SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [x]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ARV Assisted Living, Inc.
(Name of Registrant as Specified in Its Charter)
Emeritus Corporation
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
[EMERITUS CORPORATION]
To the shareholders of ARV Assisted Living, Inc. ("ARV")
Emeritus has offered to purchase ARV for $17.50 per share in
cash. Although ARV has been aware of our serious interest in pursuing a
merger of ARV and Emeritus since June 1997, the ARV Board has refused to enter
into discussions with us. Nor has any other bidder proposed an acquisition of
the company at a better price. Therefore, we need your support to elect our
nominees to the ARV Board in order to facilitate a merger with Emeritus that
will net you $17.50 per share in cash.
At the ARV Annual Meeting on January 28, 1998, all directors are
standing for reelection. This will be the last time that you can elect the
entire Board. After this Annual Meeting, only a minority of directors will be
up for election at each annual meeting. This is your last opportunity to
require the ARV Board to accept our $17.50 all cash offer.
Please complete the enclosed BLUE and GOLD proxy cards and
return them in the envelope provided. If you have any questions, please call
D.F. King toll-free at 1-800-431-9646. No matter how large or small your
shareholding may be, it is important that you complete and return the BLUE and
GOLD proxy cards today.
We believe that our tender offer of $17.50 per share is in the
best interest of ALL shareholders for the following reasons:
o Our offer represents a 54% premium over ARV's closing share
price of $11.38 on July 14, 1997, the day before ARV
announced its intention to sell 49.9% of its common stock to
Prometheus Assisted Living LLC ("Prometheus") for $14.00 per
share.
o Our offer represents immediate cash to all ARV shareholders.
o Our offer represents a 23% premium over ARV's closing share
price of $14.25 on December 18, 1997, the last trading day
before we announced our offer to purchase all the outstanding
common stock of ARV for $17.50 per share.
o Our offer represents the best opportunity for shareholders to
receive a control premium for their shares for the
foreseeable future.
We have expressed an interest in acquiring ARV since June 1997,
but ARV has refused to negotiate with us. Instead, your Board has acted to
prevent you, the owners of the company, from considering our proposal.
Without asking for your approval, the Board has structured and consummated
transactions with Prometheus under which Prometheus was permitted to purchase
6,183,238 newly issued ARV shares (39% of the outstanding stock) at $14.00 per
share. Also, for the fourth time, ARV has set a new record date (now December
18, 1997), for the Annual Meeting, the effect of which is to enable Prometheus
to vote all of its shares at the Annual Meeting. Approximately 4.3 million of
these shares were issued to Prometheus at a discount to the then current
market price for the ARV common stock. Nevertheless, Emeritus remains
committed to its goal of acquiring ARV and has challenged the share issuances
to Prometheus in court so that ARV shareholders can have an opportunity to
consider a sale of ARV to Emeritus for $17.50 per share.
We believe that ARV did not act in the best interest of the ARV
shareholders when it entered into the transactions with Prometheus for the
following reasons:
o None of the transactions with Prometheus included any payment
to you for your shares.
o The ARV Board has secured a three-year contractual
commitment from Prometheus to vote all of its shares in ARV
director elections in favor of the ARV Board's nominees.
With Prometheus currently owning approximately 39% of the ARV
common stock, this voting arrangement substantially
disenfranchises the public stockholders of ARV.
o In addition, the transaction with Prometheus includes a
voting agreement among certain senior members of ARV
management and Prometheus under which an additional 9% of
the currently outstanding ARV common stock is committed to
vote for the director nominees of the ARV Board and of
Prometheus. In the aggregate, currently 48.1% of the common
stock is committed to vote for the ARV and Prometheus
nominees. Emeritus has commenced litigation challenging the
share issuances and voting arrangements in order to provide
a level playing field for you, the shareholders, to decide
whether ARV should be sold to Emeritus.
o Prometheus is free to acquire additional shares so that it
can exercise effective sole control over ARV within three
years.
A more detailed description of the transactions with Prometheus
is contained in the accompanying Proxy Statement, which you are urged to read
carefully.
We believe that shareholders should vote FOR the Emeritus
nominees so that the current Board of Directors may be replaced by a slate of
nominees who are committed to maximizing value for ALL shareholders by
entering into a merger agreement with Emeritus. Please take a moment to vote
your BLUE and GOLD proxy cards today.
Emeritus is a long-term care services company focused on
operating residential-style assisted-living communities. As of the date of
this letter, Emeritus beneficially owns 1,077,200 shares of ARV common stock,
or approximately 6.8% of the outstanding common stock.
Thank you for your support of our effort to combine ARV and
Emeritus.
Sincerely,
Daniel R. Baty
Chairman of the Board and
Chief Executive Officer
PROXY STATEMENT OF EMERITUS CORPORATION
IN OPPOSITION TO BOARD OF DIRECTORS
OF
ARV ASSISTED LIVING, INC.
ANNUAL MEETING OF SHAREHOLDERS
(January 28, 1998)
AND
SPECIAL MEETING OF
SHAREHOLDERS ON FEBRUARY 6, 1998
This Proxy Statement is furnished in connection with the
solicitation of proxies by Emeritus Corporation, a Washington corporation,
("Emeritus") to be used at the next Annual Meeting of Shareholders of ARV
Assisted Living, Inc., a California corporation, ("ARV" or the "Company") and
at any adjournments, postponements, reschedulings or continuations, or any
other meeting of shareholders held in lieu thereof (the "Annual Meeting").
According to the Company's press release dated December 8, 1997, the Annual
Meeting is to be held on January 28, 1998.
This Proxy Statement is also furnished in connection with the
solicitation of agent designations and proxies by Emeritus to be used to call
a Special Meeting of Shareholders for February 6, 1998 (the "Special Meeting")
and to vote for the adjournment of such Special Meeting from time to time.
THIS SOLICITATION IS BEING MADE BY EMERITUS AND NOT ON BEHALF
OF THE BOARD OF DIRECTORS OF THE COMPANY.
On December 19, 1997, Emeritus, through a wholly-owned Delaware
subsidiary, EMAC Corp. ("EMAC"), commenced an offer to purchase all outstanding
shares of common stock of ARV (the "Common Stock") not owned by it, together
with the associated preferred stock purchase rights (the "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 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"). The purpose of the Offer is to acquire
control of, and the entire equity interest in, the Company. However, in order
to purchase shares tendered in the Offer and effect the second step merger it
is necessary to secure ARV Board approval for the transaction. Since the
current ARV Board has refused to negotiate with Emeritus since June 1997, when
Emeritus first proposed an acquisition of ARV, Emeritus is seeking to elect
its slate of directors at the Annual Meeting. See "TENDER OFFER AND PROPOSED
MERGER".
Previously, on October 12, 1997, Emeritus proposed an
acquisition of all of the outstanding Common Stock for $16.50 per share in
cash (the "Emeritus Proposal"). The Emeritus Proposal was made to provide
ARV's shareholders with a superior alternative to a transaction that the
Company had entered into with Prometheus Assisted Living LLC ("Prometheus")
(the "Original Prometheus Transaction"), in which ARV was proposing to sell
Prometheus up to 49.9% of its stock for $14 per share.
In response to the Emeritus Proposal, on October 31, 1997, ARV
announced that it had replaced the Original Prometheus Transaction with a
transaction (the "Amended Prometheus Transaction") whereby Prometheus would
retain 1,921,012 shares of Common Stock it previously purchased at $14 per
share (the "Initial Shares") and would purchase $60 million of 6-3/4%
Convertible Subordinated Notes Due 2007 (the "Notes"), redeemable by ARV at
any time during the first year after issuance for Common Stock at a 23.214%
redemption premium and convertible by Prometheus after January 28, 1998 at a
conversion price of $17.25 per share. See "BACKGROUND".
On November 23, 1997, Emeritus nominated its own slate of
nominees (the "Emeritus Nominees") to the ARV Board of Directors (the "ARV
Board") and on November 24, 1997, Emeritus filed preliminary proxy materials
with the Securities and Exchange Commission (the "Commission") indicating that
Emeritus would be soliciting proxies to elect the Emeritus Nominees. In
response, on or around December 5, 1997, ARV redeemed the Notes at the
effective conversion price of $14.00 per share (the "Note Redemption") by
issuing Prometheus 4,262,226 shares of Common Stock (the "Redemption Shares"
and, together with the Initial Shares, the "Prometheus Shares") and, for the
fourth time, set a new record date of December 18, 1997, for the Annual
Meeting, the effect of which is to enable Prometheus to vote the Redemption
Shares at the Annual Meeting. See "BACKGROUND".
On December 9, 1997, Emeritus commenced litigation against ARV
in Orange County Superior Court in the State of California, asking the court,
among other things, to rescind the Note Redemption and the issuance of the
Prometheus Shares. See "BACKGROUND". On December 19, 1997, Emeritus
increased its offer price to $17.50 per share and commenced the Offer.
We believe that our Offer is in the best interest of all ARV
shareholders because, among other things, it offers the ARV shareholders
immediate cash for their shares at a 54% premium over ARV's closing share
price on the last trading day prior to announcement of the Original Prometheus
Transaction and a 23% premium over ARV's closing share price on the last
trading day before the public announcement of our Offer. Emeritus has had
extensive discussions with prospective sources of financing for the Offer.
Based upon those discussions it is confident that it can conclude the
necessary financing required to effect the combination of the two businesses
on a timely basis.
Although Emeritus does not presently intend to alter the terms
of the Offer, it is possible that, depending on the facts and circumstances
existing at the time, the terms might be altered in one or more respects.
Emeritus will promptly disseminate information regarding such changes, if any,
to ARV shareholders.
Emeritus believes that ARV's transactions with Prometheus harm
you, the ARV shareholders, in several ways: they significantly dilute the
public shareholders by making approximately 6.2 million newly issued shares
(or 39.0% of the Common Stock) available to Prometheus; they offer public
shareholders no payment for their shares in a transaction that could result in
Prometheus acquiring majority control of the Company without providing the
other shareholders with any change of control premium; they significantly
disenfranchise public shareholders by committing up to 48% of ARV's stock to
vote in director elections for the directors nominated by the ARV Board and
Prometheus; and they allow Prometheus to acquire sole control of ARV after
three years without even paying the public shareholders a control premium.
The ARV Board has refused to negotiate with Emeritus, leaving
Emeritus no option but to launch its Offer and solicit proxies from the
Company's shareholders to defeat the current directors and elect the Emeritus
Nominees to the ARV Board. If elected, the Emeritus Nominees will, subject to
their fiduciary duties under California law, enter into a merger agreement
with Emeritus. In light of the fact that no other bidder has come forward
since Emeritus publicly announced its proposal in October, the Emeritus
Nominees believe that it is unnecessary to solicit third party interest and
do not intend to do so. The Emeritus Nominees will, however, evaluate
unsolicited third party proposals in accordance with their fiduciary duties as
directors of ARV. The Emeritus Nominees have not determined the procedures to
be followed in the event any such unsolicited third party proposal is made and
intend to determine the applicable procedures in light of all of the facts and
circumstances at the time.
AT THE ANNUAL MEETING, EMERITUS SEEKS TO ELECT THE EMERITUS
NOMINEES AS DIRECTORS IN LIEU OF THE ARV NOMINEES. NO OTHER BIDDER HAS
PROPOSED AN ACQUISITION OF ARV AT A BETTER PRICE. THIS IS THE LAST
OPPORTUNITY TO REQUIRE THE ARV BOARD TO ACCEPT OUR $17.50 PER SHARE ALL CASH
OFFER. THIS IS THE LAST ANNUAL MEETING AT WHICH ALL DIRECTORS WILL STAND FOR
REELECTION.
At the Annual Meeting, nine members of the ARV Board are to be
elected, three each to serve as Class A Directors, Class B Directors and Class
C Directors, respectively. Emeritus is soliciting proxies to elect its slate
of nine directors at the Annual Meeting in lieu of the persons nominated by
the incumbent ARV Board (the "ARV Nominees"). Following this Annual Meeting,
ARV will have a classified board and only a minority (approximately one-third)
of the directors will stand for election at each annual meeting thereafter.
Therefore, this Annual Meeting is the last opportunity for ARV's shareholders
to require the ARV Board to accept Emeritus' $17.50 per share all cash offer.
The Company is also seeking shareholder approval at the Annual
Meeting for a proposal to reincorporate the Company as a Delaware corporation
and a proposal to amend the Company's Restated Articles of Incorporation to,
among other things, increase the maximum number of authorized directors from
nine to ten. Emeritus recommends that you vote FOR the proposal to
reincorporate the Company as a Delaware corporation and ABSTAIN from voting on
the proposal to increase the maximum number of authorized directors from nine
to ten.
Emeritus is also soliciting proxies to vote FOR an adjournment
of the Annual Meeting if such adjournment is proposed or recommended by
Emeritus and to vote AGAINST an adjournment of the Annual Meeting if such
adjournment is not proposed or recommended by Emeritus. Emeritus is
soliciting proxies AGAINST any adjournment not recommended by it to make
certain that shareholders have the ability to vote for the Emeritus Nominees
at the Annual Meeting and as a defensive measure if the Company proposes an
adjournment as a delay tactic.
Emeritus is also soliciting agent designations to call a
Special Meeting of shareholders of ARV for February 6, 1998 for the purpose of
considering and voting upon an Agreement and Plan of Merger between Emeritus
and ARV pursuant to which Emeritus will acquire all of the outstanding Common
Stock of ARV for $17.50 per share in cash. ARV has not as of the date of this
Proxy Statement fixed a record date for purposes of determining the
stockholders entitled to vote at the Special Meeting. However, assuming
Emeritus is successful in having the Note Redemption and the subsequent
issuance of the Redemption Shares rescinded in court, pursuant to the bylaws
of the Company that record date will predate the earliest date on which the
Notes issued to Prometheus would otherwise have been convertible. If Emeritus
is successful in its litigation, Prometheus will not be able to vote any
shares issuable upon redemption or conversion of the Notes at the Special
Meeting. Should it be necessary to allow sufficient time to solicit proxies
with respect to the Agreement and Plan of Merger, pursuant to this Proxy
Statement, Emeritus is also soliciting proxies to adjourn the Special Meeting
from time to time. See "THE SPECIAL MEETING".
The record date for determining shareholders entitled to notice
of and to vote at the Annual Meeting is December 18, 1997 (the "Record Date").
Shareholders of record at the close of business on the Record Date will be
entitled to one vote at the Annual Meeting for each share of Common Stock held
on the Record Date. According to public filings, Emeritus believes there were
15,846,498 shares of Common Stock issued and outstanding as of the Record
Date, including the Prometheus Shares (the "Outstanding Common Stock").
The record date for determining shareholders entitled to notice
of and to vote at the Special Meeting is currently unknown. Shareholders of
record at the close of business on the record date, when set, will be entitled
to one vote at the Special Meeting for each share of Common Stock held on the
record date.
Emeritus is a long-term care services company focused on
operating residential- style assisted-living communities. As of the date of
this Proxy Statement, Emeritus beneficially owns 1,077,200 shares of Common
Stock, or approximately 6.8% of the Outstanding Common Stock. The principal
place of business of Emeritus is 3131 Elliott Avenue, Suite 500, Seattle,
Washington 98121, and the telephone number is (206) 298-2909.
- ------------------------------------------------------------------------------
IMPORTANT
Your vote is important. No matter how many or how few shares of
Common Stock you own, Emeritus urges you to please mark, sign, date and
promptly mail your BLUE proxy card in the postage prepaid envelope provided
to vote FOR the election of the Emeritus Nominees. Emeritus also urges you
to please mark, sign, date and promptly mail your GOLD proxy card in the
postage prepaid envelope provided to join with Emeritus in calling a
Special Meeting and to vote FOR the adjournment of the Special Meeting.
Remember, do not return any proxy card sent to you by ARV. If you have
already done so, you may revoke your proxy by delivering a written notice
of revocation or a later dated proxy to Emeritus, c/o Corporate Election
Services, 400 Fairway Drive, Suite 110, Moon Township, PA 15108, or by
voting in person at the Annual Meeting. Only your latest dated proxy will
count at the Annual Meeting. See "SOLICITATION OF PROXIES".
A vote FOR the Emeritus Nominees will enable you -- as owners of
ARV -- to send a message to the ARV Board that you are in favor of a
transaction that maximizes value for all shareholders of the Company.
If your shares are registered in the name of a brokerage firm,
bank, bank nominee or other institution, only it can execute a proxy and
vote your shares and only after receiving your specific instructions.
Please mark, sign, date and mail the enclosed BLUE proxy card and GOLD
proxy card in the envelope provided by your broker or bank. In addition,
you are requested to contact the person responsible for your account and
direct him or her to execute on your behalf today the BLUE proxy card and
GOLD proxy card sent by Emeritus. If you have any questions or need
further assistance in voting, please contact the firm assisting us in the
solicitation of proxies:
D.F. King & Co., Inc.
Call 1-800-431-9646 (toll free in the United States)
- ------------------------------------------------------------------------------
This Proxy Statement, the BLUE proxy card and the GOLD proxy card
are first being mailed or furnished to ARV shareholders on or about December
22, 1997. The principal executive offices of ARV are located at 245 Fischer
Avenue, Suite D-1, Costa Mesa, California 92626, telephone number (714)
751-7400.
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
The ARV Proposals
Based upon the Company's Proxy Statement (as amended from time
to time, the "ARV Proxy Statement") filed on November 21, 1997 with the
Commission, in addition to the election of directors, the following two
proposals are to be voted upon at the Annual Meeting:
1. Approval of the reincorporation of the Company as a Delaware
corporation, which will also be named ARV Assisted Living, Inc., pursuant to a
merger of the Company into a wholly owned Delaware subsidiary and the
conversion of the Common Stock of the Company into the common stock, par value
$.01 per share, of the surviving corporation, which approval shall constitute
approval of all of the provisions set forth in the Certificate of
Incorporation and Bylaws of the Delaware corporation (Proposal 1); and
2. Approval of an amendment to the Restated Articles of
Incorporation of the Company providing for, among other things, an increase in
the maximum number of authorized directors of the Company from nine to ten
(Proposal 2).
EMERITUS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE EMERITUS
NOMINEES, "FOR" PROPOSAL 1 AND TO "ABSTAIN" ON PROPOSAL 2.
The Emeritus Nominees
Emeritus has nominated fifteen persons for election as
directors from which it is seeking to elect nine individuals to the ARV Board.
If all of the Emeritus Nominees are elected, the Emeritus Nominees would
constitute all of the possible members of the ARV Board. Under the Company's
Restated Articles of Incorporation and Bylaws, a majority of the entire ARV
Board constitutes a quorum and action may be taken by the vote of a majority
of directors, when a quorum is present. If elected, the Emeritus Nominees
will take all action, subject to their fiduciary duties to the Company's
shareholders under California law, to redeem the poison pill (or amend the
related agreement to make the poison pill inapplicable to a transaction with
Emeritus), eliminate its other defenses, enter into a merger agreement for the
acquisition of ARV by Emeritus at $17.50 per share and otherwise facilitate
such a transaction.
Emeritus is seeking to elect the first nine individuals named
in the table below at the Annual Meeting to succeed the current nine directors
(or any director named to fill any vacancy created by the death, retirement,
resignation or removal of any of such nine directors) of the Company. The
Class A Directors elected at the Annual Meeting will hold office until the
1998 annual meeting of shareholders, the Class B Directors elected at the
Annual Meeting will hold office until the 1999 annual meeting of shareholders
and the Class C Directors elected at the Annual Meeting will hold office until
the 2000 annual meeting of shareholders. One or more of the other individuals
named in the table below have been nominated to be elected in the event any of
the first nine individuals named in the table below is unable for any reason
to serve as a director or if ARV increases the size of the ARV Board. In the
event that ARV increases the size of the ARV Board to ten directors, Emeritus
will seek to elect Jonathan Teague as a director, and Mr. Teague will be
designated a Class C Director. If any nominee for director should be unable
or decline to serve, the authority provided in the proxy to vote for the
election of directors will be exercised to vote for a substitute or
substitutes. As of the date of this Proxy Statement, Emeritus has no
knowledge that any of the nominees will be unable or will decline to serve.
The following table sets forth the names and descriptions of
the backgrounds of the Emeritus Nominees for election as directors of the
Company. Additional information with respect to the Emeritus Nominees is set
forth herein under "COMPENSATION OF THE EMERITUS NOMINEES" and in Schedule I.
This information has been furnished to Emeritus by the respective Emeritus
Nominees. Each Emeritus Nominee has consented to serve as a director of ARV.
<TABLE>
<CAPTION>
Name, Business Address, Principal Occupation; Work Experience During
Residence Address and Age of Last Five Years; Current Directorships; and
Emeritus Nominee Ownership of Capital Stock of ARV
<S> <C>
CLASS A NOMINEES
Frank Ruffo (55) Executive Vice President of Emeritus
Business Address Corporation since 1993. Mr. Ruffo has also
3131 Elliott Avenue, #500 served as President of Somerset Management
Seattle, WA 98121 Group, Inc. since January 1996. Previously
Mr. Ruffo served as Vice President of
Columbia Pacific Management, Inc. from May
1992 to January 1996. Mr. Ruffo will resign
as an officer of Emeritus Corporation if
elected to the ARV Board.
Thilo Best (36) Treasurer and Senior Vice President, Finance
Business Address of Holiday Retirement Corp. since 1994.
2250 McGilchrist St. S.E., # 200 Prior to that, Mr. Best served as Vice
Salem, OR 97302 President of the Prudential Realty Group
from 1987 to 1994.
Richard Sontgerath (47) Real Estate Acquisitions Consultant of
Business Address Columbia Pacific Management, Inc. and its
3131 Elliott Avenue, #500 affiliates since September 1994. From 1979
Seattle, WA 98121 to 1994, Mr. Sontgerath was self-employed in
the real estate development, marketing,
leasing, management and brokerage business.
CLASS B NOMINEES
Al Edmiston (50) Director of Accounting of Emeritus
Business Address Corporation since June 1997. Mr. Edmiston
3131 Elliott Avenue, #500 previously served as Vice President,
Seattle, WA 98121 Management Information Systems of Hillhaven
Corporation from July 1985 to August 1996.
Martin Roffe (50) Financial Planner. Mr. Roffe served as
Residence Address Corporate Vice President of Financial
615 Vista Drive Planning of Hillhaven Corporation from 1987
to 1996.
Tacoma, WA 98465
Charles Uhlman (52) For the past five years, Mr. Uhlman has been
Business Address the Director of Development at Columbia
3131 Elliott Avenue, #500 Pacific Management, Inc.
Seattle, WA 98465
CLASS C NOMINEES
Stanley Baty (26) Vice President of Columbia Pacific
Business Address Management, Inc. and Associated Vintners,
3131 Elliott Avenue, #500 Inc. since January 1996. Prior to working
Seattle, WA 98121 for Columbia Pacific Management, Inc., Mr.
Baty was a financial analyst for Nomura
National Securities Corporation from June
1994 to January 1996. Mr. Baty is the son of
Daniel R. Baty, the Chairman of the Board
and Chief Executive Officer of Emeritus
Corporation. Mr. Stanley Baty purchased
1,000 shares of ARV Common Stock on March 4,
1997.
Jason Geisenger (64) Semi-retired. Since 1992, Mr. Geisenger has
Residence Address owned and operated Jana Associates, a
117 Regatta Drive company that provides consulting services to
Jupiter, FL 33447 long-term care and retirement communities.
Mr. Geisenger retired in 1992 as a Senior
Vice President of Hillhaven Corporation.
Patrick Duff (45) Chief Financial Officer and Vice President
Business Address of Associated Vintners, Inc. since November
P.O. Box 1248 1996. Previously, Mr. Duff served as
Woodinville, WA 98072 Financial Manager of Habitech Ltd. from
August 1994 to September 1996. From 1990 to
1994, Mr. Duff worked in the bicycle retail
business.
SUBSTITUTES
Jonathan Teague (43) Risk Manager of Emeritus Corporation since
Business Address 1996. Previously Mr. Teague served as
3131 Elliott Avenue, #500 Director of Loss Prevention of Hillhaven
Seattle, WA 98121 Corporation from 1990 to 1996. Mr. Teague
serves on the Board of Long Term Care Risk
Management Group.
Jim Keller (35) Controller of Emeritus Corporation since
Business Address July 1994. From February 1990 until 1994,
3131 Elliott Avenue, #500 Mr. Keller was employed by The Myers
Seattle, WA 98121 Associates PC, a regional public accounting
firm. Mr. Keller will resign as an Officer
of Emeritus Corporation if elected to the
ARV Board.
Bill Shorten (29) Financial Analyst of Emeritus Corporation
Business Address since November 1995. Previously, Mr. Shorten
3131 Elliott Avenue, #500 served as a Financial Analyst with
Seattle, WA 98121 Washington Mutual from November 1993 to
November 1995. Prior to that, Mr. Shorten
served as a Financial Analyst with Pacific
First Bank from August 1985 to May 1993.
Suzette McCanless (49) Eastern Divisional Director of Emeritus
Business Address Corporation since March 1997. Previously,
9371 US Hwy 19N, Suite D Ms. McCanless served as Group Vice President
Pinellas Park, FL 33782 and Director of Operations of Beverly Health
& Rehab Services from July 1996 to March
1997. Prior to that Ms. McCanless served as
Director of Operations of Hillhaven
Corporation from September 1995 to July
1996. Ms. McCanless also served as Regional
Manager of Delta Health Group from April
1994 to September 1995. Ms. McCanless was
the Area Manager of Beverly Enterprises from
January 1989 to March 1994.
Gary Becker (50) Western Divisional Director of Emeritus
Business Address Corporation since 1997. Mr. Becker
3131 Elliott Avenue, #500 previously served as Vice President of
Seattle, WA 98121 Operations of Sun Health Care from 1993 to
1997. Prior to that, Mr. Becker served as
Vice President of Operations of Hillhaven
Corporation from 1982 to 1993.
Russ Kubik (43) Texas Regional Director of Emeritus
Business Address Corporation since March 1997. Previously,
5619 Belmont Avenue Mr. Kubik served as Regional Manager of
Dallas, TX 75206 Sunrise Health Care from May 1994 to March
1997. Prior to that Mr. Kubik served as
Regional Manager of Beverly Enterprises from
1991 to 1994.
</TABLE>
The Emeritus Nominees recognize their duties under applicable law, including
federal antitrust laws, and will take all necessary precautions to make
certain that their service as a director of ARV does not violate any such
laws.
According to the Company's public filings, the election of the
Emeritus Nominees as directors of ARV requires a plurality of the votes cast
by the holders of the shares of Common Stock represented in person or by proxy
at the Annual Meeting and entitled to vote in the election of directors,
assuming a quorum is present at the Annual Meeting. Thus, assuming a quorum
is present and that cumulative voting does not apply, the nine persons (or 10
persons in the event the size of the ARV Board is increased) receiving the
greatest number of votes will be elected to serve as directors, three persons
to serve until each of the next three annual meetings. Non-voted shares with
respect to the election of directors will not affect the outcome of the
election of directors.
The foregoing description of the impact of your vote is
qualified in its entirety by any action that the ARV Board may take between
the date of this Proxy Statement and the date of the Annual Meeting. Emeritus
intends to supplement this Proxy Statement or otherwise publicly disseminate
information regarding any such action by the ARV Board.
WHY YOU SHOULD VOTE FOR THE EMERITUS NOMINEES
The Emeritus Nominees are committed to giving all of the
Company's shareholders the opportunity to receive $17.50 per share in cash for
their shares of Common Stock, and if elected are committed to taking all
necessary actions, subject to their fiduciary duties to the Company's
shareholders under California law, to facilitate consummation of a merger of
ARV and Emeritus.
Emeritus believes that its Offer is in the best interests of
the Company's shareholders.
o Emeritus has offered to acquire all shares of the
Company's Common Stock at a price of $17.50 per share in
cash. This represents a 54% premium over the closing
price on July 14, 1997, the last trading day prior to the
announcement of the Original Prometheus Transaction. In
addition, this price represents a 30% premium over $13.42,
the average closing price of the Company's Common Stock
during the period from and including July 15, 1997 through
and including December 18, 1997, the last trading day
before we announced our Offer. Furthermore, since the
Original Prometheus Transaction was announced on July 15,
1997, no other party has come forward to offer the
shareholders a higher price than Emeritus' $17.50 per
share Offer.
o Although both Prometheus and Emeritus are interested in ARV, only the
Offer provides an immediate cash payment to all ARV shareholders. By
contrast, the Amended Prometheus Transaction and the subsequent Note
Redemption and issuance of the Redemption Shares ignore and bypass
the ARV shareholders and allow Prometheus to purchase 39% of ARV at
$14.00 per share without providing any immediate payment to the ARV
shareholders. It also significantly dilutes the shareholders'
interest in ARV.
o The Emeritus Offer provides you an immediate return on your
investment. Any comparable returns for the ARV shareholders through
the Amended Prometheus Transaction are delayed and uncertain. The
Company intends to use the capital obtained through the Amended
Prometheus Transaction in large part to acquire and develop new
assisted-living facilities. ARV shareholder returns therefore will
depend on, among other factors, the quality of ARV management, the
availability of acquisition properties at attractive prices, the
ability of ARV management to undertake, control and integrate a
substantial program of acquiring existing properties, developing new
properties and operating both acquired and developed properties, the
continued expansion of the assisted-living industry and the response
of the financial markets to the assisted-living segment in general
and to the Company in particular.
WHY YOU SHOULD NOT VOTE FOR THE ARV NOMINEES
Emeritus is a substantial ARV shareholder, owning 1,077,200
shares of Common Stock, or approximately 6.8% of the Outstanding Common
Stock. As a shareholder, Emeritus is seriously concerned about (i) the
ability of the public shareholders to obtain a control premium after the
Annual Meeting, (ii) the ability of the Prometheus transactions to deliver
returns superior to the $17.50 per share all cash Offer being offered by
Emeritus, (iii) the impact of the Prometheus transactions on the public
shareholders and (iv) the motivations of the ARV directors in structuring
the Prometheus transactions in such a way as to entrench their position on
the ARV Board.
The Emeritus Offer is the best opportunity for ARV shareholders
to obtain a control premium for their shares and possibly the last opportunity
to obtain such a premium.
o ARV management has implemented a poison pill that restricts third
parties except for Prometheus from acquiring 10% or more of ARV.
Prometheus may purchase up to 49.9% of the Common Stock over the next
three years and additional shares in excess of 49.9% thereafter, thus
allowing Prometheus, and no other third party, to acquire control of
the Company. The poison pill can be redeemed by the ARV Board, but up
to now, the ARV Board has been unwilling to do so. This Annual
Meeting is your last chance to remove the entire ARV Board and
replace it with a slate of nominees committed to amending or
redeeming the poison pill.
o After the Annual Meeting, if the ARV nominees are elected, it will be
significantly more difficult for the ARV public shareholders to
obtain a control premium for their shares. After this election, ARV
will have in place a poison pill that restricts third parties from
acquiring 10% or more of the Common Stock; a classified board, which
prevents a third party from removing the entire ARV Board and
redeeming the poison pill; and no cumulative voting, which would have
enhanced the ability of minority shareholders to elect directors.
The incumbent ARV Board entered into a series of transactions with
Prometheus that are not in the best interest of its shareholders.
o Under a stockholders agreement entered into at the time of the Amended
Prometheus Transaction, the ARV Board has secured a three-year
contractual commitment from Prometheus to vote all of its shares,
which currently represent approximately 39.0% of the Outstanding
Common Stock, for directors nominated by the ARV Board,
substantially disenfranchising the public stockholders of ARV and
making it extremely difficult for the other shareholders to
contest director elections for the ARV Board.
o The transactions with Prometheus include a voting agreement among
certain senior managers of ARV and Prometheus under which an
additional 9.1% of the Outstanding Common Stock is committed to
vote for the directors nominated by the ARV Board and Prometheus.
Aggregating these shares and the 39% of Common Stock currently
owned by Prometheus, unless Emeritus is successful in having the
Note Redemption and issuance of the Prometheus Shares rescinded in
court, approximately 48.1% of the outstanding Common Stock is
committed to vote for the director nominees of the ARV Board and
of Prometheus at this Annual Meeting.
o In addition, during the next three years, Prometheus may purchase
up to 49.9% of the outstanding Common Stock, and Prometheus has
agreed to vote such shares for the director nominees of the ARV
Board and of Prometheus. Consequently, under the stockholders
agreement and the voting agreement described above and assuming
Prometheus converts its Notes in the ordinary course, ARV
management and Prometheus could be obligated to vote in excess of
57% of the then outstanding Common Stock for the director nominees
of the ARV Board and of Prometheus at any future annual meeting,
completely eliminating the other stockholders from contesting
director elections.
o After three years Prometheus will no longer be restricted to owning
only 49.9% of the Company and will be in a position to obtain
outright and majority control of ARV with no change of control
premium being paid to ARV's other shareholders.
o The Amended Prometheus Transaction and subsequent Note Redemption and
issuance of the Redemption Shares have diluted all other ARV
shareholders. Prior to the transaction with Prometheus there were
approximately 9.7 million shares of Common Stock outstanding. If
Emeritus is unsuccessful in challenging the issuance of the
Prometheus Shares in court, there will be over 15 million shares of
Common Stock outstanding, an increase of over 50%.
o ARV has engaged in delaying tactics to avoid facing you, the
shareholders, on their dealings with Prometheus and their refusal to
negotiate with us. Meanwhile ARV has increased the shares in
Prometheus hands to make it much more difficult for the public
shareholders to have an effective voice at the Annual Meeting. The
December 18, 1997 record date is the fourth time that ARV has set a
record date for the Annual Meeting and the January 28, 1998 Annual
Meeting date is the third time that ARV has set a new meeting date.
The original record date and Annual Meeting date were August 19, 1997
and October 14, 1997, respectively. ARV subsequently reset the
record date for October 10, 1997. After Emeritus announced its
proposal to purchase ARV for $16.50 per share on October 13, 1997,
ARV restructured its transaction with Prometheus on October 30, 1997,
and once again reset the record date and Annual Meeting date for
November 14, 1997 and January 8, 1998, respectively. Finally, after
Emeritus nominated the Emeritus Nominees and filed it preliminary
proxy materials with the Commission on November 24, 1997, ARV
redeemed the Notes and yet again reset the record date and Annual
Meeting date for December 18, 1997 and January 28, 1998,
respectively, the effect of which is to enable Prometheus to vote the
Redemption Shares at the Annual Meeting.
o The Notes, which generally were convertible at a conversion price of
$17.25 for approximately 5.4 million shares, were redeemed by ARV at
a redemption premium of 23.214% for approximately 6.2 million shares
at an effective conversion price of $14.00 per share, thus resulting
in approximately 800,000 additional shares being issued to
Prometheus. Emeritus knows of no valid business reason that would
justify ARV's decision to redeem the Notes, and Emeritus believes
that the redemption is nothing more than an attempt by the ARV Board
to buy votes for itself in advance of the Annual Meeting.
o Since Emeritus first made its interest in ARV known in June 1997, the
ARV Board has refused to negotiate with Emeritus. Without attempting
to discuss any proposed transaction or meet with Emeritus, the ARV
Board has entered into a series of transactions with Prometheus that
provide current ARV shareholders with no immediate value.
The above points confirm to Emeritus that the motivations of
the current ARV Board lay in completing a transaction that secures their
own positions in the Company and not in seriously discussing and evaluating
alternative transactions that would create immediate shareholder value.
ACCORDINGLY, EMERITUS URGES YOU TO VOTE "FOR" THE ELECTION OF
THE EMERITUS NOMINEES.
BACKGROUND
The following summary of the terms of the Original and Amended
Prometheus Transactions is derived from the information contained in the ARV
Preliminary Proxy Statement (the "First ARV Proxy Statement") filed on August
22, 1997 with the Commission and the Company's Report on Form 8-K dated
October 29, 1997 (the "8-K") and is qualified in its entirety by the
information set forth in the First ARV Proxy Statement and the 8-K. The First
ARV Proxy Statement, the 8-K, the various transaction agreements referred to
herein, as well as the Company's Annual Report on Form 10-K/A, Quarterly
Reports on Form 10-Q and other documents filed with the Commission should be
available for inspection and copies thereof should be obtainable in the manner
set forth in "OTHER INFORMATION".
According to the First ARV Proxy Statement, prior to June 1997,
the Company's investment bankers and advisors held informal meetings with
representatives of Prometheus to discuss Prometheus' interest in making an
investment in the Company. On June 2, 1997, Salomon Brothers Inc ("Salomon
Brothers") arranged a meeting between representatives of the Company and
Prometheus to discuss such a transaction. At the time of the Company's initial
meetings with Prometheus, the Company was in negotiations with another
"potential investor", which had been performing due diligence on the Company
since February 1997. On June 12, 1997, representatives of Prometheus, the
Company and Salomon Brothers met to discuss the proposed terms of Prometheus'
potential investment in the Company. Over the next two weeks, representatives
of the Company met with each of Prometheus and a "potential investor" to
discuss their respective proposals.
In late June 1997, Daniel R. Baty, the Chairman and Chief
Executive Officer of Emeritus, telephoned Gary L. Davidson, the then Chairman,
President and Chief Executive Officer of ARV, and later visited Mr. Davidson
at the ARV headquarters on July 3, 1997. During these interactions, Mr. Baty
stated Emeritus' interest in exploring a business combination between the two
companies.
According to the First ARV Proxy Statement, on June 27, 1997
the Company entered into an exclusivity agreement with Prometheus pursuant to
which the Company agreed not to pursue a transaction with any other investor
prior to August 8, 1997 while negotiations on definitive agreements with
Prometheus were in process. The Company also engaged Salomon Brothers as its
financial advisor on that date with respect to the potential transaction.
Between June 27, 1997 and July 13, 1997, the Company and Prometheus negotiated
the specific terms of the proposed transaction and reached agreement on the
form of the definitive agreements pertaining to the Original Prometheus
Transaction.
The First Emeritus Proposal
On July 10, 1997, prior to the announcement of the Original
Prometheus Transaction, Emeritus delivered the following letter to Mr.
Davidson:
[LETTERHEAD OF EMERITUS]
July 10, 1997
Gary L. Davidson
Chairman of the ARV Board, President,
Chief Executive Officer
ARV Assisted Living, Inc.
245 Fischer Avenue, Suite D-1
Costa Mesa, California 92626
Re: Proposal
Dear Mr. Davidson:
Starwood Capital Group, LLC ("Starwood") and Emeritus
Corporation ("Emeritus") would like to present to you and your Board of
Directors a detailed proposal for the acquisition of ARV Assisted Living, Inc.
("ARV"). As discussed below, alternative proposals would be designed to
result in a minimum value of $14.00 per share to ARV shareholders, optional
liquidity, and the opportunity to participate in the upside of the combined
entities.
In the first alternative, Emeritus would acquire ARV in a tax
free merger or similar business combination transaction in which ARV
shareholders would receive Emeritus Common Stock equal in value to a minimum
of $14.00 for each share of ARV Common Stock. Starwood, through a significant
investment in Emeritus, would provide ongoing financing for the combined
company.
In the second alternative, the ARV shareholders would be
offered consideration consisting of Emeritus Common Stock and cash. The
consideration would be valued at a minimum of $14.00 per ARV share of Common
Stock and, at the election of ARV shareholders, could consist of up to 50% in
cash. Starwood, through its private $830 million investment fund, would
provide financing for the cash portion of the offer and ongoing financing for
the combined company.
Of course, a number of structuring, tax and regulatory
considerations would have to be addressed before arriving at an agreement in
principle, but the objective would be to achieve a minimum value of $14.00 per
share for ARV shareholders and immediate liquidity if desired. Nevertheless,
both Starwood and Emeritus, are familiar with ARV's assets and operations and
will be in a position to accelerate the due diligence process.
As you know, Starwood has reviewed with your management team
certain information, pursuant to that certain confidentiality agreement dated
April 3, 1997, between ARV and Starwood. Starwood has of course not shared
any such confidential information with Emeritus.
Independent of Starwood, Emeritus has visited and inspected 41
of 48 properties, analyzed publicly available financial information, and
currently owns approximately 4.9% of the outstanding ARV common stock, which
shares were acquired prior to any contact between Emeritus and Starwood.
Starwood and Emeritus believe that the combination of Emeritus,
ARV, and Starwood would create the largest, strongest and fastest growing
company in the assisted living industry. We also believe that these proposals
provide a significant premium value to the ARV shareholders of over 35% above
the current market price, and a superior value and more attractive liquidity
option than other transactions you may be currently contemplating, while
allowing them the flexibility of continuing their investment in what would be
the dominant and fastest growing assisted living concern in the United States.
We propose that a meeting be held as soon as possible to
discuss these proposals and explore possible structures and alternatives. We
and our advisors are available to meet you in Costa Mesa at your earliest
convenience. Please call us at (206) 298-2909 to arrange such a meeting.
Sincerely,
EMERITUS CORPORATION
By
Its Chairman
Starwood Capital Group, LLC
By
Its Managing Director
* * *
Mr. Davidson responded to the above letter by delivering the
following letter to Mr. Baty on July 11, 1997:
[LETTERHEAD OF ARV]
July 11, 1997
Mr. Daniel R. Baty
Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121-1031
Dear Dan:
Thank you for your July 10th fax. I have forwarded copies to
each of the directors for their review. We are attempting to schedule a
meeting next week to consider your proposal.
Sincerely yours,
Gary L. Davidson
* * *
The Original Prometheus Transaction
According to the First ARV Proxy Statement, on July 13, 1997, a
special meeting of the ARV Board of Directors was called to discuss the
proposed transaction with Prometheus and the July 10, 1997 letter from
Emeritus. According to the First ARV Proxy Statement, at a meeting of the ARV
Board of Directors on July 14, 1997, after Salomon Brothers delivered its
written opinion to the ARV Board of Directors expressing its opinion that the
cash price of $14.00 per share of Common Stock to be received by the Company
in connection with the Original Prometheus Transaction was fair to the Company
from a financial point of view, the ARV Board of Directors voted unanimously
to approve the Original Prometheus Transaction. The Company then entered into
a Stock Purchase Agreement, dated July 14, 1997, as amended July 20, July 22
and September 30, 1997, (the "Stock Purchase Agreement") among LFREI,
Prometheus and ARV, and related agreements.
Subject to the terms and conditions of the Stock Purchase
Agreement, the Company planned to sell to Prometheus up to 9,653,325 shares of
Common Stock at a purchase price of $14.00 per share, representing an
aggregate investment of $135.1 million (the "Total Equity Commitment"). The
share acquisition was to be consummated in three phases. On July 23, 1997
(the "Initial Closing"), the Company sold to Prometheus 1,921,012 shares,
representing an aggregate investment of $26.9 million. The shares sold to
Prometheus at the Initial Closing represent 16.6% of the outstanding Common
Stock.
Following shareholder approval, the Company planned to sell to
Prometheus 3,078,988 shares (the "Second Closing"). Thereafter, the Company
from time to time at its election could sell additional shares to Prometheus
at $14.00 per share, in minimum increments of 715,000 shares (the "Subsequent
Closings"), until the Total Equity Commitment was invested or, if earlier,
eighteen months after shareholder approval or, if earlier, June 30, 1999
(unless extended by mutual agreement of the parties).
The Second Closing and each Subsequent Closing were subject to
various conditions, including (i) receipt of shareholder approval, (ii)
adoption of certain amendments to the Company's charter and bylaws, (iii)
receipt by the Company of title policies on certain of its properties, a
promissory note from an affiliate of the Company and estoppel certificates from
certain of the Company's landlords and (iv) the satisfaction of various
customary conditions.
From and after the date of the Stock Purchase Agreement, until
such date that Prometheus' remaining equity commitment was zero and either (i)
Prometheus no longer beneficially owned at least five percent of the
outstanding Common Stock, on a fully diluted basis, or (ii) Prometheus no
longer beneficially owned Common Stock having an aggregate market value of at
least $25 million (each, a "Termination Event"), the Original Prometheus
Transaction required the Company to consult with Prometheus prior to acting on
certain matters including those concerning the Company's financing
arrangements, acquisitions, dispositions and employment of executive
management.
Under the Stock Purchase Agreement, the Company agreed not to
solicit any Competing Transaction (as defined below) and to give notice to
Prometheus of any competing proposal that it received. The ARV Board could,
in accordance with the terms of the Stock Purchase Agreement, terminate the
transaction with Prometheus at any time in favor of a Competing Transaction
which it determined in good faith would provide greater value to the Company's
shareholders. Prior to entering into a definitive agreement with respect to a
Competing Transaction, however, the Company had to provide Prometheus with a
minimum of (A) five business days' notice of the competing party's interest in
pursuing a Competing Transaction and (B) two business days' notice of the
superior proposal of the competing party. For purposes of the Stock Purchase
Agreement, a "Competing Transaction" is defined as (i) any acquisition in any
manner, directly or indirectly (including through any option, right to acquire
or other beneficial ownership), of more than 15% of the equity securities, on
a fully diluted basis, of the Company, or assets representing a material
portion of the assets of the Company, other than any of the transactions
contemplated by the Stock Purchase Agreement, or (ii) any merger,
consolidation, sale of assets, share exchange, recapitalization, other business
combination, liquidation or other action out of the ordinary course of
business of the Company, other than any of the transactions contemplated by
the Stock Purchase Agreement.
The Stock Purchase Agreement also provided that (i) if the ARV
Board did not recommend shareholder approval of the Prometheus Transaction and
either (A) the Company's shareholders failed to approve the Transaction or (B)
the Second Closing did not occur on or before March 15, 1998, or (ii) the
Company failed to convene the meeting of its shareholders prior to February
15, 1998, then the Company would have had to pay Prometheus a $6,000,000
adjustment to the purchase price of the shares purchased in the Initial
Closing and a $7,000,000 breakup fee, as well as Prometheus' expenses.
Alternatively, if the ARV Board recommended shareholder approval of the
Transaction and the shareholders failed to approve the Transaction, then the
Company would have had to pay Prometheus an $8,700,000 adjustment to the
purchase price, as well as Prometheus' expenses. If the transactions
contemplated in the Stock Purchase Agreement did not close as a result of a
willful breach of a material representation, warranty or covenant in the Stock
Purchase Agreement, then the Company would have had to pay Prometheus
$13,000,000 as both an adjustment to the purchase price of the shares of
Common Stock purchased in the Initial Closing and a break-up fee, as well as
Prometheus' expenses.
The Stock Purchase Agreement also provided that if the Company
did not receive shareholder approval prior to February 15, 1998, Prometheus
had the right to transfer shares purchased at the Initial Closing without
being subject to the restrictions on transfer set forth in the Stockholders
Agreement (as defined below), so long as it did not transfer any shares of
Common Stock to a competitor of the Company.
Pursuant to the Stock Purchase Agreement, the Company, LFREI
and Prometheus entered into a Stockholders Agreement, dated July 14, 1997,
(the "Stockholders Agreement") simultaneously with the Stock Purchase
Agreement. Under the Stockholders Agreement, Prometheus was entitled to
certain rights, including the following:
(i) the right to nominate up to four directors to the ARV Board; and
(ii) from and after the date of the Stockholders Agreement until a
Termination Event, the right to participate in the Company's future equity
offerings for cash by purchasing its proportionate share of the securities
offered therein.
Pursuant to the Stockholders Agreement, from and after the date
that the Prometheus-appointed directors became members of the ARV Board, an
affirmative vote of eight of the eleven directors of the Company would have
been required to take any action of the ARV Board other than in the ordinary
course of business (with certain exceptions), including (i) the acquisition or
sale of any business or assets having a value in excess of one percent of the
Company's assets, (ii) incurrence of indebtedness having a value in excess of
one percent of the Company's assets, (iii) the approval of any annual
operating budget of the Company, (iv) a material change in the Company's
management, (v) a change in the number of shares of Common Stock authorized
for issuance and (vi) a change in the Company's dividend policy.
Pursuant to the Stockholders Agreement, the Company was to form
an executive committee initially consisting of five members, two of whom were
to be appointed by LFREI. The executive committee would have been delegated
authority to approve certain board actions by the affirmative vote of four of
the five members. In addition, as long as Prometheus maintained a greater
than 30% ownership interest in the Company, at least one LFREI-appointed
director was to serve on each other special committee of the ARV Board,
including the audit and compensation committees. Also, unless a Termination
Event occurred, an LFREI-appointed director was to serve on the nominating
committee, which generally has the authority to nominate directors and the
Chairman, Chief Executive Officer and President of the Company. All nominees
to the ARV Board (other than the LFREI-appointed directors) would have
required the unanimous approval of the nominating committee, provided that if
the nominating committee could not unanimously agree on a nominee, the
nomination would have been referred to the entire ARV Board, which would have
decided the matter based on a simple majority vote.
The Stockholders Agreement also provided for a standstill
period of three years during which Prometheus would have been subject to
certain limitations and restrictions relating to, among other matters: (a)
acquisitions of additional shares of Common Stock (generally limiting
Prometheus to beneficially owning no more than 49.9% of the shares of Common
Stock on a fully diluted basis), (b) acting in concert with others by becoming
a member of a "group" for purposes of Section 13(d) of the Exchange Act, (c)
soliciting, encouraging or proposing certain significant transactions
involving the Company, (d) soliciting, initiating, encouraging or
participating in the solicitation of proxies in connection with any election
contest involving the ARV Board or initiating or proposing or participating in
or encouraging the making of, or soliciting shareholder approval of, any
shareholder proposal, (e) seeking representation on the Company's Board of
Directors other than as contemplated by the Stockholders Agreement, and (f)
requesting any waiver of the foregoing restrictions. For a period of two
years after Shareholder Approval or, if earlier, until a Termination Event,
Prometheus and certain of its affiliates would not have been permitted to sell
any shares of Common Stock. Thereafter, and during the remaining term of the
standstill period, Prometheus and certain of its affiliates, including LFREI,
would have been unable to transfer any shares of Common Stock except (i) in
transactions pursuant to Rule 144 under the Securities Act of 1933, (ii) in
negotiated transfers to third parties other than competitors of the Company,
(iii) to certain affiliates who agreed to be bound by the terms of the
Stockholders Agreement, (iv) in accordance with the registration rights
agreement in a bona fide public offering or (v) subject to certain conditions,
to bona fide financial institutions for the purpose of securing bona fide
indebtedness.
In addition to the Stock Purchase Agreement and the
Stockholders Agreement, the Company, LFREI and Prometheus also executed a
Registration Rights Agreement pursuant to which the Company granted Prometheus
certain demand registration rights to facilitate the resale of the shares of
Common Stock owned by it under certain conditions and certain piggyback rights
to sell a portion of its shares of Common Stock in connection with certain
offerings of securities by the Company. In addition, certain management
shareholders of the Company (representing, in the aggregate, 2,459,474 shares
of Common Stock) and Prometheus executed a voting agreement pursuant to which
such shareholders agreed to vote for the Prometheus Transaction and for the
directors nominated by the ARV Board's nominating committee and Prometheus.
On July 14, 1997, the Company also executed a poison pill
Rights Agreement, as amended, (the "Rights Agreement") between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the "Rights
Agent"), pursuant to which the preferred share purchase rights (the "Rights")
were issued. To consummate an acquisition of ARV, Emeritus has to be
satisfied that the Rights have been invalidated or are otherwise inapplicable.
The Rights are described in the Company's Report on Form 8-K
dated July 14, 1997 (the "Company Rights 8-K"). The Rights Agreement provides
that, until the close of business on the Distribution Date (as defined in the
Rights Agreement), the Rights will be evidenced by the certificates for shares
of Common Stock. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
shares of Common Stock will also constitute the surrender for transfer of the
Rights associated with the shares of Common Stock represented by such
certificates. The Rights Agreement further provides that, as soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights will be mailed by the Company or the Rights Agent to holders of
record of shares of Common Stock as of the close of business on the
Distribution Date.
The Rights Agreement provides that, at any time prior to the
time that an Acquiring Person (as defined in the Rights Agreement) has become
such, the ARV Board may redeem the Rights in whole, but not in part, at a
price of $.01 per Right.
Based on publicly available information, Emeritus believes
that, as of the date of the Proxy Statement, the Rights were not exercisable,
certificates for Rights had not been issued and the Rights were evidenced by
the certificates for shares of Common Stock.
The foregoing is a summary of the poison pill and is qualified
in its entirety by reference thereto.
On July 15, 1997, the Company and Prometheus issued a joint
press release announcing the Original Prometheus Transaction.
On July 16, 1997, the Company and Prometheus held a joint
conference call with analysts of the Company to discuss the Original
Prometheus Transaction. The conference call permitted shareholders and
analysts interested in the Company to ask questions about the Original
Prometheus Transaction. Mora Conley of Financial Relations Corp. introduced
Gary Davidson and Robert Freeman, President of Lazard Freres Real Estate
Investors LLC, who each made introductory remarks about the Original Prometheus
Transaction. Graham Espley-Jones, Chief Financial Officer of the Company, David
Collins, Senior Executive Vice President of the Company and other members of
the Company's senior management also participated in the call. During the
question and answer period a number of issues were discussed pertaining to the
Original Prometheus Transaction including the components of Prometheus'
investment, Prometheus' commitment to invest $135 million in the Company
through June 30, 1999, the significance of certain related transactions and
agreements, the plan to increase the size of the Company's board to 11
members, the extent of Prometheus' participation in the day-to-day activities
of the Company, the Company's consideration of tender offers or other
alternative proposals, the reasons behind the implementation of the poison pill
and other technical issues related to the transaction.
On July 21, 1997, Emeritus delivered the following letter to
the ARV Board of Directors:
[LETTERHEAD OF EMERITUS]
July 21, 1997
To the Members of the
Board of Directors of
ARV Assisted Living, Inc.
Gentlemen:
We were surprised and disappointed with the press release
issued by ARV Assisted Living, Inc. ("ARV") announcing the terms of the
proposed issuance of a 49.9% equity stake to Prometheus Assisted Living LLC
("Prometheus") and the adoption of a shareholders rights plan (the "Rights
Plan").
As you know, on July 10, 1997, we sent your chairman, Gary
Davidson, a written proposal pursuant to which we would acquire ARV in a
transaction which valued ARV common stock at $14 per share. In Mr. Davidson's
written response to us dated July 11, 1997, he indicated that our proposal had
been forwarded to each of the directors of ARV, and proposed scheduling a
meeting for the following week to consider such proposal.
The Prometheus transaction, and certain statements made by both
Prometheus and Mr. Davidson in connection therewith, raises a number of very
serious concerns:
1. As we understand the proposed Prometheus transaction,
Prometheus may purchase newly-issued ARV common stock over two
years at a price of $14 per share. This, in our view, is
significantly less attractive to the ARV shareholders than our
offer to purchase all of the shares for the same purchase price
per share. We note that the closing price for ARV's shares two
days after the announcement of the Prometheus transaction was only
$12-1/2 per share, reflecting the market's own tepid reaction to
such proposed transaction. As holders of approximately 4.9% of
ARV's common stock, we consider the proposed Prometheus
transaction to be highly dilutive to the long-term value of the
existing shareholders' common stock.
2) It is apparent that ARV's board never gave serious
consideration to our proposal. We believe that, both in failing
to meet with us regarding our proposal and in entering into the
proposed transaction with Prometheus, the board of directors of
ARV (the "Board") breached its fiduciary duty to maximize
shareholder value.
3) The potential break-up fee of up to $13 million for
Prometheus is enormous in light of the size of the proposed
transaction. . . . Perhaps even more importantly, we do not see
any benefit to ARV in agreeing to pay a break-up fee to
Prometheus, since the proposed transaction with Prometheus is not
itself designed to maximize shareholder value. Thus, the break-up
fee does not satisfy the primary purpose of such fees, namely to
protect the value created by a transaction. Rather, it merely
shifts up to $13 million of value from any other transaction that
might be proposed away from ARV's shareholders.
4) We believe that the Rights Plan constitutes an inappropriate
attempt to entrench current management, especially in light of the
fact that it was apparently adopted in direct response to our
proposal and in order to deter any challenge to the proposed
Prometheus transaction. In any event, it has the effect of
chilling any other proposals to maximize shareholder value.
5) In the conference call held with a number of major ARV
shareholders, representatives of Prometheus repeatedly made a
point of telling the participants that they were attracted to the
announced transaction because it was entered into outside the
context of competitive bid situation, thus implicitly denying the
existence of our proposal despite their actual knowledge of it.
Even more surprising, in response to direct questioning by one of
the shareholders, Mr. Davidson affirmatively denied that ARV had
received any other proposal regarding an acquisition or
recapitalization of the company other than the proposal from
Prometheus. Obviously, such statements by Prometheus and such
statement by Mr. Davidson's are flatly incorrect and in direct
contradiction of Mr. Davidson's written response to our proposal.
We believe that ARV has an affirmative duty to its shareholders to
correct the highly inaccurate and deceptive nature of both
Prometheus' and Mr. Davidson's statements.
6) Also during the conference call, Prometheus explained that
they were only acquiring 49.9% of ARV in order to avoid certain
"technical issues" involved in a change of control. We can only
assume that such technical issues include the heightened duties of
ARV's board in connection with a transaction involving a change in
control. However, it is clear to us that the proposed transaction
does result in a change in control to Prometheus. First, the
transaction will result in Prometheus designating four out of
eleven directors, and the bylaws of ARV being amended to require
the approval of eight of the eleven directors for any board
action. This obviously gives Prometheus an absolute veto power
over all board actions. Second, the five-man "executive
Committee" [sic] to be formed pursuant to the proposed
transaction will include two of the Prometheus directors, with
actions thereby requiring the approval of four out of five
members. Thus, Prometheus will also have an absolute veto over
executive committee actions. Finally, at 49.9%, Prometheus will
be by far the largest shareholder of ARV, and will have effective
voting control of ARV.
As a consequence of the foregoing, we believe that the members
of ARV's board of directors have failed to satisfy their fiduciary duty to
maximize shareholder value, and have taken actions designed to entrench
management to the detriment of shareholders. In addition, we believe that
Prometheus and Mr. Davidson have made affirmative statements which are both
false and misleading, and that ARV has an affirmative duty to correct such
material misstatements.
We believe that the shareholders for ARV have a right to be
informed of our interest in pursuing a transaction with ARV. To that end, we
are prepared to discuss the terms of an all-cash offer which values ARV's
common stock $14 per share, and to proceed very quickly to consummate such a
transaction on mutually agreeable terms.
We hereby request the members of the board of directors of ARV
to authorize and direct the appropriate officers or representatives to meet
with us as soon as possible to discuss a potential transaction with us which
will maximize shareholder value, and to remove any impediments to such a
transaction (including the proposed transaction with Prometheus, the break-up
fee included therein and the Rights Plan).
As a significant shareholder of ARV we intend to protect our
rights and those of your other shareholders.
Very truly yours,
Daniel R. Baty
Chairman
* * *
According to the First ARV Proxy Statement, on July 23, 1997,
Prometheus purchased 1,921,012 shares of Common Stock for an aggregate
purchase price of $26.9 million at the Initial Closing.
On July 25, Mr. Davidson delivered the following letter to Mr.
Baty:
[LETTERHEAD OF ARV]
July 25, 1997
Daniel R. Baty
Chairman
Emeritus Corporation
3131 Elliot Avenue, Suite 500
Seattle, WA 98121-1031
Dear Mr. Baty:
The Board of Directors of ARV Assisted Living, Inc. ("ARV") has
asked me to respond to your letter dated July 21, 1997. While we don't think
it is necessary to address each item raised in your letter, the Board wants
you to be aware of the following facts.
First, the Board carefully reviewed and considered the terms
outlined in your letter dated July 10, 1997 expressing an interest in opening
negotiations with ARV. Without going into all of the details, the Board
determined, based on our business judgment, that those terms were
significantly less attractive (and less definitive) for ARV shareholders than
the terms of the Prometheus transaction, which as Starwood knows ARV had been
pursuing for a considerable time. In the Board's view, the Prometheus
transaction maximizes shareholder value over the long term.
Second, the actual break-up fee for the Prometheus transaction
is $7 million, not $13 million. (The $13 million figure includes an
obligation to refund Prometheus $6 million as a purchase price adjustment for
its initial stock purchase.) Still, $13 million is only 3.7% of the total
enterprise value of ARV based on the $14.00 per share price paid by
Prometheus. As you know, this is well within the standard range for
transactions like this one, especially given the fact that Prometheus is
paying a premium in a transaction that does not result in a majority stake.
Thus, in the Board's business judgment, the break-up fee, designed to protect
the value of a transaction that was in shareholders' best interest, was
reasonable.
Third, the Shareholder Rights Plan was not adopted in direct
response to your July 10 letter. ARV has been considering the adoption of
such a plan for some time. The primary purpose of the Shareholder Rights Plan
is to ensure maximum value for all shareholders vis-a-vis any proposed
transaction involving the acquisition of a significant stake in ARV. It
allows the Board an opportunity to carefully consider and evaluate both the
short and long term effects of such transactions on all shareholders. As you
know, many companies have adopted similar rights plans and have subsequently
been acquired. The Rights Plan does not therefore deter other proposals, it
deters only those proposals that do not maximize shareholder value in the view
of the Board of Directors. For these reasons, all seven members of our Board
unanimously approved the Shareholder Rights Plan, including the five
non-management directors.
The Board's decisions were all made based on each Board
member's business judgment after careful consideration of all facts, with the
assistance of sophisticated professional advisors, and taking into account
each Board member's background and experience. Contrary to your reckless
allegations, Board members have acted in good faith to carry out our
respective fiduciary duties under the laws of the State of California.
Accordingly, there is no need to reconsider our decision regarding your July
10 letter.
Finally, please be advised that any attempt by Emeritus or its
partner Starwood Capital Group, LLP to interfere in the ARV-Prometheus
transaction would constitute a blatant disregard of Starwood's commitment and
legal obligation under the Confidentiality Agreement dated April 3, 1997, the
implications of which would go far beyond the context of this transaction.
Moreover, any steps taken by Emeritus/Starwood to interfere with the
ARV-Prometheus transaction would also constitute 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 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 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 Note Redemption by ARV
On December 8, 1997, ARV announced that the ARV Board had
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. The Complaint
contains allegations made by Emeritus and, as of the date hereof, no final
determination on the merits of the claims raised in the Complaint has been
made by the Court.
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. As of the date hereof, to the knowledge of Emeritus, no
final determination has been made by AMEX on the allegations raised by
Emeritus in its letter.
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.
COMPENSATION OF EMERITUS NOMINEES
The Emeritus Nominees will not receive any compensation from
Emeritus for their services as directors of the Company. It is expected
that the Emeritus Nominees will, subject to their fiduciary duties, support
the Offer and enter into a merger agreement with Emeritus.
According to the Company's public filings, if elected as
directors of the Company, the Emeritus Nominees who are not employees of the
Company would receive an annual retainer of $12,000, plus $500 for each
meeting of the ARV Board and each committee meeting attended. All directors
of the Company would be reimbursed by the Company for expenses incurred in
connection with their services as directors of the Company. The Emeritus
Nominees, if elected, will be indemnified by the Company for service as
directors of the Company to the extent indemnification is provided to
Directors of the Company under the Restated Articles of Incorporation of the
Company and the Bylaws. In addition, Emeritus believe that upon election, the
Emeritus Nominees will be covered by the Company's officer and director
liability insurance. Emeritus disclaims any responsibility for the accuracy
of the foregoing information, which has been extracted from the Company's
public filings.
According to the Company's public filings, in October 1995, the
Company established the 1995 Stock Option Plan, which provides, among other
things, that each non-employee director who is initially elected or appointed
to the ARV Board will, upon such election or appointment, be automatically
granted an option to purchase 10,000 shares of Common Stock, vesting at the
rate of 2,500 per year measured from the date of grant, at an exercise price
equal to the fair market value of the Common Stock on the date of grant. In
addition, every fourth year following the date on which such non-employee
director is elected or appointed, on the date of the annual meeting of the
shareholders of the Company, if such person has continuously served as a
non-employee director, such non-employee director shall automatically receive
an option to purchase 10,000 shares of Common Stock, at an exercise price
equal to the fair market value of the Common Stock on the date of grant,
vesting at the rate of 2,500 per year measured from the date of grant.
TENDER OFFER AND PROPOSED MERGER
On December 19, 1997, EMAC commenced an offer to purchase any
and all outstanding shares of Common Stock of the Company, together with the
associated preferred stock purchase 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 EMAC's 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").
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 of Common Stock. Emeritus currently intends, as
soon as practicable following consummation of the Offer, to propose and seek
to have the Company consummate a merger or similar business combination with
EMAC 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 Emeritus or any of its 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 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. See
"BACKGROUND". There can be no assurance that such negotiations will occur or,
if such negotiations occur, as to the outcome thereof. In addition, there can
be no assurance that all conditions to any merger agreement between the
Company and Emeritus will be satisfied such that any such merger would be
consummated. Emeritus is exploring ways to encourage the ARV Board to permit
the Company's shareholders to participate in the Offer and the Proposed Merger.
The Offer is conditioned upon, among other things, the
satisfaction or, where applicable, waiver of the following: (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
EMAC 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 EMAC
pursuant to the Offer, (ii) the Rights issued by the Company having been
redeemed by the Board of Directors of the Company or EMAC being satisfied, in
its discretion, that the Rights have been invalidated or are otherwise
inapplicable to the Offer and the Proposed Merger, (iii) Emeritus and EMAC
being satisfied, in their discretion, that EMAC 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 EMAC
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 EMAC and (v) the redemption of the Notes having been
rescinded. The Offer is also subject to other terms and conditions contained
in the Offer to Purchase. (See Section 14 of the Offer to Purchase.) The
Offer to Purchase is an exhibit to the Emeritus Schedule 14D-1 filed with the
Commission on December 19, 1997 and is publicly available as set forth under
"OTHER INFORMATION."
THE SPECIAL MEETING
To the extent that shareholder approval is required prior to
the consummation of a merger between ARV and Emeritus, Emeritus is soliciting
agent designations to call a Special Meeting of shareholders of ARV for
February 6, 1998 for the purpose of considering and voting upon an Agreement
and Plan of Merger between Emeritus and ARV pursuant to which Emeritus will
acquire all of the outstanding Common Stock of ARV for $17.50 per share in
cash.
Pursuant to Section 600(a) of the California General
Corporation Law and Section 2.3 of the Bylaws of the Company, a special
meeting of shareholders may be called at any time by "one or more shareholders
holding shares that in the aggregate are entitled to cast no less than 10
percent of the votes at that meeting". As of the date of this Proxy Statement,
Emeritus beneficially owns 1,077,200 Shares, or approximately 6.8% of the
Outstanding Common Stock. Emeritus plans to call the Special Meeting as soon
as agent designations have been received from the holders of at least 3.2% of
the Outstanding Common Stock.
As of the date hereof, no record date has been set for the
Special Meeting. Pursuant to the ARV Restated Articles of Incorporation, the
ARV Board may set a record date of not less than 10 and not more than 60 days
prior to the date of the Special Meeting. Accordingly, the record date for
the Special Meeting will be no later than January 27, 1998, which is a day
prior to the Annual Meeting and, therefore, assuming Emeritus is successful in
challenging the Redemption and issuance of the Redemption Shares in court, a
day prior to the earliest date at which Prometheus will be permitted to
convert the Notes into Common Stock in the ordinary course (assuming that the
Notes were validly issued). Consequently, if Emeritus is successful in court,
Prometheus will not be able to vote any shares issuable upon conversion of the
Notes at the Special Meeting.
Emeritus intends to distribute proxy materials and to solicit
proxies from ARV shareholders to vote on a merger agreement at the Special
Meeting in the near future. However, Emeritus also recognizes that, in light
of the available time, it may be necessary to adjourn the Special Meeting
until a later date. Accordingly, at this time Emeritus is soliciting your
proxy to adjourn the Special Meeting from time to time as proposed by
Emeritus.
CERTAIN LITIGATION
Emeritus has commenced litigation against the Company and the
ARV Board in Orange County Superior Court in the Sate of California. See
"BACKGROUND".
ARV PROPOSALS 1 AND 2
The following descriptions of ARV Proposals 1 and 2, and the effects
thereof, are derived from the ARV Proxy Statement and are qualified in their
entirety by the information set forth in the ARV Proxy Statement, as amended
from time to time.
ARV PROPOSAL 1: REINCORPORATION OF ARV IN DELAWARE
General
The ARV Board has unanimously approved a proposal to change
ARV's state of incorporation from California to Delaware ("Reincorporation").
The primary reason for the proposed change in domicile is to
cause ARV to be governed by Delaware law, which over the years has undertaken
to maintain a modern and flexible corporation law which frequently is revised
to meet changing business conditions. As a result, Delaware has become a
preferred domicile for many major United States corporations. Because of
Delaware's significance as the state of incorporation of major corporations,
the Delaware judiciary has become particularly familiar with matters of
corporation law, and Delaware has a well-developed body of court decisions
interpreting its law. As a consequence, Delaware law is comparatively
well-known and understood.
A number of changes will be effected as a result of the
Reincorporation. Such changes are described below under the heading
"Comparison of Rights of Shareholders of ARV and Stockholders of the Delaware
Company."
The ARV Board estimates the aggregate costs to ARV of
Reincorporation to be approximately $175,000.
In the event this proposal is not adopted, ARV will continue to
operate as a California corporation.
Merger of ARV Assisted Living, Inc. into Newly Formed Delaware Subsidiary
The proposed Reincorporation would be accomplished by merging
ARV into a newly formed Delaware subsidiary, which is currently named ARV
Delaware, Inc. (the "Delaware Company"), pursuant to an Agreement and Plan of
Merger (the "Delaware Merger Agreement"), substantially in the form which is
attached as Appendix A to the ARV Proxy Statement. The Delaware Company was
incorporated in Delaware in November, 1997 specifically for purposes of the
Reincorporation and has conducted no business and has no material assets or
liabilities. After completion of the merger, the Delaware Company will change
its name to ARV Assisted Living, Inc. The Delaware Company's principal
executive offices are located at 245 Fischer Avenue, D-1, Costa Mesa,
California 92626, telephone (714) 751-7400. The Reincorporation would not
result in any change in ARV's business, assets or liabilities and would not
result in any relocation of management or other employees.
Certain Consequences of the Merger
Effective Time. The merger will take effect on the later of
the times (the "Effective Time") at which a Certificate of Ownership and
Merger is filed with the Secretary of State of Delaware and Articles of Merger
are filed with the California Department of Corporations, which filings are
anticipated to be made as soon as practicable after the Reincorporation
proposal is approved by the shareholders or ARV. At the Effective Time, the
separate corporate existence of ARV will cease and shareholders of ARV will
become stockholders of the Delaware Company.
Management After the Merger. Immediately after the merger of
ARV into the Delaware Company (the "Delaware Merger"), the Board of Directors
of the Delaware Company (the "Delaware Board") will be composed of the then
current members of the ARV Board.
Shareholder Rights. Certain differences in stockholder rights
exist under California General Corporation Law (the "CCL") and Delaware
General Corporation Law (the "DGCL") and the organization documents of ARV and
the Delaware Company. See "Comparison of Rights of Shareholders of ARV and
Stockholders of the Delaware Company" for a discussion of the effects of these
and other differences between the rights of stockholders under the CCL and the
DGCL.
Conversion of Common Stock. As a result of the
Reincorporation, each outstanding share of Common Stock will automatically
be converted into one share of common stock of the Delaware Company (the
"Delaware Common Stock"). Other than changes due to the differences
between California and Delaware law and certain differences between the ARV
Restated Articles of Incorporation (the "ARV Articles) and Bylaws (the "ARV
Bylaws") and the Delaware Company's Certificate of Incorporation (the
"Delaware Certificate") and Bylaws (the "Delaware Bylaws"), there will be
no material changes in the rights and obligations of holders of the Common
Stock as a result of the Reincorporation. The Delaware Common Stock will
be listed on the American Stock Exchange under the same symbol ("SRS") as
ARV's Common Stock.
Number of Shares of Common Stock Outstanding. The number of
outstanding shares of Delaware Common Stock immediately following the
Reincorporation will equal the number of shares of ARV Common Stock
outstanding immediately prior to the Effective Time.
Employee Plans. ARV's employee benefit plans (the "Plans"),
including ARV's 1995 Stock Option and Incentive Plan, will each be continued
by the Delaware Company following the Reincorporation. Approval of the
proposed Reincorporation will constitute approval of the adoption and
assumption of the Plans by the Delaware Company.
Outstanding Options. In addition to the assumption by the
Delaware Company of all options outstanding under the Plans, any and all other
outstanding options and other rights to acquire shares of Common Stock will be
converted into options or rights to acquire shares of Delaware Common Stock.
Federal Income Tax Consequences. The Reincorporation is
intended to be tax-free under the Internal Revenue Code. Accordingly, no gain
or loss will be recognized by the holders of shares of ARV Common Stock as a
result of the Reincorporation, and no gain or loss will be recognized by ARV
or the Delaware Company. Each former holder of shares of ARV Common Stock
will have the same tax basis in the Delaware Common Stock received by such
holder pursuant to the Reincorporation as such holder has in the shares of ARV
Common Stock held by such holder at the Effective Time. Each stockholder's
holding period with respect to the Delaware Common Stock will include the
period during which such holder held the shares of Common Stock, so long as
the latter were held by such holder as a capital asset at the Effective Time.
ARV has not obtained, and does not intend to obtain, a ruling from the
Internal Revenue Service with respect to the tax consequences of the
Reincorporation.
ARV believes no gain or loss should be recognized by the
holders of outstanding options to purchase shares of Common Stock, so long as
(i) such options (a) were originally issued in connection with the performance
of services by the optionee and (b) lacked a readily ascertainable value (for
example, were not actively traded on an established market) when originally
granted and (ii) the options to purchase the Delaware Common Stock into which
ARV's outstanding options will be converted in the Reincorporation also lack a
readily ascertainable value when issued. Notwithstanding the foregoing,
optionees should consult their own tax advisors regarding the federal income
tax consequences to them of the Reincorporation as well as any consequences
under the laws of any other jurisdiction.
The foregoing is only a summary of certain federal income tax
consequences. Shareholders should consult their own tax advisers regarding
the federal tax consequences of the Reincorporation as well as any
consequences under the laws of any other jurisdiction.
Accounting Treatment of the Delaware Merger
Upon consummation of the Delaware Merger, all assets and
liabilities of ARV will be transferred to the Delaware Company at book value
because the Reincorporation will be accounted for as a pooling of interests.
Appraisal Rights
California law provides that shareholders of a corporation
involved in a reorganization are not entitled to dissenters' rights if the
corporation, or its shareholders immediately before the reorganization, or
both, own (immediately after the reorganization) certain equity securities
possessing more than five-sixths of the voting power of the surviving or
acquiring corporation or a parent party. Consequently, because
Reincorporation is a reorganization in which the shareholders of ARV will own,
immediately after the reorganization, equity securities possessing more than
five-sixths of the voting power of the Delaware Company, appraisal rights are
not available to shareholders of ARV with respect to the Reincorporation.
Approval Required for Reincorporation
Under California law, the affirmative vote of a majority of the
outstanding shares of each class of ARV's capital stock entitled to vote on
the proposal is required for approval of the Reincorporation. The Common
Stock is the only class of ARV's capital stock of which shares are outstanding
and entitled to vote on the proposal to approve the Reincorporation.
Abstentions and broker non-votes will have the effect of votes against the
proposal to approve the Reincorporation. The Reincorporation may be abandoned
or the Delaware Merger Agreement may be amended (with certain exceptions),
either before or after stockholder approval has been obtained, if in the
opinion of the ARV Board, circumstances arise that make such action advisable.
Comparison of Rights of Shareholders of ARV and Stockholders of the Delaware
Company
General. Upon consummation of the Delaware Merger, the
shareholders of ARV will become stockholders of the Delaware Company, and
their rights as stockholders will be governed by the Delaware Certificate, the
Delaware Bylaws and the DGCL. The Delaware Certificate and Delaware Bylaws do
not differ in material respects from the ARV Articles and ARV Bylaws.
However, the rights of Delaware Company stockholders will be governed by the
DGCL, while the rights of ARV shareholders are governed by the CCL. The DGCL
and the CCL differ in many respects, and consequently it is not practical to
summarize all of such differences. It should be noted that certain aspects of
the DGCL have been publicly criticized because they do not afford minority
shareholders the same substantive rights and protections as are available
under the CCL.
The following is a summary of significant differences between
the ARV Articles, ARV Bylaws and applicable provisions of the CCL, on the one
hand, and the Delaware Certificate, Delaware Bylaws and applicable provisions
of the DGCL, on the other. This discussion is not intended to be complete and
is qualified in its entirety by reference to the Delaware Certificate and
Delaware Bylaws, attached as Appendices B and C to the ARV Proxy Statement.
Copies of the ARV Articles and ARV Bylaws are available for inspection at the
principal executive offices of ARV and copies will be sent to holders of
shares Common Stock upon request.
Directors; Classified Board; Cumulative Voting. Under the ARV
Articles, the ARV Board consists of a minimum of five and a maximum of nine
directors divided into two classes (so long as there are seven or eight
directors), in which each directors is elected for a two-year term, or three
classes (so long as there are nine directors), in which each director is
elected for a three-year term. The Delaware Certificate provides that the
Delaware Board shall consist of a minimum of five and a maximum of ten
directors divided into three classes, in which each director is elected for a
three-year term. The DGCL permits, but does not require, the adoption of a
classified board of directors with staggered terms, with each class having a
term of office longer than one year but not longer than three years. Under
the CCL, corporations whose outstanding shares are listed on the New York
Stock Exchange or the American Stock Exchange, and certain corporations whose
outstanding shares are authorized for quotation on the Nasdaq, are permitted
to have a classified board.
Cumulative voting, which enhances the ability of minority
stockholders to elect directors, is not available under the DGCL unless
otherwise provided in a corporation's certificate of incorporation. Under
cumulative voting, each stockholder is entitled to the number of votes equal
to the number of shares owned by the stockholder multiplied by the number of
directors to be elected. All such votes may be cast for a single nominee or
distributed among several nominees. In the absence of cumulative voting, the
holders of a majority of the shares present or represented at a meeting to
elect directors may elect all directors, and no director could be elected
without the support of a majority of the stockholders. The Delaware
Certificate does not provide for cumulative voting. Under the CCL,
corporations whose outstanding shares are listed on the New York Stock
Exchange or the American Stock Exchange and certain corporations whose
outstanding shares are authorized for quotation on the Nasdaq National Market
are permitted to eliminate cumulative voting. The ARV Articles provide for
the elimination of cumulative voting.
Removal of Directors; Filling Vacancies on the Board of
Directors. Under the DGCL, directors generally may be removed, with or
without cause, by the holders of a majority of voting shares. Under the CCL,
a director may be removed for cause by the directors or a court, upon suit by
holders of at least 10% of the outstanding shares. A director also may be
removed without cause, under the CCL, by the holders of a majority of voting
shares, unless the number of shares voting against removal would be sufficient
to elect such director if voted cumulatively.
Under the Delaware Bylaws, any vacancies on the Delaware Board
may be filled by a majority of the directors then in office whether or not
less than a quorum, or by a sole remaining director. In addition, the
Delaware Bylaws provide that a director elected to fill a vacancy on the
Delaware Board will serve for the unexpired portion of the term of the director
whose place has been filled. Under the DGCL, however, if at the time of
filling any vacancy or newly created directorship, the directors then in
office constitute less than a majority of the entire Delaware Board (as
constituted immediately prior to any increase in their number), the Delaware
Chancery Court may, under certain circumstances, order an election to be held
to fill any such vacancies or newly created directorships or to replace the
directors chosen by the directors then in office.
Under the CCL, a vacancy created by removal of a director may
be filled by the board of directors only if so authorized by a corporation's
articles of incorporation or by a bylaw approved by the corporation's
shareholders. Under the ARV Bylaws, vacancies on the ARV Board, including
those arising from the removal of a director, may be filled by a majority of
directors then in office, or, if the number of directors then in office is
less than a quorum, by (i) the unanimous written consent of the directors then
in office, (ii) the affirmative vote of a majority of directors then in office
at a meeting held pursuant to notice or waiver of notice complying with
California General Corporations Code Section 307 or (iii) a sole remaining
director. The CCL provides that if, after the filling of any vacancy by the
directors, the directors then in office who have been elected by the
shareholders shall constitute less than a majority of the directors then in
office, (i) any holder or holders of 5% or more of the outstanding voting
shares may call a special meeting of the shareholders or (ii) the California
Superior Court of the proper county shall, upon application of such
shareholder or shareholders, summarily order a special meeting of
shareholders, to be held to elect the entire board of directors.
Stockholder Action by Written Consent; Special Meetings;
Stockholder Proposals. Unless otherwise provided in the certificate of
incorporation, stockholders of a Delaware corporation may take action without
a meeting, without prior notice and without a vote, upon the written consent
of stockholders having not less than the minimum number of votes that would be
necessary to authorize the proposed action at a meeting at which all shares
entitled to vote were present and voted. The Delaware Certificate does not
permit stockholder action without a meeting by written consent. The Delaware
Bylaws provide that special meetings of stockholders may be called by the
President, or by the President or the Secretary at the request in writing of a
majority of the Delaware Board, or at the request in writing of the
stockholders owning a majority of the outstanding voting shares.
The ARV Articles also do not permit shareholder action by
written consent. The ARV Bylaws provide that special meetings of the
shareholders may be called by the ARV Board, the Chairman of the ARV Board,
the President or by one or more shareholders holding shares entitled to cast
not less than 10% of the votes at the meeting.
Under the ARV Articles, a shareholder must notify the Secretary
of ARV at least 45 days in advance of ARV's annual meeting of shareholders in
order to (i) bring a proposal before the annual meeting or (ii) nominate a
director for election at the annual meeting. Under the Delaware Certificate,
the notice requirement for a stockholder bringing a proposal before the annual
meeting -or nominating a director for election of the annual meeting is 180
days.
Limitation on Directors' Liability. The Delaware Certificate
contains certain provisions limiting the personal liability of directors. The
ARV Articles also contain certain provisions limiting the personal liability
of directors, although in general, the DGCL permits a corporation to indemnify
its directors and officers under a broader range of circumstances than does
the CCL.
Authorized Capital Stock. The ARV Articles authorize the
issuance of up to 100,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock, of which, as of November 14, 1997, 11,584,272 shares of
Common Stock were issued, and 8,133,380 shares of Common Stock were reserved
for issuance upon exercise of outstanding options and warrants and the
conversion of outstanding convertible securities. The Delaware Certificate
also authorizes the issuance of up to 100,000,000 shares of Delaware Common
Stock and 10,000,000 shares of preferred stock ("Delaware Preferred Stock").
Authorized but unissued shares of Delaware Common Stock and Delaware Preferred
Stock are available for issuance at the discretion of the Delaware Board
without stockholder approval. Such shares could be issued in the future by
the Delaware Board in ways that would make more difficult a change in control
of the Delaware Company, such as through a private sale, diluting the stock
ownership of the person seeking to gain control of the Delaware Company. Any
such action could have the effect of deterring an offer for outstanding
Delaware Common Stock which might otherwise enable the holders thereof to earn
a premium over the then current market price of such securities.
Dissenters' Rights. Under the CCL and DGCL, a dissenting
shareholder of a corporation participating in certain transactions may, under
varying circumstances, receive cash in the amount of the fair market value of
his shares (as determined by agreement of the parties or by a court), in lieu
of the consideration he or she would otherwise receive in any such
transaction. The DGCL generally requires such dissenters' rights of appraisal
with respect to mergers and consolidations, but not a sale of assets, unless
the corporation's certificate of incorporation provides otherwise. The DGCL
contains certain exclusions from dissenters' rights requirements, including a
merger or consolidation by a corporation, the shares of which are either
listed on a national securities exchange or held by more than 2,000
stockholders, if the stockholders receive shares of the surviving corporation
or of such a listed or widely-held corporation. In contrast, the CCL
generally affords dissenters' rights in a share-for-share exchange
reorganization, a sale-of-assets reorganization or a merger. The exclusions
from dissenters' rights in mergers under the CCL are somewhat different from
those under the DGCL. For example, in the case of a corporation whose shares
are listed on a national securities exchange, dissenters' rights would
nevertheless be available in certain transactions for any shares with respect
to which there are certain restrictions on transfer, and for any class with
respect to which there are certain restrictions on transfer and for any class
with respect to which the holders of 5% or more of such class claim
dissenters' rights. Also, under the CCL, shareholders of a corporation
involved in a reorganization are not entitled to dissenters' rights if the
corporation, or its shareholders immediately before the reorganization, or
both, own (immediately after the reorganization) certain equity securities
possessing more than five-sixths of the voting power of the surviving or
acquiring corporation or a parent party.
Loans to Directors, Officers and Employees. Under the DGCL, a
corporation may make loans or guarantee the obligations of its officers or
other employees and those of its subsidiaries when such action, in the
judgment of the directors, may reasonably be expected to benefit the
corporation. Under the CCL, shareholders of a corporation with at least 100
shareholders may approve a bylaw providing that a disinterested majority of
the Board may approve loans and guarantees to officers without shareholder
approval if the Board determines that such loans may reasonably be expected to
benefit the corporation. There is no such bylaw in ARV Bylaws.
Dividends and Repurchases of Shares; Par Value, Capital and
Surplus. The CCL dispenses with the concepts of par value of shares as well
as statutory definitions of capital, surplus and the like, while such concepts
are retained under the DGCL. A Delaware corporation may make repurchases or
redemptions that do not impair capital, and may pay dividends out of any
surplus account (generally the stockholders' equity of the corporation less
the par value of the capital stock outstanding) or, if there exists no
surplus, out of net profits of the current and preceding fiscal year (after
provision for outstanding preferred stock). To determine the surplus, assets
and liabilities may be revalued at their current fair market value, which may
create greater surplus from which to pay dividends than would the book
valuation of assets and liabilities.
With certain limited exceptions, distributions to shareholders
of a California corporation (including redemptions, repurchases and dividends,
other than stock dividends) are generally limited either to the amount of the
corporation's retained earnings or to an amount which would leave the
corporation with (i) tangible assets of at least one and one quarter times its
liabilities other than certain deferred liabilities) and (ii) current assets
at least equal to its current liabilities. In addition, the CCL provides that
a corporation may not make any distribution that would render the corporation
unable to meet its liabilities, nor may such a distribution be made if, as a
result, the excess of the corporation's assets over its liabilities would be
less than the liquidation preference of all shares having a preference on
liquidation over the class or series to which the distribution is made. The
CCL does not permit the revaluation of assets from book value to their current
fair market value.
Vote Required; Emeritus Recommendation
The affirmative vote of a majority of the outstanding shares of
each class of ARV's capital stock entitled to vote at the Annual Meeting is
required to approve the Reincorporation proposal. Abstentions and broker
nonvotes will have the effect of votes against the Reincorporation proposal.
The persons named as proxies in the accompanying form of proxy intend to vote
in favor of Reincorporation. A vote FOR the Reincorporation proposal will
constitute approval of (i) the change in ARV's state of incorporation through
a merger of ARV into the Delaware Company, (ii) the Delaware Certificate,
(iii) the Delaware Bylaws and (iv) all other aspects of the Reincorporation
proposal.
EMERITUS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL TO
REINCORPORATE ARV IN THE STATE OF DELAWARE.
ARV PROPOSAL 2: AMENDMENT OF ARV'S ARTICLES OF INCORPORATION
General
The ARV Board proposes to amend the ARV Articles to increase
the maximum number of authorized directors from nine to ten, and to provide
that the ARV Board will be divided into (i) two classes if there are six,
seven or eight directors or (ii) three classes if there are nine or ten
directors.
The ARV Articles currently provide that the number of directors
of ARV must be a minimum of five and a maximum of nine and that the ARV Board
shall be divided into (i) two classes if there are seven or eight directors
and (ii) three classes if there are nine directors. The authorized number of
directors is currently set at nine.
Vote Required; Emeritus Recommendation
The affirmative vote of a majority of the outstanding shares of
each class of ARV's capital stock entitled to vote at the Annual Meeting is
required to approve this Proposal 2. Abstentions and broker non-votes will
have the effect of votes against Proposal 2.
EMERITUS RECOMMENDS THAT SHAREHOLDERS ABSTAIN FROM VOTING ON
PROPOSAL 2.
The foregoing discussion of the amendment to the ARV Articles
constitutes a summary of the proposed amendment to the ARV Articles. This
summary is qualified by reference to the complete text of the amendment, which
is set forth in the form of the Amendment to Restated Articles of
Incorporation, a copy of which is attached as Appendix D to the ARV Proxy
Statement.
GENERAL
According to the ARV Proxy Statement, the Annual Meeting is to
be held at 9:00 a.m. local time, at The Doubletree Hotel, 3050 Bristol Street,
Costa Mesa, California 92626.
Voting Your Proxy
Emeritus is soliciting proxies for the Annual Meeting FOR the
Emeritus Nominees and FOR Proposal 1 and to ABSTAIN from voting on Proposal 2.
If no specification is made, the BLUE proxy will be voted (i) FOR the Emeritus
Nominees, (ii) FOR Proposal 1 to approve the Reincorporation and (iii) to
ABSTAIN on Proposal 2. Emeritus is also soliciting agent designations to call
a Special Meeting for February 6, 1997 and proxies to adjourn the Special
Meeting. If no specification is made, the GOLD proxy will be (i) used to call
FOR a Special Meeting and (ii) voted FOR the adjournment of the Special
Meeting.
The Company's Restated Articles of Incorporation provide that
the ARV Board will consist of a minimum of five and a maximum of nine
directors, and that at such time as the Company becomes a listed corporation
within the meaning of Section 301.5 of the California General Corporations
Code, the directors will be divided into classes. According to the ARV Proxy
Statement the Company became a "listed corporation" in May 1997. However, if
for any reason the Company is not a "listed corporation," it would not have a
classified board and cumulative voting would apply. Under cumulative voting
with respect to the election of directors, each shareholder is entitled to
cast a number of votes equal to the number of shares owned multiplied by the
number of directors to be elected. A shareholder may distribute such votes in
any fashion among one or more nominees (up to the number of directors to be
elected at the meeting). The nominees receiving the highest number of votes
are elected, up to the number of directors to be elected. Under Section 708
of the California General Corporations Code, a shareholder may not cumulate
votes unless the shareholder has given notice, at the meeting and prior to the
voting, of the shareholder's intention to cumulate votes. However, if any one
shareholder has given such notice, all shareholders may cumulate their votes.
The attached Annual Meeting Proxy confers on the proxy holder the authority to
request cumulative voting and allocate any or all votes at its discretion as
it deems necessary.
Shareholders are urged to mark, sign and date the enclosed BLUE
Annual Meeting proxy card and return it to Emeritus, c/o Corporate Election
Services, 400 Fairway Drive, Suite 110, Moon Township, PA 15108, in the
enclosed envelope in time to be voted at the Annual Meeting. Execution of the
BLUE Annual Meeting proxy card will not affect your right to attend the Annual
Meeting and to vote in person. Any proxy may be revoked at any time prior to
its exercise by (i) prior to the Annual Meeting delivering a written notice of
revocation bearing a later date, (ii) delivering a later dated proxy at the
particular meeting or (iii) attending the Annual Meeting and voting in
person. Only your latest dated proxy for the Annual Meeting will count.
Proxies for the January 28, 1998 Annual Meeting will not revoke proxies for
the February 6, 1998 Special Meeting, nor will proxies for the February 6, 1998
Special Meeting revoke proxies for the January 28, 1998 Annual Meeting. The
revocation may be delivered to either (i) Emeritus, c/o Corporate Election
Services, 400 Fairway Drive, Suite 110, Moon Township, PA 15108, or (ii) the
Company, 245 Fischer Avenue, Suite D-1, Costa Mesa, California, 92626.
Emeritus requests that if a revocation is delivered to the Company, a
photocopy of the revocation also be delivered to Emeritus, at the address set
forth above, so that Emeritus will be aware of such revocation.
Only holders of record of Common Stock as of the close of
business on the Record Date are entitled to receive notice of, and to vote at,
the Annual Meeting. The outstanding Common Stock constitutes the only class
of securities of the Company entitled to vote at the Annual Meeting, and each
share of Common Stock entitles the holder thereof to one vote. At the close
of business on December 8, 1997, there were 15,846,498 shares of Common Stock
issued and outstanding, including (a) the 1,921,012 Initial Shares issued to
Prometheus under the Original Prometheus Transaction and (b) the 4,262,226
Redemption Shares, both of which issuances are being challenged by Emeritus in
court. If Emeritus is successful in court, there will be approximately 9.7
million shares of Common Stock issued and outstanding. Shareholders' votes
will be tabulated by the persons appointed by the chairman of the Annual
Meeting to act as inspectors of election for the Annual Meeting. If
inspectors are appointed at the Annual Meeting on the request of a
shareholder, the holders of a majority of shares or their proxies present at
the meeting shall determine whether one or three inspectors are to be
appointed.
Shareholders are also urged to mark, sign and date the enclosed
GOLD Special Meeting proxy card and return it to Emeritus, c/o Corporate
Election Services, 400 Fairway Road, Suite 110, Moon Township, PA 15108, in
the enclosed envelope in time to be voted at the Special Meeting. Execution
of the GOLD Special Meeting proxy card will not affect your right to attend
the Special Meeting and to vote in person. Any proxy may be revoked at any
time prior to its exercise by (i) prior to the Special Meeting delivering a
written notice of revocation bearing a later date, (ii) delivering a later
dated proxy at the particular meeting or (iii) attending the Special Meeting
and voting in person. Only your latest dated proxy for the Special Meeting
will count. The revocation may be delivered to either (i) Emeritus, c/o
Corporate Election Services, 400 Fairway Road, Suite 100, Moon Township, PA
15108, or (ii) the Company, 245 Fischer Avenue, Suite D-1, Costa Mesa,
California, 92626. Emeritus requests that if a revocation is delivered to the
Company, a photocopy of the revocation also be delivered to Emeritus, at the
address set forth above, so that Emeritus will be aware of such revocation.
Only holders of record of Common Stock as of the close of
business on the record date for the Special Meeting are entitled to receive
notice of, and to vote at, the Special Meeting. As of the date hereof, the
record date for the Special Meeting has not been set. The outstanding Common
Stock constitutes the only class of securities of the Company entitled to vote
at the Special Meeting and each share of Common Stock entitles the holder
thereof to one vote.
If any of your shares of Common Stock are held in the name of a
brokerage firm, bank, bank nominee or other institution on a record date, only
it can vote such shares of Common Stock and only upon receipt of your specific
instructions. Please mark, sign, date and mail the enclosed BLUE proxy card
and GOLD proxy card in the envelope provided by your broker or bank. In
addition, you are requested to contact the person responsible for your account
and instruct that person to execute on your behalf the BLUE Annual Meeting
proxy card and GOLD Special Meeting proxy card.
Vote Required
ARV's proposal to reincorporate the Company in Delaware
(Proposal 1) requires the approval of a majority of the outstanding shares
entitled to vote at the Annual Meeting. ARV's proposal to amend the Restated
Articles of Incorporation to, among other things, increase the authorized
number of board members from nine to ten (Proposal 2) requires the approval of
a majority of the outstanding shares entitled to vote at the Annual Meeting.
Emeritus will vote in favor of Proposal 1 and will abstain from voting on
Proposal 2. The election of directors of the Company will be decided by a
plurality of the shares of Common Stock present and entitled to vote.
Accordingly, abstentions or broker non-votes as to the election of directors
will not affect the election of directors. Each of the Proposals will be
voted upon separately.
Adjournment of the Special Meeting will be decided by a
majority of the shares of Common Stock present in person or by proxy and
entitled to vote whether or not a quorum is present.
ENGAGEMENT OF ADVISORS
Deutsche Morgan Grenfell Inc. ("DMG") is acting as 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 an offer
for ARV, an additional fee of $500,000 upon the delivery by DMG of an opinion
to the Board of Directors of Emeritus with respect to the fairness from a
financial point of view to Emeritus of the consideration paid in an
acquisition of ARV by Emeritus or in a merger or other business combination of
ARV and Emeritus (the "Opinion Fee"), and a transaction fee of $1,500,000
(against which any Opinion Fee will be credited) upon the closing of an
acquisition of ARV by Emeritus or of a merger or other business combination of
ARV and Emeritus. Emeritus also has agreed to reimburse DMG for all
out-of-pocket expenses incurred by DMG in connection with its engagement,
including fees and disbursements of its counsel. Emeritus also has agreed to
indemnify DMG and certain related parties against certain liabilities,
including liabilities under the federal securities laws, arising out of DMG's
engagement as financial advisor and Dealer Manager. Emeritus has 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. Neither the Information Agent nor the
Depositary has been retained to make solicitations or recommendations with
respect to the Offer. 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.
SOLICITATION OF PROXIES
Emeritus has retained D.F. King & Co., Inc. (the "Agent") for
solicitation and advisory services in connection with the solicitation, for
which the Agent is to receive a fee not in excess of $150,000, together with
reimbursement for its reasonable out-of-pocket expenses. Emeritus has also
agreed to indemnify the Agent against certain liabilities and expenses,
including liabilities and expenses under the federal securities laws. The
Agent will solicit proxies for the Annual Meeting and the Special Meeting from
individuals, brokers, banks, bank nominees and other institutional holders.
It is anticipated that the Agent will employ approximately 40 persons to
solicit shareholders for the Annual Meeting and the Special Meeting.
Proxies may be solicited by mail, advertisement, telephone,
telegram or telecopier or in person. Solicitations may be made by directors,
officers and employees of Emeritus, none of whom will receive additional
compensation for such solicitations. Emeritus has requested banks, brokerage
houses and other custodians, nominees and fiduciaries to forward all their
solicitation materials to the beneficial owners of the shares of Common Stock
they hold of record. Emeritus will reimburse these record holders for
customary clerical and mailing expenses incurred by them in forwarding these
materials to their customers.
Certain information about directors and officers of Emeritus,
EMAC Corp. and their advisors who may also assist in soliciting proxies is set
forth in the attached Schedule I.
The entire expense of soliciting proxies for the Annual Meeting
and the Special Meeting is being borne by Emeritus. Emeritus may seek
reimbursement for such expenses from ARV, but does not expect that the
question of such reimbursement will be submitted to a vote of shareholders.
Costs incidental to this solicitation of proxies include expenditures for
printing, postage, legal, accounting, public relations, advertising and
related expenses and are expected to be approximately $225,000; costs incurred
to the date of this Proxy Statement are approximately $110,000.
If the Emeritus Nominees are elected, Emeritus may seek to
cause the Emeritus Nominees to have Emeritus reimbursed by ARV for all
expenses paid or incurred, or for which Emeritus or any of its affiliates may
otherwise be liable, in connection with this proxy solicitation and the
proposed acquisition of ARV.
If Emeritus should withdraw, or materially change the terms of,
this solicitation of proxies prior to the Annual Meeting or the Special
Meeting, or such solicitation is terminated pursuant to a settlement with the
Company, Emeritus will supplement this Proxy Statement or otherwise publicly
disseminate information regarding such withdrawal, change or settlement.
OTHER INFORMATION
The information concerning the Company contained herein has
been taken from or based upon publicly available documents on file with the
Commission and other publicly available information. Although Emeritus does
not have any knowledge that any such information is untrue, Emeritus does not
take any responsibility for the accuracy or completeness of such information
or for any failure by the Company to disclose events that may have occurred
and may affect the significance or accuracy of any such information.
Certain information regarding shares of Common Stock held by
ARV's directors, nominees, management and other 5% shareholders is set forth
in Schedule II.
Emeritus and ARV are each subject to the informational
reporting requirements of the Exchange Act and, in accordance therewith, file
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information filed by Emeritus and/or ARV
may be inspected and copied at the public reference facilities of the
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the New York regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
the Chicago regional office of the Commission, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such information may also be
obtained at prescribed rates from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the Commission maintains a web site on the Internet
that can be accessed at http://www.sec.gov and that contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission.
Schedule III sets forth all purchases of Common Stock by
Emeritus during the past two years. Other than as set forth herein (including
in the Schedules hereto), none of Emeritus, EMAC any of their directors or
officers or the Emeritus Nominees, or any of their associates, owns any
securities of the Company, beneficially or of record, has purchased or sold
any of such securities within the past two years or is or was within the past
year a party to any contract, arrangement or understanding with any person
with respect to any such securities.
Please indicate your vote FOR the Emeritus Nominees, FOR
Proposal 1 and to ABSTAIN from voting on Proposal 2 by completing, signing and
dating the enclosed BLUE Annual Meeting proxy card and returning it promptly
to Emeritus, c/o Corporate Election Services, 400 Fairway Road, Suite 110,
Moon Township, PA 15108.
Please indicate your (i) willingness to call FOR a Special Meeting
and (ii) vote FOR the adjournment of the Special Meeting whenever requested by
Emeritus by completing, signing and dating the enclosed GOLD Special Meeting
proxy card and returning it promptly to Emeritus, c/o Corporate Election
Services, 400 Fairway Road, Suite 100, Moon Township, PA 15108.
EMERITUS CORPORATION
December 22, 1997
SCHEDULE I
INFORMATION CONCERNING (I) DIRECTORS AND EXECUTIVE OFFICERS OF
EMERITUS AND EMAC CORP., (II) THE EMERITUS NOMINEES AND (III) THEIR
ADVISORS THAT MAY PARTICIPATE IN THE SOLICITATION OF PROXIES
The name, business address and present principal occupation or
employment of each of the directors and executive officers of Emeritus, EMAC
Corp. and their advisors who may participate in the solicitation of proxies
are set forth below. Unless otherwise indicated, the principal business
address of each director or executive officer of Emeritus and EMAC Corp. is
3131 Elliott Avenue, Suite 500, Seattle, Washington 98121. Directors are
identified by an asterisk.
DIRECTORS AND EXECUTIVE OFFICERS OF EMERITUS
<TABLE>
<CAPTION>
Position with Emeritus; Principal
Name and Business Address Occupation or Employment
<S> <C>
Daniel R. Baty* Mr. Baty has served as its Chief
Executive Officer and as a director
since 1993 and became Chairman of the
Board in April 1995.
Raymond R. Brandstrom* Mr. Brandstrom has served as its
President and Chief Operating Officer
and as a director since 1993.
Motoharn Iue* Director of Emeritus since April 1995.
Sanyo North America Corporation Mr. Iue has served as Chairman of the
2055 Sanyo Avenue Board of Sanyo North America Corporation
San Diego, CA 92173 and President of Three Oceans Inc. since
October 1996.
Tom A. Alberg* Director of Emeritus since November
Madrona Investment Group LLC 1995. Since January 1996, Mr. Alberg has
1000 Second Avenue, Suite 3700 been principal of Madrona Investment
Seattle, WA 98104 Group, LLC, a private merchant banking
firm.
Patrick Carter* Director of Emeritus since November
Westminster Health Care Holdings, 1995. Since 1985, Mr. Carter has been
PLC Chief Executive Officer and Managing
48 Leicester Square Director of Westminster Health Care
London, UK WC 2H 7WH Holdings, PLC, a publicly held operator
of skilled-nursing facilities in the
United Kingdom.
William E. Colson* Director of Emeritus since 1995. Mr.
Holiday Retirement Corp. Colson is a founder of Holiday
2250 McGilchrist Street, Suite 200 Retirement Corp. and, since 1987, has
Salem, OR 97302 been its President and Chief Operating
Officer.
David T. Hamamoto* Director of Emeritus since 1997. Mr.
Northstar Capital Partners, LLC Hamamoto is the founder of Northstar
527 Madison Avenue, 17th Floor Capital Partners LLC, an opportunistic
New York, NY 10022 real estate fund.
Kelly J. Price Vice President, Chief Financial Officer
and Secretary. Mr. Price beneficially
owns 200 shares of Common Stock of ARV.
The shares were purchased in open market
transactions on February 4, 1997.
Gary D. Witte Vice President, Operations.
Frank A. Ruffo Vice President.
Michelle A. Bickford Vice President of New Business
Development.
Sarah J. Curtis Vice President of Sales and Marketing.
James S. Keller Director of Accounting and Controller.
</TABLE>
DIRECTORS AND OFFICERS OF EMAC CORP.
Position with EMAC; Principal Occupation or
Name Employment
Raymond R. Brandstrom* President and Chief Executive Officer, Mr.
Brandstrom is President and Chief Operating
Officer of Emeritus.
Kelly J. Price* Vice President and Secretary, Mr. Price
is Emeritus' Vice President.
Because of the nature of the proposals which are to be brought
before the Annual Meeting, the rules of the Securities and Exchange Commission
(the "SEC") require Emeritus to make available to ARV shareholders certain
additional information with respect to "participants" (as such term is defined
in Instruction 3 of Item 4 of Schedule 14A promulgated under the Securities
and Exchange Act of 1934, as amended (the "Exchange Act")) in the Emeritus
solicitation. Pursuant to the rules promulgated under the Exchange Act, the
persons named below together with and including Emeritus, EMAC Corp. and the
Emeritus Nominees named in this Proxy Statement may be deemed to be
participants (each, a "Participant" and collectively, the "Participants") in
the solicitation by Emeritus in favor of the Emeritus Nominees and in
opposition to the ARV Proposals. Accordingly, set forth below is certain
information which would be required to be provided to ARV shareholders
pursuant to the rules promulgated under the Exchange Act if such persons were
deemed to be participants.
Other than as disclosed in this Proxy Statement (including the
Schedules hereto), none of the Participants has purchased or sold or otherwise
obtained or disposed of any securities of the Company within the past two
years. Other than as disclosed in this Proxy Statement (including the
Schedules hereto), none of the Participants or any of their associates (as
such term is defined in Rule 14a-1 promulgated under the Exchange Act) owns
any securities of the Company (or any parent or subsidiary of the Company) of
record or beneficially. Furthermore, except as set forth on Schedule III, to
the knowledge of Emeritus none of the Participants has borrowed or otherwise
obtained funds for the purpose of acquiring or holding any securities of the
Company purchased or sold or otherwise obtained or disposed of within the past
two years.
Other than as disclosed in this Proxy Statement (including the
Schedules hereto), to the knowledge of Emeritus, none of Emeritus, EMAC Corp.
or any of their directors, executive officers or employees named in this
Schedule I or any of the Emeritus Nominees named in this Proxy Statement has
any substantial interest, direct or indirect, by security holdings or
otherwise, in any matter to be acted upon at the Annual Meeting.
Other than as disclosed in this Proxy Statement (including the
Schedules hereto), to the knowledge of Emeritus, none of Emeritus, EMAC Corp.
or any of their directors, executive officers or employees named in this
Schedule I or any of the Emeritus Nominees named in this Proxy Statement is,
or has been within the past year, a party to any contract, arrangement or
understanding with any person with respect to any securities of the Company,
including, but not limited to, joint ventures, loan or option arrangements,
puts or calls, guarantees against loss or guarantees of profit, division of
losses or profits, or the giving or withholding of proxies.
Other than as set forth in this Proxy Statement (including the
Schedules hereto), to the knowledge of Emeritus, none of Emeritus, EMAC Corp.
or any of their directors, executive officers or employees named in this
Schedule I or any of the Emeritus Nominees named in this Proxy Statement or
any of their associates, has had or will have a direct or indirect material
interest in any transaction or series of similar transactions since the
beginning of the Company's last fiscal year or any currently proposed
transactions, or series of similar transactions, to which the Company or any
of its subsidiaries was or is to be a party in which the amount involved
exceeds $60,000.
Other than as set forth in this Proxy Statement (including the
Schedules hereto), to the knowledge of Emeritus, none of Emeritus, EMAC Corp.
or any of their directors, executive officers or employees named in this
Schedule I or any of the Emeritus Nominees named in this Proxy Statement or
any of their associates, has any arrangements or understandings with any
person with respect to any future employment by the Company or its affiliates
or with respect to any future transactions to which the Company or any of its
affiliates will or may be a party.
Emeritus has retained Deutsche Morgan Grenfell Inc. ("DMG") to
act as its financial advisor in connection with the transactions described in
this Proxy Statement. DMG is an investment banking firm that provides a full
range of financial services for institutional and individual clients. DMG does
not admit that it or any of its directors, officers or employees is a
Participant in the solicitation by Emeritus or that Schedule 14A requires the
disclosure by DMG in this Proxy Statement or this Schedule I of information
required to be disclosed by Participants.
In connection with DMG's role as financial advisor to Emeritus
with respect to the transactions in this Proxy Statement, DMG and the
following employees of DMG (the "DMG Individuals") will communicate in person,
by telephone or otherwise with a limited number of institutions, brokers or
other persons who are shareholders of ARV:
Name Position
- ---- ---------
Federico G.M. Mennella Managing Director
Philip Noblet Vice President
Each DMG Individual is engaged in the investment banking
business at Deutsche Morgan Grenfell Inc., 31 West 52nd Street, New York,
New York 10019, and is employed by DMG in the capacity listed beside his or
her name.
In the normal course of its business, DMG and its associates
(as defined in Rule 14a-1 promulgated under the Exchange Act) may from time to
time buy and sell securities issued by ARV and its affiliates ("ARV
Securities") for their own account and for the accounts of their customers,
which transactions may result from time to time in DMG and its associates
having a net "long" or net "short" position in ARV Securities or option
contracts or other derivatives in or relating to ARV Securities.
Additionally, in the normal course of their business, DMG and its associates
may finance their securities positions by bank and other borrowings and
repurchase and securities borrowings transactions. To the knowledge of
Emeritus, none of such borrowings were intended specifically for the purpose
of purchasing any ARV Securities.
To the knowledge of Emeritus, EMAC Corp. or any of their
directors, executive officers or the employees of Emeritus named in this
Schedule I, except as disclosed elsewhere in this Proxy Statement (including
the Schedules hereto), and except for customary arrangements with respect to
ARV Securities held by DMG for the accounts of its customers, none of the DMG
Individuals, DMG or any associate of such persons is or has been, within the
past year, a party to any contract, arrangement or understanding with any
person with respect to any ARV Securities, including, but not limited to,
joint ventures, loan or option arrangements, puts or calls, guarantees against
loss or guarantees of profit, division of losses or profits, or the giving or
withholding of proxies. To the knowledge of Emeritus, or any of its
directors, executive officers or the employees of Emeritus named in this
Schedule I, except as disclosed elsewhere in this Proxy Statement (including
the Schedules hereto), none of the DMG Individuals, DMG or any associate of
such persons has any arrangement or understanding with any person with respect
to any future employment by the Company or its affiliates or any future
transactions to which the Company or any of its affiliates will or may be a
party, nor any material interest, direct or indirect, in any transaction which
has occurred since the beginning of the Company's last fiscal year or any
currently proposed transaction, or series of similar transactions, to which
the Company or any of its affiliates was or is to be a party and in which the
amount involved exceeds $60,000.
SCHEDULE II
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT OF ARV
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 8, 1997 (based on a total of
15,846,498 outstanding shares of common stock, including (a) the 1,921,012
shares issued to Prometheus under the Original Prometheus Transaction and (b)
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), to the knowledge of Emeritus based
upon a review of publicly available information, by (i) each of the Company's
directors, (ii) each of the named executive officers and (iii) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
Percentage of
Shares Shares
Beneficially Beneficially
Name of Beneficial Owner(1) Owned Owned
- ------------------------------------------------ ------------ -------------
<S> <C> <C>
Robert P. Freeman(2)............................ 6,183,238 39.0%
Morry N. Gunty(2)............................... 6,183,238 39.0%
Kenneth M. Jacobs(2)............................ 6,183,238 39.0%
Gary L. Davidson(3)............................. 969,826 6.1%
John A. Booty(4)(5)............................. 699,246 4.4%
David P. Collins(4)(6).......................... 558,939 3.5%
Graham P. Espley-Jones(7)....................... 274,964 1.7%
Sheila M. Muldoon(8)............................ 3,500 *
Eric K. Davidson(9)............................. 14,538 *
R. Bruce Andrews(10)............................ 2,500 *
Maurice J. DeWald(10)........................... 3,500 *
James M. Peters(10)............................. 2,500 *
John J. Rydzewski(10)(11)....................... 7,500 *
All directors and executive officers as a group
(13 persons).............................. 8,720,251 55.0%
<FN>
- --------------
* Less than 1%
(1) Except where otherwise noted, the address of the Company's directors and
executive officers is c/o ARV Assisted Living, Inc., 245 Fischer Avenue,
Costa Mesa, California 92626.
(2) Messrs. Freeman and Gunty are the President and a Vice President,
respectively, of LFREI, the managing member of Prometheus. Mr. Jacobs
is a Managing Director of Lazard Freres & Co., LLC, the managing member
of LFREI. Each of Messrs. Freeman, Gunty and Jacobs have shared
voting and investment power over the securities held by Prometheus and
each may be deemed to beneficially own Prometheus' shares. Each of
Messrs. Freeman, Gunty and Jacobs disclaims beneficial ownership of
Prometheus' shares except to the extent of their pecuniary interest
therein.
(3) Of the 970,126 shares beneficially owned by Mr. Gary Davidson, 593,029 are
held of record by the Davidson Family Partnership, 343,102 shares are
held by the Gary L. Davidson Funded Revocable Living Trust, and the
remaining 33,695 shares are subject to options exercisable within 60
days of November 14, 1997. Excludes 9,423 shares beneficially owned by
Mr. Gary Davidson held of record by the ESOP as of November 14, 1997.
(4) Excludes 402,257 shares owned of record by the Company's employee stock
ownership plan (the "ESOP"), of which Messrs. Booty and Collins are
trustees.
(5) Of the 699,246 shares beneficially owned by Mr. Booty, 107,773 are held of
record by the Booty-Jones Family partnership (of which Mr. Booty is
the managing partner and holds a pecuniary interest equal to 1%
thereof), 418,028 shares are held by the Booty Family Trust (as to
which Mr. Booty has shared voting and investment power), 750 shares
are held in Mr. Booty's name alone, 69,500 shares are owned by the
Karen A. Booty Charitable Remainder Trust of which Mr. Booty has sole
voting and investment power, 69,500 shares are owned by the John A.
Booty Charitable Remainder Unit Trust (of which Mr. Booty has sole
voting and investment power), and the remaining 33,695 shares are
subject to options exercisable within 60 days of November 14, 1997.
Excludes 9,423 shares beneficially owned by Mr. Booty held of record
by the ESOP as of November 14, 1997.
(6) Of the 558,939 shares beneficially owned by Mr. Collins, 98,678 are held
of record by the D&V Collins Family Limited Partnership (as to which
Mr. Collins has shared voting and investment power), 408,591 shares
are held by the Collins Family Community Property Trust (as to which
Mr. Collins has shared voting and investment power), 11,978 shares are
held by the David P. Collins Annuity Trust, and the remaining 39,692
shares are subject to options exercisable within 60 days of November
14, 1997. Excludes 8,531 shares beneficially owned by Mr. Collins
held of record by the ESOP on November 14, 1997.
(7) Of the 274,964 shares beneficially owned by Mr. Espley-Jones, 22,412
shares are subject to options exercisable within 60 days of November
14, 1997. Excludes 5,372 shares beneficially owned by Mr. Espley-
Jones held of record by the ESOP as of November 14, 1997.
(8) Of the 3,500 shares beneficially owned by Ms. Muldoon, 1,000 are held of
record by Charles Schwab & Co. Inc. IRA Rollover and 2,500 shares are
subject to options exercisable within 60 days of November 14, 1997.
(9) Of the 14,538 shares beneficially owned by Mr. Eric Davidson, 4,000 are
held of record by Eric K. Davidson UTA Fidelity 401(k), 103 are held
by Eric K. Davidson UTA Principal Financial 401(k) and 10,435 shares
are subject to options exercisable within 60 days of November 14, 1997.
Excludes 143 shares beneficially owned by Mr. Eric Davidson held of
record by the ESOP on November 14, 1997.
(10) Messrs. Andrews, DeWald, Peters and Rydzewski, as non-employee
directors, have options exercisable within 60 days of November 14, 1997
to purchase 5,000 shares.
(11) 5,000 of the shares beneficially owned by Mr. Rydzewski are held of
record by Merrill Lynch Custodian FBO Benedetto, Gartland & Greene, Inc.
SEP FBO John J. Rydzewski.
</TABLE>
Security Ownership of Certain Beneficial Owners
As of December 8, 1997 (based on a total of 15,846,498 outstanding shares
of Common Stock, including (a) the 1,921,012 shares issued to Prometheus under
the Original Prometheus Transaction and (b) 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), to the knowledge of Emeritus based upon a review of publicly available
information, the following persons are the beneficial owners of more than five
percent of the Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owners Beneficial Ownership of Class
- ------------------------------------------- ------------------------ --------
<S> <C> <C>
Prometheus Assisted Living LLC
Thirty Rockefeller Plaza, 63rd Floor
New York, NY 10020 ............................. 6,183,238 39.0%
Emeritus Corporation
3131 Elliott Avenue
Suite 500
Seattle, WA 98121 .............................. 1,077,200 6.8%
Morgan Stanley, Dean Witter, Discover & Co.(1)
1585 Broadway
New York, NY 10036 ............................. 965,197 6.1%
Ardsley Advisory Partners(2)
646 Steamboat Road
Greenwich, CT 06836 ............................ 730,000 4.6%
Wellington Management Company, LLP(3)
75 State Street
Boston, MA 02109 ............................... 641,356 4.0%
Scudder, Stevens & Clark, Inc.(4)
345 Park Avenue
New York, NY 10154 ............................. 592,900 3.7%
<FN>
- -----------------------
(1) Morgan, Stanley, Dean Witter, Discover & Co. ("Morgan Stanley") a Delaware
corporation and an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, is the beneficial owner of 965,197 shares
of the Common Stock of the Company. Accounts managed on a discretionary
basis by wholly owned subsidiaries of Morgan Stanley, including Miller
Anderson & Sherred LLP, a Delaware limited liability partnership and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, are known to have the right to receive or the power to direct
the receipt of dividends from, or the process from, the sale of such
securities. No such account holds more than 5% of the class.
(2) Ardsley Advisory Partners, a Connecticut general partnership ("Ardsley"),
is an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, as amended. Philip J. Hempleman is the managing
partner of Ardsley. The shares of the Company are held in
discretionary accounts managed by Ardsley and Mr. Hempleman (including
accounts of certain clients, including investment partnerships for
which (i) Ardsley serves as the management company and (ii) a general
partnership comprised of the partners that comprise Ardsley serves as
general partner). As a result of their roles as investment advisor,
Ardsley and Mr. Hempleman may be deemed to be the beneficial owners of
the shares of the Company held in such discretionary accounts. Each
client for whose account Ardsley had purchased shares of the company
has the right to receive or the power to direct the receipt of
dividends from, or the proceeds from the sale of, such shares purchased
from his account.
(3) Wellington Management Company, LLP, a Massachusetts limited liability
partnership ("Wellington"), an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, may be deemed to
beneficially own 641,356 shares of the Common Stock of the Company
which are held of record by clients of Wellington. Those clients have
the right to receive, or the power to direct the receipt of, dividends
from, or the proceeds from the sale of, such securities. The shares of
Common Stock were acquired by Wellington Trust Company, NA, a wholly
owned subsidiary of Wellington and a bank as defined in Section 3(a)(6)
of the Securities Exchange Act of 1934. Wellington has shared power to
vote or direct the vote of 265,500 shares of the Common Stock of the
Company, and shared power to dispose or to direct the disposition of
641,356 shares.
(4) Scudder, Stevens & Clark, Inc. a Delaware corporation, an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940, has sole power to vote or to direct the vote of 259,400 shares of
the Common Stock of the Company, shared power to vote or to direct the
vote of 228,200 shares and sole power to dispose or to direct the
disposition of 592,900 shares.
.
</TABLE>
SCHEDULE III
ACQUISITIONS OF ARV COMMON STOCK
DURING THE PAST TWO YEARS BY EMERITUS
<TABLE>
<CAPTION>
Purchase
Date Shares Acquired(1) Price Per Share(2, 3)
- -------- ------------------ ---------------------
<S> <C> <C>
2/25/97 5,000 9.50
2/26/97 23,000 9.50
2/28/97 17,500 9.50
3/4/97 5,000 9.50
3/5/97 5,000 9.61
3/19/97 5,500 9.85
3/25/97 2,000 9.75
3/27/97 1,000 9.62
3/31/97 2,500 9.62
4/1/97 2,500 9.62
4/2/97 10,000 9.50
4/9/97 8,000 9.37
4/10/97 15,000 9.37
4/10/97 5,000 9.50
4/16/97 20,000 9.30
4/22/97 5,000 9.30
4/23/97 7,500 9.19
4/24/97 13,500 9.03
5/2/97 3,000 8.87
5/6/97 5,000 8.92
5/7/97 10,000 9.05
5/9/97 3,500 8.92
5/13/97 2,100 8.97
5/15/97 4,000 9.05
5/15/97 8,000 9.30
5/20/97 4,000 9.05
5/21/97 10,000 9.19
5/23/97 30,000 8.91
<FN>
- -------------------
(1) Purchased in open market transactions executed on Nasdaq.
(2) All prices are exclusive of commissions.
(3) Approximately $9.1 million of the funds required by Emeritus to purchase
the 1,077,200 shares directly owned by it was obtained through margin
loans from Ragen MacKenzie Incorporated, Seattle, Washington.
</TABLE>
<TABLE>
<CAPTION>
Purchase
Date Shares Acquired(1) Price Per Share(2, 3)
- -------- ------------------ ---------------------
<S> <C> <C>
5/27/97 8,500 8.94
5/28/97 7,000 8.94
5/29/97 7,000 8.94
5/30/97 23,000 8.02
6/4/97 44,500 9.99
6/5/97 32,000 10.11
6/6/97 8,500 10.19
6/9/97 2,000 10.19
6/10/97 17,000 10.44
6/11/97 30,000 10.72
6/13/97 2,000 11.06
6/13/97 15,000 11.06
6/16/97 20,900 11.06
7/31/97 15,000 11.67
8/1/97 5,000 11.61
8/1/97 10,000 11.55
8/5/97 2,000 11.50
8/5/97 8,000 11.55
8/6/97 10,000 11.50
8/6/97 50,000 11.50
9/11/97 20,000 11.05
10/2/97 25,000 13.22
10/2/97 42,700 13.25
10/3/97 100,000 14.50
10/7/97 30,000 15.17
10/8/97 23,000 15.17
10/10/97 168,000 14.97
10/23/97 20,000 16.30
10/24/97 7,500 16.05
10/27/97 25,000 15.83
10/31/97 32,000 14.98
11/4/97 15,000 15.21
11/6/97 5,000 15.44
11/7/97 14,000 15.44
Total 1,077,200
</TABLE>
Additionally, Kelly Price, the Chief Financial Officer of Emeritus,
beneficially owns 200 shares of ARV Common Stock.
IMPORTANT
Your proxy is important. No matter how many shares you own, please give
Emeritus your proxy FOR the election of the Emeritus Nominees, FOR Proposal 1
and to ABSTAIN from voting on Proposal 2 by:
MARKING the enclosed BLUE Annual Meeting proxy card,
SIGNING the enclosed BLUE Annual Meeting proxy card,
DATING the enclosed BLUE Annual Meeting proxy card and
MAILING the enclosed BLUE Annual Meeting proxy card TODAY in the
envelope provided (no postage is required if mailed in the United
States).
If you have already submitted a proxy to ARV for the Annual Meeting, you
may change your vote to a vote FOR the election of the Emeritus Nominees, FOR
Proposal 1 and to ABSTAIN from voting on Proposal 2 by marking, signing,
dating and returning the enclosed BLUE proxy card for the Annual Meeting,
which must be dated after any proxy you may have submitted to ARV. Only your
latest dated proxy for the Annual Meeting will count at such meeting.
Also, please give Emeritus your proxy FOR the adjournment of the Special
Meeting by:
MARKING the enclosed GOLD Special Meeting proxy card,
SIGNING the enclosed GOLD Special Meeting proxy card,
DATING the enclosed GOLD Special Meeting proxy card and
MAILING the enclosed GOLD Special Meeting proxy card TODAY in the
envelope provided (no postage is required if mailed in the United
States).
If you have already submitted a proxy to ARV for the Special Meeting,
you may change your vote to a vote FOR the adjournment of the Special Meeting
whenever requested by Emeritus by marking, signing, dating and returning the
enclosed GOLD proxy card for the Annual Meeting, which must be dated after any
proxy you may have submitted to ARV. Only your latest dated proxy for the
Special Meeting will count at such meeting.
If you have any questions or require any additional information
concerning this Proxy Statement or the proposal by Emeritus to acquire ARV,
please contact D.F. King at the address and telephone number set forth below.
If any of your shares are held in the name of a brokerage firm, bank, bank
nominee or other institution, only it can vote such shares and only upon
receipt of your specific instructions. Please mark, sign, date and mail the
enclosed BLUE proxy card and GOLD proxy card in the envelope provided by your
broker or bank. In addition, you are requested to contact the person
responsible for your account and instruct that person to execute the BLUE
annual meeting proxy card and GOLD special meeting proxy card.
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Tel: (212) 269-5550 (call collect)
or
Call Toll-Free (800) 431-9646
ARV ASSISTED LIVING, INC.
ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY
EMERITUS CORPORATION
The undersigned shareholder of ARV Assisted Living, Inc. ("ARV") hereby
appoints Daniel R. Baty, Raymond R. Brandstrom, Kelly Price and John W.
Cornwell, and each of them, each with full power of substitution, to vote all
shares of Common Stock that the undersigned is entitled to vote if personally
present at the Annual Meeting of Shareholders of ARV Assisted Living, Inc. to
be held on January 28, 1998, and at any adjournments, postponements,
reschedulings or continuations, or any other meeting of shareholders held in
lieu of the Annual Meeting. In their discretion the proxies are authorized to
vote upon such other business as may properly come before the meeting or any
adjournments, postponements, reschedulings or continuations, or any other
meeting of shareholders held in lieu thereof, except that in the case of any
proposal to adjourn the meeting, the proxy will vote as indicated on the
reverse of this card or, to the extent that no such indication is given, as
set forth herein. The undersigned hereby revokes any previous proxies with
respect to the matters covered by this Proxy.
(Please mark each proposal with an "X" in the appropriate box)
I. The Proposals.
Emeritus recommends that you vote FOR the election of all Emeritus Nominees
named below, FOR ARV Proposal 1 and ABSTAIN from voting on ARV Proposal 2.
1. ELECTION OF DIRECTORS: To elect to the Board of Directors of ARV
(the "Board") such number of the following Emeritus Nominees as equals the
size of the Board: Martin Roffe, Jason Geisenger, Richard Sontgerath, Stanley
Baty, Charles Uhlman, Thilo Best, Patrick Duff, Al Edmiston, Frank Ruffo,
Jonathan Teague, Jim Keller, Bill Shorten, Suzette McCanless, Gary Becker and
Russ Kubik. The first nine of such individuals will be voted for to be
elected to succeed the current nine Directors (or any Director named to fill
any vacancy created by the death, retirement, resignation or removal of any of
such nine Directors) of ARV. One or more of such other individuals will be
voted for to be elected in the event any of the first nine of such individuals
is unable for any reason to serve as a Director or if ARV increases the size
of the ARV Board. In the event that ARV increases the size of the ARV Board
to ten directors, Emeritus will seek to elect Jonathan Teague as a director,
and Mr. Teague will be designated a Class C Director.
/__/ FOR all Emeritus /__/ WITHHOLD
Nominees except AUTHORITY
for as marked below to vote for all
Emeritus Nominees
(INSTRUCTION: To withhold authority to vote for one or more
individual Emeritus nominees, mark FOR above and print the name(s) of the
person(s) with respect to whom you wish to withhold authority in the space
provided below.)
2. ARV PROPOSAL 1: To approve the reincorporation of the Company as a
Delaware corporation, which will also be named ARV Assisted Living, Inc.,
pursuant to a merger of the Company into a wholly owned Delaware subsidiary
(the "Delaware Company") and the
conversion of the Common Stock of the Company into the common stock, par value
$.01 per share, of the Delaware Company, which approval shall constitute
approval of all of the provisions set forth in the Delaware Company's
Certificate of Incorporation and Bylaws.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
3. ARV PROPOSAL 2: To approve an amendment to the Restated Articles of
Incorporation of the Company providing, among other things, an increase in the
maximum number of authorized directors of the Company from nine to ten.
/__/ FOR /__/ AGAINST /__/ ABSTAIN
II. Proposal to Adjourn the 1997 Annual Meeting.
Emeritus recommends that you vote FOR item 4 and AGAINST item 5.
4. Proposal to adjourn the Annual Meeting to a later date which is
proposed or recommended by Emeritus. (Emeritus recommends that you vote FOR.)
/__/ FOR /__/ AGAINST /__/ ABSTAIN
5. Proposal to adjourn the Annual Meeting to a later date which is not
proposed or recommended by Emeritus. (Emeritus recommends that you vote
AGAINST.)
/__/ FOR /__/ AGAINST /__/ ABSTAIN
This Proxy confers authority to request cumulative voting and to allocate such
votes among the nominees at the discretion of the proxy. Additionally, in
their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournment, postponement,
rescheduling or continuation, or any other meeting of shareholders in lieu
thereof.
Please mark, sign, date and return this proxy card promptly in the
enclosed envelope provided.
This Proxy, when properly executed, will be voted in the manner
marked herein by the undersigned shareholder. If no marking is made, this
proxy will be deemed to be a direction to vote FOR items 1, 2 and 4, AGAINST
item 5 and to ABSTAIN from voting on item 3.
Please date and sign this proxy
exactly as your name appears hereon.
- -----------------------------------
(signature)
- -----------------------------------
(signature, if held jointly)
Dated:
-----------------------------
When shares are held by joint tenants, both should sign. When signing
as attorney-in-fact, executor, administrator, trustee, guardian, corporate
officer or partner, please give full title as such. If a corporation, please
sign in corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
To vote in accordance with Emeritus' recommendation, just sign
and date this proxy; no boxes need to be checked. If you need assistance in
voting your shares, please call D.F. King & Co., Inc. toll free at
1-800-431-9646.
ARV ASSISTED LIVING, INC.
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED BY
EMERITUS CORPORATION
The undersigned shareholder of ARV Assisted Living, Inc. ("ARV") hereby
appoints Daniel R. Baty, Raymond R. Brandstrom, Kelly Price and John W.
Cornwell, and each of them, each with full power of substitution, (a) the
agents of the undersigned (said agents, together with each substitute
appointed by them, if any, collectively, the "Designated Agents") to take all
such action as shall be necessary or appropriate (i) to call a special meeting
of the shareholders of the Company to be held on February 6, 1998 at 3:00 p.m.
local time (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 and (ii) to
change the place, date and time of the Special Meeting, if the Designated
Agents deem such change to be appropriate, in their sole discretion and (b) to
vote all shares of Common Stock that the undersigned is entitled to vote if
personally present at the Special Meeting and at any adjournments,
postponements, reschedulings or continuations, or any other meeting of
shareholders held in lieu of the Special Meeting. In their discretion the
proxies are authorized to vote upon such other business as may properly come
before the meeting or any adjournments, postponements, reschedulings or
continuations, or any other meeting of shareholders held in lieu thereof,
except that in the case of any proposal to adjourn the meeting, the proxy will
vote as indicated on the reverse of this card or, to the extent that no such
indication is given, as set forth herein. The undersigned hereby revokes any
previous proxies with respect to the matters covered by this Proxy.
(Please mark each proposal with an "X" in the appropriate box)
I. Proposal to Adjourn the February 6, 1998
Special Meeting
Emeritus recommends that you vote FOR item 1 and AGAINST item 2.
1. Proposal to adjourn the Special Meeting to a later date which is
proposed or recommended by Emeritus. (Emeritus recommends that you vote
FOR.)
/__/ FOR /__/ AGAINST /__/ ABSTAIN
2. Proposal to adjourn the Special Meeting to a later date which is not
proposed or recommended by Emeritus. (Emeritus recommends that you vote
AGAINST.)
/__/ FOR /__/ AGAINST /__/ ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment,
postponement, rescheduling or continuation, or any other meeting of
shareholders in lieu thereof.
Please mark, sign, date and return this proxy card promptly in the
enclosed envelope.
This Proxy, when properly executed, will be voted in the manner marked
herein by the undersigned shareholder. If no marking is made, this proxy will
be deemed to be a direction to vote FOR item 1 and AGAINST item 2.
Any subsequent dated proxy will not revoke the agent designation to call
a Special Meeting after Emeritus has delivered such agent designations to ARV
Assisted Living, Inc.
Please date and sign this proxy
exactly as your name appears hereon.
- ----------------------------------
(signature)
- ----------------------------------
(signature, if held jointly)
Dated:
----------------------------
When shares are held by joint tenants, both should sign. When signing
as attorney-in-fact, executor, administrator, trustee, guardian, corporate
officer or partner, please give full title as such. If a corporation, please
sign in corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
To vote in accordance with Emeritus' recommendation, just sign
and date this proxy; no boxes need to be checked. If you need assistance in
voting your shares, please call D.F. King & Co., Inc. toll free at
1-800-431-9646.
