange, Case No. 787788....
(g) (2) Stipulation Pursuant to Section 2021 of the Code of Civil Procedure Modifying
Discovery Procedures.....................................................
</TABLE>
Exhibit (a)(1)
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(including the Associated Preferred Stock Purchase Rights)
of
ARV Assisted Living, Inc.
at
$17.50 Net Per Share
by
EMAC Corp.,
a wholly owned subsidiary of
Emeritus Corporation
- -------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 PM, NEW YORK
CITY TIME, ON WEDNESDAY, JANUARY 21, 1998, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE
SATISFACTION OR, WHERE APPLICABLE, WAIVER OF THE FOLLOWING CONDITIONS: (I)
THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE A
NUMBER OF SHARES WHICH, TOGETHER WITH SHARES OWNED BY EMAC CORP. (THE
"PURCHASER") AND ITS AFFILIATES, WILL CONSTITUTE AT LEAST A MAJORITY OF THE
TOTAL NUMBER OF OUTSTANDING SHARES OF ARV ASSISTED LIVING, INC. (THE
"COMPANY") ON A FULLY DILUTED BASIS (EXCLUSIVE OF ANY SHARES ISSUABLE UPON
CONVERSION OF THE COMPANY'S 6-3/4% CONVERTIBLE SUBORDINATED NOTES DUE 2006) AS
OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT BY THE PURCHASER PURSUANT TO
THE OFFER, (II) THE PREFERRED STOCK PURCHASE RIGHTS (THE "RIGHTS") ISSUED BY
THE COMPANY HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF THE COMPANY OR
THE PURCHASER BEING SATISFIED, IN ITS DISCRETION, THAT THE RIGHTS HAVE BEEN
INVALIDATED OR ARE OTHERWISE INAPPLICABLE TO THE OFFER (AS DEFINED HEREIN) AND
THE PROPOSED MERGER (AS DEFINED HEREIN), (III) EMERITUS CORPORATION
("EMERITUS") AND THE PURCHASER BEING SATISFIED, IN THEIR DISCRETION, THAT THE
PURCHASER HAS OBTAINED FINANCING UPON TERMS SATISFACTORY TO THEM IN AN AMOUNT
SUFFICIENT TO CONSUMMATE THE OFFER AND THE PROPOSED MERGER (INCLUDING THE
REDEMPTION OR REFINANCING OF ALL OUTSTANDING DEBT AND PAYMENT OF ALL FEES AND
EXPENSES), (IV) EMERITUS AND THE PURCHASER BEING SATISFIED, IN THEIR
DISCRETION, THAT THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED AND
RECOMMENDED OR WILL APPROVE AND RECOMMEND A MERGER BETWEEN THE COMPANY AND THE
PURCHASER AND (V) THE REDEMPTION OF THE NOTES (AS DEFINED HEREIN) HAVING BEEN
RESCINDED. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED
IN THIS OFFER TO PURCHASE. SEE SECTION 14.
IMPORTANT
Emeritus and the Purchaser are currently reviewing their
options with respect to the Offer and may consider, among other things,
changes to the material terms of the Offer. In addition, Emeritus and the
Purchaser intend to continue to seek to negotiate with the Company with
respect to the acquisition of the Company by Emeritus or the Purchaser. The
Purchaser reserves the right to amend the Offer (including amending the number
of shares to be purchased, the purchase price and the proposed second-step
merger consideration) upon entering into a merger agreement with the Company
or to negotiate a merger agreement with the Company not involving a tender
offer pursuant to which the Purchaser would terminate the Offer and the shares
would, upon consummation of such merger, be converted into the right to
receive cash, Emeritus Common Stock and/or other securities in such amounts as
are negotiated by Emeritus and the Company.
The Dealer Manager for the Offer is:
Deutsche Morgan Grenfell [Logo]
December 19, 1997
Any shareholder of the Company desiring to tender all or any
portion of such shareholder's shares (and the associated Rights) should either
(i) complete and sign the Letter of Transmittal (or a facsimile thereof) in
accordance with the instructions in the Letter of Transmittal, have such
shareholder's signature thereon guaranteed if required by Instruction 1 to the
Letter of Transmittal, mail or deliver the Letter of Transmittal (or such
facsimile), or, in the case of a book-entry transfer effected pursuant to the
procedure set forth in Section 2, an Agent's Message (as defined herein), and
any other required documents to the Depositary and either deliver the
certificates for such shares and, if separate, the certificate(s) representing
the associated Rights to the Depositary along with the Letter of Transmittal
(or facsimile) or deliver such shares (and Rights, if applicable) pursuant to
the procedure for book-entry transfer set forth in Section 2 or (ii) request
such shareholder's broker, dealer, bank, trust company or other nominee to
effect the transaction for such shareholder. A shareholder of the Company
having shares (and, if applicable, Rights) registered in the name of a broker,
dealer, bank, trust company or other nominee must contact such broker, dealer,
bank, trust company or other nominee if such shareholder desires to tender
such shares (and, if applicable, Rights). Unless the Rights Condition is
satisfied, shareholders will be required to tender one Right for each share
tendered in order to effect a valid tender of shares.
If a shareholder of the Company desires to tender shares and
Rights and such shareholder's certificates for shares (or Rights, if
applicable) are not immediately available or the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Depositary prior to the Expiration Date, such
shareholder's tender may be effected by following the procedure for guaranteed
delivery set forth in Section 2.
Questions and requests for assistance or for additional copies
of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may be directed to the Information Agent or to the Dealer
Manager at their respective addresses and telephone numbers set forth on the
back cover of this Offer to Purchase.
TABLE OF CONTENTS
Page
INTRODUCTION.................................................................1
THE TENDER OFFER
1. Terms of the Offer..................................................5
2. Procedure for Tendering Shares and Rights...........................6
3. Withdrawal Rights..................................................10
4. Acceptance for Payment and Payment for Shares......................10
5. Certain Federal Income Tax Consequences............................11
6. Price Range of the Shares; Dividends on the Shares.................12
7. Certain Information Concerning the Company.........................13
8. Certain Information Concerning the Purchaser and Emeritus..........17
9. Source and Amount of Funds.........................................18
10. Background of the Offer; Contacts and Transactions with the
Company............................................................19
11. Purpose of the Offer; Plans for the Company........................33
12. Dividends and Distributions........................................36
13. Effect of the Offer on the Market for the Shares; Stock Quotation;
Exchange Act Registration; Margin Regulations......................36
14. Certain Conditions of the Offer....................................37
15. Certain Legal Matters..............................................40
16. Fees and Expenses..................................................43
17. Miscellaneous......................................................44
Schedule I -- Directors and Executive Officers of Emeritus and the
Purchaser
Schedule II -- Transactions in Shares During the Past 60 Days by
Emeritus and the Purchaser
To the Holders of Common Stock
(including the associated preferred stock purchase rights) of
ARV Assisted Living, Inc.:
INTRODUCTION
EMAC Corp., a Delaware corporation (the "Purchaser") which is a
wholly owned subsidiary of Emeritus Corporation, a Washington corporation
("Emeritus"), hereby offers to purchase any and all outstanding shares of
Common Stock, no par value per share (the "Shares"), of ARV Assisted Living,
Inc., a California corporation ("ARV" or the "Company"), together with (unless
and until the Purchaser declares that the Rights Condition (as defined below)
is satisfied) the associated preferred stock purchase rights (the "Rights")
issued pursuant to the Rights Agreement dated as of July 14, 1997, as amended
(the "Rights Agreement"), between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent (the "Rights Agent"), at a price of $17.50
per Share (and associated Right), net to the seller in cash, without interest
thereon (the "Offer Price"), upon the terms and subject to the conditions set
forth in this Offer to Purchase and in the related Letter of Transmittal
(which, together with any amendments or supplements hereto or thereto,
collectively constitute the "Offer"). All references herein to Rights shall
include all benefits that may inure to holders of the Rights pursuant to the
Rights Agreement and, unless the context otherwise requires, all references
herein to Shares shall include the Rights.
Tendering shareholders will not be obligated to pay brokerage
fees or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes in connection with the tender of Shares pursuant
to the Offer. The Purchaser will pay all fees and expenses of Deutsche Morgan
Grenfell Inc. ("DMG"), which is acting as the Dealer Manager (the "Dealer
Manager"), The Bank of New York, which is acting as the Depositary (the
"Depositary"), and D.F. King & Co., Inc., which is acting as the Information
Agent (the "Information Agent"), incurred in connection with the Offer. See
Section 16.
The purpose of the Offer is to enable Emeritus to acquire
control of, and the entire equity interest in, the Company. The Offer, as the
first step in the acquisition of the Company, is intended to facilitate the
acquisition of all the Shares. Emeritus currently intends, either as soon as
practicable following consummation of the Offer or in lieu of the Offer, to
propose and seek to have the Company consummate a merger or similar business
combination with the Purchaser or another direct or indirect wholly owned
subsidiary of Emeritus (the "Proposed Merger"). The purpose of the Proposed
Merger is to acquire all Shares not tendered and purchased pursuant to the
Offer or otherwise. Pursuant to the Proposed Merger, each then outstanding
Share (other than Shares owned by the Purchaser, Emeritus or any of their
subsidiaries, Shares held in the treasury of the Company and Shares owned by
shareholders who perfect any available appraisal rights) would be converted
into the right to receive an amount in cash equal to the price per Share paid
pursuant to the Offer.
Emeritus intends to continue to seek to negotiate with the
Company with respect to the acquisition of the Company by Emeritus. If such
negotiations result in a definitive merger agreement between the Company and
Emeritus, the consideration to be received by holders of Shares could include
or consist of securities, cash or any combination thereof. Accordingly, such
negotiations could result in, among other things, termination of the Offer
(see Section 14) and submission of a different acquisition proposal to the
Company's shareholders for their approval. To date, the Company has refused
to enter into negotiations with Emeritus regarding any such proposed
acquisition. There can be no assurance that such negotiations will occur or,
if such negotiations occur, as to the outcome thereof. Emeritus and the
Purchaser are exploring ways to encourage the Board of Directors of the
Company to permit the Company's shareholders to participate in the Offer and
the Proposed Merger.
On November 21, 1997, the Company filed a Preliminary Proxy
Statement (the "ARV Proxy Statement") with the Securities and Exchange
Commission (the "Commission"). Pursuant to the ARV Proxy Statement, the Company
is seeking shareholder approval at the Annual Meeting of Shareholders, which,
according to a press release issued by the Company on December 8, 1997, is to
be held on January 28, 1998 (the "Annual Meeting"), for the Company's
proposals to (i) amend the Restated Articles of Incorporation of the Company
increasing the maximum number of authorized directors of the Company from nine
to 10, (ii) reincorporate the Company as a Delaware corporation, and (iii)
elect ten directors to the Company's Board of Directors (the "ARV Board").
On November 24, 1997, Emeritus filed preliminary proxy
solicitation materials with the Commission (a) for use at the Annual Meeting
in connection with the solicitation of proxies from shareholders of the
Company (the "Proxy Solicitation") for the following purposes: (i) to elect
nine nominees of Emeritus (the "Emeritus Nominees") to the ARV Board, (ii) to
vote for the reincorporation of the Company in Delaware and (iii) to abstain
from voting on the proposal to increase the maximum number of authorized
directors from nine to ten and (b)(i) to solicit agent designations to call
a Special Meeting of shareholders of ARV for February 6, 1998 (the "Special
Meeting") for the purpose of considering and voting upon an Agreement and Plan
of Merger between Emeritus and ARV pursuant to which Emeritus will acquire all
of the outstanding Common Stock of ARV for $17.50 per share in cash and (ii)
to adjourn the Special Meeting from time to time. The Emeritus Nominees
intend to (a) redeem the Rights (or amend the Rights Agreement to make the
Rights inapplicable to the Offer and Proposed Merger), which would satisfy the
Rights Condition, and take such other actions as may be required to expedite
the prompt consummation of a merger agreement with Emeritus or (b) if any
other transaction is proposed, consider such a transaction, subject in all
cases to fulfillment of the fiduciary duties that they would have as directors
of the Company.
On December 8, 1997, the Company announced that it redeemed $60
million of 6 3/4% Convertible Subordinated Notes due 2007, (the "Notes")
issued to Prometheus Assisted Living LLC ("Prometheus") on October 30, 1998 at
a 23.214% redemption premium for approximately 4.3 million Shares (the
"Redemption Shares"). On December 9, 1997, Emeritus commenced litigation in
Orange County Superior Court in the State of California, seeking, among other
things, to rescind the redemption of the Notes and the issuance of the
Redemption Shares. See Section 10.
The Offer does not constitute a solicitation of proxies from
the Company's shareholders. Any such solicitation (including the Proxy
Solicitation) will be made only pursuant to separate proxy solicitation
materials complying with the requirements of Section 14(A) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Certain federal income tax consequences of the sale of Shares
pursuant to the Offer are described in Section 5.
The Offer is subject to the fulfillment of a number of
conditions, including, without limitation, the following:
Minimum Tender Condition. The Offer is conditioned upon there
being validly tendered and not withdrawn prior to the Expiration Date (as
defined in Section 1) at least that number of Shares (the "Minimum Number of
Shares") which, together with Shares owned by Emeritus and its subsidiaries,
will constitute at least a majority of all outstanding Shares on a fully
diluted basis (exclusive of any Shares issuable upon conversion of ARV's
6-3/4% Convertible Subordinated Notes due 2006) on the date Shares are
accepted for payment, without giving effect to any dilution that might arise
from exercise of the Rights (the "Minimum Tender Condition"). The Purchaser
reserves the right (subject to the applicable rules and regulations of the
Commission), which it presently has no intention of exercising, to waive or
reduce the Minimum Tender Condition and to elect to purchase, pursuant to the
Offer, fewer than the Minimum Number of Shares. See Sections 1 and 14.
According to the ARV Proxy Statement, as of November 14, 1997
there were 11,584,272 Shares issued and outstanding. In addition, according
to the Company's Annual Report on Form 10-K/A for the fiscal year ended March
31, 1997 (the "Company 10-K"), as of June 19, 1997 there were 1,057,355 Shares
subject to options outstanding under the Company's stock option plans (the
"Options") and warrants to purchase 114,501 Shares (the "Warrants"). Emeritus
and the Purchaser currently own an aggregate of 1,077,200 Shares, which were
acquired in open market purchases. Based on the foregoing and assuming that
no options were granted or expired after June 19, 1997 and, other than the
Notes, Options and Warrants no securities convertible or exchangeable into
Shares were issued, converted or exchanged after June 19, 1997 through
December 19, 1997 there would be 17,018,354 Shares outstanding and the Minimum
Number of Shares would be 7,431,972. However, Emeritus is challenging the
issuances of the 1,921,012 shares issued to Prometheus under the Original
Prometheus Transaction (as defined herein) and the 4,262,226 shares issued to
Prometheus upon redemption of $60 million of 6- 3/4% Convertible Subordinated
Notes due 2007. Consequently, the actual Minimum Number of Shares will depend
on the facts as they exist on the date of purchase.
Rights Condition. The Offer is conditioned upon the Rights
having been redeemed by the Board of Directors of the Company or the Purchaser
being satisfied in its discretion that the Rights have been invalidated or are
otherwise inapplicable to the Offer and Proposed Merger with Emeritus (the
"Rights Condition"). The Rights are described in the Company's Report on Form
8-K dated July 14, 1997 (the "Company Rights 8-K"), and a summary of that
description is provided below and in Section 7.
The Rights Agreement provides that, until the close of business
on the Distribution Date (as defined in Section 7), the Rights will be
evidenced by the certificates for Shares. Until the Distribution Date (or
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for Shares will also constitute the surrender for transfer of
the Rights associated with the Shares represented by such certificates. The
Rights Agreement further provides that, as soon as practicable following the
Distribution Date, separate certificates evidencing the Rights will be mailed
by the Company or the Rights Agent to holders of record of Shares as of the
close of business on the Distribution Date.
The Rights Agreement provides that, at any time prior to the
time that an Acquiring Person (as defined in Section 7 herein) has become
such, the Board of Directors of the Company may redeem the Rights in whole,
but not in part, at a price of $.01 per Right.
Based on publicly available information, the Purchaser believes
that, as of December 19, 1997, the Rights were not exercisable, certificates
for Rights had not been issued and the Rights were evidenced by the
certificates for Shares. The Purchaser believes that, as a result of the
commencement of the Offer on December 19, 1997, the Distribution Date may
occur as early as 10 days after December 19, 1997, unless prior to such date
the Board of Directors of the Company redeems the Rights, amends the Rights
Agreement to make the Rights inapplicable to the Offer or delays the
Distribution Date.
Unless the Rights Condition is satisfied, shareholders will be
required to tender one Right for each Share tendered in order to effect a
valid tender of Shares in accordance with the procedures set forth in Section
2. Unless the Distribution Date occurs, a tender of Shares will also
constitute a tender of the associated Rights.
The Purchaser believes that under the circumstances of the
Offer, and under applicable law, the Board of Directors of the Company has a
fiduciary obligation to redeem the Rights (or amend the Rights Agreement to
make the Rights inapplicable to the Offer and the Proposed Merger), and the
Purchaser is hereby requesting that the Company's Board of Directors do so.
However, there can be no assurance that the Board of Directors of the Company
will redeem the Rights (or amend the Rights Agreement). Emeritus has
commenced litigation against the Company and the Board of Directors of the
Company in Orange County Superior Court for the State of California seeking,
among other things, an order compelling the Board of Directors of the Company
to redeem the Rights or render the Rights Agreement inapplicable to the Offer
and the Proposed Merger on the ground that the failure to do so would
constitute a breach of fiduciary duty to the Company's shareholders.
Pursuant to the Proxy Solicitation, Emeritus is seeking to
replace all members of the ARV Board with the Emeritus Nominees, who intend to
redeem the Rights (or amend the Rights Agreement to make the Rights
inapplicable to an acquisition of shares by or a merger with Emeritus),
subject to the fulfillment of the fiduciary duties that they would have as
directors of the Company. Redemption of the Rights (or such an amendment of
the Rights Agreement) would satisfy the Rights Condition.
Financing Condition. The Offer is conditioned upon Emeritus and
the Purchaser being satisfied, in their discretion, that the Purchaser has
obtained financing on terms satisfactory to them in an amount sufficient to
permit the Purchaser to consummate the Offer and the Proposed Merger,
including the redemption or refinancing of all outstanding debt and the
payment of all fees and expenses (the "Financing Condition").
The Purchaser estimates that the total amount of funds required
to purchase pursuant to the Offer and the Proposed Merger the number of Shares
that are outstanding on a fully diluted basis (assuming Emeritus is successful
in court in rescinding the redemption of the Notes), to refinance or redeem
the outstanding indebtedness and to pay fees and expenses related to the Offer
will be approximately $400 million. See Section 16. Emeritus has received a
letter from Northstar Capital Partners L.L.C. ("Northstar") stating that
Northstar is highly confident of its ability to provide the necessary
financing. See Section 9. Additionally, Emeritus has had extensive
discussions with a number of financial sources and has negotiated the terms of
commitment letters for a possible financing structure for the Offer and
Proposed Merger but it has not executed any commitment letters because it does
not want to incur certain related fees and expenses unnecessarily prior to the
outcome of its litigation challenging the Prometheus transactions.
Board Approval Condition. The Offer is conditioned upon
Emeritus and the Purchaser being satisfied, in their discretion, that the
Board of Directors of the Company has approved and recommended or will approve
and recommend a merger between the Company and Emeritus (the "Board Approval
Condition").
To date the ARV Board has refused to enter into negotiations
with Emeritus. Emeritus intends to contest the election of directors at the
ARV Annual Meeting and is proposing to elect its own slate of directors to the
ARV Board. If Emeritus is not successful in electing the Emeritus Nominees to
the ARV Board, there can be no assurance that the ARV Board will approve the
Proposed Merger.
Note Rescission Condition. The Offer is conditioned upon the
redemption of the Notes having been rescinded.
By redeeming the Notes at a 23.214% redemption premium the
Company has issued to Prometheus approximately 800,000 more Shares than
Prometheus would have received had Prometheus converted the Notes at the stated
conversion price of $17.25. Purchasing such additional shares at the Offer
Price would cost approximately an additional $14 million. Emeritus has
challenged the redemption of the Notes and the issuance of the Redemption
Shares in court. If Emeritus is unsuccessful in having the redemption
rescinded, the Purchaser may elect to reduce the Offer Price to take in to
account the purchase of approximately an additional 800,000 Shares. Prior to
purchasing Shares tendered pursuant to the Offer at such reduced price the
Purchaser, in accordance with the rules of the Securities and Exchange
Commission, will announce such reduced price and afford tendering shareholders
an opportunity to withdraw Shares previously tendered.
Certain other conditions to the Offer are described in Section
14. The Purchaser reserves the right (but shall not be obligated) to waive
any or all such conditions. See Sections 1 and 14.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE WITH RESPECT TO THE OFFER.
THE TENDER OFFER
1. Terms of the Offer.
Upon the terms and subject to the conditions of the Offer, the
Purchaser will accept for payment and pay for all Shares validly tendered
prior to the Expiration Date and not theretofore withdrawn in accordance with
Section 3. The term "Expiration Date" means 11:59 PM, New York City time, on
January 21, 1998, unless and until the Purchaser, in its sole discretion,
shall have extended the period of time during 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 Purchaser, will expire.
The Offer is conditioned upon satisfaction of the Minimum
Tender Condition, the Rights Condition, the Financing Condition, the Board
Approval Condition, the Note Rescission Condition and the satisfaction of the
other conditions set forth in Section 14.
Subject to the applicable rules and regulations of the
Commission, the Purchaser reserves the right, in its sole discretion, at any
time and from time to time, and regardless of whether or not any of the events
or facts set forth in Section 14 hereof shall have occurred, to (a) extend the
period of time during which the Offer is open, and thereby delay acceptance
for payment of and the payment for any Shares, by giving oral or written
notice of such extension to the Depositary and (b) amend the Offer in any
other respect by giving oral or written notice of such amendment to the
Depositary. Under no circumstances will interest be paid on the purchase
price for tendered Shares, whether or not the Purchaser exercises its right to
extend the Offer.
If by 11:59 PM New York City time, on January 21, 1998 (or any
date or time then set as the Expiration Date), any or all of the conditions to
the Offer have not been satisfied or waived, the Purchaser reserves the right
(but shall not be obligated), subject to the applicable rules and regulations
of the Commission, to (a) terminate the Offer and not accept for payment or
pay for any Shares and return all tendered Shares to tendering shareholders,
(b) waive all the unsatisfied conditions and accept for payment and pay for
all Shares validly tendered prior to the Expiration Date and not theretofore
withdrawn, (c) extend the Offer and, subject to the right of shareholders to
withdraw Shares until the Expiration Date, retain the Shares that have been
tendered during the period or periods for which the Offer is extended or (d)
amend the Offer.
There can be no assurance that the Purchaser will exercise its
right to extend the Offer. Any extension, delay, termination, waiver or
amendment will be followed as promptly as practicable by public announcement
thereof, such announcement in the case of an extension to be made no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date. Subject to applicable law (including
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act, which require that
material changes in the information published, sent or given in connection
with the Offer be promptly disseminated to shareholders in a manner reasonably
designed to inform them of such changes) and without limiting the manner in
which the Purchaser may choose to make any public announcement, the Purchaser
shall have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by issuing a press release to the Dow
Jones News Service. As used in this Offer to Purchase, "business day" has the
meaning set forth in Rule 14d-1 under the Exchange Act.
If the Purchaser extends the Offer or if the Purchaser is
delayed in its acceptance for payment of or payment (whether before or after
its acceptance for payment of Shares) for Shares or it is unable to pay for
Shares pursuant to the Offer for any reason, then, without prejudice to the
Purchaser's rights under the Offer, the Depositary may retain tendered Shares
on behalf of the Purchaser, and such Shares may not be withdrawn except to the
extent tendering shareholders are entitled to withdrawal rights as described
in Section 3. However, the ability of the Purchaser to delay the payment for
Shares that the Purchaser has accepted for payment is limited by Rule 14e-1(c)
under the Exchange Act, which requires that a bidder pay the consideration
offered or return the securities deposited by or on behalf of holders of
securities promptly after the termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the
Offer or the information concerning the Offer or waives a material condition
of the Offer, the Purchaser will disseminate additional tender offer materials
and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and
14e-1 under the Exchange Act. The minimum period during which an offer must
remain open following material changes in the terms of the offer or
information concerning the offer, other than a change in price or a change in
the percentage of securities sought, will depend upon the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. With respect to a change in price or a change in the
percentage of securities sought, a minimum period of 10 business days is
generally required to allow for adequate dissemination to shareholders and
investor response.
Pursuant to the Proxy Solicitation, a Request has been made to
the Company pursuant to Rule 14a-7 of the Exchange Act and Section 1600 of the
California General Corporations Law (the "California Law") for the use of the
Company's shareholder lists and security position listings for the purpose of
disseminating the Offer to holders of Shares. This Offer to Purchase, the
related Letter of Transmittal and other relevant materials will be mailed to
record holders of Shares, and will be furnished to brokers, dealers, banks,
trust companies and similar persons whose names, or the names of whose
nominees, appear on the shareholder lists, or, if applicable, who are listed
as participants in a clearing agency's security position listing, for
subsequent transmittal to beneficial owners of Shares by the Purchaser
following receipt of such lists or listings from the Company, or by the
Company if it so elects.
2. Procedure for Tendering Shares and Rights.
Valid Tender. For a shareholder to validly tender Shares and
Rights pursuant to the Offer, either (a) a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), together with any
required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message (as defined below), and any other required documents, must be
received by the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase prior to the Expiration Date and either (i)
certificates for tendered Shares and Rights must be received by the Depositary
at one of such addresses or (ii) such Shares and Rights must be delivered
pursuant to the procedures for book-entry transfer set forth below (and a
Book-Entry Confirmation (as defined below) must be received by the
Depositary), in each case prior to the Expiration Date, or (b) the tendering
shareholder must comply with the guaranteed delivery procedures set forth
below.
Unless the Rights Condition is satisfied, shareholders will be
required to tender one Right for each Share tendered in order to effect a
valid tender of Shares. Accordingly, shareholders who sell their Rights
separately from their Shares and do not otherwise acquire Rights may not be
able to satisfy the requirements of the Offer for a valid tender of Shares.
As further described in Section 7, the Rights Agreement provides that until
the close of business on the Distribution Date, the Rights will be evidenced
by the certificates for the Shares and may be transferred with and only with
the Shares. The Rights Agreement further provides that, as soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights will be mailed by the Company or the Rights Agent to holders of
record of Shares as of the close of business on the Distribution Date. The
Purchaser believes that, as a result of the commencement of the Offer, the
Distribution Date may occur as early as December 29, 1997, unless prior to such
date the Board of Directors of the Company redeems the Rights, amends the
Rights Agreement to make the Rights inapplicable to the Offer or delays the
Distribution Date. Unless the Distribution Date occurs, a tender of Shares
will also constitute a tender of the associated Rights.
If the Distribution Date occurs and separate certificates
evidencing the Rights are distributed by the Company or the Rights Agent to
holders of Shares prior to the time a holder's Shares are tendered pursuant to
the Offer, certificates representing a number of Rights equal to the number of
Shares tendered must be delivered to the Depositary, or, if available, a
Book-Entry Confirmation received by the Depositary with respect thereto, in
order for such Shares to be validly tendered. If the Distribution Date occurs
and separate certificates representing the Rights are not distributed prior to
the time Shares are tendered pursuant to the Offer, the Rights may be tendered
prior to a shareholder receiving the certificates for the Rights by use of the
guaranteed delivery procedure described below. A tender of Shares constitutes
an agreement by the tendering shareholder to deliver certificates representing
a number of Rights equal to the number of Shares tendered pursuant to the
Offer to the Depositary prior to expiration of the period permitted by such
guaranteed delivery procedures for delivery of certificates for, or a
Book-Entry Confirmation with respect to, the Rights (the "Rights Delivery
Period"). However, after expiration of the Rights Delivery Period, the
Purchaser may elect to reject as invalid a tender of Shares with respect to
which certificates for, or a Book-Entry Confirmation with respect to, an equal
number of Rights have not been received by the Depositary. Nevertheless, the
Purchaser will be entitled to accept for payment Shares tendered by a
shareholder prior to receipt of the certificates for the Rights required to be
tendered with such Shares, or a Book-Entry Confirmation with respect to such
Rights, and either (a) subject to complying with applicable rules and
regulations of the Commission, withhold payment for such Shares pending receipt
of the certificates for, or a Book-Entry Confirmation with respect to, such
Rights or (b) make payment for Shares accepted for payment pending receipt of
the certificates for, or a Book-Entry Confirmation with respect to, such Rights
in reliance upon the agreement of a tendering shareholder to deliver the
Rights and such guaranteed delivery procedures. Any determination by the
Purchaser to make payment for Shares in reliance upon such agreement and such
guaranteed delivery procedures or, after expiration of the Rights Delivery
Period, to reject a tender as invalid will be made in the sole and absolute
discretion of the Purchaser.
Book-Entry Transfer. The Depositary will establish accounts
with respect to the Shares at The Depository Trust Company (the "Book-Entry
Transfer Facility" ) for purposes of the Offer within two business days after
the date of this Offer to Purchase. Any financial institution that is a
participant in the Book-Entry Transfer Facility's systems may make book-entry
delivery of Shares by causing the Book-Entry Transfer Facility to transfer
such Shares into the Depositary's account in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery
of Shares may be effected through book-entry transfer into the Depositary's
account at the Book-Entry Transfer Facility, the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message, and any other required
documents, must, in any case, be transmitted to, and received by, the
Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase prior to the Expiration Date, or the tendering
shareholder must comply with the guaranteed delivery procedures described
below. If the Distribution Date occurs, the Depositary will also make a
request to establish an account with respect to the Rights at the Book-
Entry Transfer Facility, but no assurance can be given that book-entry
delivery of the Rights will be available. If book-entry delivery of the
Rights is available, the foregoing book-entry transfer procedures will also
apply to the Rights. If book-entry delivery of the Rights is not available
and the Distribution Date occurs, a tendering shareholder will be required
to tender the Rights by means of physical delivery to the Depositary of
certificates for the Rights (in which event references in this Offer to
Purchase to Book-Entry Confirmations with respect to the Rights will be
inapplicable). The confirmation of a book-entry transfer of the Shares or
the Rights into the Depositary's account at the Book-Entry Transfer
Facility as described above is referred to herein as a "Book-Entry
Confirmation." Delivery of documents to the Book-Entry Transfer Facility in
accordance with the Book-Entry Transfer Facility's procedures does not
constitute delivery to the Depositary.
The term "Agent's Message" means a message transmitted by the
Book-Entry Transfer Facility to, and received by, the Depositary and forming a
part of a Book-Entry Confirmation, which states that the Book-Entry Transfer
Facility has received an express acknowledgment from the participant in the
Book-Entry Transfer Facility tendering the Shares that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that the Purchaser may enforce such agreement against the participant.
The method of delivery of the Shares, the Rights, the Letter of
Transmittal and all other required documents, including delivery through the
Book-Entry Transfer Facility, is at the election and risk of the tendering
shareholder. The Shares will be deemed delivered only when actually received
by the Depositary (including, in the case of a Book-Entry Transfer, by
Book-Entry Confirmation). If delivery is by mail, registered mail with return
receipt requested, properly insured, is recommended. In all cases, sufficient
time should be allowed to ensure timely delivery.
Signature Guarantees. No signature guarantee is required on
the Letter of Transmittal (a) if the Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this Section 2, includes any
participant in the Book-Entry Transfer Facility's systems whose name appears
on a security position listing as the owner of the Shares) of the Shares and
the Rights tendered therewith and such registered holder has not completed
either the box entitled "Special Delivery Instructions" or the box entitled
"Special Payment Instructions" on the Letter of Transmittal or (b) if such
Shares and Rights are tendered for the account of a financial institution
(including most commercial banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program (an "Eligible Institution"). In all
other cases, all signatures on the Letter of Transmittal must be guaranteed by
an Eligible Institution. See Instructions 1 and 5 to the Letter of
Transmittal. If the certificates for the Shares or the Rights are registered
in the name of a person other than the signer of the Letter of Transmittal, or
if payment is to be made or certificates for the Shares or the Rights not
tendered or not accepted for payment are to be returned to a person other than
the registered holder of the certificates surrendered, the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered holders or
owners appear on the certificates, with the signatures on the certificates or
stock powers guaranteed as aforesaid. See Instructions 1 and 5 to the Letter
of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender the
Shares and the Rights pursuant to the Offer and such shareholder's
certificates for the Shares or the Rights are not immediately available
(including because certificates for Rights have not yet been distributed by
the Company or the Rights Agent) or the procedure for book-entry transfer
cannot be completed on a timely basis or time will not permit all required
documents to reach the Depositary prior to the Expiration Date, such
shareholder's tender may be effected if all of the following conditions are
met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser, is
received by the Depositary, as provided below, prior to the
Expiration Date; and
(iii) the certificates for all tendered Shares and/or Rights, in
proper form for transfer (or a Book-Entry Confirmation with respect to
all such Shares and/or Rights), together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message, and any other required documents are
received by the Depositary within (a) in the case of the Shares, three
trading days after the date of execution of such Notice of Guaranteed
Delivery or (b) in the case of the Rights, a period ending on the
later of (1) three trading days after the date of execution of such
Notice of Guaranteed Delivery or (2) three business days (as defined
above) after the date certificates for the Rights are distributed to
shareholders by the Company or the Rights Agent. A "trading day" is
any day on which the American Stock Exchange ("AMEX") is open for
business.
The Notice of Guaranteed Delivery may be delivered by hand to
the Depositary or transmitted by telegram, facsimile transmission or mail to
the Depositary and must include a guarantee by an Eligible Institution in the
form set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares
accepted for payment pursuant to the Offer will in all cases be made only
after timely receipt by the Depositary of (a) certificates for (or a timely
Book-Entry Confirmation with respect to) such Shares and, if the Distribution
Date occurs, certificates for (or a timely Book-Entry Confirmation, if
available, with respect to) the associated Rights (unless the Purchaser elects
to make payment for such Shares pending receipt of the certificates for, or a
Book-Entry Confirmation with respect to, such Rights as described above), (b)
a Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message, and (c) any other documents required
by the Letter of Transmittal. Accordingly, tendering shareholders may be paid
at different times depending upon when certificates for the Shares (or the
Rights) or Book-Entry Confirmations with respect to the Shares (or the Rights,
if available) are actually received by the Depositary. Under no circumstances
will interest be paid by the Purchaser on the purchase price of the Shares,
regardless of any extension of the Offer or any delay in making such payment.
If the Rights Condition is satisfied, the guaranteed delivery
procedures with respect to certificates for the Rights and the requirement for
the tender of the Rights will no longer apply.
The valid tender of the Shares and, if applicable, the Rights
pursuant to one of the procedures described above will constitute a binding
agreement between the tendering shareholder and the Purchaser upon the terms
and subject to the conditions of the Offer.
Appointment. By executing a Letter of Transmittal as set forth
above, the tendering shareholder will irrevocably appoint designees of the
Purchaser as such shareholder's attorneys-in-fact and proxies in the manner
set forth in the Letter of Transmittal, each with full power of substitution,
to the full extent of such shareholder's rights with respect to the Shares and
the Rights tendered by such shareholder and accepted for payment by the
Purchaser and with respect to any and all other Shares, Rights or other
securities or rights issued or issuable in respect of such Shares and Rights
on or after December 1, 1997. All such proxies will be considered coupled
with an interest in the tendered Shares and Rights. Such appointment will be
effective when, and only to the extent that, the Purchaser accepts for payment
the Shares tendered by such shareholder as provided herein. Upon such
appointment, all prior powers of attorney, proxies and consents given by such
shareholder with respect to such Shares, Rights or other securities or rights
will, without further action, be revoked and no subsequent powers of attorney,
proxies, consents or revocations may be given (and, if given, will not be
deemed effective). The designees of the Purchaser will thereby be empowered
to exercise all voting and other rights with respect to such Shares, Rights
and other securities or rights in respect of any annual or special meeting of
the Company's shareholders, or any adjournment or postponement thereof,
actions by written consent in lieu of any such meeting or otherwise, as they
in their sole discretion deem proper. The Purchaser reserves the right to
require that, in order for the Shares and the Rights to be deemed validly
tendered, immediately upon the Purchaser's acceptance for payment of such
Shares and Rights, the Purchaser must be able to exercise full voting, consent
and other rights with respect to such Shares, Rights and other securities or
rights, including voting at any meeting of the Company's shareholders.
Determination of Validity. All questions as to the validity,
form, eligibility (including time of receipt) and acceptance of any tender of
Shares or Rights will be determined by the Purchaser, in its sole discretion,
which determination will be final and binding. The Purchaser reserves the
absolute right to reject any or all tenders determined by it not to be in
proper form or the acceptance for payment of or payment for which may, in the
opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right to waive any defect or irregularity in the tender of any
Shares or Rights of any particular shareholder whether or not similar defects
or irregularities are waived in the case of other shareholders. No tender of
Shares or Rights will be deemed to have been validly made until all defects or
irregularities relating thereto have been cured or waived. None of the
Purchaser, Emeritus, the Depositary, the Information Agent, the Dealer Manager
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 Purchaser's interpretation of the terms and conditions
of the Offer (including the Letter of Transmittal and the instructions thereto)
will be final and binding.
Backup Withholding. In order to avoid "backup withholding" of
Federal income tax on payments of cash pursuant to the Offer, a shareholder
tendering Shares and Rights in the Offer must, unless an exemption applies,
provide the Depositary with such shareholder's correct taxpayer identification
number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury
that such TIN is correct and that such shareholder is not subject to backup
withholding. If a shareholder does not provide such shareholder's correct TIN
or fails to provide the certifications described above, the Internal Revenue
Service (the "IRS") may impose a penalty on such shareholder and payment of
cash to such shareholder pursuant to the Offer may be subject to backup
withholding of 31%. All shareholders surrendering Shares pursuant to the
Offer should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal to provide the information
and certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Purchaser and
the Depositary). Certain shareholders (including, among others, all
corporations and certain foreign individuals and entities) are not subject to
backup withholding. In order to avoid backup withholding, noncorporate foreign
shareholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary. See Instruction 9 to the Letter of Transmittal.
3. Withdrawal Rights.
Except as otherwise provided in this Section 3, tenders of the
Shares and the Rights are irrevocable. The Shares and the Rights tendered
pursuant to the Offer may be withdrawn pursuant to the procedures set forth
below at any time prior to the Expiration Date and, unless theretofore
accepted for payment and paid for by the Purchaser pursuant to the Offer, may
also be withdrawn at any time after February 16, 1998, or such later time as
may apply if the Offer is extended. The Shares or the Rights may not be
withdrawn unless the associated Rights or Shares, as the case may be, are also
withdrawn. A withdrawal of the Shares or the Rights will also constitute a
withdrawal of the associated Rights or Shares, as the case may be.
If the Purchaser extends the Offer, is delayed in its
acceptance for payment of Shares or is unable to accept Shares for payment
pursuant to the Offer for any reason, then, without prejudice to the
Purchaser's rights under the Offer, the Depositary may, nevertheless, on
behalf of the Purchaser, retain tendered Shares, and such Shares may not be
withdrawn except to the extent that tendering shareholders are entitled to
withdrawal rights as described in this Section 3. Any such delay will be by
an extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase and must specify the name of the person having tendered the Shares
and the Rights to be withdrawn, the number of the Shares and the Rights to be
withdrawn and the name of the registered holder of the Shares and the Rights
to be withdrawn, if different from the name of the person who tendered the
Shares and the Rights. If certificates for the Shares or the Rights have been
delivered or otherwise identified to the Depositary, then, prior to the
physical release of such certificates, the serial numbers shown on such
certificates must be submitted to the Depositary and, unless such Shares or
Rights have been tendered by an Eligible Institution, the signatures on the
notice of withdrawal must be guaranteed by an Eligible Institution. If the
Shares or the Rights have been delivered pursuant to the procedure for
book-entry transfer as set forth in Section 2, any notice of withdrawal must
also specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Shares or Rights and otherwise
comply with the Book-Entry Transfer Facility's procedures. Withdrawals of
tenders of the Shares and the Rights may not be rescinded, and any Shares
and Rights properly withdrawn will thereafter be deemed not validly
tendered for purposes of the Offer. However, withdrawn Shares and Rights
may be retendered by again following one of the procedures described in
Section 2 at any time prior to the Expiration Date.
All questions as to the form and validity (including time of
receipt) of notices of withdrawal will be determined by the Purchaser in its
sole discretion, which determination will be final and binding. None of the
Purchaser, Emeritus, the Depositary, the Information Agent, the Dealer Manager
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.
4. Acceptance for Payment and Payment.
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 Purchaser will accept for payment and
will pay for all Shares validly tendered prior to the Expiration Date and not
properly withdrawn in accordance with Section 3 promptly after the Expiration
Date. All questions as to the satisfaction of such terms and conditions will
be determined by the Purchaser in its sole discretion, which determination
will be final and binding. See Sections 1 and 14.
The Purchaser expressly reserves the right, in its sole
discretion and subject to the rules of the Commission, to delay acceptance for
payment of or payment for Shares in order to comply in whole or in part with
any applicable law, including, without limitation, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Any such
delays will be effected in compliance with Rule 14e-1(c) under the Exchange
Act (relating to a bidder's obligation to pay for or return tendered
securities promptly after the termination or withdrawal of such bidder's
offer). Emeritus filed a Notification and Report Form with respect to the
Offer under the HSR Act on December 19, 1997. In such event, the waiting
period under the HSR Act with respect to the Offer will expire at 11:59 p.m.,
New York City time, on January 3, 1998, unless early termination of the
waiting period is granted. However, the Antitrust Division of the Department
of Justice (the "Antitrust Division") or the Federal Trade Commission (the
"FTC") may extend the waiting period by requesting additional information or
documentary material from Emeritus. If such a request is made, such waiting
period will expire at 11:59 p.m., New York City time, on the 10th day after
substantial compliance by Emeritus with such request. See Section 15 hereof
for additional information concerning the HSR Act and the applicability of the
antitrust laws to the Offer.
In all cases, payment for Shares accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (a)
certificates for (or a timely Book-Entry Confirmation with respect to) such
Shares and, if the Distribution Date occurs, certificates for (or a timely
Book-Entry Confirmation, if available, with respect to) the associated Rights
(unless the Purchaser elects to make payment for such Shares pending receipt
of the certificates for, or a Book-Entry Confirmation with respect to, such
Rights as described in Section 2), (b) a Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message, and
(c) any other documents required by the Letter of Transmittal. The per Share
consideration paid to any shareholder pursuant to the Offer will be the
highest per Share consideration paid to any other shareholder pursuant to the
Offer.
For purposes of the Offer, the Purchaser will be deemed to have
accepted for payment, and thereby purchased, Shares properly tendered to the
Purchaser and not withdrawn as, if and when the Purchaser gives oral or
written notice to the Depositary of the Purchaser's acceptance for payment of
such Shares. Payment for Shares accepted for payment pursuant to the Offer
will be made by deposit of the purchase price therefor with the Depositary,
which will act as agent for tendering shareholders for the purpose of
receiving payment from the Purchaser and transmitting payment to tendering
shareholders. Under no circumstances will interest be paid on the purchase
price of the Shares to be paid by the Purchaser, regardless of any extension
of the Offer or any delay in making such payment.
If the Purchaser is delayed in its acceptance for payment of or
payment for Shares or is unable to accept for payment or pay for Shares
pursuant to the Offer for any reason, then, without prejudice to the
Purchaser'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 Purchaser, retain tendered Shares, and such Shares may not be withdrawn
except to the extent tendering shareholders are entitled to exercise, and duly
exercise, withdrawal rights as described in Section 3.
If any tendered Shares are not purchased pursuant to the Offer
for any reason, certificates for any such Shares and the associated Rights
will be returned, without expense to the tendering shareholder (or, in the
case of Shares or Rights tendered by book-entry transfer of such Shares or
Rights into the Depositary's account at a Book-Entry Transfer Facility
pursuant to the procedure set forth in Section 3, such Shares will be credited
to an account maintained at the appropriate Book-Entry Transfer Facility), as
promptly as practicable after the expiration or termination of the Offer.
The Purchaser reserves the right to transfer or assign, in
whole or from time to time in part, to Emeritus, or to one or more direct or
indirect wholly owned subsidiaries of Emeritus, the right to purchase Shares
tendered pursuant to the Offer, but any such transfer or assignment will not
relieve the Purchaser of its obligations under the Offer and will in no way
prejudice the rights of tendering shareholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer.
5. Certain Federal Income Tax Consequences.
The receipt of cash pursuant to the Offer or the Proposed
Merger will be a taxable transaction for Federal income tax purposes under the
Internal Revenue Code of 1986, as amended, and is likely to be a taxable
transaction under applicable state, local or foreign income or other tax laws.
Generally, for Federal income tax purposes, a tendering shareholder will
recognize gain or loss equal to the difference between the amount of cash
received by the shareholder pursuant to the Offer or the Proposed Merger and
the aggregate tax basis in the relevant Shares (together with the relevant
Rights). Gain or loss will be calculated separately for each block of Shares
and Rights tendered and purchased pursuant to the Offer or converted in the
Proposed Merger, as the case may be.
If Shares (and associated Rights) are held by a shareholder as
capital assets, gain or loss recognized by the shareholder will be capital
gain or loss, which will be long-term capital gain or loss if the
shareholder's holding period for the Shares (and associated Rights) exceeds
one year. Under present law, long-term capital gains recognized by an
individual shareholder will generally be taxed at a stated maximum Federal
marginal tax rate (disregarding the effect of limitations on deductions) of
28% (or, in the case of certain gains on capital assets held by an individual
shareholder for more than 18 months, 20%), and long-term capital gains
recognized by a corporate shareholder will be taxed at a maximum Federal
marginal tax rate of 35%.
A shareholder (other than certain exempt shareholders
including, among others, all corporations and certain foreign individuals and
entities) that tenders Shares may be subject to 31% backup withholding unless
the shareholder provides its TIN and certifies that such number is correct or
properly certifies that it is awaiting a TIN, or unless an exemption applies.
A shareholder that does not furnish its TIN may be subject to a penalty
imposed by the IRS. See "Procedure For Tendering Shares and Rights--Backup
Withholding".
If backup withholding applies to a shareholder, the Depositary
is required to withhold 31% from payments to such shareholder. Backup
withholding is not an additional tax. Rather, the amount of the backup
withholding can be credited against the Federal income tax liability of the
person subject to the backup withholding, provided that the required
information is given to the IRS. If backup withholding results in an
overpayment of tax, a refund can be obtained by the shareholder upon filing an
income tax return.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE WITH RESPECT TO
SHARES RECEIVED PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR
OTHERWISE AS COMPENSATION OR WITH RESPECT TO HOLDERS OF SHARES THAT ARE
SUBJECT TO SPECIAL TAX TREATMENT UNDER THE CODE, SUCH AS NON-U.S. PERSONS,
LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, AND FINANCIAL
INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF SHARES IN LIGHT OF INDIVIDUAL
CIRCUMSTANCES. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE
OFFER AND THE PROPOSED MERGER.
6. Price Range of the Shares; Dividends on the Shares.
The Shares are traded and prices are quoted on the AMEX under
the symbol "SRS". Until November 10, 1997, the Shares were traded in the
over-the-counter market and prices were quoted on the Nasdaq National Market
under the symbol "ARVI". The following table sets forth, for the periods
indicated, the high and low last reported sales quotations per Share as
reported by the Nasdaq National Market, the Dow Jones News Retrieval Service
and the AMEX, as applicable, and the amount of cash dividends paid per Share,
if any, all as reported in published financial sources.
ARV Assisted Living, Inc. Common Stock
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year Ending High Low
- ----------------------------------------------- ------- -------
March 31, 1996:
Third Quarter (1)......................... 15.25 9.25
Fourth Quarter............................ 17.75 10.50
March 31, 1997:
First Quarter............................. 20.25 15.50
Second Quarter............................ 17.00 12.50
Third Quarter............................. 15.25 10.06
Fourth Quarter............................ 11.63 9.00
March 31, 1998:
First Quarter............................. 11.63 7.75
Second Quarter............................ 12.75 10.25
Third Quarter (through December 18, 1997). 16.875 12.50
<FN>
(1) ARV Assisted Living, Inc. completed its initial public offering (the "ARV
Initial Public Offering") on October 17, 1995.
</FN>
</TABLE>
On December 18, 1997, the last full trading day before the
first public announcement of the intention to commence the Offer, the reported
closing sales price of the Shares on the AMEX was $14.25 per Share. On
December 19, 1997, prior to the commencement of trading, Emeritus announced
the intention to commence the Offer. Shareholders are urged to obtain current
market quotations for the shares.
According to the Company 10-K, the Company does not currently
pay dividends on the Shares and does not anticipate paying any dividends on
the Shares in the foreseeable future.
As of the date of this Offer to Purchase, the Rights are
attached to the Shares and are not traded separately. As a result, the sales
quotations per Share set forth above are also the high and low sales
quotations per Share and associated Right during such periods. Upon the
occurrence of the Distribution Date, the Rights are to detach, and may trade
separately, from the Shares. See Section 7. The Purchaser believes that, as
a result of the commencement of the Offer on December 19, 1997, the
Distribution Date may occur as early as December 29, 1997, unless prior to
such date the Board of Directors of the Company redeems the Rights, amends the
Rights Agreement to make the Rights inapplicable to the Offer or delays the
Distribution Date. If the Distribution Date occurs and the Rights begin to
trade separately from the Shares, the Company's shareholders should also
obtain a current market quotation for the Rights.
7. Certain Information Concerning the Company.
The Company. The Company is a California corporation and its
principal executive offices are located at 245 Fischer Avenue, Suite D-1,
Costa Mesa, CA 92626. According to the Company 10-K, the Company is a fully
integrated provider of assisted living accommodations and services that
operates, acquires and develops assisted living facilities. The assisted
living facilities of the Company comprise a combination of housing,
personalized support services and health care in a non-institutional setting
designed to respond to the individual needs of the senior elderly who need
assistance with certain activities of daily living, but who do not need the
level of health care provided in a skilled nursing facility.
Selected Financial Data of the Company. Set forth below is
certain selected consolidated financial information with respect to the
Company and its subsidiaries excerpted from the information contained in the
Company 10-K and the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 (the "Company 10-Q"). More comprehensive financial
information is included in the Company's 1997 Annual Report to Stockholders
(the "Company Annual Report"), the Company 10-K, the Company 10-Q and other
documents filed by the Company with the Commission, and the following summary
is qualified in its entirety by reference to the Company Annual Report, the
Company 10-K, the Company 10-Q and such other documents and all the financial
information (including any related notes) contained therein. The Company
Annual Report, the Company 10-K, the Company 10-Q and such other documents
should be available for inspection and copies thereof should be obtainable in
the manner set forth below under "Available Information".
ARV ASSISTED LIVING, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION> Six Months Ended
Year Ended March 31, September 30,
-------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1997 1996
---------- ----------- --------- --------- -----------
(in thousands except per share data)
STATEMENT OF OPERATIONS DATA:
Total revenue................................ $83,932 $33,063 $9,690 $56,173 $34,442
Interest expense............................. 5,573 1,544 354 2,887 2,653
Total expenses............................... 84,336 33,653 14,418 60,807 32,680
Income (loss) before income tax expense...... (404) (590) (4,728) (4,634) 1,762
Income tax expense (benefit)................. 201 375 (1,729) (249) 659
Income (loss) before minority interest &
extraordinary items......................... (605) (965) (2,999) (4,385) 1,103
Minority interest............................ 783 -- -- 503 105
Early extinguishment of debt................. 386 -- -- -- 386
Net income (loss)............................ (1,774) (965) (2,999) (4,888) 612
Net income (loss) per common share........... (.19) (.21) (.69) (0.47) 0.07
Weighted average common shares
outstanding (1)............................. 9,400 6,246 4,903 10,355 9,215
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, Six Months
----------------------------------------- Ended
September
30, 1997
1997 1996 1995(3) (unaudited)
---------- ---------- ---------- -----------
(in thousands except per share data)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA (2):
Working capital (deficit).............................. $23,054 $10,014 $(4,660)
Total current assets................................... 36,847 (4) 17,688 4,176 $39,180
Total assets........................................... 164,231 77,403 15,399 184,560
Total current liabilities.............................. 13,793 7,674 13,045
Long-term notes payable, excluding current portion..... 90,481 24,814 3,213 90,659
Total shareholders' equity (deficit)................... 51,374 39,947 (3,536) 71,840
<FN>
- ----------------------
(1) Net loss available for common shares reflects the effect of preferred
stock dividends. Weighted average common shares outstanding gives effect
to the 1-for-3.04 reverse stock split which occurred upon the completion of
the ARV Initial Public Offering.
(2) Where data is not provided, information was not available from ARV public
filings.
(3) ARV completed its initial public offering on October 17, 1995.
(4) According to the ARV 10-Q, for purposes of comparing total current assets
for the period ended March 31, 1997 with total current assets for the six
month period ended September 30, 1997, the appropriate value for total
current assets for the period ended March 31, 1997 is $27,428.
</FN>
</TABLE>
Stock Purchase, Note Purchase and Note Redemption. On July 23,
1997, the Company sold to Prometheus Assisted Living LLC ("Prometheus")
1,921,012 shares at $14.00 per share, representing an aggregate investment of
$26.9 million. The shares sold to Prometheus represent 16.6% of the
outstanding Shares. On October 30, 1997, Prometheus purchased $60 million of
6 (3)/(4)% Convertible Subordinated Notes Due 2007, (the "Notes") convertible
after January 28, 1998 at a conversion price of $17.25 per share. On December
8, 1997, the Company announced that it redeemed the Notes at a 23.214%
redemption premium for approximately 4.3 million Shares. For a more detailed
description of the above transactions, see Section 10.
The Rights. Set forth below is a summary description of the
Rights which was derived from and is qualified in its entirety by the Company
Rights 8-K.
Effective July 14, 1997, the Board of Directors of the Company
declared a dividend of one Right for each outstanding Share to shareholders of
record at the close of business on August 8, 1997. Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series C Junior Participating Preferred
Stock, no par value per share (the "Preferred Stock"), at a purchase price of
$70 per Unit, subject to adjustment (the "Purchase Price").
Initially, the Rights will be attached to all certificates
representing outstanding Shares, and no separate certificates for the Rights
("Rights Certificates") will be distributed. The Rights will separate from
the Shares, and Rights Certificates will be distributed to the holders of
Shares upon the earlier of (i) ten days following a public announcement that a
person or group of affiliated or associated persons (other than (A) Gary L.
Davidson, (B) Morgan Stanley, Dean Witter, Discover & Co. (with respect to the
Shares it already owns) and (C) LFREI and its affiliates (with respect to the
Shares purchased and to be purchased by an affiliate of LFREI pursuant to the
Stock Purchase Agreement)) has acquired, or obtained the right to acquire,
beneficial ownership of 10% or more of the Shares (an "Acquiring Person") or
(ii) ten business days (or such later date as may be determined by action of
the Board of Directors of the Company prior to such time as any person or
group of affiliated persons becomes an Acquiring Person) following the
commencement of or announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 10% or more of the Shares (the earlier of (i)
and (ii) being called the "Distribution Date"). Until the Distribution Date,
(a) the Rights will be evidenced by the Share certificates (together with a
copy of a Summary of Rights or bearing the notation referred to below) and
will be transferred with and only with such Share certificates, (b) new Share
certificates issued after August 8, 1997 will contain a notation incorporating
the Rights Agreement by reference and (c) the surrender for transfer of any
Share certificate (with or without a copy of the Summary of Rights) will also
constitute the transfer of the Rights associated with the Shares represented
by such certificate.
The Rights are not exercisable until the Distribution Date and
will expire at the close of business on August 8, 2007, unless earlier
redeemed or exchanged by the Company as described below.
As soon as practicable following the Distribution Date, Rights
Certificates will be mailed to holders of record of Shares as of the close of
business on the Distribution Date and, from and after the Distribution Date,
the separate Rights Certificates alone will evidence the Rights. All Shares
issued prior to the Distribution Date will be issued with Rights. Except as
specified in the Rights Agreement or as otherwise determined by the Board of
Directors of the Company, no Shares issued after the Distribution Date will be
issued with Rights.
In the event (a "Flip-In Event") that a person becomes an
Acquiring Person or if the Company is the surviving corporation in a merger
with an Acquiring Person or any affiliate or associate of an Acquiring Person
and the Shares were not changed or exchanged, each holder of a Right will
thereafter have the right to receive, upon exercise of such Right, a number of
Shares having a market value of two times the then current exercise price of
the Right. Notwithstanding the foregoing, following the occurrence of any
Flip-In Event, all Rights that are or were acquired or beneficially owned by
the Acquiring Person will be null and void.
For example, at an exercise price of $70 per Right, each Right
not owned by an Acquiring Person following a Flip-In Event would entitle its
holder to purchase $140 worth of Shares. Assuming that the Shares had a
current market price of $25 per Share at such time, the holder of each valid
Right would be entitled to purchase 5.6 Shares for $70.
In the event (a "Flip-Over Event") that, after a person has
become an Acquiring Person, (i) the Company is acquired in a merger or other
business combination transaction, or (ii) more than 50% of the Company's
assets or earning power is sold, each holder of a Right shall thereafter have
the right to receive, upon exercise, a number of shares of common stock of the
Acquiring Person having a market value of two times the then current exercise
price of the Right.
The Purchase Price payable, and the number of Units of
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Stock, (ii) if holders of the Preferred
Stock are granted certain rights or warrants to subscribe for Preferred Stock
or convertible securities at less than the current market price of the
Preferred Stock, or (iii) upon the distribution to holders of the Preferred
Stock of evidences of indebtedness, cash, securities or assets (excluding
regular periodic cash dividends at a rate not in excess of 125% of the rate of
the last regular periodic cash dividend theretofore paid or, in case regular
periodic cash dividends have not theretofore been paid, at a rate not in
excess of 50% of the average net income per share of the Company for the four
quarters ended immediately prior to the payment of such dividend, or dividends
payable in Preferred Stock (which dividends will be subject to the adjustment
described in clause (i) above)) or of subscription rights or warrants (other
than those referred to above).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments amount to at least 1% of the
Purchase Price. No fractional Units are required to be issued and, in lieu
thereof, an adjustment in cash may be made based on the market price of the
Preferred Stock on the last trading date prior to the date of exercise.
Pursuant to the Rights Agreement, the Company reserves the right to require
prior to the occurrence of a Flip-In Event or Flip-Over Event that, upon
any exercise of Rights, a number of Rights be exercised so that only whole
shares of Preferred Stock will be issued.
At any time prior to the time that a person becomes an
Acquiring Person, the Board of Directors of the Company may redeem the Rights
in whole, but not in part, at a price of $.01 per Right.
Immediately upon the effectiveness of the action of the Board
of Directors of the Company ordering redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the $.01 redemption price.
At any time after a person becomes an Acquiring Person and
prior to the occurrence of a Flip-Over Event or the acquisition by such
Acquiring Person of 50% or more of the Shares then outstanding, the Company
may exchange the Rights (other than Rights owned by an Acquiring Person, which
will have become void), in whole or in part, at an exchange ratio of one Share
per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, has no
rights as a shareholder of the Company, including, without limitation, the
right to vote or to receive dividends.
Any of the provisions of the Rights Agreement may be amended by
the Board of Directors of the Company for so long as the Rights are
redeemable. Thereafter, the provisions of the Rights Agreement may be amended
by the Board of Directors of the Company in order to cure any ambiguity,
defect or inconsistency, to make changes that do not adversely affect the
interests of holders of Rights (excluding the interests of any Acquiring
Person), or to shorten or lengthen any time period under the Rights Agreement;
provided, however, that no amendment to lengthen the time period governing
redemption shall be made at such time as the Rights are not redeemable.
The foregoing summary of the Rights does not purport to be
complete and is qualified in its entirety by reference to the description
included in the Company Rights 8-K and the Rights Agreement and the other
documents filed therewith. The Company Rights 8-K should be available for
inspection and copies thereof should be obtainable in the manner set forth in
Section 7 under "Available Information".
Pursuant to the Rights Condition, the Offer is conditioned upon
the Rights having been redeemed by the Board of Directors of the Company or
the Purchaser being satisfied, in its discretion, that the Rights have been
invalidated or are otherwise inapplicable to the Offer and the Proposed
Merger.
Unless the Rights Condition is satisfied, shareholders will be
required to tender one Right for each Share tendered in order to effect a
valid tender of Shares in accordance with the procedures set forth in Section
2. Unless the Distribution Date occurs, a tender of Shares will also
constitute a tender of the associated Rights.
The Purchaser believes that under the circumstances of the
Offer, and under applicable law, the Board of Directors of the Company has a
fiduciary obligation to redeem the Rights (or amend the Rights Agreement to
make the Rights inapplicable to the Offer and the Proposed Merger), and the
Purchaser is hereby requesting that the Company's Board of Directors do so.
However, there can be no assurance that the Board of Directors of the Company
will redeem the Rights or amend the Rights Agreement. Emeritus and the
Purchaser have commenced litigation against the Company and the Company Board
in Orange County Superior Court for the State of California seeking, among
other things, an order compelling the Board of Directors of the Company to
redeem the Rights or render the Rights Agreement inapplicable to the Offer and
the Proposed Merger on the grounds that the failure to do so would constitute
a breach of the Board's fiduciary obligations to its shareholders.
Available Information. The Company is subject to the
informational requirements of the Exchange Act and, in accordance therewith,
is required to file reports relating to its business, financial condition and
other matters. Information as of particular dates concerning the Company's
directors and officers, their remuneration, stock options and other matters,
the principal holders of the Company's securities and any material interest of
such persons in transactions with the Company is required to be disclosed in
proxy statements distributed to the Company's shareholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices
of the Commission located at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois 60661. Copies of such information should be obtainable, by
mail, upon payment of the Commission's customary charges, by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Commission maintains a web site on the Internet that
can be accessed at http://www.sec.gov and that contains information filed
electronically regarding the Company. Such material should also be available
for inspection at the offices of the American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006.
The information concerning the Company, the Stock Purchase,
Note Purchase and Note Redemption and the Rights contained herein has been
taken from or based upon publicly available documents on file with the
Commission and other publicly available information. Although the Purchaser
and Emeritus do not have any knowledge that any such information is untrue,
neither the Purchaser nor Emeritus takes any responsibility for the accuracy
or completeness of such information or for any failure by the Company to
disclose events that may have occurred and may affect the significance or
accuracy of any such information.
8. Certain Information Concerning the Purchaser and Emeritus.
The Purchaser. The Purchaser, a Delaware corporation which is
a wholly owned subsidiary of Emeritus, was organized to acquire the Company
and has not conducted any unrelated activities since its organization. The
principal office of the Purchaser is located at the principal office of
Emeritus. All outstanding shares of capital stock of the Purchaser are owned
by Emeritus. Until immediately prior to the time that the Purchaser will
purchase Shares pursuant to the Offer, it is not expected that the Purchaser
will have any significant assets or liabilities or engage in activities other
than those incident to its formation and capitalization and the transactions
contemplated by the Offer and the Proposed Merger. Due to the fact that the
Purchaser is newly-formed and has minimal assets and capitalization, no
meaningful financial information regarding the Purchaser is available.
Emeritus. Emeritus is a Washington corporation with its
principal office located at 3131 Elliot Avenue, Suite 500, Seattle, Washington
98121. Emeritus is a long-term care services company focused on operating
residential-style assisted-living communities.
Directors and Executive Officers. The name, business address,
citizenship, present principal occupation and employment history for the past
five years of each of the directors and executive officers of Emeritus and the
Purchaser are set forth on Schedule I of this Offer to Purchase.
Selected Financial Data of Emeritus. Set forth below is
certain selected consolidated financial information with respect to Emeritus
and its subsidiaries excerpted from the information contained in Emeritus'
Annual Report on Form 10-K for the year ended December 31, 1996 (the "Emeritus
10-K") and Emeritus' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (the "Emeritus 10-Q"). More comprehensive financial
information is included in the Emeritus 1996 Annual Report to Stockholders
(the "Emeritus Annual Report"), the Emeritus 10-K, the Emeritus 10-Q and other
documents filed by Emeritus with the Commission, and the following summary is
qualified in its entirety by reference to the Emeritus Annual Report, the
Emeritus 10-K, the Emeritus 10-Q and such other documents and all the
financial information (including any related notes) contained therein. The
Emeritus Annual Report, the Emeritus 10-K, the Emeritus 10-Q and such other
documents should be available for inspection and copies thereof should be
obtainable in the manner set forth below under "Available Information".
EMERITUS CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(expressed in thousands except per share)
<TABLE>
<CAPTION>
Nine Months Ended
Year ended December 31, September 30,
------------------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total operating revenues $4,409 $21,277 $68,926 $46,146 $84,968
Income (loss) from operations (352) (1,155) (5,368) (2,430) (10,457)
Extraordinary loss on extinguishment of
debt -- (1,267) -- -- --
Net Income (loss) (1,432) 8,954 (8,202) (4,465) (14,837)
Loss per share, before extraordinary loss... (0.95) (0.75)
Extraordinary loss (0.16) --
Net loss per share (1.11) (0.75) (0.41) (1.35)
Weighted average number of common
shares outstanding(1) 8,062 11,000 11,000 11,000
BALANCE SHEET DATA:
Working capital (deficit) $(2,762) $4,091 $9,757 $8,836 $(4,864)
Total assets 24,493 115,635 158,038 125,578 203,560
Total liabilities 25,878 78,511 129,932 93,635 189,408
Shareholders equity (deficit) (1,462) 34,895 26,188 29,886 12,747
<FN>
(1) The weighted average shares outstanding were retroactively adjusted for
the 9,200-for-1 split on April 14, 1995.
</FN>
</TABLE>
Available Information. Emeritus is subject to the
informational requirements of the Exchange Act and, in accordance therewith,
is required to file reports relating to its business, financial condition and
other matters. Information as of particular dates concerning Emeritus'
directors and officers, their remuneration, stock options and other matters,
the principal holders of Emeritus' securities and any material interest of
such persons in transactions with Emeritus is required to be disclosed in
proxy statements distributed to Emeritus' shareholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the Commission and copies thereof should be
obtainable from the Commission in the same manner as is set forth with respect
to the Company in Section 7. In addition, the Commission maintains a web site
on the Internet that can be accessed at http://www.sec.gov and that contains
information filed electronically regarding the Company. Such material should
also be available for inspection at the offices of the American Stock
Exchange, Inc., 86 Trinity Place, New York, New York 10006.
9. Source and Amount of Funds.
The consummation of the Offer is conditioned upon, among other
things, Emeritus being satisfied in its discretion, that it has obtained
sufficient financing on terms satisfactory to it to enable it to consummate
the Offer and the Proposed Merger. See Introduction and Section 14.
The Purchaser estimates that the total amount of funds required
to purchase pursuant to the Offer and the Proposed Merger the number of Shares
that are outstanding on a fully diluted basis (assuming Emeritus is successful
in court in rescinding the redemption of the Notes), to refinance or redeem
the outstanding indebtedness and to pay fees and expenses related to the Offer
will be approximately $400 million. See Section 16. Emeritus has had extensive
discussions with a number of financial sources and has fully negotiated the
terms of commitment letters for a possible financing structure for the Offer
and Proposed Merger but it has not executed any commitment letters because it
does not want to incur certain related fees and expenses unnecessarily prior
to the outcome of its litigation challenging the Prometheus transactions.
Emeritus has also received a letter from Northstar Capital Partners L.L.C.
("Northstar") stating that Northstar is highly confident of its ability to
provide the necessary financing.
Miscellaneous. The foregoing description of the Northstar
letter is qualified in their entirety by reference to the text thereof filed
as an exhibit to the Schedule 14D-1, copies of which may be obtained from the
offices of the Commission in the manner set forth in Section 8 (except that
such information will not be available at the regional offices of the
Commission).
Emeritus and Purchaser have not had access to all of the
instruments and agreements under which the Company has issued existing debt
or other obligations (collectively, "Company Debt"). There can be no
assurance that the purchase of the Shares and the Proposed Merger will not
result in an event of default, cross default or other adverse consequences
under any or all of the instruments defining the rights of the holders of
Company Debt. As a result, it is possible that holders of certain of the
Company Debt may have the right to require its immediate payment and Emeritus
may need to refinance additional indebtedness. In the event that some or all
of the holders of Company Debt have the right to demand its immediate payment
upon purchase of the Shares pursuant to the Offer or consummation of the
Proposed Merger, Emeritus presently intends to seek such holders' consent to
the Purchaser's assumption of the Company Debt pursuant to the same terms and
conditions as such Company Debt presently outstanding or to refinance such
Company Debt through additional borrowings.
10. Background of the Offer; Contacts and Transactions with the Company.
The following summary of the terms of the Original and Amended
Prometheus Transactions is derived from the information contained in the ARV
Preliminary Proxy Statement (the "First ARV Proxy Statement") filed on August
22, 1997 with the Commission and the Company's Report on Form 8-K dated
October 29, 1997 (the "8-K") and is qualified in its entirety by the
information set forth in the First ARV Proxy Statement and the 8-K. The First
ARV Proxy Statement, the 8-K, the various transaction agreements referred to
herein, as well as the Company's Annual Report on Form 10-K/A, Quarterly
Reports on Form 10-Q and other documents filed with the Commission should be
available for inspection and copies thereof should be obtainable in the manner
set forth in Section 7.
According to the First ARV Proxy Statement, prior to June 1997,
the Company's investment bankers and advisors held informal meetings with
representatives of Prometheus to discuss Prometheus' interest in making an
investment in the Company. On June 2, 1997, Salomon Brothers Inc ("Salomon
Brothers") arranged a meeting between representatives of the Company and
Prometheus to discuss such a transaction. At the time of the Company's initial
meetings with Prometheus, the Company was in negotiations with another
"potential investor", which had been performing due diligence on the Company
since February 1997. On June 12, 1997, representatives of Prometheus, the
Company and Salomon Brothers met to discuss the proposed terms of Prometheus'
potential investment in the Company. Over the next two weeks, representatives
of the Company met with each of Prometheus and a "potential investor" to
discuss their respective proposals.
In late June 1997, Daniel R. Baty, the Chairman and Chief
Executive Officer of Emeritus, telephoned Gary L. Davidson, the then Chairman,
President and Chief Executive Officer of ARV, and later visited Mr. Davidson
at the ARV headquarters on July 3, 1997. During these interactions, Mr. Baty
stated Emeritus' interest in exploring a business combination between the two
companies.
According to the First ARV Proxy Statement, on June 27, 1997
the Company entered into an exclusivity agreement with Prometheus pursuant to
which the Company agreed not to pursue a transaction with any other investor
prior to August 8, 1997 while negotiations on definitive agreements with
Prometheus were in process. The Company also engaged Salomon Brothers as its
financial advisor on that date with respect to the potential transaction.
Between June 27, 1997 and July 13, 1997, the Company and Prometheus negotiated
the specific terms of the proposed transaction and reached agreement on the
form of the definitive agreements pertaining to the Original Prometheus
Transaction.
The First Emeritus Proposal
On July 10, 1997, prior to the announcement of the Original
Prometheus Transaction, Emeritus delivered the following letter to Mr.
Davidson:
[LETTERHEAD OF EMERITUS]
July 10, 1997
Gary L. Davidson
Chairman of the ARV Board, President,
Chief Executive Officer
ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Re: Proposal
Dear Mr. Davidson:
Starwood Capital Group, LLC ("Starwood") and Emeritus
Corporation ("Emeritus") would like to present to you and your Board of
Directors a detailed proposal for the acquisition of ARV Assisted Living, Inc.
("ARV"). As discussed below, alternative proposals would be designed to
result in a minimum value of $14.00 per share to ARV shareholders, optional
liquidity, and the opportunity to participate in the upside of the combined
entities.
In the first alternative, Emeritus would acquire ARV in a tax
free merger or similar business combination transaction in which ARV
shareholders would receive Emeritus Common Stock equal in value to a minimum
of $14.00 for each share of ARV Common Stock. Starwood, through a significant
investment in Emeritus, would provide ongoing financing for the combined
company.
In the second alternative, the ARV shareholders would be
offered consideration consisting of Emeritus Common Stock and cash. The
consideration would be valued at a minimum of $14.00 per ARV share of Common
Stock and, at the election of ARV shareholders, could consist of up to 50% in
cash. Starwood, through its private $830 million investment fund, would
provide financing for the cash portion of the offer and ongoing financing for
the combined company.
Of course, a number of structuring, tax and regulatory
considerations would have to be addressed before arriving at an agreement in
principle, but the objective would be to achieve a minimum value of $14.00 per
share for ARV shareholders and immediate liquidity if desired. Nevertheless,
both Starwood and Emeritus, are familiar with ARV's assets and operations and
will be in a position to accelerate the due diligence process.
As you know, Starwood has reviewed with your management team
certain information, pursuant to that certain confidentiality agreement dated
April 3, 1997, between ARV and Starwood. Starwood has of course not shared any
such confidential information with Emeritus.
Independent of Starwood, Emeritus has visited and inspected 41
of 48 properties, analyzed publicly available financial information, and
currently owns approximately 4.9% of the outstanding ARV common stock, which
shares were acquired prior to any contact between Emeritus and Starwood.
Starwood and Emeritus believe that the combination of Emeritus,
ARV, and Starwood would create the largest, strongest and fastest growing
company in the assisted living industry. We also believe that these proposals
provide a significant premium value to the ARV shareholders of over 35% above
the current market price, and a superior value and more attractive liquidity
option than other transactions you may be currently contemplating, while
allowing them the flexibility of continuing their investment in what would be
the dominant and fastest growing assisted living concern in the United States.
We propose that a meeting be held as soon as possible to
discuss these proposals and explore possible structures and alternatives. We
and our advisors are available to meet you in Costa Mesa at your earliest
convenience. Please call us at (206) 298-2909 to arrange such a meeting.
Sincerely,
EMERITUS CORPORATION
By
Its Chairman
Starwood Capital Group, LLC
By
Its Managing Director
* * *
Mr. Davidson responded to the above letter by delivering the
following letter to Mr. Baty on July 11, 1997:
[LETTERHEAD OF ARV]
July 11, 1997
Mr. Daniel R. Baty
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121-1031
Dear Dan:
Thank you for your July 10th fax. I have forwarded copies to
each of the directors for their review. We are attempting to schedule a
meeting next week to consider your proposal.
Sincerely yours,
Gary L. Davidson
* * *
The Original Prometheus Transaction
According to the First ARV Proxy Statement, on July 13, 1997, a
special meeting of the ARV Board of Directors was called to discuss the
proposed transaction with Prometheus and the July 10, 1997 letter from
Emeritus. According to the First ARV Proxy Statement, at a meeting of the ARV
Board of Directors on July 14, 1997, after Salomon Brothers delivered its
written opinion to the ARV Board of Directors expressing its opinion that the
cash price of $14.00 per share of Common Stock to be received by the Company
in connection with the Original Prometheus Transaction was fair to the Company
from a financial point of view, the ARV Board of Directors voted unanimously
to approve the Original Prometheus Transaction. The Company then entered into
a Stock Purchase Agreement, dated July 14, 1997, as amended July 20, July 22
and September 30, 1997, (the "Stock Purchase Agreement") among LFREI,
Prometheus and ARV, and related agreements.
Subject to the terms and conditions of the Stock Purchase
Agreement, the Company planned to sell to Prometheus up to 9,653,325 shares of
Common Stock at a purchase price of $14.00 per share, representing an
aggregate investment of $135.1 million (the "Total Equity Commitment"). The
share acquisition was to be consummated in three phases. On July 23, 1997
(the "Initial Closing"), the Company sold to Prometheus 1,921,012 shares,
representing an aggregate investment of $26.9 million. The shares sold to
Prometheus at the Initial Closing represent 16.6% of the outstanding Common
Stock.
Following shareholder approval, the Company planned to sell to
Prometheus 3,078,988 shares (the "Second Closing"). Thereafter, the Company
from time to time at its election could sell additional shares to Prometheus at
$14.00 per share, in minimum increments of 715,000 shares (the "Subsequent
Closings"), until the Total Equity Commitment was invested or, if earlier,
eighteen months after shareholder approval or, if earlier, June 30, 1999
(unless extended by mutual agreement of the parties).
The Second Closing and each Subsequent Closing were subject to
various conditions, including (i) receipt of shareholder approval, (ii)
adoption of certain amendments to the Company's charter and bylaws, (iii)
receipt by the Company of title policies on certain of its properties, a
promissory note from an affiliate of the Company and estoppel certificates
from certain of the Company's landlords and (iv) the satisfaction of various
customary conditions.
From and after the date of the Stock Purchase Agreement, until
such date that Prometheus' remaining equity commitment was zero and either (i)
Prometheus no longer beneficially owned at least five percent of the
outstanding Common Stock, on a fully diluted basis, or (ii) Prometheus no
longer beneficially owned Common Stock having an aggregate market value of at
least $25 million (each, a "Termination Event"), the Original Prometheus
Transaction required the Company to consult with Prometheus prior to acting on
certain matters including those concerning the Company's financing
arrangements, acquisitions, dispositions and employment of executive
management.
Under the Stock Purchase Agreement, the Company agreed not to
solicit any Competing Transaction (as defined below) and to give notice to
Prometheus of any competing proposal that it received. The ARV Board could, in
accordance with the terms of the Stock Purchase Agreement, terminate the
transaction with Prometheus at any time in favor of a Competing Transaction
which it determined in good faith would provide greater value to the Company's
shareholders. Prior to entering into a definitive agreement with respect to a
Competing Transaction, however, the Company had to provide Prometheus with a
minimum of (A) five business days' notice of the competing party's interest in
pursuing a Competing Transaction and (B) two business days' notice of the
superior proposal of the competing party. For purposes of the Stock Purchase
Agreement, a "Competing Transaction" is defined as (i) any acquisition in any
manner, directly or indirectly (including through any option, right to acquire
or other beneficial ownership), of more than 15% of the equity securities, on
a fully diluted basis, of the Company, or assets representing a material
portion of the assets of the Company, other than any of the transactions
contemplated by the Stock Purchase Agreement, or (ii) any merger,
consolidation, sale of assets, share exchange, recapitalization, other business
combination, liquidation or other action out of the ordinary course of
business of the Company, other than any of the transactions contemplated by
the Stock Purchase Agreement.
The Stock Purchase Agreement also provided that (i) if the ARV
Board did not recommend shareholder approval of the Prometheus Transaction and
either (A) the Company's shareholders failed to approve the Transaction or (B)
the Second Closing did not occur on or before March 15, 1998, or (ii) the
Company failed to convene the meeting of its shareholders prior to February
15, 1998, then the Company would have had to pay Prometheus a $6,000,000
adjustment to the purchase price of the shares purchased in the Initial
Closing and a $7,000,000 breakup fee, as well as Prometheus' expenses.
Alternatively, if the ARV Board recommended shareholder approval of the
Transaction and the shareholders failed to approve the Transaction, then the
Company would have had to pay Prometheus an $8,700,000 adjustment to the
purchase price, as well as Prometheus' expenses. If the transactions
contemplated in the Stock Purchase Agreement did not close as a result of a
willful breach of a material representation, warranty or covenant in the Stock
Purchase Agreement, then the Company would have had to pay Prometheus
$13,000,000 as both an adjustment to the purchase price of the shares of
Common Stock purchased in the Initial Closing and a break-up fee, as well as
Prometheus' expenses.
The Stock Purchase Agreement also provided that if the Company
did not receive shareholder approval prior to February 15, 1998, Prometheus
had the right to transfer shares purchased at the Initial Closing without
being subject to the restrictions on transfer set forth in the Stockholders
Agreement (as defined below), so long as it did not transfer any shares of
Common Stock to a competitor of the Company.
Pursuant to the Stock Purchase Agreement, the Company, LFREI
and Prometheus entered into a Stockholders Agreement, dated July 14, 1997,
(the "Stockholders Agreement") simultaneously with the Stock Purchase
Agreement. Under the Stockholders Agreement, Prometheus was entitled to
certain rights, including the following:
(i) the right to nominate up to four directors to the ARV Board;
and
(ii) from and after the date of the Stockholders Agreement until a
Termination Event, the right to participate in the Company's future equity
offerings for cash by purchasing its proportionate share of the securities
offered therein.
Pursuant to the Stockholders Agreement, from and after the date
that the Prometheus-appointed directors became members of the ARV Board, an
affirmative vote of eight of the eleven directors of the Company would have
been required to take any action of the ARV Board other than in the ordinary
course of business (with certain exceptions), including (i) the acquisition or
sale of any business or assets having a value in excess of one percent of the
Company's assets, (ii) incurrence of indebtedness having a value in excess of
one percent of the Company's assets, (iii) the approval of any annual
operating budget of the Company, (iv) a material change in the Company's
management, (v) a change in the number of shares of Common Stock authorized
for issuance and (vi) a change in the Company's dividend policy.
Pursuant to the Stockholders Agreement, the Company was to form
an executive committee initially consisting of five members, two of whom were
to be appointed by LFREI. The executive committee would have been delegated
authority to approve certain board actions by the affirmative vote of four of
the five members. In addition, as long as Prometheus maintained a greater
than 30% ownership interest in the Company, at least one LFREI-appointed
director was to serve on each other special committee of the ARV Board,
including the audit and compensation committees. Also, unless a Termination
Event occurred, an LFREI-appointed director was to serve on the nominating
committee, which generally has the authority to nominate directors and the
Chairman, Chief Executive Officer and President of the Company. All nominees
to the ARV Board (other than the LFREI-appointed directors) would have
required the unanimous approval of the nominating committee, provided that if
the nominating committee could not unanimously agree on a nominee, the
nomination would have been referred to the entire ARV Board, which would have
decided the matter based on a simple majority vote.
The Stockholders Agreement also provided for a standstill
period of three years during which Prometheus would have been subject to
certain limitations and restrictions relating to, among other matters: (a)
acquisitions of additional shares of Common Stock (generally limiting
Prometheus to beneficially owning no more than 49.9% of the shares of Common
Stock on a fully diluted basis), (b) acting in concert with others by becoming
a member of a "group" for purposes of Section 13(d) of the Exchange Act, (c)
soliciting, encouraging or proposing certain significant transactions
involving the Company, (d) soliciting, initiating, encouraging or
participating in the solicitation of proxies in connection with any election
contest involving the ARV Board or initiating or proposing or participating in
or encouraging the making of, or soliciting shareholder approval of, any
shareholder proposal, (e) seeking representation on the Company's Board of
Directors other than as contemplated by the Stockholders Agreement, and (f)
requesting any waiver of the foregoing restrictions. For a period of two
years after shareholder approval or, if earlier, until a Termination Event,
Prometheus and certain of its affiliates would not have been permitted to sell
any shares of Common Stock. Thereafter, and during the remaining term of the
standstill period, Prometheus and certain of its affiliates, including LFREI,
would have been unable to transfer any shares of Common Stock except (i) in
transactions pursuant to Rule 144 under the Securities Act of 1933, (ii) in
negotiated transfers to third parties other than competitors of the Company,
(iii) to certain affiliates who agreed to be bound by the terms of the
Stockholders Agreement, (iv) in accordance with the registration rights
agreement in a bona fide public offering or (v) subject to certain conditions,
to bona fide financial institutions for the purpose of securing bona fide
indebtedness.
In addition to the Stock Purchase Agreement and the
Stockholders Agreement, the Company, LFREI and Prometheus also executed a
Registration Rights Agreement pursuant to which the Company granted Prometheus
certain demand registration rights to facilitate the resale of the shares of
Common Stock owned by it under certain conditions and certain piggyback rights
to sell a portion of its shares of Common Stock in connection with certain
offerings of securities by the Company. In addition, certain management
shareholders of the Company (representing, in the aggregate, 2,459,474 shares
of Common Stock) and Prometheus executed a voting agreement pursuant to which
such shareholders agreed to vote for the Prometheus Transaction and for the
directors nominated by the ARV Board's nominating committee and Prometheus.
On July 14, 1997, the Company also executed the poison pill
Rights Agreement pursuant to which the Rights were issued. See Section 7.
On July 15, 1997, the Company and Prometheus issued a joint
press release announcing the Original Prometheus Transaction. On July 16,
1997, the Company and Prometheus held a joint conference call with analysts of
the Company to discuss the Original Prometheus Transaction. On July 16, 1997,
the Company and Prometheus held a joint conference call with analysts of the
Company to discuss the Original Prometheus Transaction. The conference call
permitted shareholders and analysts interested in the Company to ask questions
about the Original Prometheus Transaction. Mora Conley of Financial Relations
Corp. introduced Gary Davidson and Robert Freeman, President of Lazard Freres
Real Estate Investors LLC, who each made introductory remarks about the
Original Prometheus Transaction. Graham Espley-Jones, Chief Financial Officer
of the Company, David Collins, Senior Executive Vice President of the Company
and other members of the Company's senior management also participated in the
call. During the question and answer period a number of issues were discussed
pertaining to the Original Prometheus Transaction including the components of
Prometheus' investment, Prometheus' commitment to invest $135 million in the
Company through June 30, 1999, the significance of certain related
transactions and agreements, the plan to increase the size of the Company's
board to 11 members, the extent of Prometheus' participation in the day-to-day
activities of the Company, the Company's consideration of tender offers or
other alternative proposals, the reasons behind the implementation of the
poison pill and other technical issues related to the transaction.
On July 21, 1997, Emeritus delivered the following letter to
the ARV Board of Directors:
[LETTERHEAD OF EMERITUS]
July 21, 1997
To the Members of the
Board of Directors of
ARV Assisted Living, Inc.
Gentlemen:
We were surprised and disappointed with the press release
issued by ARV Assisted Living, Inc. ("ARV") announcing the terms of the
proposed issuance of a 49.9% equity stake to Prometheus Assisted Living LLC
("Prometheus") and the adoption of a shareholders rights plan (the "Rights
Plan").
As you know, on July 10, 1997, we sent your chairman, Gary
Davidson, a written proposal pursuant to which we would acquire ARV in a
transaction which valued ARV common stock at $14 per share. In Mr. Davidson's
written response to us dated July 11, 1997, he indicated that our proposal had
been forwarded to each of the directors of ARV, and proposed scheduling a
meeting for the following week to consider such proposal.
The Prometheus transaction, and certain statements made by both
Prometheus and Mr. Davidson in connection therewith, raises a number of very
serious concerns:
1. As we understand the proposed Prometheus transaction,
Prometheus may purchase newly-issued ARV common stock over two years
at a price of $14 per share. This, in our view, is significantly
less attractive to the ARV shareholders than our offer to purchase
all of the shares for the same purchase price per share. We note
that the closing price for ARV's shares two days after the
announcement of the Prometheus transaction was only $12-1/2 per
share, reflecting the market's own tepid reaction to such proposed
transaction. As holders of approximately 4.9% of ARV's common stock,
we consider the proposed Prometheus transaction to be highly dilutive
to the long-term value of the existing shareholders' common stock.
2) It is apparent that ARV's board never gave serious
consideration to our proposal. We believe that, both in failing to
meet with us regarding our proposal and in entering into the proposed
transaction with Prometheus, the board of directors of ARV (the
"Board") breached its fiduciary duty to maximize shareholder value.
3) The potential break-up fee of up to $13 million for
Prometheus is enormous in light of the size of the proposed
transaction. . . . Perhaps even more importantly, we do not see any
benefit to ARV in agreeing to pay a break-up fee to Prometheus, since
the proposed transaction with Prometheus is not itself designed to
maximize shareholder value. Thus, the break-up fee does not satisfy
the primary purpose of such fees, namely to protect the value created
by a transaction. Rather, it merely shifts up to $13 million of value
from any other transaction that might be proposed away from ARV's
shareholders.
4) We believe that the Rights Plan constitutes an inappropriate
attempt to entrench current management, especially in light of the
fact that it was apparently adopted in direct response to our
proposal and in order to deter any challenge to the proposed
Prometheus transaction. In any event, it has the effect of chilling
any other proposals to maximize shareholder value.
5) In the conference call held with a number of major ARV
shareholders, representatives of Prometheus repeatedly made a point
of telling the participants that they were attracted to the announced
transaction because it was entered into outside the context of
competitive bid situation, thus implicitly denying the existence of
our proposal despite their actual knowledge of it. Even more
surprising, in response to direct questioning by one of the
shareholders, Mr. Davidson affirmatively denied that ARV had received
any other proposal regarding an acquisition or recapitalization of
the company other than the proposal from Prometheus. Obviously, such
statements by Prometheus and such statement by Mr. Davidson's are
flatly incorrect and in direct contradiction of Mr. Davidson's
written response to our proposal. We believe that ARV has an
affirmative duty to its shareholders to correct the highly inaccurate
and deceptive nature of both Prometheus' and Mr. Davidson's
statements.
6) Also during the conference call, Prometheus explained that
they were only acquiring 49.9% of ARV in order to avoid certain
"technical issues" involved in a change of control. We can only
assume that such technical issues include the heightened duties of
ARV's board in connection with a transaction involving a change in
control. However, it is clear to us that the proposed transaction
does result in a change in control to Prometheus. First, the
transaction will result in Prometheus designating four out of eleven
directors, and the bylaws of ARV being amended to require the
approval of eight of the eleven directors for any board action. This
obviously gives Prometheus an absolute veto power over all board
actions. Second, the five-man "executive Committee" [sic] to be
formed pursuant to the proposed transaction will include two of the
Prometheus directors, with actions thereby requiring the approval of
four out of five members. Thus, Prometheus will also have an
absolute veto over executive committee actions. Finally, at 49.9%,
Prometheus will be by far the largest shareholder of ARV, and will
have effective voting control of ARV.
As a consequence of the foregoing, we believe that the members
of ARV's board of directors have failed to satisfy their fiduciary duty to
maximize shareholder value, and have taken actions designed to entrench
management to the detriment of shareholders. In addition, we believe that
Prometheus and Mr. Davidson have made affirmative statements which are both
false and misleading, and that ARV has an affirmative duty to correct such
material misstatements.
We believe that the shareholders for ARV have a right to be
informed of our interest in pursuing a transaction with ARV. To that end, we
are prepared to discuss the terms of an all-cash offer which values ARV's
common stock $14 per share, and to proceed very quickly to consummate such a
transaction on mutually agreeable terms.
We hereby request the members of the board of directors of ARV
to authorize and direct the appropriate officers or representatives to meet
with us as soon as possible to discuss a potential transaction with us which
will maximize shareholder value, and to remove any impediments to such a
transaction (including the proposed transaction with Prometheus, the break-up
fee included therein and the Rights Plan).
As a significant shareholder of ARV we intend to protect our
rights and those of your other shareholders.
Very truly yours,
Daniel R. Baty
Chairman
* * *
According to the First ARV Proxy Statement, on July 23, 1997,
Prometheus purchased 1,921,012 shares of Common Stock for an aggregate
purchase price of $26.9 million at the Initial Closing.
On July 25, Mr. Davidson delivered the following letter to Mr.
Baty:
[LETTERHEAD OF ARV]
July 25, 1997
Daniel R. Baty
Chairman
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, WA 98121-1031
Dear Mr. Baty:
The Board of Directors of ARV Assisted Living, Inc. ("ARV") has
asked me to respond to your letter dated July 21, 1997. While we don't think
it is necessary to address each item raised in your letter, the Board wants
you to be aware of the following facts.
First, the Board carefully reviewed and considered the terms
outlined in your letter dated July 10, 1997 expressing an interest in opening
negotiations with ARV. Without going into all of the details, the Board
determined, based on our business judgment, that those terms were
significantly less attractive (and less definitive) for ARV shareholders than
the terms of the Prometheus transaction, which as Starwood knows ARV had been
pursuing for a considerable time. In the Board's view, the Prometheus
transaction maximizes shareholder value over the long term.
Second, the actual break-up fee for the Prometheus transaction
is $7 million, not $13 million. (The $13 million figure includes an
obligation to refund Prometheus $6 million as a purchase price adjustment for
its initial stock purchase.) Still, $13 million is only 3.7% of the total
enterprise value of ARV based on the $14.00 per share price paid by
Prometheus. As you know, this is well within the standard range for
transactions like this one, especially given the fact that Prometheus is
paying a premium in a transaction that does not result in a majority stake.
Thus, in the Board's business judgment, the break-up fee, designed to protect
the value of a transaction that was in shareholders' best interest, was
reasonable.
Third, the Shareholder Rights Plan was not adopted in direct
response to your July 10 letter. ARV has been considering the adoption of
such a plan for some time. The primary purpose of the Shareholder Rights Plan
is to ensure maximum value for all shareholders vis-a-vis any proposed
transaction involving the acquisition of a significant stake in ARV. It
allows the Board an opportunity to carefully consider and evaluate both the
short and long term effects of such transactions on all shareholders. As you
know, many companies have adopted similar rights plans and have subsequently
been acquired. The Rights Plan does not therefore deter other proposals, it
deters only those proposals that do not maximize shareholder value in the view
of the Board of Directors. For these reasons, all seven members of our Board
unanimously approved the Shareholder Rights Plan, including the five
non-management directors.
The Board's decisions were all made based on each Board
member's business judgment after careful consideration of all facts, with the
assistance of sophisticated professional advisors, and taking into account
each Board member's background and experience. Contrary to your reckless
allegations, Board members have acted in good faith to carry out our
respective fiduciary duties under the laws of the State of California.
Accordingly, there is no need to reconsider our decision regarding your July
10 letter.
Finally, please be advised that any attempt by Emeritus or its
partner Starwood Capital Group, LLP to interfere in the ARV-Prometheus
transaction would constitute a blatant disregard of Starwood's commitment and
legal obligation under the Confidentiality Agreement dated April 3, 1997, the
implications of which would go far beyond the context of this transaction.
Moreover, any steps taken by Emeritus/Starwood to interfere with the
ARV-Prometheus transaction would also constitute tortuous interference with
contract and economic relations under California law. ARV is prepared to take
whatever steps may be necessary to protect and enforce its rights and the
rights of its shareholders.
Sincerely,
Gary L. Davidson
Chairman, ARV Assisted Living, Inc.
cc: Board of Directors
William J. Cernius, Esq. - Latham & Watkins
Robert P. Freeman - Lazard Freres
Kevin J. Grehan - Cravath, Swaine & Moore
* * *
On July 30, Mr. Baty responded with the following letter to the ARV
Board of Directors:
[LETTERHEAD OF EMERITUS]
July 30, 1997
Board of Directors
ARV Assisted Living, Inc.
245 Fischer Avenue
Costa Mesa, CA 92626
Gentlemen:
I have received Mr. Davidson's letter of July 25, 1997. Since
our July 10 proposal to pay ARV shareholders a minimum of $14 per share, you
have refused to communicate or negotiate with us, and have instead rushed
forward at breakneck speed with the Prometheus transaction. Nothing in the
July 25 letter can change these facts or can excuse your apparent decision to
put your interests ahead of those of the shareholders you are supposed to
represent.
The July 25 letter also makes clear that you have dismissed
out-of-hand the concerns about possible legal claims raised in our July 21,
1997 letter. Instead, you have gone so far as to threaten us with legal
action if we attempt to present shareholders with a more attractive
transaction than the Prometheus transaction. Your refusal to deal with us, to
consider ways in which you might present your shareholders with a transaction
more attractive than the Prometheus transaction, or to look into the serious
allegations of inappropriate conduct we have previously raised leaves us no
choice but to consider ways in which we can protect our interest and the
interest of other shareholders, including the possibility of seeking relief in
court on behalf of ARV and all of its shareholders.
We believe we are entitled to answers to the questions we have
previously raised and to the following additional questions:
1. Why did you rush to sign the Prometheus transaction after
July 10 proposal. Perhaps more important, why did you accelerate
the first closing of that transaction by over a month from the
schedule you originally announced.
2. To date, you have not asked us for any information
concerning our July 10 proposal. Is there any additional
information that would be helpful in order to consider our
proposal? If so, why have you not asked for this to date?
3. The executed documents you published regarding the
Prometheus transaction call for termination of the transaction if
you receive a more favorable offer than the Prometheus
transaction. What criteria do you intend to use to make this
determination? Also, please confirm that if you make such a
determination, the entirety of the Prometheus transaction,
including the first closing, will be rendered null and void.
4. As regards the $13 million termination fee, based up on your
narrative on how you arrived at the percentage, we are not able to
duplicate the math calculation. Please provide the details of your
calculation. Further, do you consider it customary to evaluate
that fee as a percentage of the entire equity interest in the
company, as suggested in Mr. Davidson's July 25 letter, or as a
percentage of the value of the Prometheus transaction?
5. What is your reason for keeping our July 10 proposal from
ARV shareholders?
6. As to the recent adoption of the shareholders rights plan,
could you please provide specific information as to when that plan
was previously considered? We would also appreciate receiving
copies of any minutes which show any prior consideration of that
rights plan by you.
7. What basis do you have for suggesting that Emeritus is bound
by your confidentiality agreement with Starwood. We remind you
that in our July 10 proposal to you, Starwood confirmed that it
had not shared any confidential information with us.
We are deeply troubled that the Board is spending time trying
to defend a series of actions instead of finding the best way to advance the
interests of all shareholders. We remain prepared to discuss our proposal
with you, and sincerely hope that the Board will begin to consider how to
fulfill its fiduciary duties to us and the other ARV shareholders.
Very truly yours,
Daniel R. Baty
Chairman
* * *
On August 22, 1997, ARV filed the First ARV Proxy Statement
with the Commission. The First ARV Proxy Statement set forth an Annual
Meeting date of October 14, 1997, and stated that the record date for such
Annual Meeting was August 19, 1997. ARV subsequently reset the record date to
October 10, 1997.
The Kapson Transaction
On October 2, 1997, an affiliate of LFREI announced that it had
entered into an agreement to acquire substantially all of the stock of Kapson
Senior Quarters Corp. ("Kapson"). Assuming Kapson's shareholders approve the
Kapson transaction, LFREI will offer ARV the option to purchase up to a 19.9%
interest (at LFREI cost) in Kapson out of the LFREI stake. LFREI also
proposed that ARV establish a relationship with Kapson structured as a
strategic alliance, with the two companies remaining independent.
The Emeritus Proposal
After carefully considering a number of options (including
discussing certain transactions with Prometheus), Emeritus sent the following
letter to ARV on October 12, 1997, proposing an acquisition of all of the
outstanding common stock of ARV for $16.50 per share in cash (the "Emeritus
Proposal"):
[LETTERHEAD OF EMERITUS]
October 12, 1997
Mr. Gary L. Davidson
Chairman of the Board,
Chief Executive Officer and President
ARV Assisted Living, Inc.
245 Fisher Avenue, Suite D-1
Costa Mesa, CA 92626
Dear Mr. Davidson:
We have carefully studied your current transaction with Lazard
Freres Real Estate Investors L.L.C. and Prometheus Assisted Living L.L.C. and
believe that we can offer you and your stockholders a far superior transaction.
As you know, the Prometheus transaction contemplates selling
(subject to Stockholder Approval) up to 49.9% of ARV's common stock to
Prometheus at $14 per share, an 8% discount to the closing price of ARV's
stock on Friday. If that transaction proceeds, Prometheus will acquire
effective control of ARV without any value being paid to your stockholders.
Emeritus is prepared to acquire all of the outstanding common
stock of ARV for $16.50 per share in cash, a 45% premium to the $11.38 ARV
stock price the day before the Prometheus transaction was first announced.
Gary, clearly this is a fair price for your stockholders in light of the ARV
valuation analysis disclosed in your proxy statement for the Prometheus
transaction.
This proposal is authorized by Emeritus' board of directors.
Emeritus has had extensive discussions with prospective sources of financing
for this proposal. Based upon those discussions we are confident that we can
conclude the necessary financing required to effect the combination of our two
businesses on a timely basis. In addition, last week we announced a proposed
$25 million equity investment in Emeritus by NorthStar Capital Partners LLC (a
private investment group with financial backing from a Union Bank of
Switzerland securities affiliate and Quantum Realty Partners, a fund advised
by Soros Fund Management LLC), further strengthening our balance sheet.
The transaction would be subject to negotiation and execution
of a definitive acquisition agreement, approval by your stockholders, and
receipt of all necessary regulatory and other approvals. We contemplate that
the definitive agreement would contain terms and conditions customary in this
type of transaction.
ARV and Emeritus are two of the leading companies in the senior
housing services business. Emeritus currently holds interests in 115
communities representing capacity for 10,900 residents in 25 states and
Canada. ARV currently owns and/or operates 49 assisted living facilities with
approximately 6,300 units in 11 states. Together, the strategic business
combination of our two companies would create a powerful critical mass,
positioning the combined enterprise well for its rapid growth both internally
and through acquisitions, providing the finest living facilities for its
thousands of senior citizen residents, and building value for its employees,
business partners, communities and, in turn, investors.
Emeritus has recently increased its ownership position in ARV
stock to approximately 8% which it is required to report to the SEC in a
Schedule 13D filing on Tuesday. Accordingly, we intend to publicly announce
our proposal by press release on Monday.
Emeritus and its advisers are available to meet with you and
your advisers immediately.
Sincerely yours,
Daniel R. Baty
Chief Executive Officer
* * *
On October 14, 1997, the ARV Board of Directors announced that
the Company was not for sale and that the ARV Board of Directors intended to
continue its commitment to its transaction with Prometheus and not to pursue
negotiations with Emeritus.
On October 15, 1997, ARV announced the resignation of Gary
Davidson as President, Chief Executive Officer, Chairman and Director of ARV,
effective October 13, 1997. John J. Rydzewski was appointed Chairman, and John
A. Booty was appointed President and Chief Executive Officer on an interim
basis.
On October 29, 1997, LFREI, Prometheus and ARV amended their
letter agreement regarding the strategic alliance to take effect between ARV
and Kapson upon the consummation of LFREI's acquisition of substantially all
the stock of Kapson. Under the amended letter agreement, LFREI granted ARV
the right to acquire 19.9% of Kapson's stock from LFREI at LFREI's price
during the 30 days after the completion of LFREI's Kapson investment. (ARV
may opt instead to permit its shareholders to purchase the Kapson stock from
LFREI, in which case the right to purchase the Kapson stock expires 30 days
after a registration statement is declared effective with respect to the
option.) Upon the closing of the Kapson investment, ARV has a first right to
negotiate management, lease and purchase arrangements on any new developments
or acquisitions by Kapson on terms commercially reasonable to both parties.
LFREI also agreed to negotiate in good faith with ARV on leasing or management
agreements for all existing or planned Kapson facilities, not to permit Kapson
to enter leasing or management arrangements for its existing facilities with
entities other than ARV or Kapson's controlled affiliates, and to explore a
joint venture arrangement between ARV and Kapson to house top corporate
management of both companies in order to achieve economies of scale.
The Amended Prometheus Transaction
On October 31, 1997, ARV announced that it had replaced the
Original Prometheus Transaction with a new transaction, the Amended Prometheus
Transaction, under which Prometheus would retain its recently acquired equity
of approximately 1.9 million shares and, rather than consummate the Second
Closing or Subsequent Closings, would purchase $60 million of 6-3/4%
Convertible Subordinated Notes Due 2007 (the "Notes") under an Amended and
Restated Stock and Note Purchase Agreement dated October 29, 1997 among LFREI,
Prometheus and ARV (the "Amended Purchase Agreement").
In connection with the issuance of the Notes, the Company and
The Chase Manhattan Bank, N.A. entered into an indenture dated as of October
30, 1997 (the "Indenture"), and the Company executed a $60 million note in
favor of Prometheus dated as of October 30, 1997 (the "Note"). Pursuant to
the provisions of the Indenture and Note, at any time after 90 days following
the date of issuance, Prometheus may convert the Notes into shares of ARV
Common Stock at the conversion price of $17.25 per share, subject to certain
adjustments. If there is a Change of Control or Termination of Trading (each
as defined in the Indenture), Prometheus may elect to (i) require ARV to
repurchase the Notes at a price of 101% of the principal amount or (ii) if the
Change of Control is not approved by a majority of the continuing directors of
ARV, require the Company to convert the Notes at a conversion price of $16.25.
Prometheus also received certain registration rights under an Amended and
Restated Registration Rights Agreement dated October 29, 1997 (the "Amended
Registration Rights Agreement").
In connection with the Amended Purchase Agreement, LFREI,
Prometheus and ARV also entered into an Amended and Restated Stockholders
Agreement dated October 29, 1997 (the "Amended Stockholders Agreement"), and
LFREI, Prometheus and certain management of ARV entered into a Stockholders'
Voting Agreement dated October 29, 1997 (the "Second Voting Agreement").
Under the Amended Stockholders Agreement, the ARV Board was expanded to nine
members, three of which will be designees of Prometheus. Until Prometheus no
longer owns at least 5% of the Common Stock on a fully diluted basis or at
least $25 million of Common Stock (each, a "Termination Event"), at each
annual or special meeting of shareholders of the Company, Prometheus will have
the right pursuant to the Amended Stockholders Agreement and the Company's
Bylaws to designate three nominees to the ARV Board if the ARV Board is a
single class or one designee per class if the ARV Board is divided into three
classes. The Company has agreed to support the nomination and the election of
each designee of Prometheus to the ARV Board and to exercise all authority
under applicable law to cause each designee of Prometheus to be elected to the
ARV Board. With respect to each meeting of shareholders of the Company at
which directors are to be elected, the Company is required to use its
reasonable efforts to solicit from the shareholders of the Company proxies in
favor of each designee of Prometheus. During the period that Prometheus has
the right to designate nominees to the ARV Board, the number of directors on
the ARV Board may not exceed nine.
Under the Amended Stockholders Agreement, the Company is
required to use commercially reasonable efforts to identify, select and retain
a new President/CEO of the Company by the ninetieth day after the closing
under the Amended Stock and Note Purchase Agreement. In connection with the
retention of such President/CEO, the Company is required to obtain the prior
written consent of Prometheus, which consent may not be unreasonably withheld.
Upon the retention of a new President/CEO of the Company, the Company is
further required under the Amended Stockholders Agreement to use its best
efforts to cause a director who is not a designee of Prometheus to resign from
the ARV Board, and the Company and Prometheus will use their best efforts to
cause such new President/CEO to be elected to the ARV Board.
From and after the date of the Amended Stockholders Agreement
until a Termination Event, Prometheus will generally have the right to
participate in the Company's future equity offerings for cash by purchasing
its proportionate share of the securities offered therein.
During a standstill period of three years (which period is
subject to early termination in certain circumstances) (the "Standstill
Period"), Prometheus will be subject to certain limitations and restrictions
relating to, among other matters: (a) acquisitions of additional shares of
Common Stock (generally limiting Prometheus to beneficially owning no more
than 49.9% of the shares of Common Stock on a fully diluted basis (except that
shares of Common Stock issuable upon conversion of the Company's convertible
debt or upon exercise of options granted under management benefit plans shall
not be included), (b) acting in concert with others by becoming a member of a
"group" for purposes of Section 13(d) of the Securities Act of 1934 and the
rules promulgated thereunder, (c) soliciting, encouraging or proposing certain
significant transactions involving the Company, (d) soliciting, initiating,
encouraging or participating in the solicitation of proxies in connection with
any election contest involving the ARV Board or initiating or proposing or
participating in or encouraging the making of, or soliciting stockholder
approval of, any stockholder proposal, (e) seeking representation on the ARV
Board other than as contemplated by the Amended Stockholders Agreement, (f)
entering into or permitting Kapson to enter into sale/leaseback or other
financing arrangements of the type contemplated by the Amended Kapson Letter
Agreement with any company (other than the Company) the principal business of
which is the ownership, management, operation and development of
assisted-living facilities in the United States, (g) requesting any waiver of
the foregoing restrictions or (h) assisting, advising, encouraging or acting
in concert with any person with respect to any of the foregoing.
During the Standstill Period, Prometheus and its affiliates may
not transfer any shares of Common Stock except (a) in transactions pursuant to
Rule 144 under the Securities Act of 1933, (b) in negotiated transfers to
third parties other than certain companies engaged in the business of
operating assisted-living facilities, (c) to certain affiliates who agree to
be bound by the terms of the Amended Stockholders Agreement, (d) in accordance
with the Amended Registration Rights Agreement in a bona fide public offering
and (e) subject to certain conditions, to bona fide financial institutions for
the purpose of securing bona fide indebtedness.
In addition, during the Standstill Period, Prometheus is
required to vote all shares of Common Stock owned by it representing an
aggregate ownership in excess of 35.8% of the outstanding shares of Common
Stock in one of the following two manners: (x) in accordance with the
recommendation of the ARV Board or (y) proportionally in accordance with the
votes of the other holders of Common Stock. Prometheus is also required to
vote all of its shares of Common Stock in favor of the election of all
directors nominated by the nominating committee of the Company, if any, or the
ARV Board, provided such nominations are in accordance with certain provisions
of the Amended Stockholders Agreement.
The Standstill Period will terminate prior to its stated term
in the event of certain occurrences such as a material event of default by the
Company or any subsidiary under any debt agreement or a material violation of
a material covenant under the Amended Stock and Note Purchase Agreement.
Under the terms of the Amended Stockholders Agreement,
Prometheus and certain of its affiliates, including LFREI, shall be restricted
from owning any equity interest in any public or private company engaged
primarily in the assisted-living business in the United States without the
consent of 75% of the directors of the Company, excluding those nominated by
Prometheus.
Under the Second Voting Agreement, the following management
stockholders of the Company and their affiliates have agreed to vote for the
directors nominated by (a) Prometheus and (b) the nominating committee of the
ARV Board, if any, or the ARV Board: John A. Booty; Booty-Jones Family
Partnership; Booty Family Trust; Karen A. Booty Charitable Remainder Trust;
John A. Booty Charitable Remainder Unitrust; David P. Collins; D&V Collins
Family Limited Partnership; Collins Family Community Property Trust; David P.
Collins Annuity Trust; and Graham P. Espley-Jones.
On November 10, 1997, ARV announced that it transferred its
listing from the Nasdaq National Market System to the American Stock Exchange,
the purported effect of which is to eliminate the availability of cumulative
voting for the public shareholders.
On November 14, 1997, the Company announced a $25 million share
repurchase program. Under this program the Company can reduce the amount of
shares of Common Stock outstanding that are not held by ARV management or
Prometheus, thus effectively increasing the percentage of outstanding Common
Stock owned by ARV management and Prometheus while also decreasing the
likelihood that ARV public shareholders can defeat any future ARV Board
proposal.
On November 21, 1997, ARV filed the ARV Proxy Statement with
the Commission. The ARV Proxy Statement set forth an Annual Meeting date of
January 8, 1998, and stated that the record date for such Annual Meeting was
November 14, 1997.
On November 24, 1997, Emeritus filed its preliminary proxy
materials with the Commission.
On December 8, 1997, ARV announced that the ARV Board had
appointed Howard G. Phansteil as Chairman of the ARV Board and Chief Executive
Officer of ARV and Lawrence B. Murphy as President and Chief Operating
Officer. In connection with these appointments, James Peters resigned from
the ARV Board in order to make a seat available for Mr. Phansteil.
The Redemption of the Notes by ARV
On December 8, 1997, ARV announced that it issued approximately
4.3 million shares of ARV Common Stock (the "Redemption Shares") to Prometheus
in exchange for all of the Notes held by Prometheus. The optional redemption
was made at the price of $17.25 per share of ARV Common Stock and included
payment to Prometheus for the 23.14% optional redemption premium and accrued
interest to date on the Notes. Assuming that the optional redemption of the
Notes and the corresponding issuance of the Redemption Shares to Prometheus by
ARV was valid, Prometheus owns, as of December 8, 1997, a total of
approximately 6.2 million shares of ARV Common Stock, representing
approximately a 39% stake in ARV.
ARV also announced on December 8, 1997 that the Annual Meeting
scheduled for January 8, 1998 has been rescheduled for January 28, 1997 and
that the record date for the Annual Meeting was being moved from November 14,
1997 to December 18, 1997. The combined effect of the change in the record
date for the Annual Meeting and the optional redemption of the Notes, assuming
such redemption was valid, is to allow Prometheus to vote the Redemption
Shares at the Annual Meeting. Pursuant to the Voting Agreement, the
Redemption Shares must be voted in favor of the Prometheus Transaction and in
favor of the ARV Nominees at the Annual Meeting. The Redemption Shares, when
combined with the ARV Common Stock currently subject to the Voting Agreement,
represent approximately 48% of the outstanding ARV Common Stock.
Emeritus has filed litigation which disputes, among other
things, the validity of the redemption by ARV of the Notes and the
corresponding issuance by ARV to Prometheus of the Redemption Shares.
The Emeritus Litigation
On December 9, 1997, Emeritus filed a complaint (the
"Complaint") in Orange County Superior Court for the State of California (the
"Court") against ARV and the ARV Board. The Complaint asserts five claims
based on a number of alleged breaches of fiduciary duty by defendants,
including (1) that ARV's decision to redeem the Notes at approximately 123% of
their face value and thereby issue approximately 4.3 million discounted shares
of ARV Common Stock which are contractually bound to be voted in support of
the current ARV Board was for the purpose of entrenchment; (2) that the ARV
Board has failed to maximize value for the ARV Stockholders in light of the
change in control of ARV effected by the transactions with Prometheus; (3)
that the transactions with Prometheus were improper defensive measures
undertaken by the ARV Board for the purpose of entrenchment; (4) that the ARV
Board failed to exercise due care in considering the transactions with
Prometheus and in refusing to negotiate with Emeritus and summarily rejecting
Emeritus' proposals; and (5) that the ARV Board implemented the Rights Plan
for the improper purpose of entrenchment. Among other requests for relief,
Emeritus seeks a declaration by the Court that these acts were in violation of
defendants' fiduciary duties and an injunction (i) rescinding and nullifying
the redemption of the Notes, (ii) rescinding and nullifying the transactions
with Prometheus, (iii) directing that defendants take prompt and diligent
steps to maximize ARV shareholder value, and (iv) directing that defendants
redeem the Rights Plan or make it inapplicable to Emeritus.
On December 10, 1997, Emeritus filed a motion with the Court
seeking expedited discovery from defendants so that it could seek relief on
its claims from the Court prior to ARV's January 28, 1998 Annual Meeting. The
parties subsequently entered into a stipulation providing that Emeritus would
obtain expedited discovery from defendants, setting forth a briefing schedule
for Emeritus' motion for declaratory and injunctive relief, and agreeing on a
January 22, 1998 hearing date before the Court. In light of the stipulation,
Emeritus has withdrawn its motion for expedited discovery.
On December 12, 1997, Emeritus submitted a letter to the
American Stock Exchange ("AMEX") in which it brought to the attention of the
AMEX ARV's actions in redeeming the Notes and issuing the Redemption Shares to
Prometheus. Emeritus stated to the AMEX that it believes ARV's actions
circumvented and violated Section 713 of AMEX's Listing Standards, Policies
and Requirements.
On December 16, 1997, ARV announced that its new President and
Chief Operating Officer, Lawrence Murphy, would not be joining ARV, and
instead would remain at Marriott.
On December 19, 1997, Emeritus launched its Offer to acquire
all of ARV at $17.50 per share.
Except as described in this Offer to Purchase (including the
Schedules), none of the Purchaser, Emeritus or, to the best knowledge of the
Purchaser, any of the persons listed in Schedule I hereto, or any associate or
majority owned subsidiary of the Purchaser, Emeritus or any of the persons so
listed, beneficially owns any equity security of the Company, and none of the
Purchaser, Emeritus or, to the best knowledge of the Purchaser, any of the
other persons referred to above, or any of the respective directors, executive
officers or subsidiaries of any of the foregoing, has effected any transaction
in any equity security of the Company during the past 60 days. The Purchaser
and Emeritus disclaim beneficial ownership of any Shares owned by any pension
plan of Emeritus or any affiliate of Emeritus.
Except as described in this Offer to Purchase, as of the date
hereof (a) there have not been any contacts, transactions or negotiations
between the Purchaser or Emeritus, any of their respective subsidiaries or, to
the best knowledge of the Purchaser, any of the persons listed in Schedule I
hereto, on the one hand, and the Company or any of its directors, officers or
affiliates, on the other hand, that are required to be disclosed pursuant to
the rules and regulations of the Commission and (b) none of the Purchaser,
Emeritus or, to the best knowledge of the Purchaser, any of the persons listed
in Schedule I hereto has any contract, arrangement, understanding or
relationship with any person with respect to any securities of the Company.
During the offer, the Purchaser and Emeritus intend to have ongoing contacts
and negotiations with the Company and its directors, officers and shareholders.
11. Purpose of the Offer; Plans for the Company.
Purpose. The purpose of the Offer is to enable Emeritus to
acquire control of, and the entire equity interest in, the Company. The
Offer, as the first step in the acquisition of the Company, is intended to
facilitate the acquisition of all the Shares. Emeritus currently intends, as
soon as practicable following consummation of the Offer, to propose and seek
to have the Company consummate the Proposed Merger. The purpose of the
Proposed Merger is to acquire all Shares not tendered and purchased pursuant
to the Offer or otherwise. Pursuant to the Proposed Merger, each then
outstanding Share (other than Shares owned by the Purchaser, Emeritus or any
of their subsidiaries, Shares held in the treasury of the Company and Shares
owned by shareholders who perfect any available appraisal rights under the
California Law) would be converted into the right to receive an amount in cash
equal to the price per Share paid pursuant to the Offer.
Except in the case of a "short-form" merger as described below,
under the California Law the approval by the Board of Directors of the Company
and the affirmative vote of holders of a majority of the outstanding Shares
(including any Shares owned by Emeritus and the Purchaser) would be required
to approve the Proposed Merger. If Emeritus and the Purchaser acquire,
through the Offer or otherwise, voting power with respect to at least a
majority of the outstanding Shares, which could be the case if the Minimum
Tender Condition were satisfied, they would have a sufficient number of Shares
to approve the Proposed Merger without the affirmative vote of any other
holder of Shares.
The California Law also provides that if a parent owns at least
90% of the outstanding shares of a subsidiary, the parent company can effect a
"short-form" merger with that subsidiary without a shareholder vote.
Accordingly, if, as a result of the Offer or otherwise, the Purchaser acquires
or controls the voting power of at least 90% of the outstanding Shares, the
Purchaser could, and intends to, effect the Proposed Merger without any
approval by any other shareholder of the Company.
The California Law further provides that shareholders of a
company may bring an action to attack the validity of or to set aside a
reorganization or short-form merger that involves two corporations under
common control, and that in any such action the controlling corporation has
the burden of proving that the transaction is just and reasonable as to the
shareholders of the controlled party. If such provision is determined to be
applicable to the Proposed Merger, Emeritus and the Purchaser believe they can
sustain the burden of proving that the transaction is just and reasonable.
Under the California Law, the Proposed Merger may not be
accomplished for cash paid to the Company's shareholders if the Purchaser or
Emeritus owns directly or indirectly more than 50% but less than 90% of the
then outstanding Shares unless either all the shareholders consent or the
Commissioner of Corporations of the State of California approves, after a
hearing, the terms and conditions of the Proposed Merger and the fairness
thereof. If such shareholder consent or Commissioner of Corporations approval
is not obtained, the California Law requires that the consideration received
in the Proposed Merger consist only of non-redeemable common stock of
Emeritus. The purpose of the Offer is to obtain 90% or more of the Shares (on
a fully diluted basis) and to enable Emeritus and the Purchaser to acquire all
of the equity of the Company.
In the event the Purchaser obtains in excess of 50% but less
than 90% of the outstanding Shares, the Purchaser intends: (i) to increase its
ownership of Shares to 90% of the then outstanding Shares by one or more means
including, without limitation, by purchasing additional Shares in the open
market or through privately negotiated transactions; (ii) to seek to
reincorporate the Company in another jurisdiction; or (iii) to file (or cause
the Company to file) an application with the California Commissioner of
Corporations for approval, after a hearing, of the terms and conditions of the
Proposed Merger and the fairness thereof. At any meeting of the shareholders
of the Company relating to the Proposed Merger, the Emeritus and its
subsidiaries intend to vote in favor of the Proposed Merger any and all Shares
which they have or control the right to vote.
Furthermore, Section 1203 of the California Law provides that
if a proposal such as the Proposed Merger is made to some or all of the
shareholders of a California corporation by an Interested Party (defined
generally as any person that controls or is controlled by the corporation that
is the subject of the proposal), an affirmative opinion in writing as to the
fairness of the consideration to the shareholders of that corporation (a
"Fairness Opinion") shall be delivered to the shareholders. Neither Emeritus
nor the Purchaser believes that it is an Interested Party as of the date
hereof. Following consummation of the Offer, Purchaser may be deemed to be an
Interested Party in which case it may be necessary to provide the shareholders
of the Company with a Fairness Opinion prior to consummating the Proposed
Merger.
The foregoing summary of California Law does not purport to be
complete and is qualified in its entirety by reference to the provisions of
Sections 1101 and 1203 of the California Law.
If the Proposed Merger has not been consummated, the Purchaser
or an affiliate of the Purchaser may, either immediately following the
consummation or termination of the Offer (whether or not the Purchaser
purchases Shares pursuant to the Offer) or from time to time thereafter, seek
to acquire additional Shares through open market purchases, privately
negotiated transactions, a tender offer or exchange offer or otherwise, upon
such terms and at such prices as it may determine, which may be more or less
than the price to be paid pursuant to the Offer. Alternatively, Emeritus and
its subsidiaries reserve the right to sell or otherwise dispose of any or all
of the Shares acquired by them pursuant to the Offer or otherwise, upon such
terms and at such prices as they shall determine.
The precise timing and other details of any merger or other
business combination transaction will depend on a variety of factors such as
general economic conditions and prospects, the future prospects, asset value
and earnings of the Company, the number of Shares acquired by the Purchaser
pursuant to the Offer or otherwise and the statutory requirements described
above. The Purchaser can give no assurance that a merger or other business
combination will be proposed or that, if it is proposed, it will not be
delayed or abandoned. The Purchaser expressly reserves the right not to
propose any merger or similar business combination involving the Company, or
to propose a merger or other business combination on terms other than those
set forth herein, and its ultimate decision could be affected by information
hereafter obtained by the Purchaser, changes in general economic or market
conditions or in the business of the Company or other factors.
Emeritus intends to continue to seek to negotiate with the
Company with respect to the acquisition of the Company by Emeritus. If such
negotiations result in a definitive merger agreement with the Company, the
consideration to be received by holders of Shares could include or consist of
securities, cash or any combination thereof. Accordingly, such negotiations
could result in, among other things, termination of the Offer (see Section 14)
and submission of a different acquisition proposal to the Company's
shareholders for their approval.
On November 21, 1997, the Company filed a Preliminary Proxy
Statement (the "ARV Proxy Statement") with the Securities and Exchange
Commission (the "Commission"). Pursuant to the ARV Proxy Statement, the Company
is seeking shareholder approval at the Annual Meeting of Shareholders, which
is to be held on January 28, 1998 (the "Annual Meeting"), for the Company's
proposals to (i) amend the Restated Articles of Incorporation of the Company
increasing the maximum number of authorized directors of the Company from nine
to 10, (ii) reincorporate the Company as a Delaware corporation, and (iii)
elect nine directors to the Company's Board of Directors.
On November 24, 1997, Emeritus filed preliminary proxy
solicitation materials with the Commission (a) for use at the Annual Meeting
in connection with the solicitation of proxies from shareholders of the
Company (the "Proxy Solicitation") for the following purposes: (i) to elect
nine nominees of Emeritus (the "Emeritus Nominees") to the ARV Board, (ii) to
vote for the reincorporation of the Company in Delaware and (iii) to abstain
from voting on the proposal to increase the maximum number of authorized
directors from nine to ten and (b)(i) to solicit agent designations to call
a Special Meeting of shareholders of ARV for February 6, 1998 (the "Special
Meeting") for the purpose of considering and voting upon an Agreement and Plan
of Merger between Emeritus and ARV pursuant to which Emeritus will acquire all
of the outstanding Common Stock of ARV for $17.50 per share in cash and (ii)
to adjourn the Special Meeting from time to time. The Emeritus Nominees
intend to (a) redeem the Rights (or amend the Rights Agreement to make the
Rights inapplicable to the Offer and Proposed Merger), which would satisfy the
Rights Condition, and take such other actions as may be required to expedite
the prompt consummation of a merger agreement with Emeritus or (b) if any
other transaction is proposed, consider such a transaction, subject in all
cases to fulfillment of the fiduciary duties that they would have as directors
of the Company.
The Offer does not constitute a solicitation of proxies from
the Company's shareholders. Any such solicitation (including the Proxy
Solicitation) will be made only pursuant to separate proxy solicitation
materials complying with the requirements of Section 14(A) of the Exchange Act.
Plans for the Company. In connection with the Offer, Emeritus
and the Purchaser have reviewed, and will continue to review, on the basis of
publicly available information, various possible business strategies that they
might consider in the event that the Purchaser acquires control of the
Company, whether pursuant to the Proposed Merger Agreement or otherwise. In
addition, if and to the extent that the Purchaser acquires control of the
Company or otherwise obtains access to the books and records of the Company,
Emeritus and the Purchaser intend to conduct a detailed review of the Company
and its assets, corporate structure, dividend policy, capitalization,
operations, properties, policies, management and personnel and consider and
determine what, if any, changes would be desirable in light of the
circumstances which then exist. Such strategies could include, among other
things, changes in the Company's business, corporate structure, certificate of
incorporation, by-laws, capitalization, management or dividend policy.
If the Proposed Merger is consummated, Emeritus plans to
consider the ways in which the operations of Emeritus assisted-living
communities and ARV communities can be consolidated to achieve the economies
of scale that may be presented by a larger operation. Initially, Emeritus
intends to conduct an analysis of the operations of both Emeritus and ARV,
selecting the best practices for use in the business of the combined
companies. Later steps could include conforming the operating practices of
ARV communities and Emeritus communities to common standards, consolidating
administrative and financial staffing, modifying financing and identifying
duplicate or overlapping areas of operation. Emeritus also may consider the
disposition of selected communities that are underperforming or that are
redundant when combined with Emeritus communities, although there is no
present intention to do so. Emeritus would expect such changes to occur over
time after careful study and analysis. Emeritus has not made any plans with
respect to the headquarters of the Company and intends to evaluate its options
at the time it acquires the Company.
Except as indicated in this Offer to Purchase, neither Emeritus
nor the Purchaser has any present plans or proposals which relate to or would
result in an extraordinary corporate transaction, such as a merger,
consolidation, reorganization or liquidation, involving the Company or any of
its subsidiaries, a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries or any material change in the Company's
capitalization or dividend policy, a class of securities of the Company being
delisted from a national securities exchange, a class of equity securities of
the Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Exchange Act or any other material changes in the
Company's corporate structure or business or the composition of the Board of
Directors or management of the Company.
12. Dividends and Distributions.
If, on or after December 19, 1997, the Company should (a)
split, combine or otherwise change the Shares or its capitalization (other
than by redemption of the Rights in accordance with their terms as such terms
have been publicly disclosed prior to December 19, 1997), (b) acquire or
otherwise cause a reduction in the number of outstanding Shares or other
securities (other than as aforesaid) or (c) issue or sell additional Shares
(other than the issuance of Shares under options outstanding prior to
December 19, 1997, in each case in accordance with the terms of such options
as such terms have been publicly disclosed prior to December 19, 1997), shares
of any other class of capital stock, other voting securities or any securities
convertible into, or rights, warrants or options, conditional or otherwise, to
acquire any of the foregoing, then, subject to the provisions of Section 14,
the Purchaser, in its sole discretion, may make such adjustments as it deems
appropriate in the Offer Price and other terms of the Offer, including without
limitation, the number or type of securities offered to be purchased.
If, on or after December 19, 1997, the Company should declare
or pay any cash dividend on the Shares or other distribution on the Shares, or
issue with respect to the Shares any additional Shares, shares of any other
class of capital stock, other voting securities or any securities convertible
into, or rights, warrants or options, conditional or otherwise, to acquire,
any of the foregoing, payable or distributable to shareholders of record on a
date prior to the transfer of the Shares purchased pursuant to the Offer to
Purchase or to their nominees or transferees on the Company's stock transfer
records, then, subject to the provisions of Section 14, (a) the Offer Price
may, in the sole discretion of the Purchaser, be reduced by the amount of any
such cash dividend or cash distribution and (b) the whole of any such noncash
dividend, distribution or issuance to be received by the tendering
shareholders will (i) be received and held by the tendering shareholders for
the account of the Purchaser and will be required to be promptly remitted and
transferred by each tendering shareholder to the Depositary for the account of
the Purchaser, accompanied by appropriate documentation of transfer, or (ii)
at the direction of the Purchaser, be exercised for the benefit of the
Purchaser, in which case the proceeds of such exercise will promptly be
remitted to the Purchaser. Pending such remittance and subject to applicable
law, the Purchaser will be entitled to all rights and privileges as owner of
any such noncash dividend, distribution, issuance or proceeds and may withhold
the entire Offer Price or deduct from the Offer Price the amount or value
thereof, as determined by the Purchaser in its sole discretion.
13. Effect of the Offer on the Market for the Shares; Stock Quotation;
Exchange Act Registration; Margin Regulations
Market for the Shares. The purchase of Shares pursuant to the
Offer will reduce the number of holders of Shares and the number of Shares
that might otherwise trade publicly and could adversely affect the liquidity
and market value of the remaining Shares held by the public.
Stock Quotation. Depending upon the number of Shares purchased
pursuant to the Offer, the Shares may no longer meet the requirements of the
American Stock Exchange for continued listing and may, therefore, be delisted
from such exchange. According to the American Stock Exchange's published
guidelines, the American Stock Exchange could consider delisting the Shares
if, among other things, the number of publicly held Shares (excluding Shares
held by officers, directors, their immediate families and other concentrated
holdings of 10% or more) were less than 200,000, there were less than 300
holders of at least 100 Shares or the aggregate market value of the publicly
held Shares (excluding Shares held by officers, directors, their immediate
families and other concentrated holdings of 10% or more) were less than $1
million. According to public filings, as of December 8, 1997, 15,846,498
Shares were outstanding (including the 1,921,012 shares issued to Prometheus
under the Original Prometheus Transaction and the 4,262,226 shares issued to
Prometheus upon redemption of $60 million of 6- 3/4% Convertible Subordinated
Notes due 2007, both of which issuances are being challenged by Emeritus in
court). If, as a result of the purchase of Shares pursuant to the Offer, the
Shares no longer meet the requirements of the American Stock Exchange for
continued listing on the American Stock Exchange, the market for Shares could
be adversely affected.
In the event that the American Stock Exchange were to delist
the Shares, it is possible that the Shares would continue to trade in the
over-the-counter market and that price quotations would be reported by other
sources. The extent of the public market for the Shares and the availability
of such quotations would, however, depend upon the number of holders of Shares
remaining at such time, the interest in maintaining a market in Shares on the
part of securities firms, the possible termination of registration of the
Shares under the Exchange Act, as described below, and other factors.
Exchange Act Registration. The Shares are currently registered
under the Exchange Act. Registration of the Shares under the Exchange Act may
be terminated upon application of the Company to the Commission if the Shares
are neither listed on a national securities exchange nor held by 300 or more
holders of record. Termination of registration of the Shares under the
Exchange Act would substantially reduce the information required to be
furnished by the Company to its shareholders and to the Commission and would
make certain provisions of the Exchange Act no longer applicable to the
Company, such as the short-swing profit recovery provisions of Section 16(b)
of the Exchange Act, the requirement of furnishing a proxy statement pursuant
to Section 14(a) of the Exchange Act in connection with shareholders' meetings
and the related requirement of furnishing an annual report to shareholders and
the requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions. Furthermore, the ability of "affiliates" of the
Company and persons holding "restricted securities" of the Company to dispose
of such securities pursuant to Rule 144 or 144A promulgated under the
Securities Act of 1933, as amended, may be impaired or eliminated. The
Purchaser intends to seek to cause the Company to apply for termination of
registration of the Shares under the Exchange Act as soon after the completion
of the Offer as the requirements for such termination are met.
According to publicly available information, the Rights are
registered under the Exchange Act, but are attached to the Shares and are not
currently separately transferable. The Purchaser believes that, as a result
of the commencement of the Offer, the Distribution Date may occur as early as
December 29, 1997, unless prior to such date the Company's Board of Directors
redeems the Rights, amends the Rights Agreement to make the Rights inapplicable
to the Offer or delays the Distribution Date. See Section 7. According to
the Company Rights 8-K, as soon as possible after the occurrence of the
Distribution Date, certificates for Rights will be sent to all holders of
Rights and the Rights will become transferable apart from the Shares. If the
Distribution Date occurs and the Rights separate from the Shares, the
foregoing discussion with respect to the effect of the Offer on Exchange Act
registration would apply to the Rights in a similar manner.
If registration of the Shares is not terminated prior to the
Proposed Merger, then the Shares will be delisted from all stock exchanges and
the registration of the Shares and Rights under the Exchange Act will be
terminated following the consummation of the Proposed Merger.
Margin Regulations. The Shares are currently "margin
securities" under the regulations of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), which has the effect, among
other things, of allowing brokers to extend credit on the collateral of the
Shares. Depending upon factors similar to those described above regarding
listing and market quotations, it is possible that, following the Offer, the
Shares would no longer constitute "margin securities" for the purposes of the
margin regulations of the Federal Reserve Board and therefore could no longer
be used as collateral for loans made by brokers.
14. Certain Conditions of the Offer.
Notwithstanding any other provisions of the Offer, and in
addition to (and not in limitation of) the Purchaser's rights to extend and
amend the Offer at any time in its sole discretion, the Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Commission, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and may delay
the acceptance for payment of or, subject to the restriction referred to
above, the payment for, any tendered Shares, and may terminate the Offer, if,
in the sole judgment of the Purchaser (i) at or prior to the Expiration Date
any one or more of the Minimum Tender Condition, the Rights Condition, the
Financing Condition, the Board Approval Condition or the Note Recission
Condition has not been satisfied, (ii) the waiting period under the HSR Act
applicable to the purchase of Shares pursuant to the Offer shall not have
expired or been terminated or (iii) at any time before the time of payment for
any such Shares (whether or not any Shares have theretofore been accepted for
payment pursuant to the Offer), any of the following events shall occur or
shall be determined by the Purchaser to have occurred:
(a) there shall be threatened, instituted or pending any action,
proceeding, application or counterclaim by any government or governmental,
regulatory or administrative authority or agency, domestic, foreign or
supranational (each, a "Governmental Entity"), or by any other person,
domestic or foreign, before any court or Governmental Entity, (i)(A)
challenging or seeking to, or which is reasonably likely to, make illegal,
delay or otherwise directly or indirectly restrain or prohibit, or seeking to,
or which is reasonably likely to, impose voting, procedural, price or other
requirements, in addition to those required by Federal securities laws and the
California Law (each as in effect on the date of this Offer to Purchase), in
connection with, the making of the Offer, the acceptance for payment of, or
payment for, some of or all the Shares by the Purchaser, Emeritus or any other
affiliate of Emeritus or the consummation by the Purchaser, Emeritus or any
other affiliate of Emeritus of a merger or other similar business combination
with the Company, (B) seeking to obtain material damages or (C) otherwise
directly or indirectly relating to the transactions contemplated by the Offer
or any such merger or business combination, (ii) seeking to prohibit the
ownership or operation by the Purchaser, Emeritus or any other affiliate of
Emeritus of all or any portion of the business or assets of the Company and
its subsidiaries or of the Purchaser, Emeritus or any other affiliate of
Emeritus or to compel the Purchaser, Emeritus or any other affiliate of
Emeritus to dispose of or hold separate all or any portion of the business or
assets of the Company or any of its subsidiaries or of the Purchaser, Emeritus
or any other affiliate of Emeritus or seeking to impose any limitation on the
ability of the Purchaser, Emeritus or any other affiliate of Emeritus to
conduct such business or own such assets, (iii) seeking to impose or confirm
limitations on the ability of the Purchaser, Emeritus or any other affiliate
of Emeritus effectively to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote any Shares acquired or owned
by the Purchaser, Emeritus or any other affiliate of Emeritus on all matters
properly presented to the Company's shareholders, (iv) seeking to require
divestiture by the Purchaser, Emeritus or any other affiliate of Emeritus of
any Shares, (v) seeking any material diminution in the benefits expected to be
derived by the Purchaser, Emeritus or any other affiliate of Emeritus as a
result of the transactions contemplated by the Offer or any merger or other
similar business combination with the Company, (vi) otherwise directly or
indirectly relating to the Offer or which otherwise, in the sole judgment of
the Purchaser, might materially adversely affect the Purchaser or any of its
subsidiaries or the Purchaser, Emeritus or any other affiliate of Emeritus or
the value of the Shares or (vii) in the sole judgment of the Purchaser,
materially adversely affecting the business, properties, assets, liabilities,
capitalization, shareholders' equity, condition (financial or otherwise),
operations, licenses or franchises, results of operations or prospects of the
Company or any of its subsidiaries;
(b) there shall be any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
proposed, enacted, enforced, promulgated, amended, issued or deemed applicable
to (i) the Purchaser, Emeritus or any other affiliate of Emeritus or the
Company or any of its subsidiaries or (ii) the Offer or any merger or other
similar business combination by the Purchaser, Emeritus or any other affiliate
of Emeritus with the Company, by any government, legislative body or court,
domestic, foreign or supranational, or Governmental Entity, other than the
routine application of the waiting period provisions of the HSR Act to the
Offer, that, in the sole judgment of the Purchaser, might, directly or
indirectly, result in any of the consequences referred to in clauses (i)
through (vii) of paragraph (a) above;
(c) any change shall have occurred or been threatened (or any
condition, event or development shall have occurred or been threatened
involving a prospective change) in the business, properties, assets,
liabilities, capitalization, shareholders' equity, condition (financial or
otherwise), operations, licenses or franchises, results of operations or
prospects of the Company or any of its subsidiaries that, in the sole judgment
of the Purchaser, is or may be materially adverse to the Company or any of its
subsidiaries, or the Purchaser shall have become aware of any facts that, in
the sole judgment of the Purchaser, have or may have material adverse
significance with respect to either the value of the Company or any of its
subsidiaries or the value of the Shares to the Purchaser, Emeritus or any
other affiliate of Emeritus;
(d) there shall have occurred or been threatened (i) any general
suspension of trading in, or limitation on prices for, securities on any
national securities exchange or in the over-the-counter market in the United
States, (ii) any extraordinary or material adverse change in the financial
markets or major stock exchange indices in the United States or in the market
price of Shares, (iii) any change in the general political, market, economic
or financial conditions in the United States that could, in the sole judgment
of the Purchaser, have a material adverse effect upon the business,
properties, assets, liabilities, capitalization, shareholders' equity,
condition (financial or otherwise), operations, licenses or franchises,
results of operations or prospects of the Company or any of its subsidiaries
or the trading in, or value of, the Shares, (iv) any material change in United
States currency exchange rates or any other currency exchange rates or a
suspension of, or limitation on, the markets therefor, (v) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (vi) any limitation (whether or not mandatory) by any
government, domestic, foreign or supranational, or Governmental Entity on, or
other event that, in the sole judgment of the Purchaser, might affect the
extension of credit by banks or other lending institutions, (vii) a
commencement of a war or armed hostilities or other national or international
calamity directly or indirectly involving the United States or (viii) in the
case of any of the foregoing existing at the time of the commencement of the
Offer, a material acceleration or worsening thereof;
(e) the Company or any of its subsidiaries shall have (i) split,
combined or otherwise changed, or authorized or proposed a split, combination
or other change of, the Shares or its capitalization (other than by redemption
of the Rights in accordance with their terms as such terms have been publicly
disclosed prior to December 19, 1997), (ii) acquired or otherwise caused a
reduction in the number of, or authorized or proposed the acquisition or other
reduction in the number of, outstanding Shares or other securities (other than
as aforesaid), (iii) issued or sold, or authorized or proposed the issuance,
distribution or sale of, additional Shares (other than the issuance of Shares
under option prior to December 19, 1997, in accordance with the terms of such
options as such terms have been publicly disclosed prior to December 19,
1997), shares of any other class of capital stock, other voting securities or
any securities convertible into, or rights, warrants or options, conditional
or otherwise, to acquire, any of the foregoing or redeemed any currently
outstanding convertible securities for cash or Shares or exercised any other
rights or allowed the holder to exercise any rights under such convertible
securities, (iv) declared or paid, or proposed to declare or pay, any dividend
or other distribution, whether payable in cash, securities or other property,
on or with respect to any shares of capital stock of the Company, (v) altered
or proposed to alter any material term of any outstanding security (including
the Rights) other than to amend the Rights Agreement to make the Rights
inapplicable to the Offer and the Proposed Merger, (vi) incurred any debt
other than in the ordinary course of business or any debt containing
burdensome covenants, (vii) authorized, recommended, proposed or entered into
an agreement, agreement in principle or arrangement or understanding with
respect to any merger, consolidation, liquidation, dissolution, business
combination, acquisition of assets, disposition of assets, release or
relinquishment of any material contractual or other right of the Company or any
of its subsidiaries or any comparable event not in the ordinary course of
business, (viii) authorized, recommended, proposed or entered into, or
announced its intention to authorize, recommend, propose or enter into, any
agreement, arrangement or understanding with any person or group that in the
sole judgment of the Purchaser could adversely affect either the value of the
Company or any of its subsidiaries, joint ventures or partnerships or the
value of the Shares to the Purchaser, Emeritus or any other affiliate of
Emeritus, (ix) entered into or amended any employment, change in control,
severance, executive compensation or similar agreement, arrangement or plan
with or for the benefit of any of its employees, consultants or directors, or
made grants or awards thereunder, other than in the ordinary course of
business, or entered into or amended any agreements, arrangements or plans so
as to provide for increased or accelerated benefits to any such persons, (x)
except as may be required by law, taken any action to terminate or amend any
employee benefit plan (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended) of the Company or any of its
subsidiaries, or the Purchaser shall have become aware of any such action that
was not disclosed in publicly available filings prior to December 19, 1997, or
(xi) amended or authorized or proposed any amendment to, the Company's
certificate of incorporation or by-laws, or the Purchaser shall become aware
that the Company or any of its subsidiaries shall have proposed or adopted any
such amendment that was not disclosed in publicly available filings prior to
December 19, 1997;
(f) a tender or exchange offer for any Shares shall have been
made or publicly proposed to be made by any other person (including the
Company or any of its subsidiaries or affiliates), or it shall have been
publicly disclosed or the Purchaser shall have otherwise learned that (i) any
person, entity (including the Company or any of its subsidiaries) or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) shall have
acquired or proposed to acquire beneficial ownership of more than 5% of any
class or series of capital stock of the Company (including the Shares),
through the acquisition of stock, the formation of a group or otherwise, or
shall have been granted any right, option or warrant, conditional or
otherwise, to acquire beneficial ownership of more than 5% of any class or
series of capital stock of the Company (including the Shares), other than
acquisitions for bona fide arbitrage purposes only and other than as disclosed
in a Schedule 13G on file with the Commission prior to December 19, 1997, (ii)
any such person, entity or group that prior to December 19, 1997, had filed
such a Schedule with the Commission has acquired or proposes to acquire,
through the acquisition of stock, the formation of a group or otherwise,
beneficial ownership of 1% or more of any class or series of capital stock of
the Company (including the Shares), or shall have been granted any right,
option or warrant, conditional or otherwise, to acquire beneficial ownership
of 1% or more of any class or series of capital stock of the Company
(including the Shares), (iii) any person or group shall have entered into a
definitive agreement or an agreement in principle or made a proposal with
respect to a tender offer or exchange offer or a merger, consolidation or
other business combination with or involving the Company or (iv) any person
shall have filed a Notification and Report Form under the HSR Act (or amended
a prior filing to increase the applicable filing threshold set forth therein)
or made a public announcement reflecting an intent to acquire the Company or
any assets or subsidiaries of the Company;
(g) any approval, permit, authorization, license, contract, lease
or consent of any person, entity or Governmental Entity (including those
described or referred to in Section 15) shall not have been obtained,
transferred or assigned on terms satisfactory to the Purchaser in its sole
discretion;
(h) the Purchaser shall have reached an agreement or
understanding with the Company providing for termination of the Offer, or the
Purchaser, Emeritus or any other affiliate of Emeritus shall have entered into
a definitive agreement or announced an agreement in principle with the Company
providing for a merger or other business combination with the Company or the
purchase of stock or assets of the Company; which, in the sole judgment of the
Purchaser in any such case, and regardless of the circumstances (including any
action or inaction by the Purchaser, Emeritus or any other affiliate of
Emeritus) giving rise to any such condition, makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment or payment;
(i) the Purchaser shall have concluded in its sole discretion
that following consummation of the Offer, it will not have the ability to
effectuate the Proposed Merger; or
(j) the Purchaser shall have concluded in its sole discretion,
that Sections 1101 and/or 1203 of the CGCL or any other applicable state
anti-takeover laws prevent the Purchaser from effectuating the Proposed Merger
as currently planned.
The foregoing conditions are for the sole benefit of the
Purchaser and Emeritus and may be asserted by the Purchaser regardless of the
circumstances giving rise to any such condition or may be waived by the
Purchaser in whole or in part at any time and from time to time in its sole
discretion. The failure by the Purchaser at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances will not be
deemed a waiver with respect to any other facts and circumstances and each
such right will be deemed an ongoing right that may be asserted at any time
and from time to time. Any determination by the Purchaser concerning the
events described in this Section 14 will be final and binding upon all parties.
15. Certain Legal Matters; Required Regulatory Approvals.
Except as described in this Section 15, based on a review of
publicly available filings made by the Company with the Commission and other
publicly available information concerning the Company, neither the Purchaser
nor Emeritus is aware of any license or regulatory permit that appears to be
material to the business of the Company and its subsidiaries, taken as a
whole, that might be adversely affected by the Purchaser's acquisition of the
Shares (and the indirect acquisition of the stock of the Company's
subsidiaries) as contemplated herein or of any approval or other action by any
governmental entity that would be required or desirable for the acquisition or
ownership of the Shares by the Purchaser as contemplated herein. Should any
such approval or other action be required or desirable, the Purchaser and
Emeritus currently contemplate that such approval or other action will be
sought, except as described below under "State Takeover Laws". While, except
as otherwise expressly described in this Section 15, the Purchaser does not
presently intend to delay the acceptance for payment of or payment for the
Shares tendered pursuant to the Offer pending the outcome of any such matter,
there can be no assurance that any such approval or other action, if needed,
would be obtained or would be obtained without substantial conditions or that
failure to obtain any such approval or other action might not result in
consequences adverse to the Company's business or that certain parts of the
Company's business might not have to be disposed of if such approvals were not
obtained or such other actions were not taken or in order to obtain any such
approval or other action. If certain types of adverse action are taken with
respect to the matters discussed below, the Purchaser could decline to accept
for payment or pay for any Shares tendered. See Section 14 for certain
conditions to the Offer.
State Takeover Laws. A number of states throughout the United
States have enacted takeover statutes that purport, in varying degrees, to be
applicable to attempts to acquire securities of corporations that are
incorporated or have assets, shareholders, executive offices or places of
business in such states. In Edgar v. MITE Corp., the Supreme Court of the
United States held that the Illinois Business Takeover Act, which involved
state securities laws that made the takeover of certain corporations more
difficult, imposed a substantial burden on interstate commerce and therefore
was unconstitutional. In CTS Corp. v. Dynamics Corp. of America, however, the
Supreme Court of the United States held that a state may, as a matter of
corporate law and, in particular, those laws concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of
a target corporation without prior approval of the remaining shareholders,
provided that such laws were applicable only under certain conditions.
Subsequently, a number of federal courts ruled that various state takeover
statutes were unconstitutional insofar as they apply to corporations
incorporated outside the state of enactment. See Section 11.
The Purchaser has not attempted to comply with any state
takeover statutes in connection with the Offer. The Purchaser reserves the
right to challenge the validity or applicability of any state law allegedly
applicable to the Offer and nothing in this Offer to Purchase nor any action
taken in connection herewith is intended as a waiver of that right. In the
event that any state takeover statute is found applicable to the Offer, the
Purchaser might be unable to accept for payment or pay for the Shares tendered
pursuant to the Offer or be delayed in continuing or consummating the Offer.
In such case, the Purchaser may not be obligated to accept for payment or pay
for any Shares tendered. See Section 14.
Antitrust. Under the provisions of the HSR Act applicable to
the Offer, the acquisition of Shares under the Offer may be consummated
following the expiration of a 15-calendar day waiting period following the
filing by Emeritus of a Notification and Report Form with respect to the
Offer, unless Emeritus receives a request for additional information or
documentary material from the Antitrust Division or the FTC or early
termination of the waiting period is granted. Emeritus expects to make such
filing on December 19, 1997. If, within the initial 15-day waiting period,
either the Antitrust Division or the FTC requests additional information or
material from Emeritus concerning the Offer, the waiting period will be
extended and would expire at 11:59 p.m., New York City time, on the tenth
calendar day after the date of substantial compliance by Emeritus with such
request. Only one extension of the waiting period pursuant to a request for
additional information is authorized by the HSR Act. Thereafter, such waiting
period may be extended only by court order or with the consent of Emeritus.
In practice, complying with a request for additional information or material
can take a significant amount of time. In addition, if the Antitrust Division
or the FTC raises substantive issues in connection with a proposed
transaction, the parties frequently engage in negotiations with the relevant
governmental agency concerning possible means of addressing those issues and
may agree to delay consummation of the transaction while such negotiations
continue.
The Antitrust Division and the FTC frequently scrutinize the
legality under the antitrust laws of transactions such as the Purchaser's
proposed acquisition of the Company. At any time before or after the
Purchaser's acquisition of the Shares 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 purchase of the Shares pursuant to the Offer or the consummation of
the Proposed Merger or seeking the divestiture of the Shares acquired by the
Purchaser or the divestiture of substantial assets of the Company or its
subsidiaries or Emeritus or its subsidiaries. Private parties may also bring
legal action under the antitrust laws under certain circumstances. 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, of the result thereof.
Appraisal Rights. Holders of Shares do not have dissenters'
rights as a result of the Offer. However, in connection with the Proposed
Merger, holders of Shares, by complying with the provisions of Chapter 13 of
the California Law, may have certain rights to dissent and to require the
Company to purchase the Shares for cash at fair market value. In general,
holders of Shares will be entitled to exercise "dissenters' rights" under the
California Law only if the holders of five percent or more of the outstanding
Shares properly file demands for payment or if the Shares held by such
shareholders are subject to any restriction on transfer imposed by the Company
or any law or regulation ("Restricted Shares"). Accordingly, any holder of
Restricted Shares and, if the holders of five percent or more of the Shares
properly file demands for payment, all other such holders who fully comply
with all other applicable provisions of Chapter 13 of the California Law will
be entitled to require the Company to purchase their shares for cash at their
fair market value if the Proposed Merger is consummated. In addition, if
immediately prior to the Effective Date, the Shares are not listed on the list
of OTC margin stocks issued by the Federal Reserve Board, holders of Shares
may likewise exercise dissenters' rights by fully complying with the
provisions of Chapter 13 of the California Law. Shareholders may exercise
their dissenters' rights as to any or all of their Shares entitled to such
rights. If the statutory procedures under the California Law relating to
dissenters' rights were complied with, such rights could lead to a judicial
determination of the fair market value of the Shares. The "fair market value"
would be determined as of the day before the first announcement of the terms
of the Proposed Merger, excluding any appreciation or depreciation in
consequence of the Proposed Merger. The value so determined could be more or
less than the price per Share to be paid in the Proposed Merger.
In addition, Emeritus intends to continue to seek to negotiate
with the Company with respect to the acquisition of the Company by Emeritus.
If such negotiations result in a definitive merger agreement between the
Company and Emeritus (other than with respect to the Proposed Merger), holders
of the Shares may or may not have dissenters' rights under the California Law
in connection with the consummation of the merger contemplated thereby,
depending upon the terms and structure of any such merger.
Going Private Transactions. The Commission has adopted Rule
13e-3 under the Exchange Act which is applicable to certain "going private"
transactions and which may under certain circumstances be applicable to the
Proposed Merger or any other merger involving the Company. However, Rule 13e-3
would be inapplicable if (a) the Shares are deregistered under the Exchange
Act prior to the merger or (b) any such merger is consummated within one year
after the purchase of the Shares pursuant to the Offer and such merger
provided for shareholders to receive consideration for their Shares at least
equal to the consideration paid per Share in the Offer. If applicable, Rule
13e-3 requires, among other things, that certain financial information
concerning the fairness of the proposed transaction and the consideration
offered to minority shareholders in such transaction be filed with the
Commission and disclosed to shareholders prior to the consummation of the
transaction.
Regulatory Approvals including Approval from Federal and State
Healthcare Regulatory Authorities. The Company owns, operates and/or manages
assisted-living facilities in California, Florida, Arizona, Colorado, Indiana,
Nevada, Ohio, Texas, Virginia, Massachusetts, New Jersey, Michigan, New Mexico
and New York. Except as described herein, based on a review of publicly
available filings made by the Company with the Commission and other publicly
available information concerning the Company, Emeritus is not aware of any
license or regulatory permit that appears to be material to the business of
the Company and its subsidiaries, taken as a whole, that might be adversely
affected by Emeritus' acquisition of the Common Stock (and the indirect
acquisition of the stock of the Company's subsidiaries) as contemplated herein
or of any approval or other action by any governmental entity that would be
required or desirable for the acquisition or ownership of the Common Stock by
Emeritus as contemplated herein other than, as set forth below, routine
licensure approval which may be required in certain states. Should any such
approval or other action be required or desirable, Emeritus currently
contemplates that such approval or other action will be sought. While the
Purchaser does not presently intend to delay the acceptance for payment of or
payment for the Shares tendered pursuant to the Emeritus Proposal pending the
outcome of any such matter, there can be no assurance that any such approval
or other action, if needed, would be obtained or would be obtained without
substantial conditions or that failure to obtain any such approval or other
action might not result in consequences adverse to the Company's business or
that certain parts of the Company's business might not have to be disposed of
if such approvals were not obtained or such other actions were not taken or in
order to obtain any such approval or other action.
Depending on the state in which the assisted-living facility is
located, the regulatory requirements of such jurisdiction may require notice
of and/or approval prior to any direct or indirect change in ownership,
control or management of any of the facilities or services. These regulatory
requirements include, without limitation, those providing for licensure, as
well as federal laws regarding participation in the Medicaid programs if and
to the extent any of the facilities participate in Medicaid. To the extent
that the consummation of the Proposed Merger is determined to constitute any
such change in ownership, control or management of facilities or services
under the applicable regulatory requirements, consummation of the Offer and
the consummation of the Proposed Merger would be subject to compliance with
the regulatory requirements of the applicable state and federal laws and
receipt, to the extent applicable, of any required approvals or other
authorizations. The state and federal requirements are subject to
interpretation by the various agencies.
In October 1997, Emeritus contacted the various state agencies
responsible for licensing the Company's facilities and notified them of
Emeritus' intent to acquire all of the outstanding common stock of the
Company. Emeritus requested that the agencies confirm Emeritus' determination
that such a transaction would not constitute a change of ownership under the
applicable states licensure and certification laws. As of the date hereof,
Arizona, Colorado, Florida, Indiana, Nevada, Ohio, Texas and Virginia have
concurred with Emeritus' determination. Depending on the ownership status of
the Company's facility in Massachusetts only minor changes to the license are
necessary. California and New Jersey have determined that the Offer and
Proposed Merger do constitute a change of control and Emeritus will have to
take appropriate measures to comply with the licensure laws in such states.
As of the date hereof, Michigan, New Mexico and New York have not responded in
full to Emeritus.
16. Fees and Expenses.
DMG is acting as the Dealer Manager for the Offer and as
Emeritus' financial advisor in connection with Emeritus' proposed acquisition
of the Company. For its services, Emeritus has agreed to pay DMG a retainer
fee of $250,000 upon the announcement of the Offer, an additional fee of
$500,000 upon the delivery by DMG of an opinion to the Board of Directors of
Emeritus with respect to the fairness from a financial point of view to
Emeritus of the consideration paid in the Offer or the Proposed Merger (the
"Opinion Fee"), and a transaction fee of $1,500,000 (against which any Opinion
Fee will be credited) upon the purchase of Shares pursuant to the Offer.
Emeritus also has agreed to reimburse DMG for all out-of-pocket expenses
incurred by DMG in connection with its engagement, including fees and
disbursements of its counsel. Emeritus also has agreed to indemnify DMG and
certain related parties against certain liabilities, including liabilities
under the federal securities laws, arising out of DMG's engagement as
financial advisor and Dealer Manager.
The Purchaser and Emeritus have retained D.F. King & Co., Inc.
to act as the Information Agent and The Bank of New York to serve as the
Depositary in connection with the Offer. The Information Agent may contact
holders of Shares by personal interviews, mail, telephone, facsimile,
telegraph and other electronic means and may request brokers, dealers and
other nominee shareholders to forward materials relating to the Offer to
beneficial owners of Shares. The Depositary has not been retained to make
solicitations or recommendations in its role as Depositary. The Information
Agent and the Depositary each will receive reasonable and customary
compensation for their services, be reimbursed for certain reasonable
out-of-pocket expenses and be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities and expenses
under the federal securities laws.
Neither the Purchaser nor Emeritus will pay any fees or
commissions to any broker or dealer or other person (other than the Dealer
Manager) in connection with the solicitation of tenders of Shares pursuant to
the Offer. Brokers, dealers, banks and trust companies will be reimbursed by
the Purchaser upon request for customary mailing and handling expenses
incurred by them in forwarding material to their customers.
17. Miscellaneous.
The Purchaser is not aware of any jurisdiction where the making
of the Offer is prohibited by any administrative or judicial action pursuant
to any valid state statute. If the Purchaser becomes aware of any valid state
statute prohibiting the making of the Offer or the acceptance of the Shares
pursuant thereto, the Purchaser will make a good faith effort to comply with
such state statute. If, after such good faith effort, the Purchaser cannot
comply with any such state statute, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of Shares in such state.
In any jurisdiction where the 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 Purchaser by the Dealer Manager or one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
No person has been authorized to give any information or to
make any representation on behalf of the Purchaser or Emeritus not contained
herein or in the Letter of Transmittal and, if given or made, such information
or representation must not be relied upon as having been authorized.
The Purchaser has filed with the Commission a Schedule 14D-1
pursuant to Rule 14d-3 under the Exchange Act, together with exhibits,
furnishing certain additional information with respect to the Offer and may
file amendments thereto. Such Schedule 14D-1 and any amendments thereto,
including exhibits, should be available for inspection and copies should be
obtainable in the manner set forth in Section 8 (except that such material
will not be available at the regional offices of the Commission).
EMAC Corp.
December 19, 1997
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF EMERITUS AND THE PURCHASER
DIRECTORS AND EXECUTIVE OFFICERS OF EMERITUS
The name, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of Emeritus are set forth below. Unless otherwise
indicated, the principal business address of each director or executive
officer is Emeritus Corporation, 3131 Elliot Avenue, Suite 500, Seattle,
Washington 98121. Directors are identified by an asterisk. Each such person
is a citizen of the United States, except Mr. Iue, who is a citizen of Japan,
and Mr. Carter, who is a citizen of the United Kingdom.
<TABLE>
<CAPTION>
Position with Emeritus; Principal Occupation or Employment;
Name and Business Address Five-Year Employment History
- ------------------------- -------------------------------------------------------------------
<S> <C>
Daniel R. Baty* One of the founders of Emeritus, Mr. Baty has served as its Chief
Executive Officer and as a director since its inception in 1993 and
became Chairman of the Board in April 1995. Mr. Baty has served as
Chairman of the Board of Holiday Retirement Corp. ("Holiday") since
1987 and served as its Chief Executive Officer from 1991 through
September 1997. Since 1984, Mr. Baty has served as Chairman of the
Board of Columbia-Pacific Group, Inc. ("Columbia-Pacific") and,
since 1986, Chairman of the Board of Columbia-Pacific Management,
Inc. ("Columbia Management"), both of which companies are wholly
owned by Mr. Baty and engaged in developing independent-living
facilities and providing consulting services regarding that market.
Raymond R. Brandstrom* One of the founders of Emeritus, Mr. Brandstrom has served as its
President and Chief Operating Officer and as a director since its
inception in 1993. From May 1992 to October 1996, Mr. Brandstrom
served as President of Columbia-Pacific and Columbia Management.
From May 1992 to May 1997, Mr. Brandstrom served as Vice
President and Treasurer of Columbia Winery, a company affiliated
with Mr. Baty that is engaged in the production and sale of still table
wines.
Motoharn Iue* Director of Emeritus since April 1995. Mr. Iue has served as
Sanyo North America Corporation Chairman of the Board of Sanyo North America Corporation
2055 Sanyo Avenue ("Sanyo") and President of Three Oceans Inc. ("Three Oceans") since
San Diego, CA 92173 October 1996. Mr. Iue previously served as President of Sanyo and as
Chairman of the Board of Three Oceans and still serves as Chief
Executive Officer of Sanyo and Chief Executive Officer of Three
Oceans. Three Oceans Inc. is a shareholder of Emeritus. Mr. Iue has
been a director of Sanyo since 1977.
Tom A. Alberg* Director of Emeritus since November 1995. Since January 1996, Mr.
Madrona Investment Group LLC Alberg has been a principal of Madrona Investment Group, L.L.C., a
1000 Second Avenue, Suite 3700 private merchant banking firm. Mr. Alberg was President and a
Seattle, WA 98104 director of LIN Broadcasting Corporation, a cellular telephone
company, from April 1991 to October 1995, and Executive Vice
President of AT&T Wireless Services, formerly McCaw Cellular
Communications, Inc., from July 1990 to October 1995. Mr. Alberg is
also a director of Active Voice Corporation, Amazon.com, ConnextT,
Inc., Mosaix Corporation, Teledesic Corporation and Visio
Corporation.
Patrick Carter* Director of Emeritus since November 1995. Since 1985, Mr. Carter
Westminster Health Care Holdings, Plc has been Chief Executive Officer and Managing Director of
48 Leicester Square Westminster Health Care Holdings, Plc, a publicly held operator of
London, UK WC 2H 7WH skilled-nursing facilities in the United Kingdom.
William E. Colson* Director of Emeritus since November 1995. Mr. Colson is a founder
Holiday Retirement Corp. of Holiday and has been its President and Chief Operating Officer
2250 McGilchrist Street, Suite 200 since 1987. In September 1997, he became Chief Executive Officer of
Salem, OR 97302 Holiday.
David T. Hamamoto* Director of Emeritus since November 1997. Mr. Hamamoto is a
Northstar Capital Partners, LLC partner in Northstar Capital Partners LLC, an opportunistic real estate
527 Madison Avenue, 17th Floor fund that he founded in July 1997. Between 1983 and July 1997, Mr.
New York, NY 10022 Hamamoto was employed by Goldman Sachs, most recently as co-
founder and co-head of the Real Estate Principal Investment Area of
the Whitehall Funds. Mr. Hamamoto is also Co-Chairman, Co-Chief
Executive Officer and Co-President of Northstar Capital Investment
Corporation.
Gary D. Witte Joined Emeritus as Vice President, Operations in November 1996.
From 1985 to June 1996, he was Vice President of Operations,
Southern Region of Hillhaven/Vencor Corporation. Mr. Witte held a
variety of operating positions at that company for 20 years.
Kelly J. Price Has served as Emeritus' Vice President since February 1997 and as
Chief Financial Officer and Secretary since September 1995. Prior to
that, from January 1995 he was Director of Finance. From May 1994
until joining Emeritus, Mr. Price was employed at Deloitte & Touche
LLP Management Consulting, where he was a senior consultant in the
real estate, health care and manufacturing industries. Prior to that he
was employed by Deloitte & Touche LLP from September 1991. Mr.
Price owns 200 shares of ARV common stock.
Frank A. Ruffo One of Emeritus' founders, Mr. Ruffo has served as its Vice President
since its inception in 1993. From August 1992 until he joined
Emeritus, Mr. Ruffo was employed by Columbia Management in
special servicing related to securitized pools of mortgages.
Michelle A. Bickford Has served as Vice President of New Business Development since
February 1997, prior to which she served as Director of Acquisitions
since July 1993. From 1990 to July 1993, Ms. Bickford was a Senior
Accountant at National Medical Enterprises, Inc., a publicly held
hospital company.
Sarah J. Curtis Joined Emeritus as Vice President of Sales and Marketing in March
1997. Prior to that, from March 1996 she was National Director of
Sales of Beverly Enterprises, Inc. From July 1991 to February 1996,
Ms. Curtis was Regional Director of Sales and Marketing of
Hillhaven/Vencor Corporation.
James S. Keller Has served as Director of Accounting and Controller since July 1994.
From February 1990 until 1994, Mr. Keller was employed by The
Meyers Associates PC, a regional public accounting firm.
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
The name, present principal occupation or employment and five-year employment
history of each of the directors and executive officers of the Purchaser are
set forth below. The principal business address of each director or executive
officer is Emeritus Corporation, 3131 Elliot Avenue, Suite 500, Seattle, WA
98121. Directors are identified by an asterisk. Each such person is a
citizen of the United States.
<TABLE>
<CAPTION>
Position with the Purchaser; Principal Occupation or
Name Employment; Five-Year Employment History
- -------------------------------- ----------------------------------------------------------------------
<S> <C>
Raymond R. Brandstrom* President and Chief Executive Officer -- Mr. Brandstrom is one of the
founders of Emeritus, Mr. Brandstrom has served as its President and
Chief Operating Officer and as a director since its inception in 1993.
From May 1992 to October 1996, Mr. Brandstrom served as President
of Columbia-Pacific and Columbia Management. From May 1992 to
May 1997, Mr. Brandstrom served as Vice President and Treasurer of
Columbia Winery, a company affiliated with Daniel R. Baty that is
engaged in the production and sale of still table wines.
Kelly J. Price* Vice President and Secretary -- Mr. Price has served as Emeritus'
Vice President since February 1997 and as Chief Financial Officer and
Secretary since September 1995. Prior to that, from January 1995 he
was Director of Finance. From May 1994 until joining Emeritus, Mr.
Price was employed at Deloitte & Touche LLP Management
Consulting, where he was a senior consultant in the real estate, health
care and manufacturing industries. Prior to that he was employed by
Deloitte & Touche LLP from September 1991.
</TABLE>
SCHEDULE II
TRANSACTIONS IN SHARES DURING THE PAST 60 DAYS
BY EMERITUS AND THE PURCHASER
All of the purchases of Shares set forth below were made in the
open market.
<TABLE>
<CAPTION>
Date of Transaction Number of Shares Purchased Price Per Share Aggregate Purchase Price
------------------- -------------------------- --------------- ------------------------
<S> <C> <C> <C>
10/23/97 20,000 $16.30 $326,000
10/24/97 7,500 $16.05 $120,375
10/27/97 25,000 $15.83 $395,750
10/31/97 32,000 $14.98 $479,360
11/4/97 15,000 $15.21 $228,150
11/6/97 5,000 $15.44 $77,200
11/7/97 14,000 $15.44 $216,160
</TABLE>
Manually signed and properly completed facsimile copies of the
Letter of Transmittal will be accepted. The Letter of Transmittal,
certificates for Shares and/or Rights and any other required documents should
be sent or delivered by each shareholder of the Company or such shareholder's
broker, dealer, bank, trust company or other nominee to the Depositary at the
applicable address set forth below.
The Depositary for the Offer is:
The Bank of New York
By Mail:
Tender & Exchange Department
P.O. Box 11248
Church Street Station
New York, New York 10286-1248
Facsimile Transmission:
(For Eligible Institutions Only
(212) 815-6213
For Confirmation Telephone:
(800) 507-9357
By Hand or Overnight Courier:
Tender & Exchange Department
101 Barclay Street
Receive and Deliver Window
New York, New York 10286
Any questions or requests for assistance or for additional
copies of this Offer to Purchase, the Letter of Transmittal and the other
tender offer materials may be directed to the Information Agent or the Dealer
Manager at their respective telephone numbers and locations listed below. You
may also contact your broker, dealer, bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(212) 269-5550
Toll Free 1-800-431-9646
Banks and Brokerage Firms, please call collect:
(212) 425-1685
The Dealer Manager for the Offer is:
Deutsche Morgan Grenfell [Logo]
31 West 52nd Street
New York, New York 10019
(212) 469-7302 Call Collect
Call Toll Free (800) 334-1898
Exhibit (a)(2)
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
(including the Associated Preferred Stock Purchase Rights)
of
ARV Assisted Living, Inc.
Pursuant to the Offer to Purchase
dated December 19, 1997
of
EMAC Corp.
a wholly owned subsidiary
of
Emeritus Corporation
- ------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 PM, NEW YORK CITY
TIME, ON WEDNESDAY, JANUARY 21, 1998, UNLESS THE OFFER IS EXTENDED.
- ------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Depositary for the Offer is:
The Bank of New York
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Confirmation Telephone:
(800) 507-9357
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY
TO THE DEPOSITARY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE
SPACE THEREFOR PROVIDED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH
BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD
BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used if certificates for
Shares and/or Rights are to be forwarded herewith or, unless an Agent's
Message (as defined in Section 2 of the Offer to Purchase) is utilized, if
delivery of Shares and/or Rights is to be made by book-entry transfer (in the
case of Rights, if available) to the Depositary's account at The Depository
Trust Company or Philadelphia Depository Trust Company (hereinafter
collectively referred to as the "Book-Entry Transfer Facility") pursuant to
the procedures set forth in Section 2 of the Offer to Purchase.
UNLESS THE RIGHTS CONDITION (AS DEFINED IN THE OFFER TO
PURCHASE) IS SATISFIED, SHAREHOLDERS WILL BE REQUIRED TO TENDER ONE RIGHT FOR
EACH SHARE TENDERED IN ORDER TO EFFECT A VALID TENDER OF SHARES. UNLESS THE
DISTRIBUTION DATE (AS DEFINED IN THE OFFER TO PURCHASE) OCCURS, A TENDER OF
SHARES WILL ALSO CONSTITUTE A TENDER OF ASSOCIATED RIGHTS.
Shareholders whose certificates for Shares and/or Rights are
not immediately available or who cannot deliver either the certificates for,
or a Book-Entry Confirmation (as defined in Section 2 of the Offer to
Purchase) with respect to, their Shares and/or Rights and all other documents
required hereby to the Depositary prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase) must tender their Shares and/or Rights
pursuant to the guaranteed delivery procedure set forth in Section 2 of the
Offer to Purchase. See Instruction 2.
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
[ ] CHECK HERE AND COMPLETE THE FOLLOWING IF TENDERED SHARES AND/OR RIGHTS
ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT
MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY
(ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY DELIVER
SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution
Check Box of Book-Entry Transfer Facility:
[ ] The Depository Trust Company
Account No.
-------------------------------------------------------------
Transaction Code No.
----------------------------------------------------
[ ] CHECK HERE AND COMPLETE THE FOLLOWING IF TENDERED SHARES AND/OR RIGHTS
ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY
PREVIOUSLY SENT TO THE DEPOSITARY (PLEASE ENCLOSE A PHOTOCOPY OF SUCH
NOTICE OF GUARANTEED DELIVERY):
Name(s) of Tendering Shareholder(s)
-------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------
Name of Institution which Guaranteed Delivery
---------------------------
If delivery is by book-entry transfer
-----------------------------------
Name of Tendering Institution
-------------------------------------------
If delivered by book-entry transfer, check box of Book-Entry Transfer
Facility:
[ ] The Depository Trust Company
Account No.
-------------------------------------------------------------
Transaction Code No.
----------------------------------------------------
DESCRIPTION OF SHARES TENDERED
<TABLE>
<CAPTION>
=============================================================================================================================
Name(s) and Address(es) of Registered Holder(s) Shares Tendered
(Please fill in, if blank) (Attach additional list if necessary)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Number of
Shares Number of
Certificate Represented by Shares
Number(s)(1) Certificate(s)(1) Tendered(2)
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Total Shares
- -----------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed by shareholders tendering by book-entry transfer.
(2) Unless otherwise indicated, it will be assumed that all Shares represented by any certificates delivered to the
Depositary are being tendered. See Instruction 4.
</TABLE>
DESCRIPTION OF RIGHTS TENDERED (1)
<TABLE>
<CAPTION>
=============================================================================================================================
<S> <C> <C> <C>
Name(s) and Address(es) of Registered Holder(s) Rights Tendered
(Please fill in, if blank) (Attach additional list if necessary)
- -----------------------------------------------------------------------------------------------------------------------------
Total Number of
Rights Number of
Certificate Represented by Rights
Number(s)(2)(3) Certificate(s)(3) Tendered(4)
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Total Rights
- -----------------------------------------------------------------------------------------------------------------------------
(1) Need not be completed if the Distribution Date has not occurred.
(2) If the tendered Rights are represented by separate certificates, complete using the certificate numbers of such
certificates for Rights. If the tendered Rights are not represented by separate certificates, or if such certificates have
not been distributed, complete using the certificate numbers of the Shares with respect to which the Rights were
issued. Shareholders tendering Rights that are not represented by separate certificates should retain a copy of this
description in order to accurately complete the Notice of Guaranteed Delivery if the Distribution Date occurs.
(3) Need not be completed by book-entry shareholders who are delivering Rights by book-entry transfer.
(4) Unless otherwise indicated, it will be assumed that all Rights described herein are being tendered. See
Instruction 4.
=============================================================================================================================
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to EMAC Corp., a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Emeritus
Corporation, a Washington corporation, the above-described shares of Common
Stock, no par value (the "Shares"), of ARV Assisted Living, Inc., a
California corporation (the "Company"), together with the associated preferred
stock purchase rights (the "Rights") issued pursuant to the Rights Agreement
dated as of July 14, 1997, as amended, between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, pursuant to the Purchaser's
offer to purchase all outstanding Shares and associated Rights at a price of
$17.50 per Share (and associated Right), net to the seller in cash, upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
as of December 19, 1997, receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together with any amendments or supplements
thereto, collectively constitute the "Offer"). Tendering shareholders will
not be obligated to pay brokerage fees or commissions or, except as set forth
in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase
of Shares pursuant to the Offer. Purchaser will pay all charges and expenses
of Deutsche Morgan Grenfell Inc. (the "Dealer Manager"), The Bank of New York
(the "Depositary") and D.F. King & Co., Inc. (the "Information Agent")
incurred in connection with the Offer. The Purchaser reserves the right to
transfer or assign, in whole or from time to time in part, to one or more of
its affiliates the right to purchase Shares and Rights tendered pursuant to
the Offer.
Upon the terms and subject to the terms and conditions of the
Offer and effective upon acceptance for payment of and payment for the Shares
and Rights tendered herewith, the undersigned hereby sells, assigns and
transfers to or upon the order of the Purchaser all right, title and interest
in and to all the Shares and Rights that are being tendered hereby (and any
and all other Shares, Rights or other securities or rights issued or issuable
in respect thereof on or after December 19, 1997) and irrevocably constitutes
and appoints the Depositary the true and lawful agent and attorney-in-fact of
the undersigned with respect to such Shares and Rights (and all such other
Shares, Rights or securities or rights), with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (a) deliver certificates for such Shares and Rights (and all
such other Shares, Rights or securities or rights), or transfer ownership of
such Shares and Rights (and all such other Shares, Rights or securities or
Rights) on the account books maintained by the Book-Entry Transfer Facility,
together, in any such case, with all accompanying evidences of transfer and
authenticity, to or upon the order of the Purchaser, (b) present such Shares
and Rights (and all such other Shares or securities or rights) for transfer on
the books of the Company and (c) receive all benefits and otherwise exercise
all rights of beneficial ownership of such Shares and Rights (and all such
other Shares, Rights or securities or rights), all in accordance with the
terms of the Offer.
The undersigned hereby irrevocably appoints Daniel R. Baty,
Raymond R. Brandstrom, Kelly J. Price and John W. Cornwell and each of them,
the attorneys and proxies of the undersigned, each with full power of
substitution, to exercise all voting and other rights of the undersigned in
such manner as each such attorney and proxy or his substitute shall in his
sole discretion deem proper, with respect to all of the Shares and Rights
tendered hereby which have been accepted for payment by the Purchaser prior to
the time of any vote or other action (and any and all other Shares, Rights or
other securities or rights issued or issuable in respect thereof on or after
December 19, 1997), at any meeting of shareholders of the Company (whether
annual or special and whether or not an adjourned meeting), by written consent
or otherwise. This power of attorney and proxy is irrevocable and is granted
in consideration of, and is effective upon, the acceptance for payment of such
Shares and Rights by the Purchaser in accordance with the terms of the Offer.
Such acceptance for payment shall revoke any other proxy or written consent
granted by the undersigned at any time with respect to such Shares and Rights
(and all such other Shares, Rights or securities or rights), and no subsequent
proxies will be given or written consents will be executed by the undersigned
(and if given power of attorney and or executed, will not be deemed to be
effective).
The undersigned hereby represents and warrants that the
undersigned has full power and authority to tender, sell, assign and transfer
the Shares and Rights tendered hereby (and any and all other Shares, Rights or
other securities or rights issued or issuable in respect thereof on or after
December 19, 1997) and that when the same are accepted for payment by the
Purchaser, the Purchaser will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claims. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Depositary or the Purchaser
to be necessary or desirable to complete the sale, assignment and transfer of
the Shares and Rights tendered hereby (and all such other Shares, Rights or
securities or rights issued or issuable in respect thereof on or after
December 19, 1997).
THE UNDERSIGNED UNDERSTANDS THAT, UNLESS THE RIGHTS CONDITION
IS SATISFIED, SHAREHOLDERS WILL BE REQUIRED TO TENDER ONE RIGHT FOR EACH SHARE
TENDERED IN ORDER TO EFFECT A VALID TENDER OF SHARES IN ACCORDANCE WITH THE
PROCEDURES SET FORTH IN SECTION 2 OF THE OFFER TO PURCHASE. If the
Distribution Date occurs and separate certificates representing the Rights are
distributed to holders of Shares prior to the time Shares are tendered
herewith, certificates representing a number of Rights equal to the number of
Shares being tendered herewith must be delivered to the Depositary or, if
available, a Book-Entry Confirmation must be received by the Depositary with
respect thereto, in order for such Shares tendered herewith to be validly
tendered. If the Distribution Date occurs and separate certificates
representing the Rights are not distributed prior to the time Shares are
tendered herewith, Rights may be tendered prior to a Shareholder receiving
separate certificates for Rights by use of the guaranteed delivery procedures
described in Section 2 of the Offer to Purchase. A tender of Shares
constitutes an agreement by the tendering shareholder to deliver certificates
representing a number of Rights equal to the number of Shares tendered
pursuant to the Offer to the Depositary prior to expiration of the period
permitted by such guaranteed delivery procedures for delivery of certificates
for, or a Book-Entry Confirmation with respect to, Rights (the "Rights
Delivery Period"). However, after expiration of the Rights Delivery Period,
the Purchaser may elect to reject as invalid a tender of Shares with respect
to which certificates for, or a Book-Entry Confirmation with respect to, an
equal number of Rights has not been received by the Depositary. Nevertheless,
the Purchaser will be entitled to accept for payment Shares tendered by the
undersigned prior to the receipt of the certificates for the Rights required
to be tendered with such Shares, or a Book-Entry Confirmation with respect to
such Rights, and either (a) subject to complying with the applicable rules and
regulations of the Securities and Exchange Commission, withhold payment for
such Shares pending receipt of the certificates for, or a Book-Entry
Confirmation with respect to, such Rights or (b) make payment for Shares
accepted for payment pending receipt of the certificates for, or a Book-Entry
Confirmation with respect to, such Rights in reliance upon the agreement of a
tendering shareholder to deliver Rights and payment for Shares in reliance
upon such agreement and such guaranteed delivery procedures or, after the
expiration of the Rights Delivery Period, to reject a tender as invalid will
be made in the sole and absolute discretion of the Purchaser.
All authority herein conferred or agreed to be conferred
pursuant to the Letter of Transmittal shall survive the death or incapacity of
the undersigned, and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, successors and assigns of
the undersigned. Except as stated in the Offer, this tender is irrevocable.
The undersigned understands that valid tenders of Shares and,
if applicable, Rights pursuant to any one of the procedures described in
Section 2 of the Offer to Purchase and in the instructions hereto will
constitute an agreement between the undersigned and the Purchaser upon the
terms and subject to the conditions of the Offer.
Unless otherwise indicated under "Special Payment
Instructions", please issue the check for the purchase price of any Shares or
Rights purchased, and/or return any certificates for Shares or Rights not
tendered or not purchased, in the name(s) of the undersigned (and, in the case
of Shares tendered by book-entry transfer, by credit to the account at the
Book-Entry Transfer Facility designated above). Similarly, unless otherwise
indicated under "Special Delivery Instructions", please mail the check for the
purchase price of any Shares or Rights purchased and/or return any
certificates for Shares or Rights not tendered or not purchased (and
accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signature(s). In the event that both "Special
Payment Instructions" and "Special Delivery Instructions" are completed,
please issue the check for the purchase price of any Shares or Rights
purchased and/or return any certificates for Shares or Rights not tendered or
not purchased in the name(s) of, and mail said check and any certificates to,
the person(s) so indicated. The undersigned recognizes that the Purchaser has
no obligation, pursuant to the "Special Payment Instructions", to transfer any
Shares or Rights from the name of the registered holder(s) thereof if the
Purchaser does not accept for payment any of the Shares or Rights
respectively, so tendered.
[ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN
HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 10.
Number of Shares represented by the lost or
destroyed certificates: .
--------------------------------
- ----------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 5, 6 and 7)
To be completed ONLY if the check for the
purchase price of Shares or Rights purchased (less the
amount of any federal income and backup withholding
tax required to be withheld) and/or certificates for
Shares or Rights not tendered or not purchased are to be
issued in the name of someone other than the
undersigned.
Mail [ ] check
[ ] certificate(s) to:
Name
------------------------------------------------------
(Please Type or Print)
Address
------------------------------------------------------
- ----------------------------------------------------------
(Include Zip Code)
- ----------------------------------------------------------
(Taxpayer or Social Security Identification No.)
[See Substitute Form W-9]
- ----------------------------------------------------------
- ----------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 5 and 7)
To be completed ONLY if the check for the
purchase price of Shares or Rights purchased (less the
amount of any federal income and backup withholding
tax required to be withheld) and/or certificates for Shares
or Rights not tendered or not purchased are to be mailed
to someone other than the undersigned or to the
undersigned at an address other than that shown below
the undersigned's signature(s)
Mail [ ] check
[ ] certificate(s) to:
Name
------------------------------------------------------
(Please Type or Print)
Address
---------------------------------------------------
- ----------------------------------------------------------
(Include Zip Code)
- ----------------------------------------------------------
(Taxpayer or Social Security Identification No.)
[See Substitute Form W-9]
- ----------------------------------------------------------
- ----------------------------------------------------------
SIGN HERE
(Please complete Substitute Form W-9 below)
- ----------------------------------------------------------
Signature(s) of Owner(s)
- ----------------------------------------------------------
Dated , 199__
----------------------------------------------
Name(s)
---------------------------------------------------
(Please Type or Print)
- ----------------------------------------------------------
Capacity (full title)
-------------------------------------
Address
---------------------------------------------------
- ----------------------------------------------------------
(Include Zip Code)
Area Code and
Telephone Number
------------------------------------------
(Must be signed by registered holder(s) exactly as
name(s) appear(s) on certificate(s) for the Shares or
Rights or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates
and documents transmitted herewith. If signature is by
a trustee, executor, administrator, guardian,
attorney-in-fact, agent, officer of a corporation or other
person acting in a fiduciary or representative capacity,
please set forth full title and see Instruction 5.)
Guarantee of Signature(s)
(If required; see Instructions 1 and 5)
Name of Firm
----------------------------------------------
Authorized Signature
--------------------------------------
Dated , 199__
----------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Payer: The Bank of New York
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Part I Taxpayer Identification No. -- For All Accounts Part II For Payees Exempt
FORM W-9 from Backup
Withholding (see
Department of the Treasury Enter your taxpayer identification ----------------------- enclosed Guidelines)
Internal Revenue Service number in the appropriate box.
For most individuals and sole Social Security Number
Payer's Request for proprietors, this is your social -----------------------
Taxpayer Identification No. security number. For other
entities, it is your Employer
Identification Number. If you do
not have a number, see How to
Obtain a TIN in the enclosed
Guidelines
Note: If the account is in more -----------------------
than one name, see the chart on
page 2 of the enclosed Employer Identification
Guidelines to determine what Number
number to enter. ----------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Certification. -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued
to me), and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application
in the near future. I understand that if I do not provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a number;
(2) I am not subject to backup withholding either because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding; and
(3) Any other information provided on this form is true, correct and complete.
You must cross item (2) above if you have been notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return and you have not received a notice from the IRS
advising you that backup withholding has terminated.
- ---------------------------------------------------------------------------------------------------------------------------------
SIGNATURE DATE , 199__
------------------------------------------- ---------------
- ---------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
</TABLE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. Guarantee of Signatures. Except as otherwise provided
below, all signatures on this Letter of Transmittal must be guaranteed by a
firm which is a member of a recognized Medallion Program approved by The
Securities Transfer Associations, Inc. (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed (a) if this
Letter of Transmittal is signed by the registered holder(s) of the Shares and
Rights (which term, for purposes of this document, shall include any
participant in the Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of Shares) tendered herewith and such
holder(s) have not completed the instruction entitled "Special Payment
Instructions" on this Letter of Transmittal or (b) if such Shares and Rights
are tendered for the account of an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Shares. This Letter
of Transmittal is to be used either if certificates are to be forwarded
herewith or, unless an Agent's Message is utilized, if delivery of Shares and
Rights is to be made by book-entry transfer pursuant to the procedures set
forth in Section 2 of the Offer to Purchase. Certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility of all Shares
delivered electronically, as well as a properly completed and duly executed
Letter of Transmittal (or facsimile thereof or, in the case of a book-entry
transfer, an Agent's Message) and any other documents required by this Letter
of Transmittal, must be received by the Depositary at one of its addresses set
forth on the front page of this Letter of Transmittal by the Expiration Date.
Shareholders who cannot deliver their Shares and Rights, and all other
required documents to the Depositary by the Expiration Date must tender their
Shares and Rights pursuant to the guaranteed delivery procedure set forth in
Section 2 of the Offer to Purchase. Pursuant to such procedure: (a) such
tender must be made by or through an Eligible Institution, (b) a properly
completed and duly executed Notice of Guaranteed Delivery substantially in the
form provided by the Purchaser must be received by the Depositary by the
Expiration Date and (c) the certificates for all physically delivered Shares,
or a confirmation of a book-entry transfer into the Depositary's account at
the Book-Entry Transfer Facility of all Shares delivered electronically, as
well as a properly completed and duly executed Letter of Transmittal (or
facsimile thereof or, in the case of a book-entry delivery, an Agent's
Message) and any other documents required by this Letter of Transmittal, must
be received by the Depositary within three American Stock Exchange, Inc.
trading days after the date of execution of such Notice of Guaranteed
Delivery, all as provided in Section 2 of the Offer to Purchase.
The method of delivery of Shares and Rights and all other
required documents is at the option and risk of the tendering shareholder. If
certificates for Shares and Rights are sent by mail, registered mail with
return receipt requested, properly insured, is recommended.
No alternative, conditional or contingent tenders will be
accepted, and no fractional Shares will be purchased. By executing this
Letter of Transmittal (or facsimile thereof), the tendering shareholder waives
any right to receive any notice of the acceptance for payment of the Shares.
3. Inadequate Space. If the space provided herein is
inadequate, the certificate numbers and/or the number of Shares or Rights
should be listed on a separate schedule attached hereto.
4. Partial Tenders (not applicable to shareholders who tender
by book-entry transfer). If fewer than all the Shares or Rights represented
by any certificate delivered to the Depositary are to be tendered, fill in the
number of Shares or Rights which are to be tendered in the box entitled
"Number of Shares Tendered" or "Number of Rights Tendered", as appropriate.
In such case, a new certificate for the remainder of the Shares or Rights
represented by the old certificate will be sent to the person(s) signing this
Letter of Transmittal, unless otherwise provided in the appropriate box on
this Letter of Transmittal, as promptly as practicable following the
expiration or termination of the Offer. All Shares and Rights represented by
certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers and
Endorsements. If this Letter of Transmittal is signed by the registered
holder(s) of the Shares and Rights tendered hereby, the signature(s) must
correspond with the name(s) as written on the face of the certificates without
alteration, enlargement or any change whatsoever.
If any of the Shares or Rights tendered hereby is held of
record by two or more persons, all such persons must sign this Letter of
Transmittal.
If any of the Shares or Rights tendered hereby are registered
in different names on different certificates, it will be necessary to
complete, sign and submit as many separate Letters of Transmittal as there are
different registrations of certificates.
If this Letter of Transmittal is signed by the registered
holder(s) of the Shares and Rights tendered hereby, no endorsements of
certificates or separate stock powers are required unless payment of the
purchase price is to be made, or Shares or Rights not tendered or not
purchased are to be returned, in the name of any person other than the
registered holder(s). Signatures on any such certificates or stock powers
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than
the registered holder(s) of the Shares and Rights tendered hereby,
certificates must be endorsed or accompanied by appropriate stock powers, in
either case, signed exactly as the name(s) of the registered holder(s)
appear(s) on the certificates for such Shares or Rights. Signature(s) on any
such certificates or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any certificate or stock power
is signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to the Purchaser of the authority of such person
so to act must be submitted.
6. Stock Transfer Taxes. The Purchaser will pay any stock
transfer taxes with respect to the sale and transfer of any Shares or Rights
to it or its order pursuant to the Offer. If, however, payment of the
purchase price is to be made to, or Shares or Rights not tendered or not
purchased are to be returned in the name of, any person other than the
registered holder(s), or if a transfer tax is imposed for any reason other
than the sale or transfer of Shares or Rights to the Purchaser pursuant to the
Offer, then the amount of any stock transfer taxes (whether imposed on the
registered holder(s), such other person or otherwise) will be deducted from
the purchase price unless satisfactory evidence of the payment of such taxes,
or exemption therefrom, is submitted herewith.
7. Special Payment and Delivery Instructions. If the check for
the purchase price of any Shares or Rights purchased is to be issued, or any
Shares or Rights not tendered or not purchased are to be returned, in the name
of a person other than the person(s) signing this Letter of Transmittal or if
the check or any certificates for Shares or Rights not tendered or not
purchased are to be mailed to someone other than the person(s) signing this
Letter of Transmittal or to the person(s) signing this Letter of Transmittal
at an address other than that shown above, the appropriate boxes on this
Letter of Transmittal should be completed. Shareholders tendering Shares or
Rights by book-entry transfer may request that Shares or Rights not purchased
be credited to such account at the Book-Entry Transfer Facility as such
shareholder may designate under "Special Payment Instructions". If no such
instructions are given, any such Shares or Rights not purchased will be
returned by crediting the account at the Book-Entry Transfer Facility
designated above.
8. Substitute Form W-9. Under the federal income tax laws, the
Depositary will be required to withhold 31% of the amount of any payments made
to certain shareholders pursuant to the Offer. In order to avoid such backup
withholding, each tendering shareholder, and, if applicable, each other payee,
must provide the Depositary with such shareholder's or payee's correct
taxpayer identification number and certify that such shareholder or payee is
not subject to such backup withholding by completing the Substitute Form W-9
set forth above. In general, if a shareholder or payee is an individual, the
taxpayer identification number is the Social Security number of such
individual. If the Depositary is not provided with the correct taxpayer
identification number, the shareholder or payee may be subject to a $50
penalty imposed by the Internal Revenue Service. Certain shareholders or
payees (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on the
Substitute Form W-9. In order to satisfy the Depositary that a foreign
individual qualifies as an exempt recipient, such shareholder or payee must
submit a statement, signed under penalties of perjury, attesting to that
individual's exempt status. Such statements can be obtained from the
Depositary. For further information concerning backup withholding and
instructions for completing the Substitute Form W-9 (including how to obtain a
taxpayer identification number if you do not have one and how to complete the
Substitute Form W-9 if Shares are held in more than one name), consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by
itself, cause Shares to be deemed invalidly tendered, but may require the
Depositary to withhold 31% of the amount of any payments made pursuant to the
Offer. Backup withholding is not an additional federal income tax. Rather,
the federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained provided that the required
information is furnished to the Internal Revenue Service. NOTE: FAILURE TO
COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
9. Requests for Assistance or Additional Copies. Requests for
assistance or additional copies of the Offer to Purchase and this Letter of
Transmittal may be obtained from the Information Agent or the Dealer Manager
at their respective addresses or telephone numbers set forth below.
10. Lost, Destroyed or Stolen Certificates. If any certificate
representing Shares or Rights has been lost, destroyed or stolen, the
shareholder should promptly notify the Depositary by checking the box
immediately preceding the special payment/special delivery instructions and
indicating the number of Shares or Rights lost. The shareholder will then be
instructed as to the steps that must be taken in order to replace the
certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates
have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF),
TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A
BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS,
MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER
CERTIFICATES FOR TENDERED SHARES AND RIGHTS MUST BE RECEIVED BY THE DEPOSITARY
OR SHARES AND RIGHTS MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR
BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION DATE, OR THE
TENDERING SHAREHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
(DO NOT WRITE IN SPACES BELOW)
- --------------------------------------------------------------------------------------------------------------
Date Received______________ Accepted By_____________ Checked By___________
- --------------------------------------------------------------------------------------------------------------
Shares Shares Shares Check Amount Shares Certificate Block
Surrendered Tendered Accepted No. of Check Returned No. No.
----------- -------- -------- ----- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Gr______
Net_____
- --------------------------------------------------------------------------------------------------------------
Delivery Prepared By______________ Checked By_________________ Date__________________
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005-4495
(212) 269-5550
Banks and Brokers Call Collect: (212) 425-1685
All Others Call Toll-Free: (800) 431-9646
The Dealer Manager for the Offer is:
Deutsche Morgan Grenfell [Logo]
31 West 52nd Street
New York, New York 10019
(212) 469-7302 Call Collect
Call Toll Free: (800) 334-1898
December 19, 1997
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
- -- Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
- --------------------------------------------------------- -----------------------------------------------------------------
Give the Give the EMPLOYER
SOCIAL SECURITY IDENTIFICATION
For this type of account: number of -- For this type of account: number of --
- --------------------------------------------------------- -----------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity itself is
not designated in the account
title (5)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if combined funds,
the first individual on the
account(1)
3. Husband and wife (joint The actual owner of the 11. Religious, charitable, or The organization
account) account or, if joint funds, educational organization
either person(1) account
4. Custodian account of a The minor(2) 12. Partnership account The partnership
minor (Uniform Gift to held in the name of the
Minors Act) business
5. Adult and minor (joint The adult or, if the minor is 13. Association, club, or The organization
account) the only contributor, the other tax-exempt
minor(1) organization
6. Account in the name of The ward, minor, or 14. A broker or registered The broker or nominee
guardian or committee incompetent person(3) nominee
for a designated ward,
minor, or incompetent
person
7. a The usual revocable The grantor-trustee(1) 15. Account with the The public entity
savings trust account Department of
(grantor is also Agriculture in the name
trustee) The actual owner(1) of a public entity (such
b So-called trust as a State or local
account that is not a government, school
legal or valid trust district, or prison) that
under State law receives agricultural
program payments
8. Sole partnership account The owner(4)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include
the following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency, or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
o An entity registered at all times under the investment Company Act of
1940.
o A foreign central bank of issue.
Payments of the dividends and patronage dividends not generally subject to
backup withholding include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid
in
money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and
you have not provided your correct taxpayer identification number to
the payer.
o Payments of tax-exempt interest (including exempt-interest dividends
under section 852)
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must
generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Failure to Report Certain dividend and Interest Payments.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) Civil Penalty for False Information With Information.--If you make a false
statement with no reasonable basis which results in no imposition of backup
withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Respect To Withholding.--Falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
Exhibit (a)(3)
[DMG Logo]
Deutsche Morgan Grenfell
31 West 52nd Street
New York, New York 10019
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(including the Associated Preferred Stock Purchase Rights)
of
ARV Assisted Living, Inc.
at
$17.50 Net Per Share
by
EMAC Corp.
a wholly owned subsidiary
of
Emeritus Corporation
- ----------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 PM, NEW YORK CITY TIME,
ON WEDNESDAY, JANUARY 21, 1998, UNLESS THE OFFER IS EXTENDED.
- ----------------------------------------------------------------------------
December 19, 1997
To Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees:
We have been appointed by EMAC Corp., a Delaware corporation
(the "Purchaser") and a wholly-owned subsidiary of Emeritus Corporation, a
Washington Corporation, ("Emeritus") to act as Dealer Manager in connection
with its offer to purchase all outstanding shares of Common Stock, no par
value (the "Shares"), of ARV Assisted Living, Inc., a California corporation
(the "Company"), together with the associated preferred stock purchase rights
(the "Rights") issued pursuant to the Rights Agreement dated as of July 14,
1997, as amended, between the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent, at a price of $17.50 per Share (and associated
Right), net to the seller in cash, without interest thereon, upon the terms
and subject to the conditions set forth in the Purchaser's Offer to Purchase
dated December 19, 1997 (the "Offer to Purchase") and the related Letter of
Transmittal (which together with any amendments or supplements thereto,
collectively constitute the "Offer").
For your information and for forwarding to your clients for
whom you hold Shares and Rights registered in your name or in the name of
your nominee, we are enclosing the following documents:
1. Offer to Purchase dated December 19, 1997;
2. Letter of Transmittal for your use and for the information
of your clients, together with Guidelines for
Certification of Taxpayer Identification Number on
Substitute Form W-9 providing information relating to
backup federal income tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer
if the Shares and Rights and all other required documents
cannot be delivered to the Depositary by the Expiration
Date (as defined in the Offer to Purchase);
4. A form of letter which may be sent to your clients for whose
accounts you hold Shares or Rights 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
5. Return envelope addressed to The Bank of New York, the
Depositary.
The Offer is conditioned upon, among other things, the satisfaction or,
where applicable, waiver of the following conditions: (i) there being
validly tendered and not withdrawn prior to the Expiration Date (as defined
in the Offer to Purchase) a number of Shares which, together with Shares
owned by the Purchaser and its affiliates, will constitute at least a
majority of the total number of outstanding Shares on a fully diluted basis
(exclusive of any Shares issuable upon conversion of the Company's 6-3/4%
Convertible Subordinated Notes due 2006) as of the date the Shares are
accepted for payment by the Purchaser pursuant to the Offer, (ii) the
Rights issued by the Company having been redeemed by the Board of Directors
of the Company or the Purchaser being satisfied, in its discretion, that
the Rights have been invalidated or are otherwise inapplicable to the Offer
and the Proposed Merger (as defined in the Offer to Purchase), (iii)
Emeritus and the Purchaser being satisfied, in their discretion, that the
Purchaser has obtained financing upon terms satisfactory to them in an
amount sufficient to consummate the Offer and the Proposed Merger
(including the redemption or refinancing of all outstanding debt and
payment of all fees and expenses), (iv) Emeritus and the Purchaser being
satisfied, in their discretion, that the Board of Directors of the Company
has approved and recommended or will approve and recommend a merger between
the Company and the Purchaser and (v) the redemption of the Notes (as
defined in the Offer to Purchase) having been rescinded.
We urge you to contact your clients as promptly as possible.
Please note that the Offer and withdrawal rights will expire at 11:59 PM, New
York City time, Wednesday, January 21, 1998, unless the offer is extended.
The Purchaser will not pay any fees or commissions to any
broker or dealer or other person (other than the Dealer Manager, as described
in the Offer to Purchase) for soliciting tenders of Shares and Rights pursuant
to the Offer. D.F. King & Co., Inc., the Information Agent, and the
Depositary each will receive reasonable and customary compensation for their
services, be reimbursed for certain reasonable out-of-pocket expenses and be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities and expenses under the federal securities laws.
The Purchaser will, however, upon request, reimburse brokers, dealers,
commercial banks and trust companies for reasonable and necessary costs and
expenses incurred by them in forwarding materials to their customers.
In order to accept the Offer, a duly executed and properly
completed Letter of Transmittal and any required signature guarantees, or an
Agent's Message (as defined in the Offer to Purchase) in connection with a
book-entry delivery of Shares and Rights, and any other required documents,
should be sent to the Depositary by 11:59 PM New York City time, on January
21, 1998.
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 or the undersigned at the addresses and telephone
numbers set forth on the back cover of the Offer to Purchase.
Very truly yours,
Deutsche Morgan Grenfell Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL
CONSTITUTE YOU THE AGENT OF EMAC CORP., EMERITUS CORPORATION, THE DEALER
MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, 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 OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
Exhibit (a)(4)
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(including the Associated Preferred Stock Purchase Rights)
of
ARV Assisted Living, Inc.
by
EMAC Corp.
a wholly owned subsidiary
of
Emeritus Corporation
at
$17.50 Net Per Share
----------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 PM, NEW YORK CITY
TIME, ON WEDNESDAY, JANUARY 21, 1998, UNLESS THE OFFER IS EXTENDED.
----------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated
December 19, 1997 (the "Offer to Purchase") and the related Letter of
Transmittal (which together with any amendments or supplements thereto,
collectively constitute the "Offer") in connection with the offer by EMAC
Corp., a Delaware corporation (the "Purchaser") and a wholly owned subsidiary
of Emeritus Corporation, a Washington corporation ("Emeritus"), to purchase
for cash all outstanding shares of Common Stock, no par value (the "Shares"),
of ARV Assisted Living, Inc., a California corporation (the "Company"),
together with the associated preferred stock purchase rights (the "Rights")
issued pursuant to the Rights Agreement dated as of July 14, 1997, as amended,
between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent. UNLESS THE RIGHTS CONDITION (AS DEFINED IN THE OFFER TO PURCHASE) IS
SATISFIED, SHAREHOLDERS WILL BE REQUIRED TO TENDER ONE RIGHT FOR EACH SHARE
TENDERED IN ORDER TO EFFECT A VALID TENDER OF SHARES IN ACCORDANCE WITH THE
PROCEDURES SET FORTH IN SECTION 2 OF THE OFFER TO PURCHASE. UNLESS THE
DISTRIBUTION DATE (AS DEFINED IN THE OFFER TO PURCHASE) OCCURS, A TENDER OF
SHARES WILL ALSO CONSTITUTE A TENDER OF THE ASSOCIATED RIGHTS.
We are the holder of record of Shares and Rights held for your
account. A tender of such Shares and Rights can be made only by us as the
holder of record and pursuant to your instructions. The Letter of Transmittal
is furnished to you for your information only and cannot be used by you to
tender Shares or Rights held by us for your account.
Accordingly, we request instructions as to whether you wish us
to tender any or all of the Shares and Rights held by us for your account,
upon the terms and subject to the conditions set forth in the Offer to
Purchase and the Letter of Transmittal.
Your attention is invited to the following:
1. The tender price is $17.50 per Share (and associated Right),
net to you in cash, without interest thereon.
2. The Offer and withdrawal rights will expire at 11:59 PM, New
York City time, on Wednesday, January 21, 1998, unless the Offer is extended.
3. The Offer is conditioned upon, among other things, the
satisfaction or, where applicable, waiver of the following conditions: (i)
there being validly tendered and not withdrawn prior to the Expiration Date
(as defined in the Offer to Purchase) a number of Shares which, together
with Shares owned by the Purchaser and its affiliates, will constitute at
least a majority of the total number of outstanding Shares on a fully
diluted basis (exclusive of any Shares issuable upon conversion of the
Company's 6-3/4% Convertible Subordinated Notes due 2006) as of the date
the Shares are accepted for payment by the Purchaser pursuant to the Offer,
(ii) the Rights issued by the Company having been redeemed by the Board of
Directors of the Company or the Purchaser being satisfied, in its
discretion, that the Rights have been invalidated or are otherwise
inapplicable to the Offer and the Proposed Merger (as defined in the Offer
to Purchase), (iii) Emeritus and the Purchaser being satisfied, in their
discretion, that the Purchaser has obtained financing upon terms
satisfactory to them in an amount sufficient to consummate the Offer and
the Proposed Merger (including the redemption or refinancing of all
outstanding debt and payment of all fees and expenses), (iv) Emeritus and
the Purchaser being satisfied, in their discretion, that the Board of
Directors of the Company has approved and recommended or will approve and
recommend a merger between the Company and the Purchaser and (v) the
redemption of the Notes (as defined in the Offer to Purchase) having been
rescinded.
4. Any stock transfer taxes applicable to the sale of Shares
or Rights to the Purchaser pursuant to the Offer will be paid by the
Purchaser, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
If you wish to have us tender any or all of your Shares or
Rights, please so instruct us by completing, executing, detaching and
returning to us the instruction form on the detachable part hereof. An
envelope to return your instructions to us is enclosed. If you authorize
tender of your Shares and Rights, all such Shares and Rights will be tendered
unless otherwise specified on the detachable part hereof. 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.
The Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of Shares 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 where the 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 Purchaser by Deutsche Morgan
Grenfell Inc., the Dealer Manager of the Offer, or one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
Payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by The Bank of New York (the
"Depositary") of (a) certificates for (or a timely Book-Entry Confirmation (as
defined in the Offer to Purchase) with respect to) such Shares and, if the
Distribution Date occurs, certificates for (or a timely Book-Entry
Confirmation, if available, with respect to) the associated Rights (unless the
Purchaser elects to make payment for such Shares pending receipt of the
certificates for, or a Book-Entry Confirmation with respect to, such Rights as
described in Section 2), (b) a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message, and (c) any
other documents required by the Letter of Transmittal. Accordingly, payment
may not be made to all tendering shareholders at the same time depending upon
when certificates for or confirmations of book-entry transfer of such Shares
(or Rights) into the Depositary' s account at a Book-Entry Transfer Facility
(as defined in the Offer to Purchase) are actually received by the Depositary.
Instructions with Respect to the
Offer to Purchase for Cash
All Outstanding Shares of
Common Stock
(including the Associated Preferred Stock Purchase Rights)
of
ARV Assisted Living, Inc.
by
EMAC Corp.
a wholly owned subsidiary
of
Emeritus Corporation
The undersigned acknowledge(s) receipt of your letter and the
enclosed Offer to Purchase dated December 19, 1997 (the "Offer to Purchase"),
and the related Letter of Transmittal, in connection with the offer by EMAC
Corp., to purchase all outstanding shares of Common Stock, no par value (the
"Shares"), of ARV Assisted Living, Inc., together with the associated
preferred stock purchase rights (the "Rights") issued pursuant to the Rights
Agreement dated as of July 14, 1997, as amended, between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent.
This will instruct you to tender the number of Shares and
Rights 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 Shares to be Tendered:*
-----------------------------------------
Date:
----------------------------------------------------------------------
- ---------------------------------------------------------------------------
SIGN HERE
Signature:
-----------------------------------------------------------------
Print Name(s):
-------------------------------------------------------------
Print Address(es):
---------------------------------------------------------
Area Code and Telephone Number(s):
-----------------------------------------
Taxpayer Identification or Social Security Number(s):
----------------------
- ------------
* Unless the Rights Condition (as defined in the Offer to Purchase) is
satisfied, shareholders will be required to tender one Right for each Share
tendered in order to effect a valid tender of Shares in accordance with the
procedures set forth in Section 2 of the Offer to Purchase. Unless the
Distribution Date (as defined in the Offer to Purchase) occurs, a tender of
Shares will also constitute a tender of the associated Rights. Unless
otherwise indicated, it will be assumed that all Shares and Rights held by us
for your account are to be tendered.
Exhibit (a)(5)
Notice of Guaranteed Delivery
for
Tender of Shares of Common Stock
of
ARV Assisted Living, Inc.
(Not to Be Used for Signature Guarantees)
This Notice of Guaranteed Delivery, or a form substantially
equivalent to this form, must be used to accept the Offer (as defined below)
if certificates representing shares of common stock, no par value, of ARV
Assisted Living, Inc. (the "Shares") and Rights (as defined below) and all
other documents required by the Letter of Transmittal cannot be delivered to
the Depositary by the expiration of the Offer. Such form may be delivered by
hand or facsimile transmission, telex or mail to the Depositary. See Section
2 of the Offer to Purchase.
<TABLE>
<CAPTION>
<S> <C> <C>
To The Bank of New York,
as Depositary
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
Tender & Exchange Department (for Eligible Institutions Only) Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Confirmation Telephone:
(800) 507-9357
</TABLE>
- ----------------------------------------------------------------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS
OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto,
such signature guarantee must appear in the applicable space provided in
the signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must
communicate the guarantee to the Depositary and must deliver the Letter of
Transmittal and certificates for Shares to the Depositary within the time
period shown herein. Failure to do so could result in a financial loss to
such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
- ----------------------------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby tenders to EMAC Corp., a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Emeritus
Corporation, a Washington corporation, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated December 19, 1997 (the
"Offer to Purchase") and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of which is hereby acknowledged, _______
shares of Common Stock, no par value of ARV Assisted Living, Inc., a
California corporation, together with (unless and until the Purchaser declares
that the Rights Condition (as defined in the Offer to Purchase) is satisfied)
the associated preferred stock purchase rights (the "Rights") issued pursuant
to the Rights Agreement dated as of July 14, 1997, as amended, between the
Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent,
pursuant to the guaranteed delivery procedure set forth in Section 2 of the
Offer to Purchase.
<TABLE>
<CAPTION>
<S> <C>
Certificate Nos. (if available): SIGN HERE
---------------------------------------- ------------------------------------
(Signature(s))
---------------------------------------- ------------------------------------
(Name(s)) (Please Type or Print)
If shares will be tendered by book-entry
transfer:
------------------------------------
Name of Tendering (Address)
Institution:
--------------------------------
Account No.: at
-------------------------------- ------------------------------------
(Zip Code)
[ ] The Depository Trust Company
------------------------------------
(Area Code and Telephone No.)
Dated: , 199__
-------------------------------
</TABLE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered
national securities exchange or the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States, guarantees (a) that the above named
person(s) "own(s)" the Shares and Rights tendered hereby within the meaning of
Rule 14e-4 under the Securities Exchange Act of 1934, (b) that such tender of
Shares and Rights complies with Rule 14e-4 and (c) to deliver to the
Depositary the Shares and Right tendered hereby, together with a properly
completed and duly executed Letter(s) of Transmittal (or facsimile(s) thereof)
or an Agent's Message (as defined in the Offer to Purchase) in the case of a
book-entry delivery and any other required documents, all within three American
Stock Exchange, Inc. trading days of the date hereof.
----------------------------------------
(Name of Firm)
----------------------------------------
(Authorized Signature)
----------------------------------------
(Name)
----------------------------------------
(Address)
----------------------------------------
(Zip Code)
----------------------------------------
(Area Code and Telephone Number)
Dated: , 199__
------------------
Exhibit (a)(6)
Contacts: Kelly J. Price
Chief Financial Officer
(206) 298-2909
or
Roy Winnick or Mark Semer
Kekst and Company
(212) 521-4842 or 4802
EMERITUS CORPORATION COMMENCES CASH TENDER OFFER
FOR ALL OUTSTANDING SHARES OF ARV ASSISTED LIVING, INC
COMMON STOCK AT $17.50 PER SHARE
- -- Offer Represents 23% Premium over ARV's Thursday Closing Price of
$14.25 and Increase of $1 Per Share over Previous Emeritus Offer --
SEATTLE, December 19, 1997 -- Emeritus Corporation (Amex: ESC) and its
wholly-owned subsidiary EMAC Corp. today commenced a cash tender offer of
$17.50 per share for all outstanding shares of ARV Assisted Living, Inc.
(Amex: SRS; formerly Nasdaq: ARVI).
The cash consideration of $17.50 per share represents a premium of 23%
over ARV's closing share price of $14.25 on Thursday, December 18; a 54%
premium over the closing price of $11.375 on July 14, 1997, the last
trading day prior to the announcement of ARV's original transaction with
Prometheus Assisted Living LLC ("Prometheus"); and an increase of $1 per
share over Emeritus' previous offer of $16.50 per share for all
outstanding common stock of ARV. Emeritus currently holds 1,077,200
shares of ARV common stock, representing approximately 6.8% of the ARV
shares currently outstanding (or 9.3% of the ARV shares outstanding prior
to ARV's redemption earlier this month of the $60 million principal
amount of 6.75% Convertible Subordinated Notes due 2007 and the related
issuance by ARV to Prometheus of 4.3 million ARV shares at an effective,
below-market price of $14.00 per share). The offer and withdrawal rights
expire at 11:59 p.m., New York City time on January 21, 1998 unless the
offer is extended or withdrawn.
Daniel R. Baty, Chairman and Chief Executive Officer of Emeritus, said:
"We have repeatedly sought to negotiate with ARV management a friendly,
consensual combination of our companies that would put a significant cash
premium directly in the pockets of all ARV shareholders. ARV management,
however, has consistently refused to seriously consider our offer.
Accordingly, we have decided to go directly to ARV shareholders in order
to effect what we believe is a transaction clearly superior to the one
ARV entered into with Prometheus Assisted Living, which is significantly
dilutive to shareholder value. We at Emeritus feel so strongly about the
long-term value that a combined Emeritus-ARV would create that we have
increased the value of our offer to $17.50 in cash, which represents a 23
percent premium over ARV's current share price -- and a 25 percent premium
over the below-market, $14.00 effective price for which ARV's Board sold
Prometheus nearly 40 percent of the company without a shareholder vote."
The offer is subject to various conditions set forth in the Offer to
Purchase to be sent to ARV shareholders shortly.
As previously announced, Emeritus has filed suit in Orange County
Superior Court in the State of California, seeking, among other things,
the rescission of the abovementioned note redemption and issuance of ARV
shares to Prometheus. To further facilitate its Offer, Emeritus is also
contesting the election of ARV's slate of directors, and has proposed its
own slate of directors, who are to be voted on at ARV's Annual Meeting of
shareholders on January 28, 1998.
Deutsche Morgan Grenfell is acting as financial advisor to Emeritus with
regard to the Offer and as dealer manager and D.F. King & Co., Inc. is the
information agent.
Emeritus is a senior housing services company focused on operating
residential-style assisted-living communities. These communities provide
a residential housing alternative for senior citizens who need help with
the activities of daily living. Emeritus currently holds interests in
117 communities representing capacity for more than11,000 residents in
25 states and Canada (including a minority interest in Alert Care Corp.).
Emeritus' common stock is traded on the American Stock Exchange under
the symbol "ESC."
The following persons may be considered to be participants in the
forthcoming proxy solicitation (those marked with an * are Emeritus'
proposed nominees for election to ARV's board): Emeritus Corporation,
Martin Roffe*, Thilo Best*, Richard Sontgerath*, Al Edmiston*, Frank
Ruffo*, Charles Uhlman*, Stanley Baty*, Jason Geisenger*, Patrick Duff*,
Jonathan Teague*, Jim Keller*, Bill Shorten*, Suzette McCanless*, Gary
Becker*, Russ Kubik*, Deutsche Morgan Grenfell Inc. ("DMG"), Federico
G.M. Mennella, and Philip Noblet. The persons listed above may have an
interest in the election of the Emeritus nominees due to the fact that
Emeritus has approached ARV with an acquisition proposal and the election
of the Emeritus nominees to the ARV Board may facilitate a transaction
between ARV and Emeritus. In the normal course of their business, DMG
and its associates may from time to time buy and sell securities issued
by ARV and its affiliates for their own account and for the accounts of
their customers, which transactions may result from time to time in DMG
and its associates having a net "long" or net "short" position in ARV
securities or option contracts or other derivatives in or relating to ARV
securities. Emeritus is the beneficial owner of 1,077,200 shares of ARV
common stock. Stanley Baty, an Emeritus nominee, owns 1,000 shares of
ARV common stock. To the knowledge of Emeritus, none of the other
persons listed above has any interest, direct or indirect, by security
holdings or otherwise in ARV. DMG does not admit that it or any of its
directors, officers or employees is a participant in the solicitation by
Emeritus.
# # #
Exhibit (a)(7)
This announcement is not an offer to purchase or a solicitation
of an offer to sell Shares or Rights. The Offer is made solely by the Offer to
Purchase dated December 19, 1997 and the related Letter of Transmittal and is
not being made to, nor will tenders be accepted from or on behalf of, holders
of Shares or Rights 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 where the 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 Purchaser by Deutsche Morgan
Grenfell Inc., the Dealer Manager for the Offer, or one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
(including the Associated Preferred Stock Purchase Rights)
of
ARV Assisted Living, Inc.
at
$17.50 Net per Share
by
EMAC Corp.
a wholly-owned subsidiary of
Emeritus Corporation
EMAC Corp., a Delaware corporation (the "Purchaser"), which is
a wholly-owned subsidiary of Emeritus Corporation, a Washington corporation
("Emeritus"), is offering to purchase any and all outstanding shares of Common
Stock, no par value (the "Shares"), of ARV Assisted Living, Inc., a California
corporation (the "Company"), together with the associated preferred stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement dated
as of July 14, 1997, as amended, between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, at a price of $17.50 per Share
(and associated Right), net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to
Purchase dated December 19, 1997 (the "Offer to Purchase") and in the related
Letter of Transmittal (which, together with any amendments or supplements
thereto, collectively constitute the "Offer"). Unless the context otherwise
requires, all references herein to Shares shall include the Rights.
- ----------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 PM,
NEW YORK CITY TIME, ON WEDNESDAY, JANUARY 21, 1998 (THE
"EXPIRATION DATE") UNLESS THE OFFER IS EXTENDED.
- ----------------------------------------------------------------
The purpose of the Offer is to enable Emeritus to acquire
control of, and the entire equity interest in, the Company. The Offer, as the
first step in the acquisition of the Company, is intended to facilitate the
acquisition of all the Shares.
The Offer is conditioned upon, among other things, the
satisfaction or, where applicable, waiver of the following conditions: (i)
there being validly tendered and not withdrawn prior to the Expiration Date
a number of Shares which, together with Shares owned by the Purchaser and
its affiliates, will constitute at least a majority of the total number of
outstanding Shares on a fully diluted basis (exclusive of any Shares
issuable upon conversion of the Company's 6-3/4% Convertible Subordinated
Notes due 2006) as of the date the Shares are accepted for payment by the
Purchaser pursuant to the Offer, (ii) the Rights issued by the Company
having been redeemed by the Board of Directors of the Company or the
Purchaser being satisfied in its discretion that the Rights have been
invalidated or are otherwise inapplicable to the Offer and the Proposed
Merger (as defined in the Offer to Purchase), (iii) Emeritus and the
Purchaser being satisfied, in their discretion, that the Purchaser has
obtained financing upon terms satisfactory to them in an amount sufficient
to consummate the Offer and the Proposed Merger (including the redemption
or refinancing of all outstanding debt and payment of all fees and
expenses), (iv) Emeritus and the Purchaser being satisfied, in their
discretion, that the Board of Directors of the Company has approved and
recommended or will approve and recommend a merger between the Company and
the Purchaser and (v) the redemption of the Notes (as defined in the Offer
to Purchase) having been rescinded.
The Offer is being made pursuant to an Offer to Purchase. The
Offer is subject to certain conditions set forth in the Offer to Purchase. If
any such condition is not satisfied, the Purchaser may, subject to certain
limitations set forth and described in the Offer to Purchase, (a) terminate
the Offer and not accept for payment or pay for any Shares and return all
tendered Shares to tendering shareholders, (b) waive all the unsatisfied
conditions and accept for payment and pay for all Shares validly tendered
prior to the Expiration Date and not theretofore withdrawn, (c) extend the
Offer and, subject to the right of shareholders to withdraw Shares until the
Expiration Date, retain the Shares that have been tendered during the period
or periods for which the Offer is extended or (d) amend the Offer.
The Purchaser reserves the right, in its sole discretion, at
any time and from time to time, and regardless of whether or not any of the
events or facts set forth in Section 14 of the Offer to Purchase shall have
occurred, to (a) extend the period of time during which the Offer is open, and
thereby delay acceptance for payment of and the payment for any Shares, by
giving oral or written notice of such extension to The Bank of New York (the
"Depositary"), and (b) amend the Offer in any other respect by giving oral or
written notice of such amendment to the Depositary.
For purposes of the Offer, the Purchaser shall be deemed to
have accepted for payment tendered Shares when, as and if the Purchaser gives
oral or written notice to the Depositary of its acceptance of the tenders of
such Shares. For a shareholder to validly tender Shares pursuant to the
Offer, either (a) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees, or,
in the case of a book-entry transfer, an Agent's Message (as defined in the
Offer to Purchase), and any other required documents, must be received by the
Depositary at one of its addresses set forth on the back cover of the Offer to
Purchase prior to the Expiration Date and either (i) certificates for tendered
Shares must be received by the Depositary at one of such addresses or (ii)
such Shares must be delivered pursuant to the procedures for book-entry
transfer set forth below (and a Book-Entry Confirmation (as defined in the
Offer to Purchase) must be received by the Depositary), in each case prior
to the Expiration Date, or (b) the tendering shareholder must comply with
the guaranteed delivery procedures set forth in Section 2 of the Offer to
Purchase.
Tenders of Shares made pursuant to the Offer may be withdrawn
at any time prior to the Expiration Date. Thereafter, such tenders are
irrevocable, except that they may be withdrawn after February 16, 1998 unless
theretofore accepted for payment as provided in the Offer to Purchase. Shares
may not be withdrawn unless the associated Rights, as the case may be, are
also withdrawn. A withdrawal of Shares will also constitute a withdrawal of
the associated Rights, as the case may be. For a withdrawal to be effective,
a written, telegraphic or facsimile transmission notice of withdrawal must be
timely received by the Depositary at one of its addresses set forth on the
back cover of the Offer to Purchase and must specify the name of the person
having tendered the Shares to be withdrawn, the number of the Shares to be
withdrawn and the name of the registered holder of the Shares to be withdrawn,
if different from the name of the person who tendered the Shares. If
certificates for the Shares have been delivered or otherwise identified to the
Depositary, then, prior to the physical release of such certificates, the
serial numbers shown on such certificates must be submitted to the Depositary
and, unless such Shares have been tendered by an Eligible Institution (as
defined in Section 2 of the Offer to Purchase), the signatures on the notice
of withdrawal must be guaranteed by an Eligible Institution. If the Shares
have been delivered pursuant to the procedure for book-entry transfer as set
forth in Section 2 of the Offer to Purchase, any notice of withdrawal must
also specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Shares and otherwise
comply with such Book-Entry Transfer Facility's procedures. Withdrawals of
tenders of the Shares may not be rescinded, and any Shares properly withdrawn
will thereafter be deemed not validly tendered for purposes of the Offer.
However, withdrawn Shares may be retendered by again following one of the
procedures described in Section 2 of the Offer to Purchase at any time prior
to the Expiration Date.
The information required to be disclosed by paragraph
(e)(1)(vii) of Rule 14d-6 of the General Rules and Regulations under the
Securities Exchange Act of 1934 is contained in the Offer to Purchase and is
incorporated herein by reference.
A request is being made to the Company for the use of the
Company's shareholder lists and security position listings for the purpose of
disseminating the Offer to holders of Shares. The Offer to Purchase, the
Letter of Transmittal and other relevant materials will be mailed to record
holders of Shares and will be furnished to brokers, dealers, banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the stockholder list, or, if applicable, who are listed as
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
The Offer to Purchase and Letter of Transmittal contain
important information which should be read before any decision is made with
respect to the Offer.
Requests for copies of the Offer to Purchase and the related
Letter of Transmittal and other tender offer materials may be directed to the
Information Agent or the Dealer Manager as set forth below, and copies will be
furnished promptly at the Purchaser's expense. No fees or commissions will be
paid to brokers, dealers or other persons (other than the Dealer Manager) for
soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005-4495
Banks and Brokers Call Collect: (212) 425-1685
All Others Call Toll-Free: 1-800-431-9646
The Dealer Manager for the Offer is:
Deutsche Morgan Grenfell [Logo]
Deutsche Morgan Grenfell Inc.
31 West 52nd Street
New York, New York 10019
(212) 469-7302 Call Collect
Call Toll Free: (800) 334-1898
December 19, 1997
Exhibit (b)
[NORTHSTAR LETTERHEAD]
December 9, 1997
Emeritus Corporation
3131 Elliott Avenue
Suite 500
Seattle, WA 98121
Dear Sirs,
We understand that you will organize a direct or indirect,
wholly owned, single purpose subsidiary (the "Purchaser") that will offer to
acquire through a tender offer or otherwise (collectively, the "Offer") all of
the outstanding shares of common stock, no par value (the "Common Stock"), of
ARV Assisted Living, Inc. (the "Company") at $17.50 per share. In connection
with the Offer, the Purchaser will consummate a merger (the "Merger") with the
Company in which the Company will be the surviving corporation. You have
advised us that the total consideration for the Offer for the Common Stock
will be approximately $203 million (the "Common Stock Offer"). In addition,
you have advised us that as part of the Offer, additional consideration will
be required to fund certain warrants and management and employee options, the
6.75% Convertible Subordinated Notes due 2006, the 6.75% Convertible
Subordinated Notes due 2007, fees and expenses related to the Offer and
Merger, and any other indebtedness of the Company (the "Additional Purchase
Price" and, together with the Common Stock Offer, the "Acquisition Price").
You have requested that Northstar Capital Partners L.L.C. ("Northstar")
provide you with debt and financing in an amount equal to the Acquisition
Price (the "Financing").
Based on the information you have provided to us to date and
our analysis of current market conditions, we are pleased to inform you that
we are highly confident of our ability to provide the financing as described
above, subject to the matters set forth in the following paragraph. The
structure, covenants and terms of the Financing, including the interest rate,
will be determined by Northstar in consultation with the Purchaser and
Emeritus based on market conditions at the time of the funding of the
Financing.
Our ability to provide the Financing is subject to (i) the
terms and conditions of the Financing and any debt to be assumed and all
related documentation being satisfactory in form and substance to Northstar,
(ii) the terms and conditions of the Offer at not more than $17.50 per share
being satisfactory in form and substance to Northstar, (iii) the execution and
delivery of documentation with respect to the Offer, the merger and all
related transactions in form and substance satisfactory to Northstar, (iv) the
absence of any material adverse change in the business, condition (financial
or otherwise), results of operations, assets, or liabilities of the Company,
the Purchaser or Emeritus and (v) the receipt of all necessary governmental,
regulatory and third party approvals and consents in connection with the Offer
and the termination or expiration of any waiting period applicable to the
consummation of the Offer under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
This letter shall be treated as confidential and is being
provided to Emeritus solely in connection with the Offer and may not be used,
circulated, quoted or otherwise referred to in any document, except with
Northstar's prior written consent.
Northstar is eager to finance the successful acquisition of the
Company by the Purchaser. We look forward to working with you toward the
successful completion of the proposed financing.
Sincerely,
NORTHSTAR CAPITAL PARTNERS, L.L.C.
By: /s/ David T. Hamamoto
-----------------------------
Its:
-----------------------------
Exhibit (g)(1)
GIBSON, DUNN & CRUTCHER LLP
WAYNE W. SMITH, SBN 054593
JOSEPH P. BUSCH, III, SBN 070340
4 Park Plaza, Suite 1400
Irvine, California 92614-8557
(714) 451-3800
DAVIS POLK & WARDWELL
MICHAEL P. CARROLL
JAMES H.R. WINDELS
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
Attorneys for Plaintiff
Emeritus Corporation
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF ORANGE
EMERITUS CORPORATION, a Washington CASE NO. 787788
------
corporation
Plaintiff, COMPLAINT FOR INJUNCTIVE AND
v. DECLARATORY RELIEF
ARV ASSISTED LIVING, INC., a California
corporation; DAVID P. COLLINS, an
individual; JOHN A. BOOTY, an individual;
R. BRUCE ANDREWS, an individual;
JAMES M. PETERS, an individual;
MAURICE J. DeWALD, an individual; JOHN
J. RYDZEWSKI, an individual; ROBERT P.
FREEMAN, an individual; KENNETH M.
JACOBS, an individual; MURRY N. GUNTY,
an individual; and HOWARD G.
PHANSTIEL, an individual.
Defendants.
I
NATURE OF THE ACTION
1. Plaintiff Emeritus Corporation ("Emeritus") brings this action
against ARV Assisted Living, Inc. ("ARV"), David P. Collins, John A. Booty, R.
Bruce Andrews, James M. Peters, Maurice J. DeWald, John J. Rydzewski, Robert
P. Freeman, Kenneth M. Jacobs, Murry N. Gunty, and Howard G. Phanstiel
(collectively, "Defendants" or, excepting ARV, the "Individual Defendants").
Defendants Collins, Booty, Andrews, Peters, DeWald and Rydzewski
(collectively, the "ARV Defendants") have served together on ARV's board of
directors (the "Board") since 1995. Defendants Freeman, Jacobs and Gunty were
appointed to the Board on October 30, 1997, and defendant Phanstiel was
appointed on or about December 5, 1997. Emeritus brings this complaint for
injunctive and declaratory relief as set forth below.
2. This an action to prevent the directors of a publicly-owned
California corporation from selling out their own shareholders. California law
requires directors of a corporation to act as fiduciaries for the corporation's
shareholders. In this case, however, the Individual Defendants have breached
their fiduciary duties by taking away control of ARV from its public
shareholders and depriving those shareholders of the opportunity to maximize
the value of their shares. Instead of acting in the best interests of ARV's
shareholders, the Individual Defendants have embarked on a program to prevent
an acquisition of ARV and entrench themselves in office for their own personal
benefit.
3. On July 10, 1997, Emeritus made a proposal to ARV's Board to
acquire ARV's outstanding shares for a premium of their market value.
However, because Emeritus' proposal would have resulted in the ARV Defendants
losing control of ARV, the ARV Defendants failed to give any serious
consideration to the proposal and refused to negotiate with Emeritus.
Instead, the ARV Defendants took immediate and decisive steps to block
Emeritus from acquiring ARV and to preserve their Board positions. These
steps included entering into a complex series of self-serving transactions
described below and putting into place a "shareholders rights plan" --
commonly known as a "poison pill."
4. On July 14, 1997 -- four days after Emeritus' proposal -- ARV
announced that it had entered into a transaction with Prometheus Assisted
Living, LLC ("Prometheus"), an affiliate of Lazard Freres Real Estate
Investors L.L.C. ("Lazard") (the "First Prometheus Transaction"). In the
First Prometheus Transaction, the ARV Defendants agreed to sell a vast amount
of newly issued ARV stock to Prometheus for $14 per share. ARV's directors
and senior officers also committed, subject to certain conditions, to vote
their 20% holding of ARV stock in support of Prometheus' nominees to ARV's
Board. In return, Prometheus would vote its sizable holding of stock in favor
of keeping ARV's existing Board in office for at least another three years.
This massive stock sale and mutual commitments to support each other's Board
nominees radically altered the ownership structure of ARV, locked up the Board
under the control of Prometheus and the ARV Defendants, and wrested control of
the company away from ARV's public shareholders. On August 22, 1997, ARV
filed preliminary proxy materials with the Securities and Exchange Commission
(the "SEC") stating that ARV was intending to hold a vote of its shareholders
at an October 14, 1997 meeting to approve the First Prometheus Transaction.
Subsequently, the annual meeting was rescheduled for November 18, 1997.
5. Also on July 14, 1997, the ARV Defendants took another step to
entrench themselves in office -- they hurriedly implemented a poison pill.
The poison pill effectively prevents Emeritus or any other party from
attempting to acquire ARV and denies ARV's shareholders the opportunity to
receive a premium for their shares in any public tender offer. The ARV
Defendants expressly excluded Prometheus from the effect of the poison pill,
however, thereby permitting Prometheus to acquire majority control of ARV.
Without paying any control premium to ARV's public shareholders.
6. On October 12, 1997, after stating its view that the First
Prometheus Transaction constituted a breach of the ARV Defendants' fiduciary
duties, Emeritus made a second proposal to the ARV Board to purchase all of
the publicly held shares of ARV in cash for $16.50 per share -- 16% higher
than the price at which Prometheus had purchased its ARV stock. Despite this
significant premium, the ARV Defendants again rejected Emeritus' proposal
without any serious consideration or negotiations with Emeritus. While
Emeritus' proposal offered substantial value to all of ARV's shareholders, the
First Prometheus Transaction gave unfair and special treatment to one
hand-picked shareholder which in return pledged to support the ARV Defendants
in their quest to remain in office.
7. On October 13, 1997, Gary Davidson, the Chairman and Chief
Executive Officer of ARV, as well as one of its principal founders, resigned
from the company. Upon information and belief, Mr. Davidson resigned because
he disapproved of the extent to which Prometheus was exerting control over ARV
and because he believed that the ARV Defendants had failed to act in the
shareholders' best interest by summarily rejecting Emeritus' October 12, 1997
proposal.
8. With Mr. Davidson having resigned in protest, Emeritus having
made proposals which were far superior to the First Prometheus Transaction,
and shareholder approval of the First Prometheus Transaction in doubt, the ARV
Defendants realized that they had to change strategies to achieve their goals.
The centerpiece of the new strategy was to enter into a second transaction
with Prometheus (the "Second Prometheus Transaction" or, together with the
First Prometheus Transaction, the "Prometheus Transactions"). The ARV
Defendants also canceled the November 18, 1997 shareholder meeting and reneged
on their commitment to hold a shareholder vote to approve the Prometheus
Transactions.
9. On October 29, 1997, ARV announced the Second Prometheus
Transaction which superseded parts of the First Prometheus Transaction. The
Second Prometheus Transaction would grant Prometheus three designated
directors on an expanded, nine-member ARV Board. In addition, Prometheus
would keep the shares it had already acquired in the First Prometheus
Transaction, representing over 16% of ARV, and would be free to acquire up to
49.9% of all outstanding shares without being subject to ARV's poison pill.
In return, Prometheus would agree to purchase $60 million in convertible
debentures (the "Notes") and, as before, to vote its stock in favor of keeping
ARV's existing Board in office for at least another three years. The Notes
would be redeemable at ARV's option in exchange for common shares of ARV, but
the initial redemption price would be exorbitant: Prometheus would be
entitled to receive approximately 4.3 million shares at an out-of-pocket cost
of approximately $14 per share, a substantial discount to the market price.
Like the First Prometheus Transaction, the Second Prometheus Transaction locks
up the Board under the joint control of Prometheus and ARV's existing
management while selling out the company's public shareholders. Shortly after
the announcement of the Second Prometheus Transaction, defendants Freeman,
Jacobs and Gunty were appointed to ARV's Board.
10. On November 21, 1997, ARV filed new preliminary proxy
materials (the "New Proxy Statement") with the SEC. The New Proxy Statement
no longer seeks shareholder approval of the Prometheus Transactions. Rather,
the New Proxy Statement states that ARV intends to solicit proxies for the
purpose of approving only three proposals at its annual meeting. Those
proposals seek (i) reincorporation of ARV as a Delaware corporation; (ii)
amendment of ARV's articles of incorporation to increase the maximum number of
authorized directors of ARV from nine to ten; and (iii) re-election of the
Individual Defendants as directors of ARV. The New Proxy Statement also
stated that Defendants Freemen, Jacobs and Gunty had been appointed to ARV's
Board on October 30, 1997. The New Proxy Statement announced January 8, 1998
as the rescheduled date of the annual meeting.
11. On November 24, 1997, Emeritus filed preliminary proxy
materials with the SEC stating that Emeritus intends to solicit proxies in
opposition to the reelection of the Individual Defendants as ARV Board members
at ARV's annual meeting, then scheduled for January 8, 1998. Emeritus' proxy
materials also state that Emeritus is proposing its own slate of nominees for
election to ARV's board at the annual meeting.
12. On December 8, 1997, ARV announced that it had redeemed the
$60 million in Notes for approximately 4.3 million ARV common shares (the
"Redemption"). Although ARV announced the price of the shares as $17.25 per
share, because Prometheus received a more than 23% "premium" over and above
its $60 million investment, the out-of-pocket cost to Prometheus was only $14
per share, substantially less than the market price.
13. In conjunction with the Redemption, ARV announced that it had
rescheduled the annual meeting date for a third time, to January 28, 1998. In
addition, ARV moved the record date for the annual meeting to December 18,
1997, allowing Prometheus to vote its 4.3 million newly-issued ARV shares at
the annual meeting. In effect, ARV has delivered millions of discounted
shares to an investor, hand-picked by the Board, who is contractually obligated
to vote those shares in support of the Board's director nominees. As a direct
response to Emeritus' proxy contest, the Redemption is a blatant attempt by
the Board to entrench itself by buying votes at the expense of ARV's public
shareholders and Emeritus.
14. Also on December 8, 1998, ARV announced the appointment,
effective immediately, of defendant Phanstiel as its new Chairman of the Board
and Chief Executive Officer.
15. Emeritus' complaint seeks, among other things specified further
below, the following declaratory and injunctive relief: an order declaring
that Defendants have breached their fiduciary duties by (i) entering into and
failing to revoke the Prometheus Transactions; (ii) implementing and retaining
the poison pill; and (iii) redeeming the Notes issued to Prometheus; and an
injunction voiding, or making voidable by Defendants, the Prometheus
Transactions in whole or part and directing that Defendants redeem the poison
pill.
II.
PARTIES AND JURISDICTION
16. Plaintiff Emeritus is a Washington corporation with its
principal offices located in Seattle, Washington. Emeritus is a long-term
care services company focused on operating residential style assisted living
communities. Emeritus is qualified to do business in California and does
business in California.
17. Defendant ARV is a California corporation with its principal
office located in Costa Mesa, California. ARV is also a provider of assisted
living accommodations and services that operates, acquires and develops
assisted living facilities.
18. Defendant David P. Collins is a Director and Senior Executive
Vice President of ARV and is currently responsible for managing ARV Assisted
Living International, Inc., a wholly owned subsidiary of ARV. Mr. Collins has
been a Director since 1985, and he beneficially owns 558,939 (4.8%) of ARV's
common stock. In 1997, solely in his capacity as Executive Vice President of
ARV, he stands to earn $204,791 in salary, $63,329 in bonuses and $10,000 in
stock options.
19. Defendant John A. Booty is Vice Chairman of the Board of ARV,
and prior to December 5, 1997, was its interim President and Chief Executive
Officer. Mr. Booty was a founder of ARV's predecessor company in 1980 and
served as interim President and Chief Executive Officer beginning October
1997. In addition, he has been a Director of ARV since its inception in 1985.
He also served as President of ARV from 1985 through September 1996 and
beneficially owns 699,246 (6%) of ARV's common stock. In 1997, solely in his
capacity as interim President and Chief Executive Officer, he stands to earn
$136,207 in salary, $50,582 in bonuses and $6,426 in other compensation.
20. Defendants R. Bruce Andrews, James M. Peters and Maurice J.
DeWald are currently Directors of ARV and have served as Directors since 1995.
They own, respectively, 2,500, 2,500, and 3,500 shares of ARV's common stock.
In 1997, as Directors, they will earn $12,000 per year plus $500 for each
meeting of the Board or committee of the Board that they attend. They also
each have the option to purchase 10,000 shares of ARV common stock.
21. Defendant John J. Rydzewski is a Director and, prior to
December 5, 1997, was Chairman of the Board of ARV. In 1997, as a Director of
ARV, he would have earned $12,000 plus $500 for each meeting of the Board or
committee of the Board that he attends. However upon his appointment as
Chairman of the Board in October 1997, it was agreed that Mr. Rydzewski would
receive $75,000 per year for his services. Mr. Rydzewski also owns 7,500
shares of ARV common stock and has an option to purchase 10,000 additional
shares of ARV common stock.
22. Defendants Robert P. Freeman, Kenneth M. Jacobs and Murry N.
Gunty are Directors of ARV, having been appointed to the Board on October 30,
1997. In addition to their positions as ARV Directors, Mr. Freeman is the
President and Managing director of Lazard, Mr. Jacobs is a Managing Director
in the Banking Group of Lazard Freres & Co. LLC, an affiliate of Lazard, and
Mr. Gunty is a Vice President of Lazard. Mr. Freeman signed the agreements
effectuating the Prometheus Transactions on behalf of the Prometheus.
23. Defendant Howard G. Phanstiel is Chairman of the Board of
Directors and Chief Executive Officer of ARV, having been appointed to these
position on December 5, 1997. His compensation package has not yet been
announced.
24. This Court has jurisdiction over each of the Defendants
pursuant to California Code of Civil Procedure Section 410.10. ARV is a
California corporation, and the Individual Defendants are currently serving as
directors of a California corporation. In addition, on information and
belief, the Individual Defendants have participated in Board meetings in
California, either in person or telephonically via teleconferences originating
in California. The wrongful acts and transactions alleged herein have had and
will have significant effects within California.
III.
VENUE
25. Venue is proper in Orange County because ARV's headquarters
and principal offices are located here.
IV.
DERIVATIVE ALLEGATIONS
26. Emeritus asserts the claims herein individually and directly.
However, to the extent that any of these claims should be considered to be
derivative claims, Emeritus did not make demands on ARV's Board to institute
an action asserting the claims because, under the circumstances, demand was
not required, and not necessary and would have been futile in that: (a) the
ARV Defendants participated in and approved of the wrongful acts alleged
herein; (b) those acts occurred in response to and in the context of a contest
for control of ARV, which could have resulted in the removal of the ARV
Defendants from office; (c) the ARV Defendants have already repudiated
Emeritus' proposals and offers to negotiate; (d) the ARV Defendants have
recommended the First Prometheus Transaction in ARV's preliminary proxy
materials; and (e) defendants Freeman, Jacobs and Gunty aided and abetted the
ARV Defendants' breach of fiduciary duty and, together with defendant
Phanstiel, have done nothing since their appointment as Directors to revoke the
Prometheus Transactions or the poison pill or to mollify their entrenching
effects. Thus, the Board has at no time been either independent or
disinterested with respect to the decisions it made.
V.
FACTUAL BACKGROUND
A. ARV Ignores Emeritus' Proposal and Rushes to Close the First
Prometheus Transaction
27. In June 1997, Daniel R. Baty, Chairman and CEO of Emeritus,
telephoned Mr. Davidson of ARV. Mr. Baty told Mr. Davidson that Emeritus was
interested in exploring a business combination with ARV. On July 3, 1997, Mr.
Baty met with Mr. Davidson at ARV's headquarters and reiterated Emeritus'
possible interest in such a combination.
28. Instead of pursuing discussions with Emeritus, on June 27,
1997, ARV entered into an exclusivity agreement with Prometheus pursuant to
which ARV agreed not to pursue a transaction with another party prior to
August 8, 1997 while negotiations with Prometheus took place. Negotiations
between ARV and Prometheus continued into early July.
29. On July 10, 1997, Mr. Baty of Emeritus and a representative of
Starwood Capital Group, LLC ("Starwood") delivered by facsimile a letter to
Mr. Davidson of ARV, a copy of which is attached as Exhibit A. In the letter,
Mr. Baty and the representative of Starwood set forth a proposal for the
acquisition of ARV by Emeritus and Starwood. Under the proposal, ARV's
shareholders would receive either Emeritus stock or a combination of Emeritus
stock and cash worth a minimum of $14 for their ARV shares, which represented
a premium of more than 35% over the then-current market price of ARV stock.
Starwood would provide ongoing financing for the combined company.
30. In the final paragraph of the July 10 letter, Mr. Baty and the
representative of Starwood suggested that a meeting occur as soon as possible
between Emeritus, ARV and Starwood to discuss the proposals in greater detail
and explore possible structures and alternatives. The letter made clear that
Emeritus, Starwood and their advisors were ready to meet with ARV at its
offices in Costa Mesa at ARV's earliest convenience.
31. The following day, on Friday, July 11, 1997, Mr. Baty received
a letter back from ARV, a copy of which is attached as Exhibit B. ARV's letter
stated that Emeritus' letter had been received and that the ARV Board was
"attempting to schedule a meeting next week to consider your proposal."
32. In fact, as the ARV Defendants well knew, ARV's exclusivity
agreement with Prometheus precluded its pursuit of another transaction before
August 8, 1997.
33. Rather than waiting for the next week, ARV's Board met on
Sunday, July 13, 1997. At this meeting, the ARV Defendants summarily rejected
Emeritus' proposal without any further inquiry or discussions with Emeritus or
Starwood. In addition, the ARV Defendants decided to proceed with two major
actions which would effectively prevent Emeritus, or any other party, from
acquiring control of ARV. These two major actions were, first, rushing to
complete and enter into the First Prometheus Transaction, and second,
implementing the poison pill. The effect of these actions was to entrench the
ARV Defendants in office for their own personal benefit and to deny Emeritus
the opportunity to present its offer to ARV's public shareholders.
B. ARV Enters into the First Prometheus Transaction
34. On July 14, 1997, four days after receiving Emeritus' proposal,
ARV, certain of the ARV Defendants, Prometheus and Lazard entered into a
series of agreements under which Prometheus purchased up to a 49.9% holding in
ARV's stock. At the heart of the transactions were mutual promises by the ARV
Defendants and Prometheus to expand the size of the Board and to vote all of
their respective shares in support of each other's nominees for positions on
the Board. In addition, Prometheus agreed to abstain for the next three years
from participating in any acquisition of ARV or other acts which could
potentially unseat the ARV Defendants.
35. The terms of the First Prometheus Transaction rendered control
of the affairs of ARV a private arrangement between ARV's senior management
and Prometheus and thereby effectively disenfranchised ARV's public
shareholders. Before the transaction, ARV's public shareholders had the
ability by acting in concert to control the company; after the transaction,
they did not. This change of control was engineered by Defendants while
denying Emeritus the opportunity to make an offer to acquire ARV and thereby
benefit all of ARV's shareholders.
36. On information and belief, defendants Freeman, Jacobs and Gunty
each aided and abetted the ARV Defendants' breach of their fiduciary duty to
shareholders by encouraging and otherwise assisting the ARV Defendants in the
adoption of the First Prometheus Transaction.
37. The terms of the three principal agreements of the First
Prometheus Transaction -- the Stock Purchase Agreement (the "SPA"), the
Stockholders Agreement (the "SA"), and the Stockholders Voting Agreement (the
"SVA") -- are set forth below in greater detail.
38. SPA: Sale of ARV Stock to Prometheus. The SPA between
Lazard, Prometheus and ARV, a copy of which is attached as Exhibit C, provided
for the issuance to Prometheus of up to a total of 9,653,325 ARV shares. See
SPA Section 2.1. Because the First Prometheus Transaction was superseded by
the Second Prometheus Transaction, a total of 1,921,012 shares (or
approximately 16.6% of all outstanding shares) have been issued to Prometheus.
However, the SPA provided that ARV would issue a second block of stock
consisting of 3,078,988 shares to Prometheus on the date that shareholder
approval of the First Prometheus Transaction, as described more fully below,
took place. See SPA Section 2.4(a), (b). Thereafter, Prometheus would
acquire additional ARV stock up to an aggregate holding of 49.9% of all
outstanding shares during a three-year "standstill" period. After the
standstill period ended, Prometheus would be free to acquire additional shares
of ARV and thus hold a majority interest in the company.
39. SPA: Prometheus' Power to Veto Actions by ARV. Until four of
Prometheus' own directors had assumed positions on ARV's Board, the SPA
permitted Prometheus to veto any significant action by ARV's Board other than
in the ordinary course of business, including (i) the acquisition or sale of
any business or assets having a value in excess of 1% of ARV's assets; (ii) the
incurrence of indebtedness having a value in excess of 1% of ARV's assets;
(iii) the approval of ARV's annual operating budget; (iv) any material change
in ARV's management; (v) any change in the number of shares of ARV common
stock authorized for issuance; and (vi) any change in ARV's dividend policy.
See SPA Section 5.5.
40. SPA: "No Shop" Provision. The SPA forbade ARV from
initiating, soliciting, or encouraging any transaction which might compete with
the transaction with Prometheus -- a so-called "Competing Transaction." See
SPA Section 5.6. A Competing Transaction was defined as the acquisition of
more than 15% of ARV's stock, or any business combination, restructuring or
liquidation involving ARV. See SPA Section 1.33.
41. SPA: Expanded Board and Executive Committee With Prometheus
Veto. The SPA provided that the Board would be expanded from seven to eleven
directors, with the four new positions to be filled by Prometheus. See SPA
Section 5.10. In addition, ARV's bylaws would be amended to require a
super-majority of eight directors for the approval of "any action other than in
the ordinary course." Id. With Prometheus controlling four Board seats, it
would have veto power over a wide range of Board activity. The SPA also
provided that votes by the five-person Executive Committee of the Board, two
members of which would be nominated by Prometheus, be subject to a
super-majority requirement for approval. See SPA Section 5.10. Thus,
Prometheus would have had veto power over actions by the Executive Committee
as well.
42. SPA: Shareholder Ratification Requirement. The SPA required
ARV to seek to have the First Prometheus Transaction and the specific
agreements effectuating it approved by the affirmative vote of a majority of
the holders of ARV's common stock. See SPA Section Section 3.19, 7.2(a).
For purposes of this ratification, the shares owned by Prometheus (currently
16.6% of all outstanding shares) would be counted in reaching a quorum but
would not be counted toward the majority necessary for ratification. As
discussed more fully below, the shares held by Gary Davidson and the three
Individual Defendants who are directors or senior officers of ARV, which
comprise over 20% of ARV's outstanding shares, were required by the SVA to be
voted in support of ratification of the First Prometheus Transaction.
43. SPA: $13 Million "Break-up" Fee. The SPA required ARV to
pay significant "break-up" fees to Prometheus if the First Prometheus
Transaction was not consummated. Ordinarily, a "break-up" fee is justifiable
on the grounds that it deters a company from backing out of a transaction
which enhances shareholder value. But here the First Prometheus Transaction
did not enhance the value of ARV's outstanding shares, and thus the fees
provided for in the SPA were unjustified and punitive to ARV and its
shareholders. In addition, the fees were unduly large and grossly
disproportionate to the size of the First Prometheus Transaction. Such fees
rarely exceed 3% of the value of the transaction, but in one scenario set forth
in the SPA were equal to approximately 10% of the value of the First
Prometheus Transaction. See SPA Section 9.3(b). The break-up fee was in fact
intended to coerce ARV shareholders into approving the First Prometheus
Transaction. The break-up fees and "adjustments" to the purchase price
contemplated by the SPA would have reduced the price per share received by ARV
in the transaction to as little as $4.15 below market at the time the First
Prometheus Transaction was announced.
44. SA: Voting of Prometheus' Shares. The quid pro quo for the
astonishing benefits granted by ARV's Board to Prometheus under the SPA was
largely provided for in the SA among Lazard, Prometheus and ARV, a copy of
which is attached as Exhibit D. The SA obligated Prometheus to vote all of
its shares of ARV "in favor of the election of Directors nominated by the
Nominating Committee or the Board". See SA Section 3.1. Thus, in addition to
their own sizable holding of shares, ARV's Board would have been supported in
office by Prometheus' holding as well.
45. SA: Resistance to Changes of Control or Policy. The
standstill restrictions of Sections 4.2 and 4.3 of the SA prohibited
Prometheus during a three-year period from acting either alone or in concert
with another person or group in any way which could threaten the existing
composition of the ARV Board or management.
46. SA: No Support of Disinterested Stockholders. In particular,
Section 4.2 prohibited Prometheus from directly or indirectly (i) soliciting,
proposing or otherwise encouraging a genuine election contest for the Board of
Directors; (ii) soliciting, encouraging or participating in any stockholder
proposals; (iii) calling a special meeting for a stockholder vote; (iv)
requesting a list of stockholders; or (v) seeking amendment, waiver or
invalidation of the First Prometheus Transaction.
47. SA: No Tendering or Other Transfer of Shares. Similarly,
Section 4.3 of the SA restricted Prometheus from transferring or tendering its
shares during the standstill period, with particular reference to transfers to
companies operating "assisted living facilities" such as Emeritus.
48. SA: Disenfranchisement of Disinterested Shareholders. In
essence, Sections 4.2 and 4.3 dictated that Prometheus' 49.9% interest be
immobilized and used as "ballast" for continuing Board control during any bids
for changes in control or policy. The exception, of course, was the election
of directors, when the Prometheus block had to be voted in support of Board
nominees. In addition, as indicated in its preliminary proxy materials, the
Board sought to reincorporate ARV in Delaware and to remove the possibility of
cumulative voting of directors. The combined effect of these changes would
have been to make it virtually impossible for Emeritus or any other
shareholder to elect its own director nominee, remove incumbent directors or
effectively challenge any action by the Board.
49. SVA: Voting by ARV Board Members. The SVA among Prometheus,
Lazard and four of the largest individual shareholders of ARV (defendants
Booty and Collins, Gary Davidson, and Graham Espley-Jones, the chief financial
officer of ARV), a copy of which is attached as Exhibit E, required each of
the individual shareholders, subject to certain conditions, to vote all of the
shares under his control (i) in support of the First Prometheus Transaction;
and (ii) in support of the election of ARV directors who are either nominated
by Prometheus or the Nominating Committee of the Board. See SVA Section 1.
In effect, the SVA provided that Prometheus, Lazard and certain directors and
senior officers of ARV would pool their substantial voting power in an attempt
to force approval of the First Prometheus Transaction and, if they were
successful, to perpetuate in office their own designated nominees to ARV's
Board.
C. The Implementation of ARV's Poison Pill
50. On July 14, 1997, in addition to entering into the First
Prometheus Transaction, Defendants implemented a Shareholders Rights Plan, a
copy of which is attached as Exhibit F, to seek to prevent an acquisition by
Emeritus or another bidder. In implementing the Shareholders Rights Plan or
"poison pill," ARV declared a dividend distribution of one Preferred Share
Purchase Right (a "Right") on each outstanding share of ARV common stock. The
Rights will be exercisable if, among other things, a person or group (the
"Acquiring Person") acquires 10% or more of ARV's common stock. When
exercisable, each Right will entitle its holder to purchase additional newly
issued shares of ARV common stock at half-price. The effect of the pill, if
triggered, is to greatly increase the number of outstanding shares of ARV
stock and make an acquisition prohibitively expensive to the Acquiring Person.
The Rights distributed on shares owned by the Acquiring Person may not be
exercised, thus putting the Acquiring Person at an additional disadvantage in
its efforts to acquire ARV.
51. Significantly, Defendants specifically exempted the shares
owned by Prometheus from triggering the poison pill. Thus, Prometheus -- which
already owns over 16% of ARV's stock -- may continue to acquire ARV shares
either through future stock purchase agreements with ARV or through open
market purchases without triggering the pill. The exemption of Prometheus
from the pill gives Prometheus the opportunity to acquire a majority interest
in ARV without paying any control premium and, in the meantime, to exercise
significant leverage and control over ARV.
52. The poison pill, implemented only four days after ARV received
Emeritus' proposal, was adopted by the ARV Defendants for the improper
purposes of entrenching themselves in office, deterring any challenge to the
First Prometheus Transaction, and chilling or blocking Emeritus' proposal and
any other proposals by another bidder.
D. ARV's July 15 Press Release
53. On July 15, 1997, ARV issued a press release stating that on
the previous day its Board had approved the agreements with Prometheus and
Lazard and had implemented the poison pill. Emeritus learned of the
transactions between ARV and Prometheus for the first time in this press
release. The press release stated that the first phase of the stock sale to
Prometheus would close by the end of August 1997.
E. Emeritus' July 21, 1997 Letter to ARV Criticizing the First
Prometheus Transaction and Offering to Negotiate a Transaction to
Maximize Shareholder Value
54. On July 21, 1997, Emeritus delivered a letter to ARV expressing
surprise and disappointment with the announcement of the First Prometheus
Transaction, a copy of which is attached as Exhibit G. The letter raised a
number of concerns with the recent actions of ARV's Board, including (i) the
negative effects that the First Prometheus Transaction would have on the
long-term value of ARV's stock, especially as compared to the positive effects
that Emeritus' proposal would offer; (ii) the lack of serious consideration
the ARV Board gave to Emeritus' proposal; (iii) the inappropriately large size
of the break-up fee in the SPA with Prometheus; (iv) the effects of the poison
pill in entrenching current management and deterring challenges to the First
Prometheus Transaction; and (v) the fact that the First Prometheus Transaction
had resulted in a change of control of ARV without shareholder value being
maximized. In conclusion, Emeritus told ARV that it was prepared to discuss
the terms of a potential transaction between ARV and Emeritus that would
maximize shareholder value.
F. After Receiving Emeritus' July 21 Letter, ARV and Prometheus
Hurriedly Close The First Prometheus Transaction
55. Although ARV's July 15 press release had stated that the
closing of the first phase of the Prometheus stock purchase would occur by the
end of August, four days after ARV received Emeritus' July 21 letter, the
first phase abruptly closed. Thus, on July 25, 1997, ARV issued Prometheus
1,921,012 shares of ARV common stock representing over 16% of ARV's outstanding
stock.
56. Also on July 25, ARV responded to Emeritus' July 21 letter. In
this letter, a copy of which is attached as Exhibit H, ARV asserted that ARV's
Board had found the terms of Emeritus' proposal as set forth in Emeritus' July
10 letter to be "significantly less attractive and less definitive" than the
terms of the First Prometheus Transaction. ARV also claimed that the size of
the break-up fee was normal and that the poison pill was not implemented in
response to Emeritus' proposal. ARV then threatened to take legal action
against both Emeritus and Starwood if either entity attempted to "interfere"
with consummation of the First Prometheus Transaction.
G. ARV's Plan to Ratify the First Prometheus Transaction by
Shareholder Vote
57. On August 22, 1997, ARV filed with the SEC a preliminary proxy
statement in connection with its upcoming meeting of shareholders, a copy of
which is attached as Exhibit I. In its proxy statement, ARV stated that it
intended to solicit proxies for the purpose of approving four proposals at the
meeting, which was at that time scheduled for October 14, 1997. On
information and belief, the annual meeting was subsequently rescheduled for
November 18, 1997. These proposals sought (i) shareholder approval of the
agreements implementing the First Prometheus Transaction; (ii) shareholder
approval of an amendment to ARV's Articles of Incorporation, as required by
the SA, increasing the maximum number of directors of ARV from nine to eleven;
(iii) reincorporation of ARV as a Delaware corporation as opposed to a
California corporation; and (iv) re-election of the ARV Defendants as directors
of ARV.
58. The preliminary proxy statement identified one of the potential
effects of shareholder approval of the First Prometheus Transaction as
follows: "Such approval may serve to extinguish potential claims, if any,
regarding any conduct of members of the Board in connection with the [First
Prometheus] Transaction, including potential claims alleging violations of the
Board's duties to shareholders. Under California Law, fully informed
shareholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary duty claims against directors." Ex. I at
9. The preliminary proxy materials thus candidly admitted the potential for
breach of fiduciary claims against ARV's directors based on the First
Prometheus Transaction.
59. The SVA between Prometheus, Lazard and certain insider
shareholders of ARV, however, provided that those individuals (including
defendants Booty and Collins) were required to vote their shares in favor of
approving the First Prometheus Transaction (see SVA Section 1) -- or, in other
words, that they were contractually required to vote in favor of exculpating
themselves from breach of fiduciary claims brought by ARV's shareholders.
While this arrangement was contrary to California law, the preliminary proxy
materials failed to disclose this fact. The preliminary proxy materials also
failed to disclose that the First Prometheus Transaction had been entered into
by Defendants for the improper purpose of entrenching the ARV Defendants in
office, that the First Prometheus Transaction had effectuated a change of
control at ARV without shareholder value being maximized, and that the ARV
Defendants had failed to properly consider or respond to Emeritus' July 10,
1997 proposal.
H. RV Ignores Emeritus' October 12, 1997 Proposal
60. On October 12, 1997, Emeritus delivered a letter to ARV, a copy
of which is attached hereto as Exhibit J. The letter reiterated Emeritus'
concern that the First Prometheus Transaction would transfer control of ARV
to Prometheus without appropriate value being paid to ARV's stockholders.
61. Emeritus' October 12, 1997 letter proposed the acquisition by
Emeritus of all the outstanding stock of ARV for $16.50 per share in cash, a
45% premium over ARV's stock price before the First Prometheus Transaction was
announced, and an 18% premium over the price per share paid by Prometheus in
purchasing its 16% block. The letter further indicated that Emeritus would
make its bid public the following day, and that Emeritus was available to meet
with ARV and its advisers immediately to discuss the proposal. As promised,
Emeritus announced its bid via press release on October 13.
62. Without any attempt to communicate or negotiate with Emeritus,
ARV issued a press release on October 14, 1997, a copy of which is attached
hereto as Exhibit K. Notwithstanding the signed agreement to sell 49.9% of
ARV to Prometheus, the press release contended that ARV was not for sale. The
release described the Emeritus offer as unattractive because of what ARV
characterized as "significant conditions," including the need for due diligence
and the finalization of financing agreements. Remarkably, the press release
also cited the then-current trading price of ARV stock, which had been bid
higher in response to Emeritus' proposal, as a reason to reject the offer.
63. The ARV Defendants failed to exercise due care and to take
diligent action to maximize shareholder value by rejecting, after only two
days, Emeritus' proposal to acquire the outstanding shares of ARV for $16.50.
Emeritus' proposal offered a significant premium to all of ARV's shareholders
as opposed to the First Prometheus Transaction which, by giving special
treatment to one hand-picked shareholder pledged to support the ARV Defendants
in their quest to remain in office, was in fact contrary to the interests of
ARV's other shareholders.
I. Gary Davidson Resigns From ARV
64. On October 13, 1997, the day after ARV's Board received
Emeritus' $16.50 per share offer, Gary Davidson resigned from his positions
as Chairman, Chief Executive Officer and Director of ARV.
65. Upon information and belief, Mr. Davidson resigned because he
disapproved of the extent to which Prometheus was exerting control over ARV
and because he believed that the ARV Defendants had failed to act in the
shareholders' best interest by, among other things, summarily rejecting
Emeritus' October 12, 1997 proposal.
J. ARV Retreats From the First Prometheus Transaction and Enters
Into the Second Prometheus Transaction Which Does Not Require
Shareholder Approval
66. Less than three weeks after receiving Emeritus' $16.50 per
share proposal, the ARV Defendants, Prometheus and Lazard made a strategic
decision to retreat from the First Prometheus Transaction and enter into a new
set of agreements -- the Second Prometheus Transaction -- which in part
supersede the First Prometheus Transaction. Upon information and belief, the
ARV Defendants entered into the Second Prometheus Transaction (i) because they
feared that the First Prometheus Transaction would not be approved by ARV's
shareholders, and (ii) in order to entrench themselves in office by preventing
Emeritus from proceeding with its proposals.
67. As with the First Prometheus Transaction, at the heart of the
Second Prometheus Transaction were mutual promises by the ARV Defendants and
Prometheus to vote all of their respective shares in support of each other's
nominees for positions on the Board. As before, Prometheus agreed to abstain
for the next three years from participating in any acquisition of ARV or other
acts which could potentially unseat the ARV Defendants. Prometheus would also
retain its 16% interest in ARV acquired as part of the First Prometheus
Transaction.
68. The Second Prometheus Transaction differed from the first
transaction in several important respects. Most significantly, Defendants
crafted the Second Prometheus Transaction so that it did not have to be
approved by ARV's shareholders. Rather than issuing new shares directly to
Prometheus, the Second Prometheus Transaction called for the issuance of
convertible notes (the "Notes"), which could be converted into common shares
under various circumstances. Upon conversion of the Notes, Prometheus, in
conjunction with its 16% holding, would hold up to 35% of the outstanding
shares of ARV. As with the First Prometheus Transaction, Prometheus was free
to acquire a total of up to 49.9% of the outstanding shares of ARV during a
three-year standstill period, without triggering ARV's poison pill.
69. According to ARV's Form 8-K dated November 14, 1997 (the
"8-K"), a copy of which is attached as Exhibit L, Prometheus has not yet paid
for the $60,000,000 in convertible Notes issued to it by ARV, despite the fact
that interest has begun accruing on the Notes. See 8-K Item 5 at 4.
70. On information and belief, defendants Freeman, Jacobs and Gunty
each aided and abetted the ARV Defendants' breach of their fiduciary duty to
shareholders by encouraging and otherwise assisting the ARV Defendants in the
adoption of the Second Prometheus Transaction.
71. The terms of the five principal agreements constituting the
Second Prometheus Transaction -- the Amended and Restated Stock and Note
Purchase Agreement ("SPA2"), the related indenture (the "Indenture") and note
in favor of Prometheus (the "Prometheus Note"), the Amended and Restated
Stockholders Agreement ("SA2"), and the new Stockholders' Voting Agreement
("SVA2") -- are set forth below in greater detail.
72. SPA2: Sale of Convertible Notes to Prometheus. The SPA2
between Lazard, Prometheus and ARV, a copy of which is attached as Exhibit M,
provides for the issuance to Prometheus of an aggregate of $60,000,000
principal amount of 6.75% Convertible Subordinated Notes due 2007. See SPA2
Section 2.1. The SPA2 amends and restates the SPA.
73. Indenture and Prometheus Note: Conversion to Common Shares.
The Indenture and Prometheus Note, copies of which are attached as Exhibits N
and O, allow ARV to redeem the Notes at any time. However, during the first
three years after the Second Prometheus Transaction, the Notes may only be
redeemed for ARV common shares. See Note Paragraph 5; Indenture Section
3.7. Significantly, the redemption price during the first three years of the
transaction is exorbitantly high: more than 123% of Prometheus' $60 million
purchase price for the Notes. See Note Paragraph 5. Thus, for its $60
million investment, Prometheus would receive approximately 4,285,000 shares at
an out-of-pocket cost of $14 per share. See Note Paragraph 5. In essence,
the redemption option allows ARV's Board, in the event the Board perceives a
threat to its control of ARV, to issue massive quantities of discounted stock
to Prometheus, shares which are contractually bound to be voted in favor of the
Board's director nominees. Paragraph 5 of the Prometheus Note is thus
calculated to dilute the voting power of disinterested shareholders in order to
entrench the current Board. Accordingly, the adoption of the 123% redemption
provision by the ARV Defendants constituted a breach of their fiduciary duties
to Emeritus and other ARV shareholders.
74. In addition, Prometheus has the right, exercisable at any time
after 90 days following the date of issuance of the Notes, to convert the Notes
into shares of ARV common stock. See Note Paragraph 10; Indenture Section
5.1. While the Note designates the "initial Conversion Price" at $17.25 per
share, see Note Paragraph 10, the Indenture leaves ARV the option to reduce
the conversion price "to the extent permitted by law" for any 20-day period,
Indenture Section 5.10. Thus, ARV's Board is free to attempt a sweetheart
deal with Prometheus to convert the Notes into common stock at a price well
below Emeritus' offer or the then-current market price.
75. SA2: Expanded Board with Prometheus Designees. The SA2, a
copy of which is attached as Exhibit P, amends and restates the SA. The SA2
provides that the Board be expanded to 9 directors, of whom Prometheus has the
right to designate 3. SA2 Section 2.1(a). ARV is restrained from expanding
the Board beyond nine members. SA2 Section 2.1(d).
76. SA2: Prometheus Veto of Choice of ARV President/CEO and
Director. The SA2 requires that ARV receive the prior written consent of
Prometheus approving ARV's selection of a President and CEO to replace Gary
Davidson. SA2 Section 2.5. Once Prometheus has approved the new
President/CEO, ARV must use its best efforts to elect him or her to the Board,
replacing one of the directors not designated by Prometheus. SA2 Section 5.
Thus, in addition to having three designees on the Board, Prometheus will have
veto power over the selection of an additional director, effectively leaving
Prometheus only one member short of a majority of directors who, at the very
least, are sympathetic to Prometheus' interests.
77. SA2: Voting of Prometheus' Shares. As under the SA, during
the Second Prometheus Transaction's 3-year standstill period, Prometheus is
required to vote all of its shares of ARV "in favor of the election of all
Directors nominated by the nominating committee, if any, or the Board . . ."
SA2 Section 3.1. Thus, as under the First Prometheus Transaction, the
Board's own sizable holding will be supported by Prometheus', the company's
largest shareholder. Since Prometheus' common stock holdings are likely to
give it de facto voting control of ARV, the SA2 virtually ensures that the
Board will be able to perpetuate itself and its nominees in office.
78. SA2: Resistance to Changes of Control or Policy. As under the
SA, the standstill restrictions of Sections 4.2 and 4.3 of the SA2 prohibits
Prometheus during a three-year period from acting either alone or in concert
with another person or group in any way which could threaten the existing
composition of the ARV Board or management.
79. SA2: No Support of Disinterested Stockholders. As under the
SA, Section 4.2 of the SA2 prohibits Prometheus from directly or indirectly (i)
soliciting, proposing or otherwise encouraging a genuine election contest for
director positions on ARV's Board; (ii) soliciting, encouraging or
participating in any stockholder proposals; (iii) calling a special meeting
for a stockholder vote; (iv) requesting a list of stockholders; or (v) seeking
amendment, waiver or invalidation of the Second Prometheus Transaction.
80. SA2: No Tendering or Other Transfer of Shares. As under the
SA, Section 4.3 of the SA2 restricts Prometheus from transferring or tendering
its shares during the standstill period, with particular reference to
transfers to companies operating "assisted living facilities" such as
Emeritus.
81. SA2: Disenfranchisement of Disinterested Shareholders. As
under the SA, Sections 4.2 and 4.3 of the SA2 essentially dictate that
Prometheus' up to 49.9% interest be immobilized and used as "ballast" for
continuing Board control during any bids for changes in control or policy.
The exception, of course, is the election of directors, when the Prometheus
block must be voted in support of Board nominees. The combined effect of
these changes will be to make it impossible for Emeritus or any other
shareholder to elect its own director nominee, remove incumbent directors or
effectively challenge any action by the Board.
82. SVA2: Voting By ARV Board Members. The SVA2 among
Prometheus, Lazard and three of the largest individual shareholders of ARV
(Graham Espley-Jones and defendants Booty and Collins), a copy of which is
attached as Exhibit Q, requires each of the three individual shareholders to
vote all of the shares under his control in support of the election of ARV
directors who are either nominated by Prometheus or the Nominating Committee
of the Board. See SVA2 Section 1. Like the SVA, the SVA2 provides in effect
that Prometheus, Lazard and certain directors and senior officers of ARV pool
their substantial voting power to perpetuate in office their own designated
nominees to ARV's Board. Unlike the SVA, Gary Davidson is not a party to the
SVA2.
K. ARV Announces Stock Buy-back Program
83. On November 14, 1997, ARV announced it had allocated $25
million for the institution of a stock buy-back program to repurchase ARV
common shares on the open market. The implementation of the stock buy-back
program has the effect of further entrenching the Individual Defendants by
reducing the number of shares held by disinterested shareholders.
L. RV Files New Preliminary Proxy Materials
84. On November 21, 1997, ARV filed new preliminary proxy
materials (the "New Proxy Statement") with the SEC. The New Proxy Statement,
which is attached as Exhibit R, no longer seeks approval of the Prometheus
Transactions. Rather, the New Proxy Statement states that ARV intends to
solicit proxies for the purpose of approving only three proposals at its
annual meeting. Those proposals seek (i) reincorporation of ARV as a Delaware
corporation; (ii) amendment of ARV's articles of incorporation to increase the
maximum number of authorized directors of ARV from nine to ten; and (iii)
re-election of the Individual Defendants as directors of ARV. The New Proxy
Statement was the first public announcement by ARV that Defendants Freeman,
Jacobs and Gunty were appointed to ARV's Board. The New Proxy Statement
announced January 8, 1998 as the rescheduled date of the annual meeting.
85. Since the Individual Defendants chose to exempt the Second
Prometheus Transaction from a shareholder vote, the New Proxy Statement makes
little effort to describe it or its effects on ARV. Nevertheless, the New
Proxy Statement fails to disclose or misrepresents a number of material facts
concerning the Second Prometheus Transaction, including:
86. Entrenchment. ARV fails to disclose that the effect of the
Second Prometheus Transaction, like the first, will be to entrench the ARV
Defendants and effectively preclude the public shareholders from electing any
directors to the Board or, in fact, from having a meaningful voting franchise
on any issue.
87. Change of Control. ARV fails to disclose that the Second
Prometheus Transaction frees Prometheus to gain control of 49.9% of ARV's
common shares, and has effectively produced a change of control of ARV without
either (i) any payment to the public shareholders; or (ii) preserving an
opportunity for the public shareholders to realize a control premium for their
shares.
88. Failure to Consider Competing Proposal. ARV fails to disclose
that prior to the signing of the agreements which constitute the Second
Prometheus Transaction, Emeritus made a second proposal to ARV for the cash
purchase of all of the outstanding shares of ARV for $16.50 per share.
M. Emeritus Announces Its Proxy Contest
89. On November 24, 1997, Emeritus filed preliminary proxy
materials with the SEC, attached as Exhibit S, stating that Emeritus intends to
solicit proxies against the slate of director nominees that ARV had planned to
submit to its shareholders at the previously scheduled January 8, 1998
meeting. In its proxy materials, Emeritus also proposed a slate of nominees to
serve as directors of ARV.
N. The Redemption of the Notes
90. On December 8, 1997, ARV announced that it had redeemed the
$60 million in Notes for approximately 4.3 million ARV common shares (the
"Redemption"). Although ARV announced the price of the shares as $17.25 per
share, because Prometheus received a more than 23% "premium" over and above
its $60 million investment, the out-of-pocket cost to Prometheus was only $14
per share, substantially less than the market price.
91. In conjunction with the Redemption, ARV announced that it had
rescheduled the annual meeting date for a third time, to January 28, 1998. In
addition, ARV moved the record date for the annual meeting to December 18,
1997, allowing Prometheus to vote its 4.3 million newly-issued ARV shares at
the annual meeting. In effect, ARV has delivered millions of discounted
shares to an investor, hand-picked by the Board, who is contractually obligated
to vote those shares in support of the Board's director nominees. As a direct
response to Emeritus' proxy contest, the Redemption is a blatant attempt by
the Board to entrench buying votes for itself at the expense of ARV's public
shareholders.
92. Also on December 8, 1998, ARV announced the appointment,
effective immediately, of defendant Phanstiel as its new Chairman of the Board
and Chief Executive Officer.
VI.
RELIEF SOUGHT
A. Declaratory Relief
93. The Court may grant the declaratory relief sought herein by
Emeritus, because an actual and immediate controversy exists between Emeritus
and Defendants. Emeritus contends that Defendants have breached, and are in
the process of breaching, their fiduciary duties to Emeritus by, among other
things as specified herein, (i) refusing to properly consider or respond to
Emeritus' proposals and offers to negotiate with Emeritus; (ii) entering into,
consummating, and failing to revoke the Prometheus Transactions; (iii)
implementing and retaining the poison pill; (iv) implementing the stock
buy-back program; (v) redeeming the Notes issued to Prometheus and moving the
record and annual meeting dates; (vi) taking other measures to entrench ARV's
Board; and (vii) failing to maximize the value of ARV's shares. Defendants
have disputed many of these claims and contend that ARV's Board found the
terms of Emeritus' proposal as set forth in Emeritus' July 10 letter to be
"significantly less attractive and less definitive" than the terms of the
First Prometheus Transaction, and that Emeritus' October 12 proposal was
"unattractive" and "conditional." ARV has also taken the position that the
poison pill, the stock buy-back program, and the Redemption are in the best
interests of ARV's shareholders.
94. The granting of the requested declaratory relief will serve the
practical purpose of affording relief from the disruption and uncertainty
regarding whether Defendants have acted and are acting in violation of their
fiduciary duties to Emeritus as alleged herein. The Court's declaratory ruling
will resolve the continued controversy over the ARV Board's defensive schemes
and voting arrangements, thereby avoiding delay and the waste of judicial
resources through piecemeal litigation.
B. Injunctive Relief
95. The Court may grant the injunctive relief sought herein by
Emeritus, because Defendants have already breached, and are in the process of
breaching, their fiduciary duties to Emeritus by, among other things as
specified herein, (i) refusing to properly consider or respond to Emeritus'
proposals and offers or to negotiate with Emeritus; (ii) entering into,
consummating, and failing to revoke the Prometheus Transactions; (iii)
implementing and retaining the poison pill; (iv) implementing the stock
buy-back program; (v) redeeming the Notes issued to Prometheus and moving the
record and annual meeting dates; (vi) taking other measures to entrench ARV's
Board; and (vii) failing to maximize the value of ARV's shares.
96. The injunctive relief sought herein is justified because
Emeritus has properly stated claims for breach of fiduciary duty and is able
to prove a likelihood of success in proving its allegations. The denial of
injunctive relief will cause more harm to Emeritus than the granting of such
relief will cause to Defendants. Money damages are insufficient to make
Emeritus whole because of the unique, unreproducible and currently
immeasurable value to Emeritus of a corporate combination with ARV. Emeritus
faces irreparable harm if the Court does not act to preserve the status quo at
this juncture.
VII.
FIRST CLAIM FOR RELIEF
----------------------
BREACH OF FIDUCIARY DUTY: USE OF THE PROMETHEUS
TRANSACTIONS AS AN IMPROPER DEFENSIVE MEASURE TO
ENTRENCH ARV'S EXISTING BOARD
(DECLARATORY AND INJUNCTIVE RELIEF)
97. Emeritus repeats and realleges each and every allegation set
forth in Paragraphs 1 through 96 as if fully set forth herein.
98. By means of the Prometheus Transactions, the ARV Defendants,
aided and abetted by Defendants Freeman, Jacobs and Gunty, have implemented a
scheme to sell a substantial quantity of ARV common stock and Notes to
Prometheus in return for promises that Prometheus will vote those shares in
support of the ARV Board's director nominees. In addition, Prometheus will
have the exclusive ability to acquire up to 49.9% of ARV's outstanding common
shares without triggering the poison pill. These actions, and others detailed
above, indicate that the ARV Defendants entered into the Prometheus
Transactions for the purpose of entrenching themselves in office and
preventing a transaction with Emeritus from occurring.
99. Defendants owe fiduciary duties to Emeritus. As fiduciaries,
Defendants owe Emeritus the highest duties of care, loyalty, candor and good
faith. As part of those duties, Defendants are prohibited from taking any
defensive actions which have the effect of entrenching existing management at
the expense of Emeritus. Here, the effect of the Prometheus Transactions is to
entrench existing management to the direct detriment of Emeritus.
100. On information and belief, Defendants Freeman, Jacobs, Gunty
and Phanstiel have done nothing since their appointment to the Board to rectify
these continuing breaches of fiduciary duty.
101. Given Emeritus' announcement that it will commence a proxy
contest against the Board's director nominees, and Emeritus' offers and
proposals to acquire the outstanding shares of ARV, Emeritus has been, and is
being, harmed by Defendants' breaches of their fiduciary duties as alleged in
this claim.
102. Emeritus seeks a declaration that (i) Defendants have breached
their fiduciary duties by entrenching ARV's existing board in office; (ii) the
ARV Defendants have breached their fiduciary duties by entering into and
failing to revoke the Prometheus Transactions; (iii) the Prometheus
Transactions are null and void or voidable by Defendants; (iv) the issuance of
the Notes was in breach of the ARV Defendants' fiduciary duties; (v) the
Redemption of the Notes into common shares of ARV was, and the voting or
counting of votes of such shares would be, in breach of Defendants' fiduciary
duties; (vi) the moving of the record and annual meeting dates was in breach
of Defendants' fiduciary duties and illegal under California law; (vii) the
issuance to Prometheus of ARV shares under the First Prometheus Transaction
was in breach of the ARV Defendants' fiduciary duties; and (viii) the voting or
counting of votes of such shares would be in breach of Defendants' duties.
103. Emeritus seeks an injunction (i) rescinding and nullifying the
Prometheus Transactions; (ii) directing that the 1,921,012 ARV shares issued
to Prometheus pursuant to the First Prometheus Transaction may not be voted,
or if voted may not be counted; (iii) directing that the common shares of ARV
received by Prometheus as a result of the Redemption of the Notes may not be
voted, or if voted may not be counted; and (iv) directing that the record and
annual meeting dates not be moved or be moved only in accordance with
Defendants' fiduciary duties. An injunction is necessary because (i) Emeritus
has no adequate remedy at law; (ii) Emeritus will be irreparably harmed if an
injunction is not issued; and (iii) granting an injunction will cause less
harm to Defendants than denying an injunction will cause harm to Emeritus.
VIII.
SECOND CLAIM FOR RELIEF
-----------------------
BREACH OF FIDUCIARY DUTY: SALE OF CONTROL OF ARV
AND FAILURE TO MAXIMIZE SHAREHOLDER VALUE
(DECLARATORY AND INJUNCTIVE RELIEF)
104. Emeritus repeats and realleges each and every allegation set
forth in Paragraphs 1 through 103 as if fully set forth herein.
105. Defendants owe fiduciary duties to Emeritus. As fiduciaries,
Defendants owe Emeritus the highest duties of care, loyalty, candor and good
faith.
106. The Prometheus Transactions provide for, among other things,
(i) the acquisition by Prometheus of up to 49.9% of all outstanding shares of
ARV; (ii) mutual obligations on the part of Prometheus and ARV's Board to
support each other's Board nominees, which have the effect of disenfranchising
ARV's public shareholders; and (iii) restraints on Prometheus' sale of its
stock. Because (i) upon conversion of the Notes and/or additional open-market
purchases of ARV common shares by Prometheus or members of ARV's Board, the
stock owned by Prometheus and the Board will constitute a majority position in
ARV; (ii) those parties have interlocking obligations and interests created by
the agreements; and (iii) those parties are acting in concert with respect to
the control and management of ARV, the Prometheus Transactions constitute and
effectuate a sale of control of ARV. Having determined to put control of ARV
up for sale, the ARV Defendants unfairly and unlawfully favored Prometheus and
refused to enter discussions regarding, or to investigate in any reasonable
way, Emeritus' proposals and offers. The ARV Defendants, aided and abetted by
Defendants Freeman, Jacobs and Gunty, have thus breached their fiduciary
duties by failing to maximize shareholder value. On information and belief,
Defendants Freeman, Jacobs, Gunty and Phanstiel have done nothing since their
appointment to the Board to rectify these continuing breaches of fiduciary
duty.
107. By entering voting agreements with Prometheus and
discriminating against Emeritus, the ARV Defendants have attempted to entrench
themselves and enhance the value of their own block of shares at the expense
of Emeritus and ARV's public shareholders. In particular, the voting
agreements allow the ARV Defendants to perpetuate themselves in office and to
command, with Prometheus, the entire value of any control premium from a
would-be acquirer of ARV.
108. Emeritus has been harmed by Defendants' failure to consider its
proposals and offers and ARV Defendants' rush to close the Prometheus
Transactions and issue a substantial quantity of ARV stock and the Notes to
Prometheus.
109. Emeritus seeks a declaration that (i) Defendants have breached
their fiduciary duties by failing to take prompt and diligent steps to maximize
shareholder value; (ii) the ARV Defendants have breached their fiduciary
duties by entering into and failing to revoke the Prometheus Transactions;
(iii) those agreements are null and void or voidable by Defendants; (iv) the
issuance of the Notes was in breach of the ARV Defendants' fiduciary duties;
(v) the Redemption of the Notes into common shares of ARV was, and the voting
or counting of votes of such shares would be, in breach of Defendants'
fiduciary duties; (vi) the moving of the record and annual meeting dates was in
breach of Defendants' fiduciary duties and illegal under California law; (vii)
the issuance to Prometheus of ARV shares under the First Prometheus
Transaction was in breach of the ARV Defendants' fiduciary duties, and (viii)
the voting or counting of votes of such shares would be in breach of
Defendants' duties.
110. Emeritus seeks an injunction (i) directing that Defendants take
prompt and diligent steps to maximize shareholder value; (ii) rescinding and
nullifying the Prometheus Transactions; (iii) directing that the 1,921,012 ARV
shares issued to Prometheus pursuant to the First Prometheus Transaction may
not be voted, or if voted may not be counted; (iv) directing that common
shares of ARV received by Prometheus as a result of the Redemption of the
Notes may not be voted, or if voted may not be counted; and (v) directing that
the record and meeting dates not be moved or be moved only in accordance with
Defendants' fiduciary duties. An injunction is necessary because (i) Emeritus
has no adequate remedy at law; (ii) Emeritus will be irreparably harmed if an
injunction is not issued; and (iii) granting an injunction will cause less
harm to Defendants than denying an injunction will cause harm to Emeritus.
IX.
THIRD CLAIM FOR RELIEF
----------------------
BREACH OF FIDUCIARY DUTY: FAILURE TO EXERCISE DUE
CARE IN CONSIDERING EMERITUS' PROPOSALS AND
ENTERING INTO THE PROMETHEUS TRANSACTIONS
(DECLARATORY AND INJUNCTIVE RELIEF)
111. Emeritus repeats and realleges each and every allegation set
forth in Paragraphs 1 through 110 as if fully set forth herein.
112. The ARV Defendants owe fiduciary duties to Emeritus. As
fiduciaries, Defendants owe Emeritus the highest duties of care, loyalty,
candor and good faith.
113. The ARV Defendants failed to exercise a reasonable amount of
care and diligence in reviewing and rejecting Emeritus' July 10, 1997 proposal
and thereby breached their fiduciary duties to Emeritus. The ARV Defendants
rejected Emeritus' July 10 proposal three days after receiving it and without
any opportunity to conduct appropriate due diligence with respect to it. The
ARV Defendants did not even attempt to negotiate terms with Emeritus and
refused to meet with Emeritus and its advisors to discuss the proposal
further.
114. The ARV Defendants failed to exercise a reasonable amount of
care and diligence in negotiating and entering into the First Prometheus
Transaction. After receiving Emeritus' July 10, 1997 proposal, and driven by
fear of losing their positions as directors and officers of ARV, the ARV
Defendants unreasonably and in violation of their fiduciary duties rushed to
enter into the First Prometheus Transaction on July 14, 1997. After Emeritus
sent its July 23, 1997 letter to ARV objecting to numerous aspects of the First
Prometheus Transaction, the ARV Defendants unreasonably and in violation of
their fiduciary duties rushed to close the first phase of the transaction (the
sale of approximately 16% of ARV's stock) on July 25, 1997.
115. The ARV Defendants failed to exercise a reasonable amount of
care and diligence in reviewing and rejecting Emeritus' October 12, 1997
proposal and thereby breached their fiduciary duties to Emeritus. The ARV
Defendants rejected Emeritus' October 12 proposal two days after receiving it
and without any opportunity to conduct appropriate due diligence with respect
to it. The ARV Defendants did not even attempt to negotiate terms with
Emeritus and refused to meet with Emeritus and its advisors to discuss the
proposal further.
116. The ARV Defendants failed to exercise a reasonable amount of
care and diligence in negotiating and entering into the Second Prometheus
Transaction. After receiving Emeritus' October 12, 1997 proposal, and driven
by fear of losing their positions as directors and officers of ARV and fear
that the First Prometheus Transaction would be rejected by shareholders, the
ARV Defendants unreasonably and in violation of their fiduciary duties rushed
to enter into the Second Prometheus Transaction on October 29 and October 30,
1997. The ARV Defendants failed to exercise a reasonable amount of care and
diligence in entering into and closing the Second Prometheus Transaction.
Defendants failed to exercise reasonable care in deciding to redeem the Notes
and in moving the record and meeting dates.
117. Emeritus has been harmed by Defendants' repeated breaches of
fiduciary duty, aided and abetted by Defendants Freeman, Jacobs and Gunty, in
failing to exercise due care in considering and rejecting its July 10, 1997
and October 12, 1997 proposals and in unreasonably rushing to enter into and
close the Prometheus Transactions. On information and belief, Defendants
Freeman, Jacobs, Gunty and Phanstiel have done nothing since their appointment
to the Board to rectify these continuing breaches of fiduciary duty.
118. Emeritus seeks a declaration that (i) the ARV Defendants have
breached their fiduciary duties by failing to exercise reasonable care and
diligence as specified above; (ii) the Prometheus Transactions are null and
void or voidable by Defendants; (iii) the issuance of the Notes was in breach
of the ARV Defendants' fiduciary duties; (iv) the Redemption of the Notes into
common shares of ARV was, and the voting or counting of votes of such shares
would be in breach of Defendants' fiduciary duties; (v) the moving of the
record and annual meeting dates was in breach of Defendants' fiduciary duties
and illegal under California law; (vi) the issuance to Prometheus of ARV
shares under the First Prometheus Transaction was in breach of the ARV
Defendants' fiduciary duties; and (vii) the voting or counting of votes of such
shares would be, in breach of Defendants' duties.
119. Emeritus seeks an injunction (i) directing Defendants to enter
into good faith negotiations with Emeritus, (ii) rescinding and nullifying the
Prometheus Transactions and (iii) directing that the 1,921,012 ARV shares
issued to Prometheus pursuant to the First Prometheus Transaction may not be
voted, or if voted may not be counted, (iv) directing that the common shares
of ARV received by Prometheus as a result of the Redemption of the Notes may
not be voted, or if voted may not be counted, and (v) directing that the
record and meeting dates not be moved or be moved only in accordance with
Defendants' fiduciary duties. An injunction is necessary because (i) Emeritus
has no adequate remedy at law, (ii) Emeritus will be irreparably harmed if an
injunction is not issued, and (iii) granting an injunction will cause less
harm to Defendants than denying an injunction will cause harm to Emeritus.
X.
FOURTH CLAIM FOR RELIEF
-----------------------
BREACH OF FIDUCIARY DUTY: IMPLEMENTATION OF THE
POISON PILL (DECLARATORY AND INJUNCTIVE RELIEF)
120. Emeritus repeats and realleges each and every allegation set
forth in Paragraphs 1 through 119 as if fully set forth herein.
121. Defendants owe fiduciary duties to Emeritus. As fiduciaries,
Defendants owe Emeritus the highest duties of care, loyalty, candor and good
faith.
122. The ARV Defendants implemented the poison pill in response to
Emeritus' July 10, 1997 proposal to ARV. Implementation of the poison pill
was not a lawful and reasonable response to Emeritus' proposal and constituted
a breach, aided and abetted by Defendants Freeman, Jacobs and Gunty, of the
ARV Defendants' fiduciary duties. Likewise, the Individual Defendants'
failure to revoke or redeem the poison pill constitutes a separate and
continuing breach of their fiduciary duties.
123. The poison pill is discriminatory and violates, among others,
Sections 203 and 400 of the California Corporations Code in that under the
terms of the pill all shares of ARV are not granted the same rights,
preferences, privileges and restrictions. Specifically, and among other
things, (i) the shares owned by Prometheus are exempted from triggering the
pill; and (ii) the Rights on shares owned by a shareholder become void when
that shareholder becomes an Acquiring Person.
124. The poison pill is discriminatory and constitutes a breach of
Defendants' fiduciary duties in that under the terms of the pill shareholders
are not treated equally in connection with the issuance of the Rights.
125. Given Emeritus' announcement that it will commence a proxy
contest against the resolutions being put to ARV's shareholders and Emeritus'
offers and proposals to acquire the outstanding shares of ARV, Emeritus has
been, and is being, harmed by Defendants' breaches of their fiduciary duties
as alleged in this claim.
126. Emeritus seeks a declaration that (i) the ARV Defendants
violated their fiduciary duties by implementing the poison pill; (ii) the ARV
Defendants violated their fiduciary duties by exempting the shares owned by
Prometheus from triggering the pill; and (iii) failure to redeem the poison
pill or otherwise to amend it to make it inapplicable to Emeritus constitutes
a breach of Defendants' fiduciary duties.
127. Emeritus seeks an injunction compelling Defendants to redeem
the poison pill or otherwise to amend the poison pill to make it inapplicable
to Emeritus. An injunction is necessary because (i) Emeritus has no adequate
remedy at law, (ii) Emeritus will be irreparably harmed if an injunction is not
issued, and (iii) granting an injunction will cause less harm to Defendants
than denying an injunction will cause harm to Emeritus.
XI.
FIFTH CLAIM FOR RELIEF
----------------------
BREACH OF FIDUCIARY DUTY: REDEMPTION OF
PROMETHEUS NOTES
128. Emeritus repeats and realleges each and every allegation set
forth in Paragraphs 1 through 127 as if fully set forth herein.
129. Defendants owe fiduciary duties to Emeritus. As fiduciaries,
Defendants owe Emeritus the highest duties of care, loyalty, candor and good
faith.
130. The Individual Defendants redeemed the Notes and moved the
record and annual meeting dates in response to Emeritus' November 24, 1997
announcement that it would solicit proxies for an alternative slate of
directors for ARV's Board. The Notes were redeemed at a significant discount
to market in exchange for some 4.3 million common shares of ARV to an investor
of the Board's own choosing. As a result, those newly-issued shares are
contractually required to be voted in favor of the reelection of the Board's
director nominees. In addition, with the addition of 4.3 million newly-issued
shares, Prometheus and the Board together control slightly less than 50% of
the outstanding common shares of ARV and with the inclusion of certain ARV
shares contained in an employee stock ownership plan may give Prometheus and
Defendants absolute majority control of ARV. In light of the interlocking
obligations and interests created by the Prometheus Transactions and the
coordinated effort by the Board and Prometheus with respect to the control and
management of ARV, the Redemption of the Notes constitutes a sale of control
of ARV. Having determined to put ARV up for sale, Defendants unfairly and
unlawfully favored Prometheus and have refused to enter discussions regarding,
or to investigate in any reasonable way, Emeritus' proposals and offers.
These actions indicate that Defendants redeemed the Notes for the purpose of
entrenching themselves in office and preventing Emeritus from winning the
proxy contest for the election of directors to the Board. Defendants failed
to exercise due care in the redemption of the Notes and the moving of the
record and annual meeting dates.
131. Emeritus has been harmed by Defendants failure to consider its
proposals and offers and also, given Emeritus' announcement that it will
commence a proxy contest, by the issuance of 4.3 million ARV shares which must
be voted in favor of Defendants' Board nominees.
132. Emeritus seeks a declaration that (i) the Redemption of the
Notes into common shares of ARV was, and the voting or counting of votes of
such shares would be, in breach of Defendants' fiduciary duties; (ii) the
moving of the record and annual meeting dates was in breach of Defendants'
fiduciary duties, and (iii) the Redemption of Notes is void or voidable by
ARV.
133. Emeritus seeks an injunction that (i) rescinding and
nullifying the Redemption of the Notes; (ii) directing that the approximately
4,285,704 shares issued to Prometheus as a result of the Redemption of the
Notes may not be voted, or if voted may not be counted, and (iii) directing
that the record and meeting dates may not be moved or be moved only in
accordance with Defendants' fiduciary duties. An injunction is necessary
because (i) Emeritus has no adequate remedy at law; (ii) Emeritus will be
irreparably harmed if an injunction is not issued; and (iii) granting an
injunction will cause less harm to Defendants than denying an injunction will
cause harm to Emeritus.
XII.
PRAYER FOR RELIEF
-----------------
WHEREFORE, Emeritus respectfully requests that this Court enter
the following relief:
1. A declaration that (i) Defendants have breached their fiduciary
duties by entrenching ARV's existing board in office; (ii) the ARV Defendants
have breached their fiduciary duties by entering into the Prometheus
Transactions; (iii) the Prometheus Transactions are null and void or voidable
by ARV; (iv) the issuance of the Notes was in breach of the ARV Defendants'
fiduciary duties; (v) the Redemption of the Notes into common shares of ARV
was, and the voting or counting of votes of such shares would be, in breach of
Defendant's fiduciary duties; (vi) Defendants breached their fiduciary duties
by moving the record and annual meeting dates; (vii) the issuance to Prometheus
of ARV shares under the First Prometheus Transaction was in breach of the ARV
Defendants fiduciary duties; (viii) the voting or counting of votes of such
shares would be in breach of Defendant's duties; (ix) Defendants have breached
their fiduciary duties by failing to take prompt and diligent steps that
maximize shareholder value; and (x) the ARV Defendants have breached their
fiduciary duties by failing to exercise reasonable care and diligence in
considering Emeritus' proposals in entering into the Prometheus Transactions.
2. An injunction (i) rescinding and nullifying the Prometheus
Transactions; (ii) directing that the 1,921,012 ARV shares issued to
Prometheus pursuant to the First Prometheus Transaction may not be voted, or
if voted may not be counted; (iii) directing that the common shares of ARV
received by Prometheus as a result of the Redemption of the Notes may not be
voted, or if voted may not be counted; (iv) directing that the record and
annual meeting dates not be moved or be moved only in accordance with
Defendants' fiduciary duties; (v) directing that Defendants take prompt and
diligent steps to maximize shareholder value; and (vi) directing Defendants to
enter into good faith negotiations with Emeritus.
3. A declaration that (i) the ARV Defendants violated their
fiduciary duties by implementing the poison pill; (ii) the ARV Defendants
violated their fiduciary duties by exempting the shares owned by Prometheus
from triggering the pill; and (iii) that failure to redeem the poison pill or
otherwise to amend it to make it inapplicable to Emeritus constitutes a breach
of Defendants' fiduciary duties;
4. A declaration that the actions of the Individual Defendants
were not taken in good faith and in a manner reasonably believed to be in the
best interests of ARV within the meaning of Section 317 of the California
Corporations Code;
5. An injunction directing Defendants to redeem the poison pill or
otherwise to amend the poison pill to make it inapplicable to Emeritus;
6. An order awarding Emeritus its costs and expenses in this
action; and
7. Granting such other and further relief as the Court deems just
and proper.
DATED: December 9, 1997
GIBSON, DUNN & CRUTCHER LLP
WAYNE W. SMITH
JOSEPH P. BUSCH, III
DAVIS POLK & WARDWELL
MICHAEL P. CARROLL
JAMES H.R. WINDELS
By: /s/ Joseph P. Busch, III
------------------------
Joseph P. Busch, III
Attorneys for Plaintiff
EMERITUS CORPORATION
Exhibit (g)(2)
GIBSON, DUNN & CRUTCHER LLP
WAYNE W. SMITH, SBN 054593
JOSEPH P. BUSCH, III, SBN 070340
RAFFAELE G. FAZIO, SBN 185378
4 Park Plaza, Suite 1400
Irvine, California 92614-8557
(714) 451-3800
DAVIS POLK & WARDWELL
459 Lexington Avenue
New York, NY 10017
(212) 450-4000
Attorneys for Plaintiff
EMERITUS CORPORATION
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF ORANGE
<TABLE>
<CAPTION>
<S> <C>
EMERITUS CORPORATION, CASE NO. 787788
Plaintiff, ASSIGNED FOR ALL PURPOSES TO
v. JUDGE THOMAS N. THRASHER,
DEPT. 13
ARV ASSISTED LIVING, INC., a California
corporation; DAVID P. COLLINS, an STIPULATION PURSUANT TO SECTION 2021
individual; JOHN A. BOOTY, an individual; R. OF THE CODE OF CIVIL
BRUCE ANDREWS, an individual; JAMES M. PROCEDURE MODIFYING
PETERS, an individual; MAURICE J. DISCOVERY PROCEDURES
DeWALD, an individual; JOHN J.
RYDZEWSKI, an individual; ROBERT P. Date of Filing
FREEMAN, an individual; KENNETH M. This Action: December 9, 1997
JACOBS, an individual; MURRY N. GUNTY, Trial date: None Set
an individual; and HOWARD G. PHANSTIEL,
an individual.
Defendants.
- ----------------------------------------------
</TABLE>
The parties hereto, by and through their respective attorneys
of record, enter into this stipulation based on the following facts and
circumstances:
1. On December 9, 1997, Plaintiff Emeritus Corporation
("Plaintiff") filed this action, and served Defendants herein.
2. On December 9, 1997, and prior to noon on that day, counsel
for Emeritus gave notice of the intent of Emeritus to seek ex parte an order
shortening time within which to conduct discovery and for an order preserving
certain documents.
3. On December 9, 1997, Emeritus announced its intention to
file a motion for preliminary injunction on or before January 7, 1998, to be
heard on the Court's regular law and motion calendar on January 22, 1998.
With a hearing on January 22, 1998, and pursuant to Local Rule 520, the
briefing schedule will be as follows:
a. The motion for preliminary injunction and papers in
support of said motion shall be filed and served by personal
delivery on or before January 7, 1998;
b. The papers in opposition to said motion shall be
filed and served by on or before January 15, 1998; and
c. The reply papers in support of said motion shall be
filed and served by on or before January 20, 1998.
4. At least three of the prospective deponents noticed by
Emeritus have travel plans that prevent them from being present during the
period from December 20, 1997, through and including January 2, 1998.
5. The parties are negotiating in good faith regarding the form
and content of a protective order to be entered in this action.
6. The parties have reached an agreement on the ex parte relief
sought by Emeritus.
Based on the foregoing, the parties stipulate as follows:
1. Emeritus will, and hereby does, serve its First Request for
Production of Documents to Defendants (the "First Request").
2. Defendants waive the provisions of Section 2031(b) of the
California Code of Civil Procedure, and agree to produce documents in response
to the First Request on December 16, 1997, at the Orange County offices of
Gibson, Dunn & Crutcher, subject to the following terms and conditions:
a. Defendants' stipulation to this paragraph 2 shall
be without prejudice to any other evidentiary objection that
they might otherwise be entitled to assert; and
b. The parties have reached an agreement on the form
and content of a protective order for this matter.
3. Emeritus will, and hereby does, serve its Notice of
Depositions on Defendants.
4. Defendants waive the provisions of Section 2025(b)(2) of
the California Code of Civil Procedure, and agree to produce Messrs. Freeman
and Rydzewski for their depositions at the times, dates and places indicated,
or at such other times pursuant to an agreement of the parties.
5. Emeritus agrees that the depositions of Messrs. Freeman and
Rydzewski will be completed on the dates commenced, and that Messrs. Freeman
and Rydzewski will be free to take their previously scheduled trips as long as
the depositions are completed by or before January 5, 1998.
6. Emeritus and Defendants agree that the times, dates and
places noticed for the depositions of Messrs. Booty and Davidson are subject
to change, and that Emeritus will accommodate the needs of the witnesses,
counsel for the Defendants, and counsel for the witnesses as long as the
depositions are completed by on or before January 5, 1998.
7. Emeritus will notify Defendants of the identity of the last
person sought to be deposed by Emeritus by not later than December 19, 1997,
after Emeritus has had an opportunity to review the documents produced by
Defendants on December 16, 1997. Upon the identification of that individual,
Defendants will use best efforts to produce that individual for deposition by
on or before January 5, 1998.
8. Defendants agree to use best efforts, including requesting
brokers and others in possession of relevant information, to preserve
documents and records reflecting the identity of shareholders of ARV as of
November 14, 1997 and December 1, 1997.
9. The parties agree that any papers filed in support of, in
opposition to, or in reply to any motion for a preliminary injunction by
Emeritus to be heard on January 22, 1998, shall be personally served on the
day of filing to counsel for the opposite side at said counsel's offices in
Orange County.
DATED: December 11, 1997
GIBSON, DUNN & CRUTCHER LLP
WAYNE W. SMITH
JOSEPH P. BUSCH, III
RAFFAELE G. FAZIO
DAVIS POLK & WARDWELL
MICHAEL P. CARROLL
JAMES H. R. WINDELS
By: /s/ Raffaele G. Fazio
--------------------------------
Raffaele G. Fazio
Attorneys for Plaintiff EMERITUS
CORPORATION
DATED: December 11, 1997
LATHAM & WATKINS
H. STEVEN WILSON
R. BRIAN TIMMONS
By: /s/ R. Brian Timmons
--------------------------------
R. Brian Timmons
Attorneys for Defendants ARV ASSISTED
LIVING, INC., DAVID P. COLLINS, JOHN A.
BOOTY, R. BRUCE ANDREWS, JAMES M.
PETERS, MAURICE J. DeWALD, JOHN J.
RYDZEWSKI, ROBERT P. FREEMAN, KENNETH
M. JACOBS, MURRY N. GUNTY, and HOWARD
G. PHANSTIEL
