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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(AMENDMENT NO. 9)
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
ARV ASSISTED LIVING, INC.
(NAME OF SUBJECT COMPANY)
ARV ASSISTED LIVING, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, NO PAR VALUE
(INCLUDING THE ASSOCIATED SERIES C JUNIOR PARTICIPATING
PREFERRED STOCK PURCHASE RIGHTS)
(TITLE OF CLASS OF SECURITIES)
00204C107
(CUSIP NUMBER OF CLASS OF SECURITIES)
SHEILA M. MULDOON, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ARV ASSISTED LIVING, INC.
245 FISCHER AVENUE, SUITE D-1
COSTA MESA, CA 92626
(714) 751-7400
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S)
FILING STATEMENT)
WITH COPIES TO:
WILLIAM J. CERNIUS, ESQ. ALEXANDER F. WILES, ESQ.
LATHAM & WATKINS IRELL & MANELLA LLP
650 TOWN CENTER DRIVE, 1800 AVENUE OF THE STARS,
20TH FLOOR SUITE 900
COSTA MESA, CA 92626 LOS ANGELES, CA 90067
(714) 540-1235 (310) 203-7659
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INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (as amended
through the date hereof, the "Statement"), originally filed on January 5, 1998,
by ARV Assisted Living, Inc., a California corporation (the "Company"), relates
to an offer by EMAC Corp., a Delaware corporation ("EMAC") and a wholly-owned
subsidiary of Emeritus Corporation, a Washington corporation ("Emeritus"), to
purchase all outstanding shares of the Company's common stock, no par value
(including the associated Series C Junior Participating Preferred Stock Purchase
Rights issued pursuant to the Rights Agreement, dated as of July 14, 1997,
between the Company and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent). All capitalized terms used herein without definition have the respective
meanings set forth in the Statement.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
The response to Item 4 is hereby amended by adding the following after
the final paragraph of Item 4:
On January 30, 1998, the tender offer to which the Statement, as
amended, relates, was terminated by Emeritus.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The response to Item 8 is hereby amended by adding the following after
the final paragraph of Item 8:
On January 26, 1998, the Federal Court issued an order denying the
Company's motion for a preliminary injunction. A copy of such order is filed as
Exhibit 99.1 hereto and incorporated herein by reference.
On January 26, 1998, the State Court issued a ruling denying Emeritus'
request for a preliminary injunction. A copy of the Court's order, dated
January 29, 1998, is filed as Exhibit 99.2 hereto and incorporated herein
by reference.
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ITEM 9. MATERIALS TO BE FILED AS EXHIBITS
The response to Item 9 is hereby amended by adding the following new
exhibit:
99.1 Order Re Preliminary Injunction in ARV Assisted Living, Inc. v.
Emeritus Corporation, case no. SA-CV-98-9-LHM (EEx), entered
January 26, 1998.
99.2 Order Denying Plaintiff's Motion for Preliminary Injunction in
Emeritus Corporation v. ARV Assisted Living, Inc., case no.
787788, filed January 29, 1998.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
ARV ASSISTED LIVING, INC.
By: /s/ BERNARD WHEELER-MEDLEY
--------------------------------------
Bernard Wheeler-Medley
Assistant Secretary
Dated February 12, 1998
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EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
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99.1 Order Re Preliminary Injunction in ARV Assisted Living, Inc. v.
Emeritus Corporation, case no. SA-CV-98-9-LHM (EEx), entered
January 26, 1998.
99.2 Order Denying Plaintiff's Motion for Preliminary Injunction in
Emeritus Corporation v. ARV Assisted Living, Inc., case no. 787788,
filed January 29, 1998.
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EXHIBIT 99.1
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No. SA CV - 98 - 9 - LHM (EEx) Date 1/26/98
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Title ARV Assisted Living, Inc. v. Emeritus Corporation
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DOCKET ENTRY
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PRESENT:
HON. Linda B. McLaughlin JUDGE
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Debra Beard None Present
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Deputy Clerk Court Reporter
ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS:
None Present None Present
PROCEEDINGS: ORDER RE PRELIMINARY INJUNCTION
IN CHAMBERS:
(1) On 1/6/98, Plaintiff ARV Assisted Living, Inc. ("ARV") filed its
Complaint alleging five causes of action against Emeritus Corporation
("Emeritus") for violations of federal securities law, unfair
competition and breach of fiduciary duty.
(2) In its Complaint and in is Motion for Preliminary Injunction filed on
1/8/98, ARV seeks a preliminary injunction to (1) bar Emeritus from
voting any proxies it has obtained in its current proxy fight with ARV
unless it waives all conditions attached to its December 19, 1997
tender offer and secures written waivers from all persons providing
financing for its tender offer of any conditions to their agreement to
finance Emeritus' tender offer, (2) require Emeritus to disseminate
corrective material to ARV's shareholders disclosing all facts
material to the conditions of its tender offer; (3) bar Emeritus from
purchasing more shares of ARV stock or soliciting any new proxies
until five days after it has disseminated the corrective disclosures;
(4) bar Emeritus from voting any
Initials of Deputy Clerk
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proxies obtained less than five days after disseminating the
corrective disclosures; and (5) require Emeritus to return any
shares of ARV stock which were tendered to it less than five days
after disseminating the corrective measures. (Complaint, pp.
22-28.)
(3) The Court has received, read, and considered ARV's Motion for
Preliminary Injunction and supporting papers, Emeritus'
Opposition to Preliminary Injunction and supporting papers, ARV's
Reply Brief and supporting papers, Emeritus' Supplemental Brief
and supporting papers, as well as the entire file in this action.
Additionally, the Court has read the complaints in the two
pending and related state court actions, Emeritus Corp. v. Arv
Assisted Living, Inc., et al., Orange County Case No. 787788, and
Mizel v. John A. Booty, et al., Orange County Case No. 787953.
(4) Background. ARV is a fully integrated provider of assisted living
accommodations and services which operates, acquires and develops
assisted living facilities. (Complaint, paragraph 3.) Emeritus, a
competitor of ARV, also operates residential style assisted
living communities. (Complaint, paragraph 4.)
On June 27, 1997, ARV entered into an exclusivity agreement
with Prometheus Assisted Living LLC ("Prometheus") pursuant to
which ARV agreed not to pursue a transaction with any other
investor prior to August 8, 1997 while it negotiated definitive
agreements with Prometheus regarding Prometheus' investing in
ARV. (Complaint, paragraph 17.) On July 10, 1997, Emeritus sent
a letter to ARV's Board proposing that Emeritus acquire the
outstanding stock of ARV for a minimum of $14 per share.
(Emeritus Opp. To Prelim. Inj., p.4.) On July 14, 1997, ARV
announced that it had entered into a series of agreements with
Prometheus (the "First Prometheus Transaction"). (Complaint,
paragraph 17.) In the First Prometheus Transaction, ARV agreed to
sell up to 49.9% of its stock to Prometheus at $14 per share.
(Emeritus Opp. to Prelim. Inj., p.4) Prometheus agreed to vote
its stock in support of the reelection of ARV's Board. ARV's
directors and senior officers, who owned approximately 20% of the
outstanding shares of ARV, agreed to vote their shares in support
of Prometheus' board nominees. (ID.)
On July 21, 1997, Prometheus purchased the first 16%
2
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block of ARV stock at $14 per share. (Id. at p.5.) According to
the terms of the First Prometheus Transaction, ARV's shareholders
would be permitted to vote whether to approve the First
Prometheus Transaction and, if they voted in favor, Prometheus
would purchase an additional 31% of the outstanding shares with
ARV retaining the right to sell the remaining shares - up to
49.9% total - thereafter. (Emeritus Opp. To Prelim. Inj., p.5.)
On August 22, 1997, ARV filed proxy solicitation materials with
the Securities and Exchange Commission (the "SEC") stating that
the First Prometheus Transaction would be voted on ARV's annual
meeting on October 14, 1997. (Id.)
On July 14, 1997, ARV announced that it was implementing a
shareholder rights plan. (Id.) Under the terms of the plan, if
any shareholder - with the exception of Prometheus which was
exempted from the plan's prescriptions - acquired 10% or more of
ARV's stock, all other existing shareholders would immediately be
given the right to purchase additional shares at half price.
(id.)
On October 12, 1997, Emeritus made a second proposal to the
ARV Board to purchase all of the outstanding shares of ARV stock
for $16.50 per share. (Emeritus Opp. To Prelim. Inj., p.6.) ARV's
Board met and rejected Emeritus' proposal on October 13, 1997.
(Id.) On October 29, 1997, ARV entered into a revised series of
agreement with Prometheus (the "Second Prometheus Transaction").
(Id.) According to the Second Prometheus Transaction, Prometheus
retained that 16% block of stock it previously purchased, the
right to three seats on the ARV Board, and the option of
acquiring up to 49.9% of ARV's stock over a three year period.
(Id.) Prometheus also bought $60 million worth of convertible
notes ("Notes") from ARV. (Id.) Under the terms of the Notes, ARV
was permitted to redeem the Notes for common stock at a set
price. (Id.) ARV also announced that the Second Prometheus
Transaction would not be subject to shareholder approval. (Id. at
p.7.)
\ On November 24, 1997, Emeritus filed preliminary materials
with the SEC indicating its intent to field a slate of candidates
to run against ARV's Board at the ARV annual meeting, scheduled
for January 8, 1997. (Id.) On December 5, 1997, ARV's Board met
and voted to redeem the Notes, rescheduled the annual meeting to
January 28, 1998 and rescheduled the record date for the annual
meeting to
3
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December 18, 1997. (Id.) On December 9, 1997, Emeritus filed suit in Orange
County Superior Court seeking to rescind the redemption of the Notes. (Id.
at p.8.) On December 19, 1997, Emeritus filed a Schedule 14D-1 with the SEC
and announced that it would commence a tender offer to purchase the
outstanding shares of ARV stock for $17.50 per share. (Emeritus Opp. To
Prelim. Inj., P.8.)
On January 5, 1998, ARV recommended to its shareholders that they
reject Emeritus' $17.50 per share tender offer. (Id. at p.9.) ARV filed the
instant action on January 7, 1998 and filed its Motion for Preliminary
Injunction on January 8, 1998. On January 9, 1998, Emeritus filed with the
SEC Amendment No. 2 to the Schedule 14D-1 Form in connection with its
tender offer which referenced ARV's federal action against Emeritus and
included, as an exhibit, ARV's Complaint. (Busch Decl., Ex.0.) On January
12, 1998, Emeritus again filed with the SEC an amendment to the Schedule
14D-1 Form. The January 12, 1998 amendment referenced ARV's Motion for
Preliminary Injunction and included, as an exhibit, ARV's the memorandum of
Points and Authorities in Support of its Motion. The amendment also advised
shareholders to "consider ARV's views as expressed in ARV's Brief when
deciding whether or not to tender their shares pursuant to the Offer to
Purchase and in deciding how to vote at the forthcoming annual meeting."
(Busch Decl. Ex. P.)
(5) Jurisdiction. ARV invokes this Court's jurisdiction over the first and
second causes of action, arising under federal law, pursuant to Section 27
of the Securities and Exchange Act of 1934 and 28 U.S.C. Sections 1331 and
2201. ARV invokes this Court's jurisdiction over the third, fourth, and
fifth causes of action, arising under state law, pursuant to 28 U.S.C.
Sections 1332 and 1367(a).
(6) Causes of Action. ARV has alleged the following five causes of action:
First Cause of Action: ARV claims that Emeritus has violated Sections
14(d) and 14(e) of the Securities and Exchange Act because Emeritus'
tender offer is materially misleading (Complaint, paragraphs 57,
60-64),
Second Cause of Action: ARV claims that Emeritus has violated Section
14(a) of the Securities and Exchange
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Act because Emeritus' proxy statement is materially false and
misleading (Complaint, paragraphs 71-75); Third Cause Of Action:
ARV claims that Emeritus' failure to include in its tender offer
disclosures required by the Securities and Exchange Act
constitutes unlawful, unfair and fraudulent business practices
under California's Business and Professions Code (Complaint,
paragraph 80); Fourth Cause of Action: ARV claims that Emeritus'
failure to include in its proxy statement disclosures required by
the Securities and Exchange Act and its failure to waive all
conditions associated with its tender offer constitutes unlawful,
unfair, and fraudulent business practices under California's
Business and Professions Code (Complaint, paragraph 83); Fifth
Cause of Action: ARV claims by failing to waive all conditions
associated with its tender offer, Emeritus has breached its
fiduciary duty to ARV's stockholders. (Complaint, paragraph 87).
(7) Preliminary Injunction Standard. Under well established Ninth Circuit
standards, a moving party is entitled to preliminary relief if it can
show either (1) a likelihood of success on the merits and the
possibility of irreparable injury, or (2) the existence of serious
questions going to the merits and the balance of hardships tipping in
favor of the movant. Gilder v. PGA Tour, Inc., 936 F.2d 417, 422 (9th
Cir. 1991). As a general rule, a moving party can only satisfy its
burden by demonstrating "either a combination of probable success on
the merits and the possibility of irreparable injury or that serious
questions are raised and the balance of hardships tips in his favor."
Associated General Contractors v. Coalition for Econ. Equity, 950 F.2d
1401, 1410 (9th Cir. 1991).
When a plaintiff seeks affirmative, mandatory relief -- as
opposed to an injunction preserving the status quo -- its burden of
proof is particularly high. The Ninth Circuit has held that where "a
plaintiff seeks a mandatory preliminary injunction that goes beyond
maintaining the status quo pendent lite, 'courts should be extremely
cautious' about issuing a preliminary injunction and should not grant
relief unless the facts and law clearly favor the
5
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plaintiff." COMMITTEE OF CENT. AM. REFUGEES V. INS, 795 F.2d 1434,
1441 (9th Cir. 1986) (quoting MARTIN V. INT'L OLYMPIC COMMITTEE, 740
F.2d 670, 675 (9th Cir. 1980)). In the instant case, ARV seeks an
order directing Emeritus to make additional disclosures and remove the
conditions of its tender offer. The proposed relief, then, would alter
the status quo and would constitute a mandatory preliminary
injunction.
(8) VIOLATIONS OF FEDERAL SECURITIES LAWS. Sections 14(a)1, 14(d)2 and
14(e)3 of the Securities and Exchange Act
________________
1 Section 14(a) provides that "[i]t shall be unlawful for a person, by use
of mails or by any means or instrumentality of interstate commerce or of any
facility of a national securities exchange or otherwise, in contravention of
such rules and regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of investors, to
solicit or to permit the use of his name to solicit any proxy or consent of the
authorization in respect of any security (other than an exempted security)
registered pursuant to section 781 of this title." 15 U.S.C. Section 78n(a).
2 Section 14(d) provides, in relevant part, that "[i]t shall be unlawful
for any person, directly or indirectly, by use of the mails or by means or
instrumentality of interstate commerce or by any facility of a national
securities exchange or otherwise, to make a tender offer... if, after
consummation thereof, such person would, directly or indirectly, be the
beneficial owner of more than 5 per cent of such class, unless at the time
copies of the offer... are first published or sent or given to security holders
such person has filed with the Commission a statement containing such of the
information specified in section 78m(d) of this title, and such additional
information as the Commission may by rules and regulations prescribe as
necessary or appropriate in the public interest or for the protection of
investors. 15 U.S.C. Section 78n(d).
3 Section 14(e) provides the "[i]t shall be unlawful for any person to make
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made, in the light of the
circumstances under which they are
6
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provides that it is unlawful to make any misrepresentation or
omission of a material fact in the context of, respectively, proxy
contests and tender offers. All three sections are part of the
Williams Act amendments to the Securities and Exchange act of 1934,
and their purpose is to "insure the public shareholders who are
confronted by a cash tender offer for their stock will not be
required to respond without adequate information.... "Rondeau v.
Mosinee Paper Corp., 95 S.Ct. 2069, 2075 (1975); Plaine v. McCabe,
790 F.2d 742, 745 (9th Cir. 1986). The determination of what
information is material is essentially the same under each
provision. An omitted fact is material if there is a substantial
likelihood that a reasonable shareholder would consider it
important in deciding how to vote or in deciding whether to tender
his or her shares. TSC Indus, Inc. v. Northway Inc. 96 S.Ct. 2126,
2132 (1976) ("[t]he question of materiality, it is universally
agreed, is an objective one, involving the significance of an
omitted or misrepresented fact to a reasonable investor."; Polaroid
Corp. V. Disney, 862 F.2d 987, 1005 (3rd Cir. 1988) ("[a]
misrepresentation is material under Section 14(e) if there is a
substantial likelihood that a reasonable shareholder would consider
important in deciding whether to sell his or her stock."). The
Supreme Court has explained further that "there must be a
substantial likelihood that the disclosure of the omitted fact
would have been viewed by a reasonable investor as having
significantly altered the "total mix" of information made
available." TSC Indus, Inc. v. Northway, Inc., 96 S.Ct. at 2132.
Positions of ARV and Emeritus
(9) ARV claims that it is likely to prevail on the merits of its
federal securities laws claims. It alleges that Emeritus violated
the Securities and Exchange Act by
_______________________
made, not misleading, or to engage in any fraudulent, deceptive or
manipulative acts or practices, in connection with any tender offer or request
or invitation for tenders,or solicitation of security holders in opposition to
or in favor of any such offer, request or invitation," 15 U.S.C. Section
78n(e).
7
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failing to disclose - in either its Tender Offer or its proxy
materials - the following five material facts:
(a) Eighteen leases which ARV executed with the landlords of its
assisted living facilities contain change of control provisions
which permit each landlord to declare the lease in default if a
change in control of ARV's Board occurs;
(b) The rescission of the redemption of the Notes, currently the
subject of Emeritus' state court action and a condition Emeritus
has stated must be met before it will complete its tender offer,
could take at least two years to effect after all appeal rights
have been exhausted;
(c) The identity of its funding source or the substance of the terms
and conditions of the funding it has secured;
(d) Northstar Capital Partners, LLC ("Northstar"), which has provided
a letter in which it expresses its confidence that funding can be
arranged to complete the transaction, has not previously arranged
a hostile tender offer;
(e) Emeritus has no intention of consummating its tender offer and,
instead, is using the offer as a ruse to gain control of ARV's
Board of Directors in order to either reduce the purchase price
it will offer for ARV or substitute stock as consideration for
cash in Emeritus' tender offer.
(10) Emeritus responds to the foregoing by arguing that its initial
disclosures did, in fact, comply with the requirements of the
securities laws. Emeritus disclosed
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On January 12, 1998, Emeritus filed with the SEC its Amendment No. 3 to
Schedule 14D-1. Like Amendment No. 2 filed with the SEC on January 9, 1998, ARV
shareholders are directed to review ARV's public filed brief and Motion for
Preliminary Injunction in this action and "consider ARV's views as expressed in
the ARV Brief when deciding whether or not to tender their shares pursuant to
the Offer to Purchase and in deciding how to vote at the forthcoming Annual
Meeting." (Busch Decl., Ex. P.) With its amended disclosures advising
shareholders to consult
8
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that its tender offer was conditioned on (1) its being permitted
to evaluate the leases ARV has executed, and (2) its being
satisfied with the terms of any lease which might be altered as a
result of the change of control in ARV's Board. (Camacho Decl.,
Ex. C, p.215.) ARV argues that this is not enough; Emeritus must,
in ARV's view, disclose specific hypothetical scenarios which
might unfold if ARV's landlords opt to declare the ARV leases in
default. ARV, however, cites no authority for this proposition.5
(11) ARV contends that Emeritus has failed to disclose its "real"
motivation for its tender offer, namely a scheme to seize control
of the ARV Board and force a stock for stock transaction. ARV has
done nothing but speculate as to Emeritus' motivation, and has
presented no evidence that Emeritus' candidates for the ARV Board
plan to cripple ARV and thereby violate the fiduciary duty they
would owe to ARV. Absent evidence that Emeritus does not intend
to consummate its tender offer or that Emeritus' director
candidates do not intend to act in the best interests of ARV, the
speculation by ARV as to Emeritus' motive cannot
_____________________________________
ARV's views on the merits of Emeritus' tender offer as expressed in the
papers filed in this lawsuit, Emeritus has reinforced the disclosures it
made in its initial Schedule 14D-1. Emeritus has disclosed in its initial
and supplemental filings with the SEC all relevant facts regarding its
tender offer, as well as the potential effect, in the view of ARV's Board,
that offer may have on ARV. This is sufficient under the securities laws.
Revlon, Inc. v. Pantry Pride, Inc., 621 F.Supp. 804 (D.Del. 1985) (only
disclosure of allegations against offeror, not admission of guilt or
liability, is required by securities laws); Lewis v. Potlatch Corporation,
716 F.Supp. 807 (S.D.N.Y. 1989) (holding that original and supplemental
proxy materials, which included complaint in lawsuit alleging malfeasance
on part of directors, adequately disclosed material facts).
ARV cites only dicta stating that a material omission or
misrepresentation is one which a reasonable investor would consider when
deciding how to vote when tendering his or her shares of stock. ARV cites
no authority which delineates the form a company's disclosures must take.
9
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sustain a claim for violation of Sections 14(a) or 14(e). Virginia
Bankabares v. Bandberg, 111 S.Ct. 2749, 2760 (1991).
(12) ARV contends that Emeritus has failed to disclose the material fact
that rescission of the redemption of the Notes issued to Prometheus
-- a condition to its offer -- could take upwards of two years after
appeal rights are exhausted. This contention is also unpersuasive
because as Emeritus points out, ARV cannot predict, ex ante, the
grounds for the state court's decision or whether there will be
available non-frivolous arguments which can be made on appeal.
Moreover, Emeritus has disclosed in its tender offer -- in bold print
on page 4 -- that consummation of the tender offer is contingent upon
the rescission of the redemption of the Notes. (Camacho Decl., Ex.
C., p.174.) Emeritus also discloses on page 2 of its tender offer that
it is seeking rescission of the redemption of the Notes in state
court. (Camacho Decl., Ex. C, p.172.) Emeritus further disclosed on
page 2 of its tender offer that if it "is unsuccessful in having the
redemption rescinded, [it] may elect to reduce the Offer Price to take
into account the purchase of approximately an additional 800,000
shares." (Id.) These statements are not misleading. The accuracy of
Emeritus' statements is not lessened simply because Emeritus did not
describe that the losing side in the dispute has appeal rights which,
if exercised, may delay the ultimate resolution of the matter for some
time. See Consolidated Gold Fields, PLC v. Anglo Am. Corp., 713 B.
Supp. 1457, 1470 (S.D.N.Y. 1989) ("[I]t is sufficient if the company
provides information as to material facts in a format from which a
reasonable investor could reach his own conclusions as to the risks of
the transaction.")
(13) ARV contends that Emeritus should have disclosed that (ARV believes)
Northstar has no experience in hostile takeovers. This contention is
also unpersuasive because ARV has presented no evidence that Northstar
is an unreliable funding source. Emeritus represents that it believes
Northstar will be able to arrange the funding necessary to complete
the tender offer and is under no obligation to suggest otherwise to
ARV's shareholders. Consolidated Gold
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Fields, PLC, 713 F. Supp. At 1470. In addition, Emeritus has
disclosed that it has 'had extensive discussions with a number of
financial sources and has negotiated the terms of commitment letter
for a possible financing structure for the Offer and Proposed Merger
but it has not executed any commitment letters because it does not
want to incur certain related fees and expenses unnecessarily prior to
the outcome of its litigation challenging the Prometheus transaction.'
(Camacho Decl., Ex. C., p.174.) Emeritus has disclosed to ARV's
shareholders the status of its plans to finance its tender offer.
Accordingly, Emeritus has complied with the securities laws.
(14) Finally, ARV contends that Emeritus has failed to disclose that it has
no intention of completing its tender offer. This contention is also
unpersuasive. The psychological motivation of a disclosing individual
cannot, standing alone, state a claim for violation of Section 14(a).
See Virginia Bankshares v. Sandberg, 111 S.Ct. at 2760 (noting that
'the temptation to rest an otherwise nonexistent 14(a) action on
psychological enquiry alone would threaten...strike suits and
attrition by discovery.') ARV's evidence to support this contention is
the fact that Emeritus' initial proposal in July 1997 was a stock for
stock transaction. This evidence does not support ARV's Motion for
Preliminary Injunction and is irrelevant. It is indicative of nothing
in view of ARV's rejection of that proposal and Emeritus' subsequent
announcement of a tender offer and filings with the SEC. Further, the
fact that ARV's bankers had drafted a stock for stock transaction in
October 1997 after Emeritus had presented ARV with the outlines of an
all cash deal is also irrelevant to ARV's Motion for Preliminary
Injunction and is indicative of nothing, except, perhaps, that
Emeritus was considering numerous options regarding ARV. As for ARV's
contention, contained in the Declaration of Howard Phanstiel, ARV's
current CEO and Chairman, that Mr. Phanstiel has been informed by some
of ARV's shareholders that Emeritus representatives continued to tell
people associated with ARV that a stock for stock deal remained
Emeritus' best option, the Court can accord little, if any, weight to
a generalized comment whose source is unidentified.
11
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CIVIL MINUTES - GENERAL
(continued)
Case No. SA CV - 98 - 9 - LHM (EEx) Date 1/26/98
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Title ARV Assisted Living Inc. v. Emeritus Corporation, etc.
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PROCEEDINGS CONTINUED:
(15) The Court concludes that Emeritus has complied with Sections
14(a), (d) and (e) by disclosing the information those laws
require. In sum, ARV has not demonstrated that it is likely
to succeed on the merits of any of its securities claims.
(16) Violation of California's Unfair Competition Act. California
Business and Professions Code Section 17203 provides that
"any court of competent jurisdiction" may enjoin "any person
who engages, has engaged or proposes to engage in unfair
competition..." Cal. Bus. & Prof. Code Section 17203.
"Unfair competition" is, in turn, defined to include "any
unlawful, unfair or fraudulent business act or practice."
Cal. Bus. & Prof. Code Section 17200. ARV alleges that it
is likely to prevail on the merits of its unfair Competition
claims since Emeritus' conduct, as alleged in the Complaint,
violates California's unfair competition statutes which are
designed to afford injunctive relief to injured parties and
protect both consumers and competitors. (ARV Motion for
Prelim. Inj., p.22.)
(17) ARV's position is unpersuasive. California's unfair
competition statutes do not apply to securities transactions.
Patterned after an amendment to the Federal Trade Commission
Act, California's Unfair Business Practices Act was designed
to "extend to the entire consuming public" the protections
afforded by the common law to business competitors against
unfair business practices. Bank of the West v. Superior
Court, 2 Cal. 4th 1254, 1264 (1992) (quoting Barquis v.
Merchants Collection Assn., 7 Cal.3d 94, 109 (1972)). Because
securities-related claims may be brought under federal law or
state securities laws, they lie beyond the reach of state
unfair competition statutes. See Perera v. Chinon Corp., 1996
WL 251936, *4 (N.D.Cal.) (holding that recent Ninth Circuit
decision was in accord with numerous cases from other
jurisdictions which have interpreted "little FTC" acts, such
as Section 17200, as inapplicable to securities
transactions.) Significantly, ARV cites no case in which a
court granted a party relief under California's Unfair
Business Practices Act for securities-related claims. Claims
regarding the fairness of proxy contests and tender offers
are regulated extensively by the Securities and
12
<PAGE> 13
CIVIL MINUTES - GENERAL
(continued)
Case No. SA CV - 98 - 9 - LHM (EEx) Date 1/26/98
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Title ARV Assisted Living, Inc. v. Emeritus Corporation, etc.
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PROCEEDINGS CONTINUED:
Exchange Act; they are not actionable under Section 17200.
As a result, ARV has not demonstrated a likelihood of
success on the merits on its third and fourth causes of
action.
(18) Breach of Fiduciary Duty. ARV argues that as soon as
Emeritus has obtained sufficient proxies to elect its slate
of Board nominees, it is bound by a fiduciary duty to
refrain from actions that further its own agenda at the
expense of ARV or its shareholders. (ARV Motion for Prelim.
Inj., p.16.) ARV also asserts that Emeritus is currently a
controlling shareholder to whom a fiduciary duty applies.
(Id. at p.20.) Emeritus, however, controls less than 10%
of ARV's shares and is not a member of any voting group.
(Emeritus Opp. To Prelim. Inj., p.21.) None of the
authority ARV cites supports its assertion that Emeritus is
now a controlling shareholder because it may eventually
receive a majority of the proxies of ARV's shareholders.
Indeed, ARV's suggestion would transform any entity issuing
proxy materials into a controlling shareholder since any
entity could potentially garner a majority of outstanding
shares.
(19) ARV's breach of fiduciary duty claim is simply not ripe.
See Clinton v. Acequia, Inc., 94 F.3d 568, 572 (9th Cir.
1996) (holding that federal courts ought not resolve issues
involving contingent future events which may not occur as
anticipated or at all). For this reason, ARV spends
considerable time speculating about what Emeritus may do if
it prevails in its proxy contest. ARV alleges that as soon
as Emeritus votes its proxies to take control of the Board,
that very act will put at least 18 of ARV's leases in
default -- thereby crippling ARV and its shareholders in
the event Emeritus fails to complete its tender offer. (ARV
Motion for Prelim. Inj., p.16.) In addition, ARV argues
that by merely casting its proxies, Emeritus will
immediately provide 18 ARV employees with the right to
terminate their employment contracts and demand severance
payments. (Id.)
The hypothetical scenarios which could potentially
unfold if Emeritus prevails in its proxy contest pale
against the actions taken by ARV's Board which have made
such scenarios possible. While it is a stretch to suggest
13
<PAGE> 14
CIVIL MINUTES - GENERAL
(continued)
Case No. SA CV - 98 - 9 - LHM (EEx) Date 1/26/98
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Title ARV Assisted Living Inc. v. Emeritus Corporation, etc.
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PROCEEDINGS CONTINUED:
that Emeritus, which controls less than 10% of ARV's stock, now owes a
fiduciary futy to ARV's shareholders, clearly ARV's directors are bound by
such a duty. Haylicek v. Coast-to-Coast Analytical Services, 39 Cal.App.4th
1844, 1850 (1995) ("The directors of a corporation owe a fiduciary duty to
the corporation and its shareholders."); Jones v. H.F. Abmanson & Co., 1
Cal.3d 93, 81 (1969) (holding that California imposes a comprehensive rule
of inherent fairness which "applies alike to officers, directors and
controlling shareholders in the exercise of powers that are theirs by
virtue of their position . . ."). By enacting change of control provisions
in the leases ARV executed with the landlords of its facilities as well as
in the employment contracts of key employees, ARV's directors appear to be
attempting to usurp from shareholders their right to vote for different
directors because ARV is placed at risk if the shareholders decide to
replace ARV's Board. Any rule which would allow a board to entrench itself
against any takeover by enacting change of control provisions and then
filing breach of fiduciary duty claims against its contenders -- even when
those contenders are supported by a majority of the company's own
shareholders -- flies in the face of basic principles of corporate
democracy. Hilton Hotels Corp. v. ITT Corp., 978 F.Supp. 1342, 1447 (D.Nev.
1997) ("A board has power over the management and assets of the
corporation, but that power is not unbridled. That power is limited by the
right of shareholders to vote for the members of the board.")
In addition, ARV's recitation of the harm which will ensue upon the
election of Emeritus' Board nominees is overstated. While the change in
control provisions in its leases provide its landlords the option of
placing ARV's leases in default, ARV presents no evidence that the
landlords will exercise that option. Similarly, ARV presents no evidence
that its key employees will exercise the option, contained in their
employment contracts, to choose severance payments over continuing their
employment with the company. (See Busch Decl., Ex. T.)
Accordingly, ARV has not demonstrated a likelihood of success on the
merits of its fifth cause of action.
(20) Irreparable Harm. While ARV's failure to demonstrate the likelihood of
success on the merits is fatal to its Motion
14
<PAGE> 15
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(continued)
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Title ARV Assisted Living, Inc. v. Emeritus Corporation, etc.
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PROCEEDINGS CONTINUED:
for Preliminary Injunction, the Court also concludes that ARV has
failed to demonstrate that it will suffer irreparable harm if
injunctive relief is not granted. ARV alleges irreparable harm will
come in the form of "harm to ARV's corporate governance,"
"shareholders' problems of proof," and a "disastrous position with
respect to its leases and employment contracts." (ARV Motion for
prelim. Inj., p.34.) ARV cites case law indicating that irreparable
harm follows when shareholders tendering their stock, or voting for
board director, are denied accurate information. See E.G., Camelot
Indus. Corp. vs. Vista Resources. Inc., 535 F.Supp. 1174, 1184
(S.D.N.Y. 1982). As the court has already determined, however,
Emeritus has properly disclosed the information the law requires,
making injunctive relief unnecessary. See Capital Realty Investors Tax
Exempt Fund Ltd. v. Dominum Tax Exempt Fund. LLP. 944 F.Supp. 250, 259
(S.D.N.Y. 1996) (holding that injunctive relief issues under Section
14(a) to "ensure that investors are provided in a timely fashion with
the accurate information necessary to the intelligent exercise of the
corporate franchise.") Emeritus' disclosures with the SRC, both
initial and subsequent, satisfy the securities' laws requirements,
precluding the irreparable harm ARV fears. As a result, ARV has failed
to demonstrate that it will suffer irreparable harm if injunctive
relief does not issue.
(21) Balance of Hardships. Nor, in the Court's view, has ARV demonstrated
that the balance of hardships tips decidedly in its favor, an
assertion ARV makes in conclusory fashion at the close of its Motion
for Preliminary Injunction. (ARV Motion for Prelim. Inj., P.35.) ARV
argues that the only harm Emeritus will suffer if the Court grants its
request for injunctive relief is Emeritus' "inability to use an
illusory promise of an all cash offer to injure a competitor for its
own advantage." (Id.) Emeritus counters that a court order directing
Emeritus to waive all financing conditions to its tender offer would
be unprecedented and would cause enormous harm to Emeritus. (Emeritus
Opp. To Prelim. Inj., p.25.) The applicable law requires Emeritus to
properly disclose the information a reasonable investor would regard
as important to consider before tendering his or her shares. Emeritus
complied with
<PAGE> 1
EXHIBIT 99.2
LATHAM & WATKINS
Peter H. Benzian (State Bar No. 047456)
Hugh Steven Wilson (State Bar No. 051961)
R. Brian Timmons (State Bar No. 155916)
Collie F. James IV (State Bar No. 192318)
650 Town Center Drive, Suite 2000
Costa Mesa, California 92626-1925
Telephone: (714) 540-1235
Facsimile: (714) 755-8290 FILED
ORANGE COUNTY SUPERIOR COURT
IRELL & MANELLA LLP JAN. 29, 1998
Kenneth R. Heitz (State Bar No. 53734) ALAN SLATER, Executive Officer/
Alexander F. Wiles (State Bar No. 73596) Clerk
1800 Avenue of the Stars, Suite 900 By /s/ Deputy
Los Angeles, California 90067-4276 ----------------
Telephone: (310) 277-1010
Facsimile: (310) 203-7199
Attorneys for the ARV Defendants
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF ORANGE
EMERITUS CORPORATION, CASE NO. 787788
Plaintiff, ASSIGNED FOR ALL PURPOSES TO JUDGE
JOHN C. WOOLLEY, DEPT. 6
v.
ORDER DENYING PLAINTIFF'S MOTION
ARV ASSISTED LIVING, INC., a FOR PRELIMINARY INJUNCTION
California corporation; DAVID P.
COLLINS, an individual; JOHN A. Hearing Date: January 26, 1998
BOOTY, an individual; R. BRUCE Time: 2:00 p.m.
ANDREWS, an individual; MAURICE J. Dept.: 6
DeWALD, an individual; JOHN J. Judge: Hon. John C. Woolley
RYDZEWSKI, an individual; ROBERT P.
FREEMAN, an individual; KENNETH M. Date of Filing
JACOBS, an individual; MURRAY N. This Action: December 9, 1997
GUNTY, an individual; HOWARD G. Trial date: None set
PHANSTIEL, an individual; and
PROMETHEUS ASSISTED LIVING LLC,
a Delaware limited liability company,
Defendants.
<PAGE> 2
On January 26, 1998, a hearing on the motion of plaintiff Emeritus
Corporation for preliminary injunction came on regularly for hearing before the
Court in Department 6, the Honorable John C. Woolley presiding. Joseph P.
Busch, III, of Gibson, Dunn & Crutcher LLP and James H.R. Windels of Davis Polk
and Wardwell appeared on behalf of plaintiff Emeritus Corporation. Peter H.
Benzian and R. Brian Timmons of Latham & Watkins appeared on behalf of
defendants ARV Assisted Living, Inc., David P. Collins, John A. Booty, R. Bruce
Andrews, Maurice J. DeWald, John J. Rydzewski and Howard G. Phanstiel. Thomas
G. Rafferty of Cravath, Swaine & Moore appeared on behalf of defendants
Prometheus Assisted Living, LLC, Robert P. Freeman, Kenneth M. Jacobs, and
Murry N. Gunty.
After full consideration of the pleadings, the papers filed in support of
and in opposition to the Motion for Preliminary Injunction, the evidence
included with the papers and the evidence and oral argument presented at the
hearing, and the Court being fully advised in the matter:
The Court HEREBY ORDERS that plaintiff Emeritus Corporation's Motion for
Preliminary Injunction is DENIED. In reaching this conclusion, the Court finds
that plaintiff did not present sufficient evidence that it would suffer
irreparable harm if the Motion for Preliminary Injunction was denied and that
balancing the relative harms to the parties weighs heavily in favor of the
defendants and the denial of plaintiff's Motion for Preliminary Injunction. The
Court further finds that plaintiff would be required to post a bond if the
Motion for Preliminary Injunction was granted and such bond would be
prohibitively large. In considering the size of the requisite bond, the Court
notes that the granting of plaintiff's Motion for Preliminary Injunction would
impact the business of defendant ARV Assisted Living, Inc., such that a bond
exceeding $12 million would be required.
2
<PAGE> 3
The Court also HEREBY ORDERS that a status conference between the parties
shall be held on March 18, 1998, at 8:30 a.m. in Department 6.
Dated: January 29, 1998
/s/ JOHN C. WOOLLEY
-----------------------------
Hon. John C. Woolley
Judge of the Superior Court
Submitted by:
LATHAM & WATKINS
By: /s/ COLLIE F. JAMES, IV
---------------------------------------------
Collie F. James, IV
Attorneys for Defendants ARV Assisted
Living, Inc., David P. Collins, John A. Booty,
R. Bruce Andrews, Maurice J. DeWald,
John J. Rydzewski and Howard G. Phanstiel
Approved as to Form:
CRAVATH, SWAINE & MOORE
By: /s/ THOMAS G. RAFFERTY
----------------------------------------
Thomas G. Rafferty
Attorneys for Defendants Prometheus
Assisted Living, LLC, Robert P. Freeman,
Kenneth M. Jacobs, and Murry N. Gunty
GIBSON, DUNN & CRUTCHER LLP
By: /s/ JOSEPH P. BUSCH, III
--------------------------------------------
Joseph P. Busch, III
Attorneys for Plaintiff Emeritus Corporation
3
