EXHIBIT (a)(1)(A)
THE INFORMATION IN THIS OFFER TO PURCHASE AND CONSENT SOLICITATION STATEMENT IS
NOT COMPLETE AND MAY BE CHANGED. THIS PRELIMINARY OFFER TO PURCHASE AND CONSENT
SOLICITATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO PURCHASE ANY UNITS OF
LIMITED PARTNER INTEREST.
SUBJECT TO COMPLETION
OFFER TO PURCHASE FOR CASH
ALL THE OUTSTANDING LIMITED PARTNERSHIP UNITS (THE "UNITS")
OF
AMERICAN RETIREMENT VILLAS PROPERTIES II,
A CALIFORNIA LIMITED PARTNERSHIP,
AT
$___ PER UNIT
TO LIMITED PARTNERS
BY
ARVP II ACQUISITION, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP OF WHICH
ARV ASSISTED LIVING, INC.
IS THE GENERAL PARTNER
AND
SOLICITATION OF CONSENTS TO A PROPOSAL TO EFFECT A MERGER
THE OFFER, THE WITHDRAWAL RIGHTS RELATED TO THE OFFER AND THE
SOLICITATION PERIOD FOR THE CONSENTS WILL EXPIRE AT 5:00 P.M., PACIFIC TIME, ON
___________, 2004, UNLESS WE EXTEND THE OFFER (AS SO EXTENDED, THE "EXPIRATION
DATE.")
THE OFFER AND CONSENT SOLICITATION ARE SUBJECT TO CERTAIN RISKS
DESCRIBED UNDER "SPECIAL FACTORS -- RISK FACTORS" BEGINNING ON PAGE 3 OF THIS
OFFER TO PURCHASE AND CONSENT SOLICITATION STATEMENT. YOU SHOULD READ THIS
ENTIRE DOCUMENT CAREFULLY BEFORE DECIDING WHETHER TO TENDER YOUR UNITS OR
DELIVER YOUR CONSENT.
THE ENTITY MAKING THE OFFER AND SOLICITING YOUR CONSENT IS ARVP II
ACQUISITION, L.P., A CALIFORNIA LIMITED PARTNERSHIP ("PURCHASER"). WE ARE A
CALIFORNIA LIMITED PARTNERSHIP OF WHICH ARV ASSISTED LIVING, INC., A DELAWARE
CORPORATION ("ARV"), IS THE GENERAL PARTNER. ARV IS ALSO THE GENERAL PARTNER OF
AMERICAN RETIREMENT VILLAS PROPERTIES II, A CALIFORNIA LIMITED PARTNERSHIP, THE
SUBJECT OF THE OFFER (THE "PARTNERSHIP"). ARV ALSO DIRECTLY OWNS APPROXIMATELY
52.5% OF THE UNITS OF THE PARTNERSHIP. NO AFFILIATE OF ARV OTHER THAN PURCHASER
IS MAKING THE OFFER OR SOLICITING YOUR CONSENT. IN THIS DOCUMENT, THE TERMS
"PURCHASER," "WE," "US" AND "OUR" REFER TO ARVP II ACQUISITION, L.P. FOR A
DESCRIPTION OF THE RELATIONSHIP BETWEEN ARV, PURCHASER AND THE PARTNERSHIP, SEE
"SPECIAL FACTORS -- TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS; INTEREST IN
SECURITIES OF THE PARTNERSHIP."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE CONSENT BY
LIMITED PARTNERS OF THE PARTNERSHIP WHO COLLECTIVELY HOLD MORE THAN 50% OF THE
UNITS NOT HELD BY ARV TO THE MERGER PROPOSAL DESCRIBED UNDER "THE CONSENT
SOLICITATION," ALTHOUGH WE RESERVE THE RIGHT TO WAIVE THIS CONDITION OR TO
EXTEND THE OFFER, SUBJECT TO THE TERMS AND CONDITIONS CONTAINED WITHIN THIS
OFFER TO PURCHASE AND CONSENT SOLICITATION STATEMENT. SEE "THE TENDER OFFER --
CONDITIONS TO THE OFFER."
A HOLDER OF UNITS (A "UNITHOLDER"), OTHER THAN ARV, MAY TENDER ANY OR
ALL UNITS THAT IT OWNS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION, OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE DISCLOSURE CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
IMPORTANT INFORMATION ON TENDERING YOUR UNITS OR CONSENTING TO THE MERGER
Any Unitholder desiring to tender his or her Units and/or consent to
the Merger Proposal should complete and sign the YELLOW Agreement of Assignment
and Transfer and/or the GREEN Consent Form (copies of which are enclosed with
this Offer to Purchase and Consent Solicitation Statement) in accordance with
their instructions and mail or deliver them to the Information Agent at the
address or facsimile number set forth below.
If legal title to your Units is held through an IRA, Keogh or similar
account, we will send on your behalf a copy of your completed Agreement of
Assignment and Transfer and/or Consent Form to your custodian to obtain your
custodian's confirmation. If your Units are held through an IRA, Keogh or
similar account, you should send these documents to the Information Agent
2
not less than one week prior to the Expiration Date so that we have time to
obtain your custodian's confirmation prior to the Expiration Date. You may also
send your completed Agreement of Assignment and Transfer and/or Consent Form to
your custodian to obtain your custodian's confirmation and then mail or deliver
them to the Information Agent at the address or facsimile number set forth below
prior to the Expiration Date in accordance with the instructions set forth in
this document.
Questions or requests for assistance or additional copies of this Offer
to Purchase and Consent Solicitation Statement, the Agreement of Assignment and
Transfer or the Consent Form may be directed to the Information Agent at the
toll free number set forth below.
The Information Agent for the Offer is:
ACS Securities Services, Inc.
Attn: American Retirement Villas Properties II, a California limited
partnership
3988 N. Central Expressway
Building 5, 6th Floor
Dallas, TX 75204
Tel.: (866) 275-3707
Fax: (866) 275-3710
January [ ], 2004.
3
TABLE OF CONTENTS
PAGE
SUMMARY TERM SHEET............................................................................................... i
INTRODUCTION..................................................................................................... 1
SPECIAL FACTORS.................................................................................................. 3
1. Risk Factors............................................................................................ 3
2. Background to the Offer and the Merger.................................................................. 5
3. Purpose of the Offer and the Merger; Future Plans....................................................... 5
4. Fairness of the Offer and the Merger.................................................................... 6
5. Determination of the Offer Price........................................................................ 11
6. Alternatives Considered to the Offer and the Merger..................................................... 25
7. Effects of the Offer.................................................................................... 26
8. Effects of the Merger................................................................................... 27
9. Transactions, Negotiations and Agreements; Interest in Securities of the Partnership.................... 28
10. Certain United States Federal Income Tax Considerations................................................. 29
11. Forward-Looking Statements.............................................................................. 33
THE PARTNERSHIP.................................................................................................. 34
1. Description of the Partnership.......................................................................... 34
2. Business Risks.......................................................................................... 44
3. Source and Amount of Funds for the Offer and the Merger................................................. 47
4. Selected Historical Financial Data for the Partnership.................................................. 47
5. Projections for the Partnership Properties; Budgets..................................................... 48
6. Dividends and Distributions............................................................................. 49
THE TENDER OFFER................................................................................................. 50
1. Terms of the Offer; Expiration Date..................................................................... 50
2. Acceptance for Payment and Payment for Units............................................................ 50
3. Procedure for Accepting the Offer and Tendering Units................................................... 51
4. Withdrawal Rights....................................................................................... 55
5. Extension of Tender Period; Termination; Amendment...................................................... 56
6. Conditions to the Offer................................................................................. 57
7. Certain Legal Matters; Required Regulatory Approvals.................................................... 59
THE CONSENT SOLICITATION......................................................................................... 61
1. Record Date; Outstanding Units; Voting Rights........................................................... 61
2. The Merger Proposal; Effective Time of the Merger Proposal.............................................. 61
3. The Merger; Required Approvals.......................................................................... 62
4. Solicitation Period..................................................................................... 63
5. Voting and Revocation of Consents....................................................................... 63
6. Effective Time of the Merger............................................................................ 65
7. No Special Meeting...................................................................................... 66
8. Interests of Certain Persons in the Matters to be Acted Upon............................................ 66
i
9. Costs of the Consent Solicitation....................................................................... 66
OTHER MATTERS.................................................................................................... 66
1. Certain Fees and Expenses............................................................................... 66
2. Available Information; Incorporation by Reference....................................................... 67
3. No Dissenter's Rights................................................................................... 68
4. Miscellaneous........................................................................................... 68
SCHEDULE I
SCHEDULE II
ANNEX A - Merger Agreement
ii
SUMMARY TERM SHEET
This summary highlights important and material information contained in
this Offer to Purchase and Consent Solicitation Statement but is intended as an
overview only. To fully understand the Offer and the Consent Solicitation
described in this document and for a more complete description of the terms of
the Offer and the proposal to which we are seeking your consent, you should
carefully read this entire Offer to Purchase and Consent Solicitation Statement,
the annexes and schedules to the Offer to Purchase and Consent Solicitation
Statement, the documents incorporated by reference or otherwise referred to in
this Offer to Purchase and Consent Solicitation Statement, and the Agreement of
Assignment and Transfer and the Consent Form (which are enclosed with this Offer
to Purchase and Consent Solicitation Statement). Section and heading references
are included to direct you to a more complete description of the topics
contained in this summary. Any terms not defined in this summary are defined in
the complete Offer to Purchase and Consent Solicitation Statement and any terms
defined in this summary have the same meaning in the complete Offer to Purchase
and Consent Solicitation Statement.
GENERAL INFORMATION ABOUT THE OFFER AND THE MERGER PROPOSAL
WHAT TRANSACTIONS ARE CONTEMPLATED BY THIS OFFER TO PURCHASE AND CONSENT
SOLICITATION STATEMENT?
- This Offer to Purchase and Consent Solicitation Statement relates to:
- The Offer: Our tender offer to purchase all of the outstanding
limited partnership units of the Partnership, or Units, not owned
by ARV Assisted Living, Inc., or ARV, at the Offer Price of $___
in cash per Unit pursuant to the terms and conditions of the
Offer; as well as
- The Consent Solicitation: A solicitation for consents to a
proposed merger transaction, called the Merger, pursuant to which
Unitholders (other than ARV or its subsidiaries) will receive
$___ in cash for each Unit owned if the Merger is consummated,
subject to the terms of the merger agreement, which we refer to
as the Merger Agreement, in the form attached as Annex A. We
reserve the right to make changes to the Merger Agreement at any
time prior to effecting the Merger so long as those changes do
not adversely effect the interests of Unitholders that have
consented to the proposed merger transaction and the Merger.
- The Partnership charges a transfer fee to any purchaser of Units for
the transfer of Units. This fee is equal to the lesser of $150 and the
Partnership's actual costs and expenses incurred in connection with
such transfer. This fee is intended to compensate the Partnership for
the costs and expenses incurred in connection with transferring the
Units on the books of the Partnership, and the Partnership believes
that these costs and expenses have been in excess of $150. While this
fee is customarily imposed upon sellers of Units, we will pay this fee
to the Partnership in connection with any transfer of your Units to us
in the Offer. Therefore, the Partnership transfer fee will not reduce
the Offer Price you will receive if you tender your Units in the
Offer.
i
- We refer to the tender offer as the Offer and we refer to our proposal
to consent to the principal terms of the Merger Agreement and the
Merger as the Merger Proposal, each as described in this Offer to
Purchase and Consent Solicitation Statement.
See "THE TENDER OFFER" and "THE CONSENT SOLICITATION."
HOW DO THE OFFER AND THE MERGER RELATE TO EACH OTHER?
- The Offer and the Merger are separate and independent transactions.
The same Offer Price per Unit will be paid to Unitholders in both the
Offer and the Merger. Unitholders whose tendered Units are accepted
for purchase will not be entitled to also receive $___ per Unit if the
Merger is consummated.
- In certain circumstances which are discussed below, the Offer could be
completed and the tendered Units would be accepted for purchase, even
if the Merger is not consummated. If we complete the Offer and
purchase the tendered Units, but do not consummate the Merger,
Unitholders who have not tendered will remain as Unitholders. See
"SPECIAL FACTORS -- Risk Factors -- If the Offer is completed but the
Merger is not effected, non-tendering Unitholders may be harmed."
- If the Merger is not consummated, Unitholders who did not tender their
Units in the Offer will not be entitled to any payment per Unit.
- In other circumstances, the Merger could be consummated, even if the
Offer is not completed and the tendered Units are not accepted for
purchase; nevertheless, Unitholders other than ARV and its
subsidiaries, including those who tendered in the Offer, will receive
the Offer Price for each Unit they hold.
- It is a condition to the completion of the Offer that we receive,
among other things, the consent to the Merger Proposal from
Unitholders holding a majority of the Units that are not held by ARV
and its subsidiaries.
- If there are fewer than 300 Unitholders after completion of the Offer,
and we do not complete the Merger, the Partnership may stop filing
financial statements and other information with the Securities and
Exchange Commission, or SEC, in which case, information about the
Partnership would not be made publicly available and we would
anticipate a reduction in the Partnership's expenses. As of the date
of this Offer to Purchase and Consent Solicitation Statement, there
were 1,636 Unitholders in the Partnership other than ARV.
See "THE TENDER OFFER" and "THE CONSENT SOLICITATION."
ARE WE ASKING YOU TO SELL YOUR UNITS?
- Yes. We are offering to buy all of your Units for the Offer Price of
$___ in cash per Unit pursuant to the terms and conditions of the
Offer.
See "THE TENDER OFFER -- Terms of the Offer; Expiration Date."
ii
ARE WE ASKING YOU TO CONSENT TO A PROPOSAL?
- Yes. We are asking you to consent to the Merger Proposal to approve
the principal terms of the Merger Agreement and the Merger. If the
Merger is consummated, each Unit not owned by ARV or its subsidiaries
would be converted into the right to receive the Offer Price which
will be paid to a Unitholder upon surrender of his or her Units.
- We and ARV, as the general partner of the Partnership, have already
approved the terms of the Merger Agreement.
See "THE CONSENT SOLICITATION -- The Merger Proposal; Effective Time of the
Merger Proposal."
MAY YOU TENDER YOUR UNITS BUT NOT CONSENT TO THE MERGER PROPOSAL?
- Yes. However, you should be aware that completion of the Offer is
conditioned upon the receipt of valid written consents to the Merger
Proposal by Unitholders who collectively hold more than 50% of the
Units that are not held by ARV or its subsidiaries. Consequently, if
you decide to tender your Units to us but do not also deliver your
consent to the Merger Proposal, your failure to consent will reduce
the likelihood that the Offer will be completed and that we will
purchase the Units you may have tendered. We have the right, subject
to compliance with the regulations of the SEC, to waive this
condition, but we are under no obligation to do so.
See "THE CONSENT SOLICITATION -- The Merger; Required Approvals."
THE PURCHASER AND ARV
WHO IS THE PURCHASER?
- We are named ARVP II Acquisition, L.P. and are also referred to as the
Purchaser. We are a California limited partnership wholly-owned
indirectly by ARV. ARV is privately-owned and is the general partner
of American Retirement Villas Properties II, a California limited
partnership, which we refer to as the Partnership. The Units issued by
the Partnership are the subject of the Offer. ARV also owns
approximately 52.5% of the Units of the Partnership. No affiliate of
ARV, other than the Purchaser, is making the Offer or soliciting your
consent. The Purchaser is also seeking your consent to the Merger
Proposal. We and the Partnership are the parties to the Merger, and,
if the Merger is consummated, we would be merged with and into the
Partnership.
See "SCHEDULE I -- ARVP II Acquisition, L.P."
WHO WOULD ACQUIRE MY UNITS IN THE OFFER AND PAY THE CASH CONSIDERATION IN THE
MERGER?
- We would buy your Units in the Offer at the Offer Price per Unit
tendered. We would also pay the cash consideration equal to the Offer
Price for each Unit that is not purchased in the Offer (other than
those owned by ARV or its subsidiaries) if the Merger is consummated,
subject to the terms of the Merger Agreement.
iii
See "THE TENDER OFFER -- Terms of the Offer; Expiration Date" and "THE
CONSENT SOLICITATION -- The Merger Proposal; Effective Time of the Merger
Proposal."
WHO IS ARV?
- ARV is a privately-owned, fully integrated provider of assisted living
accommodations and services in the United States. ARV operates,
acquires and develops assisted living communities that offer a
combination of housing, personalized support services and healthcare
in a non-institutional setting. ARV's assisted living communities are
designed to respond to the individual needs of elderly residents who
require assistance with certain activities of daily living, but who do
not require the intensive nursing care provided in a skilled nursing
facility.
See "SCHEDULE I -- ARV."
ARE WE AFFILIATED WITH ARV, THE GENERAL PARTNER OF THE PARTNERSHIP?
- Yes. We are wholly-owned by ARV, the general partner of the
Partnership. In addition, all of our activities are carried out by ARV
employees, since we do not have any employees of our own. As a result
of ARV's relationship with the Partnership, ARV may have a conflict of
interest with respect to the Offer and our solicitation of your
consent to the Merger Proposal, which we refer to as the Consent
Solicitation. See "SPECIAL FACTORS -- Risk Factors -- ARV, the general
partner of the Partnership, may have a conflict of interest with
respect to the Offer and the Consent Solicitation."
THE OFFER AND THE MERGER
HOW MUCH WILL YOU RECEIVE FOR EACH UNIT?
- In the Offer, we are offering $___ in cash per Unit, less the amount
of any cash distributions made or declared with respect to the Units
on or after the date of this Offer to Purchase and Consent
Solicitation Statement until the date on which we purchase the Units
tendered pursuant to the Offer (to the extent that we do not receive
such distributions with respect to any Units accepted for payment).
Any non-cash distribution made or declared during this time will be
held by each tendering Unitholder for our account and transferred to
us or exercised for our benefit, in which case the proceeds of such
exercise will be promptly remitted to us. We refer to this amount as
the Offer Price. See "THE TENDER OFFER."
- In the Merger, Units that are not owned by ARV or its subsidiaries
would be converted into the right to receive $___ in cash per Unit,
less the amount of any cash distributions made or declared with
respect to the Units on or after the date of this Offer to Purchase
and Consent Solicitation Statement until the date on which the Merger
is consummated (to the extent that we do not receive such
distributions with respect to any such Units), subject to the terms of
the Merger Agreement. Any non-cash distribution made or declared
during this time will be held by each Unitholder for our account and
transferred to us or exercised for our benefit, in which case the
proceeds of such exercise will be
iv
promptly remitted to us. Upon consummation of the Merger, a Unitholder
will receive this price in cash upon surrender of his or her Units.
See "THE CONSENT SOLICITATION."
- The Partnership charges a transfer fee to any purchaser of Units for
the transfer of Units. This fee is equal to the lesser of $150 and the
Partnership's actual costs and expenses incurred in connection with
such transfer. This fee is intended to compensate the Partnership for
the costs and expenses incurred in connection with transferring the
Units on the books of the Partnership, and the Partnership believes
that these costs and expenses have been in excess of $150. While this
fee is customarily imposed upon sellers of Units, we will pay this fee
to the Partnership in connection with any transfer of your Units to us
in the Offer. Therefore, the Partnership transfer fee will not reduce
the Offer Price you will receive if you tender your Units in the
Offer.
- In general, the same price in cash per Unit will be paid to
Unitholders tendering in the Offer, if completed, and to all
Unitholders, other than ARV and its subsidiaries, in the Merger, if
consummated. Therefore, we also refer to the price to be paid to
Unitholders in the Merger for each of their Units as the Offer Price.
See "SPECIAL FACTORS -- Determination of the Offer Price."
HOW WAS THE OFFER PRICE DETERMINED?
- In establishing the $___ Offer Price proposed to be paid in the Offer
and the Merger, we took into account a variety of factors, including
ARV's assessment of the underlying value of the Partnership's assets,
based upon our own analysis, independent appraisals and recent prices
at which the Units have been transferred between third parties. For
more information see "SPECIAL FACTORS -- Determination of the Offer
Price."
WHAT IS THE MARKET VALUE OF YOUR UNITS?
- There is no established public market for the Units, although there is
a limited secondary market for the Units. Market prices for the Units
have been reported to the Partnership in transactions involving
informal secondary sales and third party "mini-tender" offers. During
the past two years, the average tender offer price per Unit in
"mini-tender" offers of which the Partnership is aware was $312.50 per
Unit. Based on a hypothetical sale of five Units and the $150
Partnership transfer fee customarily paid by a tendering Unitholder,
during the past two years, the average net tender offer price per Unit
in these "mini-tender" offers would be $282.50 per Unit.
See "SPECIAL FACTORS -- Fairness of the Offer and the Merger;" "SPECIAL
FACTORS -- Determination of the Offer Price" and "Schedule II --
Information Concerning Secondary Market Sales Reported to the Partnership
During the Last Two Fiscal Years."
v
WHY ARE WE BOTH PURSUING THE OFFER AND SEEKING APPROVAL OF THE MERGER PROPOSAL?
- We are making the Merger Proposal and seeking to complete the Merger
in order to acquire the entire equity interest in the Partnership,
which would enable us to make the Partnership a private, wholly-owned
subsidiary of ARV.
- We are pursuing the Offer to increase our interest in the Partnership
by acquiring additional Units, even if we are unable to consummate the
Merger.
- Even if you tender your Units, your consent to the Merger Proposal is
important since we are not obligated to complete the Offer and
purchase any tendered Units if we do not receive valid consents from
Unitholders holding a majority of the Units not held by ARV or its
subsidiaries.
See "SPECIAL FACTORS -- Purpose of the Offer and the Merger; Future Plans."
WHAT ARE THE BENEFITS TO A UNITHOLDER FROM THE OFFER AND THE MERGER?
- Both the Offer and the Merger provide you an opportunity to achieve
immediate liquidity for your investment in the Partnership. We will
pay you the Offer Price per Unit tendered in the Offer if we complete
the Offer and accept the tendered Units for payment. If you do not
tender your Units in the Offer, you still would receive the Offer
Price per Unit if the Merger is consummated, subject to the terms of
the Merger Agreement.
- The Offer, if completed, will also provide tendering Unitholders an
opportunity to eliminate future record-keeping and tax filing
requirements. The Merger will provide these benefits for all
Unitholders not affiliated with ARV.
- The Partnership charges a transfer fee to any purchaser of Units for
the transfer of Units. This fee is equal to the lesser of $150 and the
Partnership's actual costs and expenses incurred in connection with
such transfer. This fee is intended to compensate the Partnership for
the costs and expenses incurred in connection with transferring the
Units on the books of the Partnership, and the Partnership believes
that these costs and expenses have been in excess of $150. While this
fee is customarily imposed upon sellers of Units, we will pay this fee
to the Partnership in connection with any transfer of your Units to us
in the Offer. Therefore, the Partnership transfer fee will not reduce
the Offer Price you will receive if you tender your Units in the
Offer.
See "SPECIAL FACTORS -- Purpose of the Offer and the Merger; Future Plans."
WHAT EFFECTS WOULD THE MERGER HAVE ON THE PARTNERSHIP?
- As a result of the Merger:
- We or one of our affiliates would own directly or indirectly all
of the Units. In this case, we will have the voting rights
associated with being the sole Limited Partner of the Partnership
and owning all of the Units;
vi
- We or one of our affiliates would acquire the entire equity
interest in the Partnership which would give us an interest in
100% of the Partnership's profits, losses and distributions; and
- You and the Partnership's other current public Unitholders would
no longer have any interest in the Partnership's future earnings
or growth. Furthermore, the Partnership would no longer be a
public entity and its financial statements would no longer be
made publicly available.
- Accomplishing the Merger would allow the Partnership to reduce its
expenses, including the significant expenses associated with being a
public entity, and would provide ARV increased flexibility in managing
the Partnership's assets.
See "SPECIAL FACTORS -- Purpose of the Offer and the Merger; Future Plans,"
and "Effects of the Merger."
WHAT EFFECTS WILL THE OFFER HAVE ON THE PARTNERSHIP, IF THE MERGER IS NOT
CONSUMMATED?
- In certain circumstances, we may complete the Offer but not consummate
the Merger, in which case we may not acquire the entire equity
interest in the Partnership. In this case:
- We expect that the Partnership will not be able to achieve much,
if any, of the expense reduction;
- ARV will increase its ownership of Units;
- Unitholders who do not tender their Units will remain Limited
Partners in the Partnership having the same rights and benefits
they have now, although, since fewer Units will be outstanding,
there may be less liquidity for the Units; and
- If there are fewer than 300 Unitholders after completion of
Offer, the Partnership may stop filing financial statements and
other information with the SEC, in which case, information about
the Partnership would not be made publicly available and we would
anticipate a reduction in the Partnership's expenses. As of the
date of this Offer to Purchase and Consent Solicitation
Statement, there were 1,636 Unitholders in the Partnership other
than ARV.
See "SPECIAL FACTORS -- Effects of the Offer."
ARE THE OFFER AND THE MERGER SUBJECT TO THE SAME CONDITIONS?
- No. While some of the conditions to the Offer and the Merger are
similar, the conditions to the Offer and the Merger are not the same.
In particular, if we and ARV own less than 90% of the Units after the
Offer is completed, the Merger will be conditioned upon the California
Commissioner of Corporations' approval of the terms and conditions of
the Merger and determination that such terms and conditions are fair.
The Offer is not conditioned upon this approval or any similar
determination of fairness by the California Commissioner of
Corporations or anyone else. We may complete the Offer and
vii
purchase the Units tendered prior to any fairness hearing by the
California Commissioner of Corporations. Even if a hearing is held
before the Offer is completed and we fail to obtain a favorable
determination and approval, we may still complete the Offer and
purchase the Units tendered, subject to the terms of the Offer.
See "THE TENDER OFFER -- Conditions to the Offer" and "THE CONSENT
SOLICITATION -- The Merger; Required Approvals."
WHAT BENEFITS DO WE EXPECT TO ENJOY IF THE MERGER IS CONSUMMATED?
- If we consummate the Merger, ARV would enjoy the benefits that come
from owning all of the Units and being the sole Limited Partner, which
include:
- The right to receive distributions after the sale of any
Partnership properties;
- The right to benefit in any appreciation in the value of the
Partnership properties;
- The sole right to make decisions about the Partnership's business
or the management of the Partnership properties; and
- The reduction in some of the Partnership's expenses, including
those associated with preparing stand-alone audited financial
statements and SEC reporting.
See "SPECIAL FACTORS -- Effects of the Merger."
DO WE HAVE THE FINANCIAL RESOURCES TO PAY THE OFFER PRICE WITH RESPECT TO ALL OF
THE UNITS SUBJECT TO THE MERGER AND THE OFFER?
- Yes. If we consummate the Merger or if we purchase all of the
Units we are seeking in the Offer, the aggregate amount of cash that
we would need to pay Unitholders with respect to their Units and to
pay related fees and expenses would be approximately $___________. ARV
has committed to contribute to us, from its cash on hand, all of the
cash necessary to complete the Offer and the Merger and to pay related
fees and expenses. ARV has the financial resources to meet this
commitment.
See "THE PARTNERSHIP -- Source and Amounts of Funds for the Offer and the
Merger."
WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS RELATED TO THE
OFFER AND THE MERGER AND WHAT MUST YOU DO TO PREVENT THE IMPOSITION OF BACKUP
WITHHOLDING TAX AND OTHER UNITED STATES FEDERAL WITHHOLDING TAXES?
- The sale of Units in the Offer or the receipt of cash for the
Units in the Merger will be treated as a taxable transaction for
United States federal income tax purposes.
- To prevent the possible application of backup withholding tax with
respect to payment of the purchase price for Units purchased in the
Offer, you must provide your taxpayer identification number and must
certify in the Agreement of Assignment and Transfer, under penalties
of perjury, that (i) the tax identification number provided in the
viii
Agreement of Assignment and Transfer is your correct taxpayer
identification number; and (ii) you are not subject to backup
withholding tax, either because you have not been notified by the
Internal Revenue Service, or the IRS, that you are subject to backup
withholding tax as a result of your failure to report all interest or
dividends, or because the IRS has notified you that you are no longer
subject to backup withholding tax.
- To avoid the imposition of a 10% withholding tax under Section 1445 of
the Internal Revenue Code, you are also required, under penalties of
perjury, to properly complete and sign a certificate included with the
Agreement of Assignment and Transfer that includes your name, address
and taxpayer identification number, and that certifies that you are
not a non-United States person.
See "SPECIAL FACTORS -- Certain United States Federal Income Tax
Considerations."
WILL YOU GET DISSENTERS' RIGHTS IN THE OFFER OR THE MERGER?
- No. Dissenters' rights are not available in the Offer or the Merger.
See "OTHER MATTERS -- No Dissenters' Rights."
THE OFFER
HOW LONG DO YOU HAVE TO DECIDE IF YOU WANT TO TENDER YOUR UNITS?
- You have until 5:00 p.m., Pacific time, on _________, 2004, or the
Expiration Date, to tender your Units. We may extend the Offer in our
discretion. If we extend the Offer, then we will make a public
announcement not later than 9:00 a.m., Eastern time, on _________,
2004, the business day after the Offer is scheduled to expire. See
"THE TENDER OFFER -- Terms of the Offer; Expiration Date."
HOW DO YOU TENDER YOUR UNITS?
- In order to validly tender your Units, you must complete sign, date
and return the YELLOW Agreement of Assignment and Transfer, which we
refer to as the Agreement of Assignment and Transfer, to the
Information Agent in the enclosed postage-paid envelope or by
facsimile at (866) 275-3710.
- If legal title to your Units is held through an IRA, Keogh or similar
account, we will send on your behalf a copy of your completed
Agreement of Assignment and Transfer to your custodian to obtain your
custodian's confirmation. However, in this case, you should send to
the Information Agent your completed Agreement of Assignment and
Transfer not less than one week prior to the Expiration Date so that
we have time to obtain your custodian's confirmation prior to the
Expiration Date. You may also send your completed Agreement of
Assignment and Transfer to your custodian to obtain your custodian's
confirmation and then return the Agreement of Assignment and Transfer
to the Information Agent prior to the Expiration Date.
ix
- If you deliver the Agreement of Assignment and Transfer by facsimile,
you must also return the original documents, which originals, only,
may be received after the Expiration Date provided that the facsimile
is received prior to or on the Expiration Date.
See "THE TENDER OFFER -- Procedure for Accepting the Offer and Tendering
Units."
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
- The Offer is conditioned upon, among other things:
- The approval of the Merger Proposal by Unitholders holding a
majority of the Units that ARV and its subsidiaries do not hold;
- The non-occurrence of certain events before the Expiration Date,
such as legal or governmental actions that would prohibit the
purchase of Units or a material adverse change with respect to
the Partnership or its business; and
- After the Expiration Date and before payment for the Units, our
failure to receive any governmental regulatory approvals
necessary to complete the Offer.
- There are no conditions to the Offer based on the availability of
financing.
- Subject to satisfaction of the other conditions described in this
Offer to Purchase and Consent Solicitation Statement, we intend to
purchase any and all Units that are validly tendered and not withdrawn
upon expiration of the Offer.
For more information see "THE TENDER OFFER -- Conditions to the
Offer."
WHAT SECURITIES AND HOW MANY OF THEM ARE SOUGHT IN THE OFFER?
- We are offering to purchase all of the outstanding Units (other than
Units held by ARV or its subsidiaries) upon the terms of and subject
to the conditions to the Offer, from any Unitholder who validly
tenders his or her Units.
- As of the date of this Offer to Purchase and Consent Solicitation,
there were 35,019.880 Units issued and outstanding, of which ARV owns
18,322.314. We believe that the Units not held by ARV are held by
persons unaffiliated with the Partnership and ARV. Subject to
complying with applicable rules and regulations of the SEC, and the
satisfaction or our waiver of all conditions to the Offer, we intend
to purchase all Units validly tendered. See "THE TENDER OFFER -- Terms
of the Offer; Expiration Date."
DO YOU HAVE TO PAY ANY BROKERAGE OR TRANSFER FEES TO TENDER YOUR UNITS?
- If you are the record owner of your Units and you tender Units in the
Offer, then you will not have to pay any brokerage or similar fees.
However, if legal title to your Units is held through an IRA, Keogh or
similar account, then your custodian may charge you a fee in
connection with any confirmation they may be required to make. You
should consult your custodian to determine whether any other charges
will apply.
x
- The Partnership charges a transfer fee to any purchaser of Units for
the transfer of Units. This fee is equal to the lesser of $150 and the
Partnership's actual costs and expenses incurred in connection with
such transfer. This fee is intended to compensate the Partnership for
the costs and expenses incurred in connection with transferring the
Units on the books of the Partnership, and the Partnership believes
that these costs and expenses have been in excess of $150. While this
fee is customarily imposed upon sellers of Units, we will pay this fee
to the Partnership in connection with any transfer of your Units to us
in the Offer. Therefore, the Partnership transfer fee will not reduce
the Offer Price you will receive if you tender your Units in the
Offer.
CAN YOU WITHDRAW UNITS THAT YOU HAVE TENDERED?
- Yes, you may withdraw your tendered Units at any time until the
Expiration Date. If and to the extent that tendered Units have not
been accepted for payment by _______, 2004 (60 days after the date of
this Offer to Purchase and Consent Solicitation Statement), you may
also withdraw your tendered Units at any time thereafter. We will be
deemed to have accepted your validly tendered Units, subject to the
terms of and conditions to the Offer, on the Expiration Date, unless
we terminate or extend the Offer. To withdraw Units that you have
tendered, you must deliver to the Information Agent a written notice
of withdrawal with the required information while you still have the
right to withdraw. See "THE TENDER OFFER -- Withdrawal Rights."
IF YOU ACCEPT THE OFFER, HOW WILL YOU GET PAID?
- If the conditions to the Offer are satisfied (or waived) and we
complete the Offer and accept your Units for payment, you will receive
payment for the Units that you tendered as promptly as practicable
following the Expiration Date. See "THE TENDER OFFER -- Acceptance for
Payment and Payment for Units."
WILL THE OFFER AFFECT YOUR UNITS IF YOU DO NOT TENDER?
- If the Offer is completed and you do not tender your Units, unless the
Merger is consummated, then:
- If there are fewer than 300 Unitholders after the Offer, the
Partnership may stop filing financial statements and other
information with the SEC, in which case, information about the
Partnership would not be made publicly available and we would
anticipate a reduction in the Partnership's expenses; and
- There may be decreased liquidity of the Units, which will likely
have an adverse effect on the market price of your Units.
- If we consummate the Merger, whether or not you tender your Units,
then all of your Units will be converted into the right to receive the
Offer Price or, if tendered and the Offer is completed, purchased in
the Offer.
See "SPECIAL FACTORS -- Effects of the Offer."
xi
THE MERGER
WHO IS ENTITLED TO CONSENT TO THE MERGER PROPOSAL?
- You are entitled to consent to the Merger Proposal if you were a
Limited Partner of record on January __, 2004. If you beneficially
owned Units as of this date, you may instruct the record owner of the
Units as of this date to consent to the Merger Proposal on your
behalf. See "THE CONSENT SOLICITATION -- Record Date; Outstanding
Units; Voting Rights."
HOW DO YOU CONSENT TO THE MERGER PROPOSAL?
- In order to consent to the Merger Proposal, you must complete, sign,
date and return the GREEN Consent Form, which we refer to as the
Consent Form, to the Information Agent in the enclosed envelope with
pre-paid postage or by facsimile at (866) 275-3710.
- If legal title to your Units is held through an IRA, Keogh or similar
account, we will send on your behalf a copy of your completed Consent
Form to your custodian to obtain your custodian's confirmation.
However, in this case, you should send your completed Consent Form to
the Information Agent not less than one week prior to the Expiration
Date so that we have time to obtain your custodian's confirmation
prior to the Expiration Date. You may also send your completed Consent
Form to your custodian to obtain your custodian's confirmation and
then return the Consent Form to the Information Agent prior to the
Expiration Date.
- If delivery is by facsimile, you must also return the original Consent
Form, which original, only, may be received after the Expiration Date
provided that the facsimile is received prior to or on the Expiration
Date.
- Your vote on the Merger Proposal is very important. Your failure to
return the enclosed Consent Form as explained above will have the same
effect as not consenting to the Merger Proposal; it will constitute a
vote against the Merger Proposal. See "THE CONSENT SOLICITATION --
Voting and Revocation of Consents."
HOW DO YOU REVOKE YOUR CONSENT TO THE MERGER PROPOSAL?
- You may revoke your executed and returned Consent Form with respect to
the Merger Proposal at any time prior to the earlier of:
- The time at which we receive sufficient consents to adopt the
Merger Proposal; and
- The Expiration Date.
- Thereafter, all Consent Forms previously executed and delivered and
not revoked will become irrevocable.
xii
- In order to revoke your consent, you must execute and deliver to the
Information Agent a subsequently dated Consent Form or written notice.
See "THE CONSENT SOLICITATION -- Voting and Revocation of Consents."
HOW LONG DO YOU HAVE TO CONSENT TO THE MERGER PROPOSAL?
- You may submit your completed and signed Consent Form now. For your
Consent Form to be accepted, it must be received by the Information
Agent no later than 5:00 p.m., Pacific time, on _______, 2004, unless
we extend the Expiration Date of the Offer, in which case the new
Expiration Date will be the last date on which your Consent Form will
be accepted. See "THE CONSENT SOLICITATION -- Solicitation Period."
WHY ARE WE SOLICITING YOUR CONSENT TO THE MERGER PROPOSAL?
- We are soliciting your consent to the Merger Proposal so that we can
acquire the entire equity interest in the Partnership through the
Merger. See "SPECIAL FACTORS -- Purpose of the Offer and the Merger;
Future Plans."
WHAT ARE THE CONDITIONS TO THE MERGER?
- We intend to consummate the Merger if the conditions below, which we
refer to as the Merger Threshold Conditions, are satisfied (as well as
other conditions to the Merger):
- We acquire enough Units in the Offer so that, together with the
Units already owned by ARV and its subsidiaries, we own at least
90% of the Units, which would allow us to consummate a
"short-form" merger under California law; or
- The Merger Proposal is approved by Unitholders who collectively
hold more than 50% of the Units not held by ARV and its
subsidiaries and, as required by California law, unless the
Merger Proposal is approved by all Unitholders, the California
Commissioner of Corporations has also approved the terms and
conditions of the Merger and the fairness of such terms and
conditions. We plan to seek this approval of the Commissioner
promptly if the Merger Proposal is so approved by Unitholders.
- These requirements of California law are intended to provide you
with certain procedural and substantive protections regarding the
fairness of the terms and conditions of the Merger Agreement and the
Offer Price to be paid upon the cash out of the Units in the Merger.
See "THE CONSENT SOLICITATION -- The Merger; Required Approvals."
- We and ARV, as the general partner of the Partnership, have already
approved the terms of the Merger Agreement.
IS IT POSSIBLE THAT WE WILL CONSUMMATE THE MERGER ON A DIFFERENT DATE THAN THE
DATE ON WHICH WE COMPLETE THE OFFER?
- Yes. We intend to complete the Offer and purchase all of the Units
that have been validly tendered to us and not withdrawn once all of
the conditions to the Offer have been
xiii
satisfied. Unless we own at least 90% of the Units upon
completion of the Offer, we are unlikely to be able to satisfy
the Merger Threshold Conditions until sometime after we have
completed the Offer because of the requirement to hold the
California fairness hearing. Therefore, tendering Unitholders may
have their Units accepted for payment prior to the time that the
California fairness hearing is held and would not be aware of the
results of the hearing. See "THE TENDER OFFER -- Conditions to
the Offer" and "THE CONSENT SOLICITATION -- The Merger; Required
Approvals."
IS THERE ANY WAY THAT THE OFFER COULD BE COMPLETED, BUT THE MERGER WOULD NOT BE
CONSUMMATED?
- Yes. While we intend to complete the Merger if the Offer is completed,
we are not obligated to do so in any of the following circumstances:
- The Merger Threshold Conditions are not satisfied;
- We fail to receive any material third party consent or any other
material governmental consent to the Merger;
- There is a temporary restraining order, preliminary or permanent
injunction or other order or decree that could reasonably be
expected to have (i) a material adverse effect on us, ARV or the
Partnership or (ii) the effect of preventing the consummation of
the Merger; or
- There is pending or threatened litigation or a governmental
action or proceeding challenging the Merger that could reasonably
be expected to have a material adverse effect on us, ARV or the
Partnership.
- Notwithstanding our intention to complete the Merger if the above
conditions are satisfied, we reserve the right to waive any and all
conditions to the Merger or to abandon the Merger whether or not the
Offer is completed or the Merger Threshold Conditions or the other
conditions to the Merger are satisfied.
- For more information about the conditions to the Merger, you
should read Annex A to this Offer to Purchase and Consent Solicitation
Statement for the full text of the proposed Merger Agreement.
- If the Offer is completed but the Merger is not effected,
Unitholders who have not tendered may be harmed. See "SPECIAL FACTORS
-- Risk Factors -- If the Offer is completed but the Merger is not
effected, non-tendering Unitholders may be harmed."
HOW WILL THE SPECIAL LIMITED PARTNERS BE TREATED IN THE MERGER?
- The Partnership's four special limited partners, whom we refer to as
the Special Limited Partners, have economic interests in the
Partnership that differ from yours. Consequently, a Special Limited
Partner would receive in the Merger an amount in cash for its special
limited partnership interest that differs from that which we are
offering
xiv
you, but which is based on the Offer Price. The amount that a
Special Limited Partner would receive in the Merger has been
determined by us to equal approximately the amount this Special
Limited Partner would have received under the Partnership's
Agreement of Limited Partnership, which we refer to as the
Partnership Agreement, in a deemed liquidation of the
Partnership, assuming the assets of the Partnership had been sold
for aggregate consideration that would have resulted in each Unit
receiving the Offer Price in this deemed liquidation. Except for
its rights to distributions, allocations, and credits, each
Special Limited Partner is deemed to hold one Unit under the
Partnership Agreement and California law, including for purposes
of voting on certain matters concerning the Partnership,
including the Merger Proposal. In addition, we or ARV may acquire
the Special Limited Partner interests directly in negotiated
transactions separate from the Offer and the Merger. The Special
Limited Partners are not affiliated with ARV or us. See "SPECIAL
FACTORS -- Fairness of the Offer and the Merger."
FUTURE PLANS AND EFFECTS
WHAT WILL WE DO IF WE COMPLETE THE OFFER AND PURCHASE THE TENDERED UNITS BUT DO
NOT CONSUMMATE THE MERGER?
- If we are unable for any reason to effect the Merger, then we may seek
to acquire additional Units through open market purchases, privately
negotiated transactions, a tender or exchange offer or other
transactions or a combination of these methods on such terms and at
such prices as we shall determine, which may be different from the
terms and price paid in the Offer. We also reserve the right to
dispose of Units that we have acquired or may acquire.
See "SPECIAL FACTORS -- Purpose of the Offer and the Merger; Future
Plans."
WILL THE PARTNERSHIP CONTINUE AS A PUBLIC ENTITY IF THE OFFER IS COMPLETED BUT
THE MERGER IS NOT COMPLETED?
- If the Merger is not completed, the Partnership may stop filing
financial statements and other information with the SEC if there are
fewer than 300 Unitholders. In that event, information about the
Partnership would not be made publicly available. See "SPECIAL FACTORS
-- Effects of the Offer."
WILL THE PARTNERSHIP CONTINUE AS A PUBLIC ENTITY IF THE MERGER IS COMPLETED?
- If the Merger is completed, the Partnership will no longer be publicly
owned, and its financial statements and other important information
regarding the Partnership and its business will no longer be publicly
available. See "SPECIAL FACTORS -- Effects of the Merger."
WHAT HAPPENS IF YOU DO NOT TENDER YOUR UNITS IN THE OFFER AND YOU VOTE AGAINST
THE MERGER PROPOSAL, BUT THE MERGER PROPOSAL NEVERTHELESS RECEIVES THE REQUIRED
UNITHOLDER APPROVAL?
- Whether or not you tender your Units in the Offer or vote against the
Merger Proposal, if:
xv
- the Merger Threshold Conditions are satisfied; and
- the other conditions to the Merger are satisfied or waived,
then we will seek to complete the Merger, even if you did not consent to
the Merger Proposal or tender your Units in the Offer. If the Merger is
consummated, your Units will be cashed out in the Merger at the Offer Price
whether or not you tendered any Units in the Offer and even if you voted
against the Merger Proposal. Thereafter, you will own no interest in the
Partnership.
See "THE CONSENT SOLICITATION -- The Merger; Required Approvals."
QUESTIONS ABOUT THE OFFER OR THE MERGER
WHOM CAN YOU CALL WITH QUESTIONS ABOUT THE OFFER OR THE MERGER?
- If you have questions or need assistance tendering your Units or
consenting to the Merger Proposal, please call ACS Securities
Services, Inc., the Information Agent, toll free at (866) 275-3707.
The Information Agent may also call you directly to answer any
questions you may have regarding the Offer or the Merger.
xvi
TO: ALL HOLDERS OF LIMITED PARTNERSHIP UNITS OF AMERICAN RETIREMENT VILLAS
PROPERTIES II, A CALIFORNIA LIMITED PARTNERSHIP.
INTRODUCTION
We are offering to purchase all of the outstanding units of limited
partnership interest in the Partnership (the "Units") not owned by ARV or its
subsidiaries at a purchase price of $___ per Unit, in cash, less the amount of
any cash distribution made or declared with respect to the Units on or after the
date of this Offer to Purchase and Consent Solicitation Statement (the "Offer to
Purchase and Consent Solicitation Statement") until the date on which we
purchase the Units tendered, to the extent that we do not receive those
distributions with respect to any Units accepted for payment (the "Offer
Price"), upon the terms of and subject to the conditions set forth in this Offer
to Purchase and Consent Solicitation Statement and in the related Agreement of
Assignment and Transfer and accompanying documents, as each may be supplemented
or amended from time to time (which together constitute the "Offer").
We are also soliciting Unitholders who have been admitted as limited
partners of the Partnership ("Limited Partners") to consent to a proposal (the
"Merger Proposal") to approve the principal terms of the merger agreement,
substantially in the form attached as Annex A (the "Merger Agreement"), and the
merger to be consummated pursuant to the Merger Agreement (the "Merger"). We
refer to this solicitation as the "Consent Solicitation." Limited Partners of
record as of January ___, 2004 (the "Record Date") are entitled to consent to
the Merger Proposal in the Consent Solicitation. Pursuant to the Merger
Agreement, each Unit not owned by ARV or its subsidiaries would be converted in
the Merger into the right to receive cash at the Offer Price (or $___ per Unit,
as reduced by certain distributions).
The entity making the Offer and soliciting your consent is ARVP II
Acquisition, L.P. ("Purchaser"). We are a California limited partnership and
wholly-owned indirectly by ARV Assisted Living, Inc., a privately-owned Delaware
corporation ("ARV"). ARV is the general partner of American Retirement Villas
Properties II, a California limited partnership, the subject of the Offer (the
"Partnership"). No affiliate of ARV other than Purchaser is making the Offer or
soliciting your consent. In this document, the terms "Purchaser," "we," "us" and
"our" refer to ARVP II Acquisition, L.P. For a description of the relationship
between ARV, the Partnership and Purchaser, see "SPECIAL FACTORS --
Transactions, Negotiations and Agreements; Interest in Securities of the
Partnership."
As of January ___, 2004 (the "Offer Date"), ARV owned 18,322.314 Units,
or approximately 52.5% of all outstanding Units, and we did not own any Units.
ARV is the sole general partner of the Partnership.
The Partnership charges a transfer fee to any purchaser of Units for
the transfer of Units. This fee is equal to the lesser of $150 and the
Partnership's actual costs and expenses incurred in connection with such
transfer. This fee is intended to compensate the Partnership for the costs and
expenses incurred in connection with transferring the Units on the books of the
Partnership, and the Partnership believes that these costs and expenses have
been in excess of $150. While this fee is customarily imposed upon sellers of
Units, we will pay this fee to the Partnership in connection with any transfer
of your Units to us in the Offer.
1
The Offer is conditioned on, among other things, the consent to the
Merger Proposal by limited partners of the Partnership who collectively hold
more than 50% of the Units not held by ARV or its subsidiaries.
The Offer allows Unitholders who hold their Units directly to dispose
of Units without incurring the sales commissions or transfer fees typically
associated with transfers of Units arranged through brokers or other
intermediaries. Unitholders that file federal tax returns and who sell all of
their Units or whose Units are cashed out in the Merger will also eliminate the
need to report form K-1 information for the Partnership with their federal tax
returns covering years after 2004.
We are making the Offer to increase ARV's ownership in the Partnership.
We are soliciting consents to the Merger Proposal to acquire the entire equity
interest in the Partnership. We intend to cause the Partnership to effect the
Merger with us pursuant to Article 7.5 of the California Revised Limited
Partnership Act (the "California Revised LP Act") as soon as practicable
following completion of the Offer and the satisfaction of the following
conditions, among others:
- we acquire enough Units in the Offer so that, together with the
Units already owned by ARV and its subsidiaries, we own at least
90% of the Units, which would allow us to consummate a
"short-form" merger under California law; or
- the Merger Proposal is approved by Unitholders who collectively
hold more than 50% of the Units not held by ARV and its
subsidiaries and, as required by California law, unless the
Merger Proposal is approved by all Unitholders, the California
Commissioner of Corporations has also approved the terms and
conditions of the Merger and the fairness of such terms and
conditions.
While we reserve our right to do so, we have no plan to change the
management or operations of the Partnership prior to the consummation of the
Merger.
FOR A DETAILED DESCRIPTION OF THE CONDITIONS TO THE OFFER, PLEASE SEE
"THE TENDER OFFER -- CONDITIONS TO THE OFFER" AND FOR A DETAILED DESCRIPTION OF
THE CONDITIONS TO THE MERGER, PLEASE SEE "THE CONSENT SOLICITATION -- THE
MERGER; REQUIRED APPROVALS." WE RESERVE THE RIGHT (SUBJECT TO THE APPLICABLE
RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC")) TO
AMEND OR WAIVE ANY ONE OR MORE OF THE TERMS OR CONDITIONS TO THE OFFER. SEE "THE
TENDER OFFER -- TERMS OF THE OFFER; EXPIRATION DATE" AND "THE TENDER OFFER --
CONDITIONS TO THE OFFER."
THIS OFFER TO PURCHASE AND CONSENT SOLICITATION STATEMENT AND THE
RELATED AGREEMENT OF ASSIGNMENT AND TRANSFER AND CONSENT FORM CONTAIN IMPORTANT
INFORMATION AND YOU SHOULD READ THESE MATERIALS CAREFULLY BEFORE MAKING ANY
DECISION WITH RESPECT TO THE OFFER AND THE MERGER.
2
SPECIAL FACTORS
1. RISK FACTORS
We urge you to carefully consider the risks and other factors discussed
below in deciding whether to tender your Units or consent to the Merger
Proposal.
ARV, THE GENERAL PARTNER OF THE PARTNERSHIP, MAY HAVE A CONFLICT OF INTEREST
WITH RESPECT TO THE OFFER AND THE CONSENT SOLICITATION.
ARV is our general partner and we are therefore under ARV's control.
All of our activities are carried out by ARV employees, since we do not have any
employees of our own. The directors and officers of ARV owe fiduciary duties to
ARV. ARV, however, owes fiduciary duties to the Partnership and the Limited
Partners that may conflict with the fiduciary duties of its officers and
directors to ARV or to us. Although ARV has employed an independent appraiser to
assess the value of the Partnership's properties, these conflicting fiduciary
duties may prevent ARV from evaluating the Offer objectively and may cause ARV
to take actions (or refrain from taking actions) and make decisions in
connection with the Offer or the Consent Solicitation that may not be in the
best interests of Unitholders. NO INDEPENDENT COMMITTEE OR REPRESENTATIVE OF ARV
OR THE PARTNERSHIP HAS BEEN APPOINTED OR RETAINED TO NEGOTIATE THE TERMS OF THE
OFFER OR THE CONSENT SOLICITATION ON YOUR BEHALF.
The Partnership has in the past and is currently being represented by
legal counsel who has also represented and is currently representing ARV and
certain of its affiliates in various matters, and Unitholders will not be
represented by separate legal counsel. No provisions have been or will be made
to allow Unitholders to obtain legal representation at the expense of the
Partnership.
As the sole owner of the purchaser in the Offer, which is also a party
to the Merger, ARV will benefit from any future cash flow attributable to, and
any future appreciation of, the Partnership's properties with respect to any
Units we purchase in the Offer or own upon completion of the Merger.
We believe that the fairness factors enumerated in " -- Fairness of the
Offer and the Merger," and the fact that you are free to make your own decision
whether to tender your Units in the Offer or consent to the Merger Proposal,
provide significant procedural safeguards to minimize the effects of the
potential conflicts of interest inherent in this transaction.
THE OFFER PRICE MIGHT NOT ACCURATELY REFLECT THE VALUE OF YOUR UNITS.
Our objectives and motivations in establishing the Offer Price might
conflict with your interests as Unitholders in receiving the highest price for
your Units. Although we cannot predict the future value of the Partnership's
properties or other assets, the Offer Price could be significantly less than the
net proceeds per Unit that you could realize from a liquidation of the
Partnership following a future sale of its properties.
If you tender your Units and we accept your Units for payment, or if
you decline to tender your Units to us or consent to the Merger Proposal but we
nevertheless effect the Merger,
3
you will lose the opportunity to participate in any future benefits from the
ownership of Units, including potential future distributions by the Partnership.
TENDERING YOUR UNITS OR CONSUMMATION OF THE MERGER MAY RESULT IN A TAX LIABILITY
TO YOU.
The sale of Units in the Offer or the receipt of cash for your Units in
the Merger will be treated as a taxable transaction for United States federal
income tax purposes. Depending on your adjusted tax basis for your Units,
tendering your Units in the Offer or receiving cash for your Units upon
completion of the Merger will cause you to recognize a gain or loss for tax
purposes. Assuming we do not terminate the Offer and the Consent Solicitation,
we expect to purchase tendered Units or consummate the Merger by December 31,
2004, in which case, if you are a calendar-year taxpayer, you will recognize any
gain or loss on the sale of your Units in the 2004 taxable year. See " --
Certain United States Federal Income Tax Considerations."
IF THE OFFER IS COMPLETED BUT THE MERGER IS NOT EFFECTED, NON-TENDERING
UNITHOLDERS MAY BE HARMED.
It is possible in certain circumstances for us to acquire Units in the
Offer but not effect the Merger. For example, we could receive a significant
number of Units pursuant to the Offer, but not enough Units so that, together
with those Units owned by ARV, we hold directly or indirectly more than 90% of
the outstanding Units following completion of the Offer. If this occurs, unless
the Merger Proposal is approved by all Unitholders or the approval of the
California Commissioner of Corporations is obtained, we will be unable to
consummate the Merger. In addition, if there are other unsatisfied conditions or
legal or regulatory delays or impediments to the Merger, we may not be able to
effect the Merger promptly or at all.
If after the Offer the number of Unitholders falls below 300, we intend
to deregister the Units under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). As a result, the Partnership would not be obligated to and
would not make annual and quarterly filings with the SEC and information about
the Partnership would be less available to you.
In addition, if you continue to hold Units after completion of the
Offer, there may be increased illiquidity of these Units since there will be
fewer Units held by the public. This increased illiquidity would likely
adversely affect the market price of your Units.
PAYMENT FOR THE UNITS IN THE OFFER COULD BE OTHERWISE DELAYED AND IS SUBJECT TO
CERTAIN CONDITIONS.
We are not obligated to complete the Offer unless all of the conditions
to the Offer are satisfied or waived. In addition, upon the terms of and subject
to the conditions to the Offer (including those specified in "THE TENDER OFFER
- -- Conditions to the Offer"), we reserve the right, in our sole discretion, at
any time and from time to time:
- To extend the period of time during which the Offer or Consent
Solicitation is open, which would delay acceptance of, and payment
for, any Units;
- To terminate the Offer and not accept any Units for which we have not
already paid, if any of the conditions specified in the section, "THE
TENDER OFFER -- Conditions to the Offer," cannot be satisfied; and
4
- To amend the Offer in any respect.
THE OFFER MAY BE COMPLETED AND TENDERED UNITS ACCEPTED FOR PAYMENT PRIOR TO THE
FAIRNESS HEARING HELD BY THE CALIFORNIA COMMISSIONER OF CORPORATIONS.
While the Merger is conditioned upon the approval and determination by
the California Commissioner of Corporations that it is fair (unless ARV and its
subsidiaries own at least 90% of the Units after the Offer is completed or all
of the Unitholders approve the Merger Proposal), the Offer is not conditioned
upon this approval or any similar determination of fairness by the California
Commissioner of Corporations or anyone else. We may complete the Offer and
purchase the Units tendered prior to any fairness hearing by the California
Commissioner of Corporations. Even if a hearing is held and we fail to obtain a
favorable determination and approval, we may still complete the Offer and
purchase the Units tendered, subject to the terms of the Offer. See "THE CONSENT
SOLICITATION -- The Merger; Required Approvals."
2. BACKGROUND TO THE OFFER AND THE MERGER
On April 23, 2003, Prometheus Assisted Living LLC became the sole owner
of all of the outstanding shares of ARV common stock that it did not own
pursuant to a "going private" merger transaction. As a result of this
transaction, ARV became a privately-owned company. Thereafter, ARV began a
re-evaluation of its businesses, assets and investments. In connection with this
re-evaluation, ARV explored various alternatives regarding the Partnership
consistent with its goal of operating as a privately-owned company. In addition,
particularly since ARV had become a privately-owned company, ARV sought to
reduce the Partnership's significant operating expenses incurred as a result of
being a publicly reporting entity. In light of these considerations, on November
19, 2003, ARV's board of directors met in order to discuss the Offer and the
Merger. After considering various alternatives and discussions with its legal
advisors, ARV's board of directors, acting by unanimous written consent,
authorized the filing of this Offer to Purchase and Consent Solicitation
Statement and the Merger on January 13, 2004. In September 2003, ARV became
wholly-owned by Atria, Inc. (now known as Atria Senior Living Group, Inc.) as a
result of a series of transactions which did not result in a change in the
beneficial ownership of ARV. For more information on ARV and certain of its
affiliates, see Schedule I.
3. PURPOSE OF THE OFFER AND THE MERGER; FUTURE PLANS
We are making the Offer to increase ARV's ownership in the Partnership.
We are soliciting consents to the Merger Proposal to acquire the entire equity
interest in the Partnership. We are also making the Offer and seeking to effect
the Merger to provide Unitholders with liquidity for their investment in the
Partnership and to thereby also offer Unitholders an opportunity to eliminate
future record-keeping and tax filing requirements.
We intend, as soon as practicable after completing the Offer and the
satisfaction of certain conditions, to cause the Partnership to effect the
Merger. In the Merger, the outstanding Units not owned by ARV or tendered to us
in the Offer will be converted into the right to receive cash in an amount equal
to the price per Unit payable in the Offer, subject to the terms of the Merger
Agreement.
5
Accomplishing the Offer and the Merger would allow ARV to enjoy the
following benefits:
- The right to receive distributions after the sale of any Partnership
properties;
- The right to benefit in any appreciation in the value of the
Partnership properties;
- The right to make decisions about the Partnership's business or the
management of the Partnership properties; and
- The reduction in some of the Partnership's expenses, including those
associated with preparing stand-alone audited financial statements,
and SEC reporting.
ARV has received numerous queries from many Unitholders over the years
seeking to dispose of their Units in order to both liquidate their investment
and eliminate the need to report form K-1 information for the Partnership with
their federal tax returns. We believe that the Offer and the Merger represent a
beneficial opportunity to Unitholders for them to achieve immediate liquidity
for their investment and to avoid continued record keeping and tax filing
requirements.
If we are unable for any reason to effect the Merger, then we may seek
to acquire additional Units through open market purchases, privately negotiated
transactions, a tender or exchange offer or other transactions or a combination
of the foregoing on such terms and at such prices as we shall determine, which
may be different from the price paid in the Offer. We also reserve the right to
dispose of Units that we have acquired or may acquire.
If the Merger is not effected, but we receive and accept sufficient
tenders to reduce the number of Unitholders to below 300, we intend to
deregister the Units under the Exchange Act. As a result, the Partnership would
not be obligated to and would not make annual and quarterly filings with the SEC
and information about the Partnership would be less available to you.
While we reserve the right to do so, we do not expect to change the
board of directors of ARV, the general partner of the Partnership, or the
management or operations of the Partnership prior to effecting the Merger.
4. FAIRNESS OF THE OFFER AND THE MERGER
Because we are wholly-owned by ARV, the general partner of the
Partnership, we are an "affiliate" of the Partnership for purposes of Rule 13e-3
under the Exchange Act. Accordingly, under Rule 13e-3, we and ARV have
considered the fairness of the Offer and the Merger to the unaffiliated
Unitholders of the Partnership.
We and ARV reasonably believe that the Offer and the Merger are
substantively fair to the unaffiliated Unitholders of the Partnership. The terms
of the Offer and the Merger, however, were established unilaterally by ARV and
were not negotiated with the Partnership or any representative for Unitholders.
EXCEPT AS FOLLOWS, WE ARE NOT MAKING ANY RECOMMENDATION TO YOU AS TO WHETHER YOU
SHOULD TENDER YOUR UNITS OR CONSENT TO THE MERGER PROPOSAL. YOU SHOULD MAKE THAT
DECISION ONLY AFTER CONSULTING WITH YOUR FINANCIAL AND TAX
6
ADVISORS AND CAREFULLY CONSIDERING THE INFORMATION SET FORTH IN THIS OFFER TO
PURCHASE AND CONSENT SOLICITATION STATEMENT.
In reaching its determination that the Offer and the Merger are
substantively fair to Unitholders, ARV considered the following factors:
- The terms of the Offer and the Merger would provide a prompt means for
you to receive cash for all or a portion of your Units, especially in
light of the limited market for the Units.
- The Offer Price is in excess of recent indications of the market price
for the Units. The Offer or the Merger will allow you to liquidate
your investment in the Partnership at a cash price of $___ per Unit.
The Units are not listed on any exchange and information about the
market price for the Units is not readily available. However, during
the past two years, the average tender offer price per Unit in
"mini-tender" offers of which the Partnership is aware was $312.50 per
Unit. Based on a hypothetical sale of five Units and the $150
Partnership transfer fee customarily paid by a tendering Unitholder,
during the past two years, the average net tender offer price per Unit
in these "mini-tender" offers would be $282.50 per Unit. See " --
Determination of the Offer Price" and "Schedule II -- Information
Concerning Secondary Market Sales Reported to the Partnership During
the Last Two Fiscal Years."
- The Offer Price is more than the amount that ARV believes might be
obtained if the Partnership were to sell its assets and liquidate. The
amount that might be available to distribute to Unitholders would vary
depending upon the timing of any such sale and distribution, the
proceeds realized in connection with a sale of the Partnership's
assets, the liabilities existing at the time and various other factors
that are not under the control of ARV. Based upon appraisals of the
Partnership properties and ARV's own assessment of the value of the
Partnership's properties and other assets, ARV believes that the
distributable cash per Unit upon a liquidation would be approximately
$262. This amount could be higher or lower depending upon the
foregoing and other factors. The Offer Price represents a ___% premium
over this amount. ARV believes that the Offer Price provides
Unitholders the opportunity to promptly receive cash for some or all
of their Units if they do not wish to be subject to the possible
delays and risks of a possible liquidation and are willing to forego
the possibility that in a liquidation they might receive substantially
higher values per Unit than is represented by the Offer Price.
- Under the Partnership Agreement, if the Partnership sells any of its
senior citizen or other similar facilities, ARV, as the general
partner of the Partnership, may be entitled to receive a subordinated
real estate commission. Under the Partnership Agreement, this
commission may not exceed the lesser of (i) 50% of the amount which is
customarily charged in arms-length transactions by others rendering
similar services as an on-going public activity in the localities
where the facilities are located (the "Competitive Real Estate
Commission") or (ii) 3% of the sales price of such facility; provided
that all real estate brokerage commissions or similar fees paid to all
persons involved in the sale does not exceed the lesser of 6% of the
sales price or the Competitive Real Estate Commission. The payment of
this commission would reduce the amount that Unitholders would receive
in the event of such a sale of the Partnership's properties upon
7
a liquidation of the Partnership or otherwise. Our liquidation
analysis assumes that no brokerage fee would be paid to ARV.
- The Offer Price per Unit plus aggregate distributions paid to date per
Unit by the Partnership since inception will equal approximately
$______. This represents approximately a ___% return of the original
investment in a Unit by someone who invested in the Partnership at its
inception.
- The assisted living market has been experiencing significant
volatility due to certain risks, such as increasing operating costs,
the increasing supply of new assisted living alternatives and
additional government regulation and oversight. These risks and the
resulting uncertainty have constrained the ability to access capital
markets efficiently in the assisted living industry. Our purchase of
your Units would reduce your exposure to the volatility of the
assisted living market.
- Our purchase of your Units would eliminate your exposure to the risk
of obsolescence in the Partnership properties. Because the average age
of the Partnership's portfolio is approximately 25 years old, ARV
believes a portion of the portfolio is vulnerable to new competition
and may require substantial capital expenditures in the future to
remain competitive. ARV also believes that changing consumer
preferences and evolving models for senior housing may eventually
result in obsolescence of some of the properties.
- During fiscal year 2000, former general partners Gary L. Davidson,
John A. Booty, John S. Jason and Tony Rota (collectively, the "Special
Limited Partners") elected to have their general partnership interests
in the Partnership converted to special limited partnership interests.
As former general partners who ceased to be general partners, the
holders of Special Limited Partner units are entitled to the
allocations, distributions, and credits to which their previous
general partner's interest which has been so converted would otherwise
have been entitled. Under the Partnership Agreement and California
law, the holders of Special Limited Partner interests are treated as
Limited Partners of the Partnership for certain purposes and are
governed by the provisions of the Partnership Agreement applicable to
Limited Partners other than provisions pertaining to distributions and
allocations to Limited Partners, as further described below. Each
Special Limited Partner is deemed to hold one Unit under the
Partnership Agreement and California law and is deemed to be a Limited
Partner for purposes of voting on certain matters concerning the
Partnership, including the Merger Proposal. We are not making the
Offer to the Special Limited Partners nor seeking their consent to the
Merger Proposal.
The Special Limited Partners are generally entitled to be allocated
0.99% of the Partnership's (i) profits and losses (other than cost
recovery deductions) for financial statement and income tax purposes;
and (ii) cash available for distribution from operations. The Special
Limited Partners are also entitled to be allocated 0.99% of
distributions upon any sale, refinancing or other disposition of the
Partnership's real properties (subject to adjustments for certain
negative capital account balances), until the Limited Partners have
received an amount equal to 100% of their capital contributions (less
the amount of distributions received from a prior sale or financing)
plus an amount
8
ranging from 8% to 10% (depending upon the timing of the Limited
Partner's investment) of their capital contributions per annum,
cumulative, but not compounded, from the date of each Limited
Partner's investment. The cumulative return is to be reduced, but not
below zero, by the aggregate amount of prior distributions from all
sources. Thereafter, distributions are made 15% to ARV and the Special
Limited Partners and 85% to the Limited Partners.
In light of these different economic interests in the Partnership, the
SLP Offering Price differs from that which we are offering to
Unitholders. Each Special Limited Partner would receive $_____ in cash
in the Merger for its special limited partnership interest (the "SLP
Offering Price"), pursuant to the terms of the Merger Agreement. The
SLP Offering Price is based on the same calculation and methodology we
used in determining the Offer Price. The SLP Offering Price has been
determined by us to equal approximately the amount a Special Limited
Partner would have received under the Partnership Agreement in a
deemed liquidation of the Partnership assuming the assets of the
Partnership had been sold for aggregate consideration that would have
resulted in each Unit receiving the Offer Price in this deemed
liquidation. In addition, we or ARV may acquire the Special Limited
Partner interests directly in negotiated transactions separate from
the Offer and the Merger. In addition, we have deducted the Special
Limited Partners' share of liquidation proceeds from the total
estimated proceeds available for distribution in arriving at our final
computation of liquidation value per Unit. See " -- Determination of
the Offer Price."
- We and ARV do not believe that book value of the Units is relevant to
the fairness of the Offer or the Merger. The book value of the
Partnership properties less the secured debt for each property, as of
September 30, 2003, would result in a negative price per Unit since
the Partnership properties have been depreciated for accounting
purposes to a level substantially below their potential market value.
Accordingly, we did not consider book value in determining the Offer
Price or the fairness of the Offer or the Merger.
- We and ARV do not believe that going concern value of the Partnership
is relevant to the fairness of the Offer or the Merger, because the
Partnership is not really an operating business. Its only assets,
other than cash, are the Partnership properties, which are managed by
ARV as assisted living facilities in which rental units are leased to
individuals as tenants. The Partnership has no other operations.
Because going concern value typically reflects independent value for
the goodwill of a business as a going concern, over and above its
asset values, those factors are not present here. Accordingly, we did
not consider going concern value of the Partnership in determining the
fairness of the Offer or the Merger.
- The Offer and the Merger provide the opportunity for you to sell your
Units without incurring brokerage and other costs typically associated
with market sales. The Partnership also charges a transfer fee to any
purchaser of Units for the transfer of Units. This fee is equal to the
lesser of $150 and the Partnership's actual costs and expenses
incurred in connection with such transfer. This fee is intended to
compensate the Partnership for the costs and expenses incurred in
connection with transferring the Units on the books of the
Partnership, and the Partnership believes that these costs and
expenses have been in excess of $150. While this fee is customarily
imposed upon
9
sellers of Units, we will pay this fee to the Partnership in
connection with any transfer of your Units to us in the Offer.
For a more detailed description of the valuation methodologies
employed by the general partner to determine the fairness of the Offer and the
Merger to you, see " -- Determination of the Offer Price."
The consent to the Merger Proposal by a majority of the Unitholders,
other than ARV and its subsidiaries, is required as a condition for us to
complete the Offer. Furthermore, unless we acquire at least 90% of the Units in
the Offer, together with the Units already owned by ARV, this consent is also
one of the conditions for us to effect the Merger. The Partnership as an entity
does not have a board of directors, and ARV is the only entity or person acting
on its behalf. Furthermore, as noted above in item 1 of "Risk Factors," no
independent committee or representative has been appointed or retained to
negotiate the terms of the Offer or the Merger on your behalf. Nevertheless, we
and ARV reasonably believe that the Offer, and the Merger, if approved by a
majority of Unitholders other than ARV, are procedurally fair to you in light of
the following factors:
- You can determine individually whether to tender your Units in the
Offer, and the number to be tendered.
- The Offer is conditioned upon our receipt of consents to the Merger
Proposal by more than 50% of the Unitholders other than ARV and its
subsidiaries.
- Unless we acquire enough Units through the Offer so that, together
with the Units already owned by ARV, we own at least 90% of the Units,
the Merger can only be consummated if:
- all Unitholders other than us, ARV or any of its other
subsidiaries, consent to the principal terms of the Merger
Agreement and the Merger; or
- the terms and conditions of the Merger are approved by the
California Commissioner of Corporations at a fairness
hearing conducted pursuant to the California Corporations
Code.
- If we do acquire enough Units through the Offer so that, together with
the Units already owned by ARV, we own at least 90% of the Units, we
would be entitled to effect a "short-form" merger under California law
which does not require that the principal terms of the Merger
Agreement or the Merger be approved by all Unitholders or that the
Merger be approved by the California Commissioner of Corporations.
- If the Offer and the Merger are completed, Unitholders that do not
tender their Units in the Offer will receive the same amount of cash
per Unit in the Merger that they would have received had they tendered
their Units in the Offer, pursuant to the terms of the Merger
Agreement, subject to any adjustments for distributions the
Partnership makes to Unitholders.
You should be aware that while some of the conditions to the Offer and
the Merger are similar, the conditions to the Offer and the Merger are not the
same. In particular, while the
10
Merger is conditioned upon the approval and determination by the California
Commissioner of Corporations that it is fair (unless ARV and its subsidiaries
own at least 90% of the Units after the Offer is completed or all of the
Unitholders consent to the Merger Proposal), the Offer is not conditioned upon
this approval or any similar determination of fairness by the California
Commissioner of Corporations or anyone else. We may complete the Offer and
purchase the Units tendered prior to any fairness hearing by the California
Commissioner of Corporations. Even if a hearing is held and we fail to obtain a
favorable determination and approval, we may still complete the Offer and
purchase the Units tendered, subject to the terms of the Offer.
We and ARV also considered the following factors, which we considered
to be negative from the perspective of the unaffiliated Unitholders, in our
consideration of the fairness of the terms of the Offer, and the Merger, if
applicable:
- Due to their conflicted position, ARV's directors may not be
able to evaluate the Offer or the Merger objectively, and they
may cause ARV to take actions (or refrain from taking actions)
and to make decisions in connection with the Offer or the
Merger that may not be in the best interests of Unitholders.
- The senior officers of ARV have participated in our
consideration of the Offer and the Merger.
- Following the sale of your Units in the Offer or the Merger,
you would cease to participate in the future earnings or
growth, if any, of the Partnership or benefit from increases,
if any, in the value of your holdings in the Partnership.
- Historically, there has been a relatively limited public
market for the Units. As a result of the tender of Units by
Unitholders, this public market may become even more limited.
Those Unitholders who do not tender their Units may suffer
increased illiquidity and decreased market value, particularly
because ARV intends to seek termination of the registration of
the Units under the Exchange Act following completion of the
Offer, if possible.
- Because the Partnership was formed prior to January 1, 1991,
under the California Revised LP Act, the law under which the
Partnership is governed, Unitholders do not have dissenters'
rights or similar rights with respect to the Offer or the
Merger. Accordingly, Unitholders will not have the right to
have their Units appraised or to have the value of their Units
paid to them if they disapprove of the Offer Price. We cannot
determine at this time whether Unitholders in any subsequent
transaction effected by ARV after consummation of the Offer
will have dissenters' rights.
In determining that the Offer and the Merger are fair to the
unaffiliated Unitholders of the Partnership, we and ARV considered the above
factors as a whole and did not assign specific or relative weights to them. All
beliefs as to the fairness of the Offer or the Merger attributed to ARV also
apply to us.
5. DETERMINATION OF THE OFFER PRICE
Because the price that will be paid to Unitholders per Unit in the
Offer will be the same price that will be paid per Unit to Unitholders in the
Merger, subject to adjustments for certain
11
distributions the Partnership makes to Unitholders, references to Offer Price
include the price to be paid per Unit in the Merger, as the context requires.
In establishing the Offer Price, we reviewed information available to
us, through ARV, the general partner of the Partnership, including, among other
things, appraisals with respect to the Partnership properties. Our determination
of the Offer Price was based in part on our review and analysis of the foregoing
information and on the other financial information and analyses concerning the
Partnership summarized below. We also considered the Partnership's objectives.
To determine our Offer Price, we used three primary methods: (a) our
estimate of what we believe to be a probable value of the Units on a liquidation
basis; (b) prices at which the Units have been sold in the secondary market by
third parties during the past two years, as reported to the Partnership; and (c)
the price offered for the Units in two "mini-tender offers" by a third party
during the past year. There have been no other tender offers for the Units
during the past two years of which we are aware. Each of these methods is
discussed below.
Since these valuation methods are dependent upon varying market and
economic conditions, no assurance can be given that the possible values
presented here reflect the total range of possible values. In light of the
nature of the Partnership and its assets, we believe that an analysis of the net
proceeds that might be distributable after a sale of the Partnership's assets
and a liquidation of the Partnership is likely to result in the highest value
per Unit. Accordingly, our primary emphasis in evaluating the Offer Price
relative to hypothetical values of the Units was based on that methodology.
The results of these analyses are summarized in the chart below.
SUMMARY OF VALUATION RESULTS
Per Unit
--------
Offer Price................................................................ $ _____
Alternative Methods:
Estimated liquidation value............................................. $262 (1)
Weighted Average Sales Price per Unit during the past two years as
reported to the Partnership......................................... $289 (2)
Weighted Average Net Sales Price per Unit during the past two years as
reported to the Partnership......................................... $272 (3)
Average Tender Offer Price per Unit offered by third parties during the
past two years as reported to the Partnership....................... $313 (4)
Average Net Tender Offer Price per Unit offered by third parties during
the past two years as reported to the Partnership................... $283 (5)
- ----------------
(1) The estimated liquidation value is based on three estimated fair market
values for the Partnership properties described below under "-- (A)
Liquidation Valuation Method."
(2) See "--(B) Prices of Units in Secondary Market Sales Reported to the
Partnership" below and "Schedule II - Information Concerning Secondary
Market Sales Reported to the Partnership During the Last Two Fiscal Years."
12
(3) The Weighted Average Net Sales Price per Unit takes into account the $150
transfer fee customarily paid by a selling Unitholder. See "-- (B) Prices
of Units in Secondary Market Sales Reported to the Partnership" below and
"Schedule II - Information Concerning Secondary Market Sales Reported to
the Partnership During the Last Two Fiscal Years."
(4) See "--(C) Recent Tender Offers" below.
(5) The average Net Tender Offer Price per Unit is based upon a hypothetical
sale of five Units and the $150 transfer fee customarily paid by a
tendering Unitholder. See "-- (C) Recent Tender Offers" below.
(A) LIQUIDATION VALUATION METHOD
Liquidation value is a measure of the price at which the assets of the
Partnership would sell if disposed of by the Partnership in an arm's-length
transaction to a willing buyer that has access to relevant information regarding
the assets, reduced by the Partnership's liabilities and reasonable reserves for
contingencies and the costs of liquidation. The liquidation value of the Units
is an analysis of the net distributable proceeds that would flow to Unitholders
following a theoretical sale of the Partnership properties and liquidation of
the Partnership's remaining assets within a year.
You should bear in mind that the hypothetical liquidation value is
based on certain assumptions that we have made. These assumptions relate to,
among other things, the anticipated income and expenses of the Partnership and
the capitalization rates that might be used by prospective buyers if the assets
of the Partnership were to be sold. We also assumed transaction fees and
expenses of approximately 5% of the gross liquidation value in the hypothetical
sales, consisting of a U.S. Housing and Urban Development, or HUD, transfer fee
of 0.5%, a third-party broker commission of 3.0%, and legal fees and other
expenses typically associated with a sale of a HUD-encumbered property of 1.5%.
The assumptions used have been determined by us in good faith, and, where
appropriate, are based upon current and historical information regarding the
Partnership and our belief as to current real estate and capital market
conditions. Actual results from a liquidation may vary from those set forth
herein based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for similar properties, the manner in which the real
estate properties of the Partnership are sold, changes in availability of
capital to finance acquisitions of real estate properties and actual transaction
fees and expenses.
The liquidation analysis assumes that the Partnership's real estate
properties are sold at their estimated current values and that the net proceeds
of the liquidation are allocated to Unitholders, the Special Limited Partners
and ARV in accordance with the Partnership Agreement.
VALUATION OF THE PARTNERSHIP PROPERTIES
In valuing a Unit on a liquidation basis, we used two primary sources
of possible values of the Partnership's properties: (i) the results of an income
capitalization analysis for valuing rental property performed by ARV and (ii)
valuations derived from an independent appraisal received by ARV with respect to
the Partnership properties, as set forth in "-- Appraisals." Another possible
method of valuing the Partnership properties would be analyzing third party
offers for the properties; however we did not use this method, because there
have been no third
13
party offers for the Partnership properties in the last year of which we are
aware. The income capitalization analysis and the appraisal methodologies are
described below.
INCOME CAPITALIZATION APPROACH. The income capitalization approach is
one of three standard methods used to estimate market value of rental property,
and involves applying a capitalization rate to a property's annual net operating
income. The other two methods are the cost approach and the sales comparison
approach. The cost approach values land by comparison with other sites in the
area that have recently been sold. The cost to reproduce or replace the
improvements, less any loss of value due to physical deterioration, functional
or external obsolescence is then estimated and added to the land value,
indicating a total value estimate for the property. The sales comparison
approach values the improved property by comparison with other properties of
similar design, utility and use that have recently sold. The sales are analyzed
based on units of comparison, such as purchase price per square foot, income per
square foot, or gross income multipliers. Because the financial information on
which the income capitalization approach is based is more readily available than
the information required to use the other two approaches to estimate value, we
have used the income capitalization approach in our analysis.
Under the income capitalization approach, the capitalization rate is a
percentage rate of return commonly applied by purchasers of comparable real
estate to property income to determine the present value of income property. The
lower the capitalization rate utilized, the higher the value produced, and the
higher the capitalization rate utilized, the lower the value produced. We used
property net operating income, as defined below, for the properties through the
twelve months ended September 30, 2003. We based our selection of capitalization
rates on our analysis and judgment of the location, condition and future
viability of each Partnership property, and on other publicly available data.
All financial data contained in this Offer to Purchase and Consent
Solicitation Statement for the twelve months ended September 30, 2003 is
unaudited.
THE EVALUATION OF A PROPERTY'S LOCATION AND CONDITION, AND THE
DETERMINATION OF AN APPROPRIATE CAPITALIZATION RATE FOR A PROPERTY, IS
SUBJECTIVE IN NATURE, AND OTHERS EVALUATING THE SAME PROPERTY MIGHT USE A
DIFFERENT CAPITALIZATION RATE AND DERIVE A DIFFERENT PROPERTY VALUE, WHICH MIGHT
BE HIGHER OR LOWER THAN THE VALUE WE DETERMINED.
As a preliminary step in the portion of our liquidation analysis based
on the income capitalization approach, we determined the property net operating
income for each Partnership property as follows.
Industry practice is to value real estate properties on an unleveraged
basis. We based our valuation on property net operating income ("NOI"), which we
defined as direct property operating revenue, less operating expenses,
management fees and capital expense charges. We defined direct property
operating revenue as total revenues (taken from the Partnership's financial
statements for the relevant periods), less non-operating income items, such as
certain interest income and Partnership transfer fees. We defined operating
expenses as all expenses directly incurred by the Partnership properties, except
Partnership administrative fees, interest expense, depreciation and
amortization.
Under the Partnership Agreement, ARV receives a property management fee
equal to 5% of revenues of the Partnership. To estimate capital expense charges,
we assume that the
14
properties require $500 of routine capital expense charges per residential unit
per year. We believe NOI to be an appropriate supplemental measure of
property-level financial performance for the purpose of valuing each property.
Others evaluating the same properties might use different assumptions and derive
different net operating incomes, which would then yield property values that
might be higher or lower than the values we determined.
Trailing Twelve Months Ended September 30, 2003
----------------------------------------------------------------------------------
Operating Operating Management Capital Net Operating
Revenue Expense Fee Expenditures Income
------------ ------------ ------------ ------------ -------------
Retirement Inn of Burlingame $ 1,781,824 $ (1,323,072) $ (89,091) $ (33,500) $ 336,161
Retirement Inn of Campbell 2,123,487 (1,349,474) (106,174) (35,000) 632,839
Retirement Inn of Daly City 1,800,036 (1,296,450) (90,002) (47,500) 366,085
Retirement Inn of Freemont 1,728,811 (1,371,441) (86,441) (34,000) 236,929
Retirement Inn of Fullerton 1,170,898 (1,057,722) (58,545) (34,000) 20,631
Montego Heights Lodge 3,428,917 (2,517,803) (171,446) (81,500) 658,168
Retirement Inn of Sunnyvale 3,009,075 (2,181,526) (150,454) (61,500) 615,596
Valley View Lodge 5,076,408 (2,418,145) (253,820) (62,500) 2,341,942
Covina Villa 1,434,394 (1,278,220) (71,720) (31,000) 53,454
Inn at Willow Glen 2,232,004 (1,769,190) (111,600) (41,500) 309,713
------------ ------------ ------------ ---------- ------------
$ 23,785,853 $(16,563,044) $ (1,189,293) $ (462,000) $ 5,571,516
============ ============ ============ ========== ============
Having determined property net operating income for each Partnership
property, we estimated the value of the Partnership properties based on the
income capitalization approach as follows. First, we selected the capitalization
rate based on our experience in valuing similar properties. We believe that
arm's-length purchasers would base their purchase offers on a capitalization
rate similar to that used by us. However, there is no single correct
capitalization rate and others might use different rates. We also believe a
prospective purchaser of any of the Partnership properties would negotiate a
reduction in price to address any deferred maintenance items at the property.
Despite the age of the Partnership properties, we have not made any adjustments
to values to reflect potential deferred maintenance projects at the properties.
We used NOI for each of these properties for the twelve months ended September
30, 2003, and then divided such amount by the capitalization rate to derive an
estimated gross property value for each Partnership property.
Based on the above, we estimated the values of the Partnership
properties based on the income capitalization approach to be:
NET OPERATING ESTIMATED GROSS
INCOME CAP RATE PROPERTY VALUE
------------- -------- ---------------
Retirement Inn of Burlingame $ 336,161 11.25% $ 2,988,094
Retirement Inn of Campbell 632,839 11.25% 5,620,787
Retirement Inn of Daly City 366,084 11.25% 3,254,086
Retirement Inn of Fremont 236,929 11.25% 2,106,037
Retirement Inn of Fullerton 20,631 11.25% 183,383
Montego Heights Lodge 658,168 11.25% 5,850,381
Retirement Inn of Sunnyvale 615,596 11.25% 5,485,295
Valley View Lodge 2,341,942 11.00% 21,290,385
Covina Villa 53,454 11.50% 464,814
Inn at Willow Glen 309,713 11.50% 2,693,157
----------- ------------
Total $ 5,571,517 $ 49,936,419
=========== ============
15
Even though we believe that NOI is an appropriate supplemental measure
of property-level financial performance for the purpose of valuing each
property, you should understand that NOI:
- does not represent cash flow from operations as defined by
generally accepted accounting principles as accepted in the
United States of America, or GAAP;
- should not be considered as an alternative to net income
determined in accordance with GAAP as a measure of operating
performance;
- is not an alternative to cash flows as a measure of liquidity;
and
- is not indicative of cash flows from operating, investing and
financing activities.
Below is a reconciliation of NOI to net income of each Partnership
property as well as to the net income of the Partnership on a consolidated basis
as reported in its financial statements:
TRAILING TWELVE MONTHS ENDED SEPTEMBER 30, 2003 (UNAUDITED)
VALLEY
COVINA INN AT MONTEGO R.I. OF R.I. OF R.I. OF R.I. OF R.I. OF R.I. OF VIEW
VILLA WILLOW GLEN HEIGHTS BURLINGAME CAMPBELL DALY CITY FREMONT FULLERTON SUNNYVALE LODGE TOTAL
------ ----------- ------- ---------- -------- --------- ------- --------- --------- ------- ------
(IN THOUSANDS)
NET OPERATING INCOME (NOI) $ 53 $ 310 $ 658 $ 336 $ 633 $ 366 $ 237 $ 21 $ 616 $ 2,342 $5,572
Add:
Capital expenditure
add-back (1) 31 42 82 34 35 48 34 34 62 63 465
Interest income (2) - 1 3 1 2 2 1 2 4 2 18
Other non-operating
income 0 0 0 (3) 3 0 (1) 0 0 0 (1)
----- ----- ------ ------ ----- ----- ----- ----- ----- ------- ------
Total income adjustments 31 43 85 32 40 50 34 36 66 65 482
Less:
Interest expense - - 656 266 151 325 243 178 746 954 3,519
Depreciation &
amortization 116 132 348 89 105 96 76 83 170 273 1,488
Partnership
administration fees 6 21 7 3 41 0 1 - (1) 135 213
----- ----- ------ ------ ----- ----- ----- ----- ----- ------- ------
Total expense adjustments 122 153 1,011 357 297 422 320 261 915 1,362 5,220
----- ----- ------ ------ ----- ----- ----- ----- ----- ------- ------
NET INCOME (LOSS) PRIOR
TO NON-PROPERTY RELATED
ADJUSTMENT $ (38) $ 200 $ (268) $ 11 $ 376 $ (6) $ (49) $(204) $(233) $ 1,045 $ 834
NON-PROPERTY RELATED
ADJUSTMENT (3) (65)
------
NET INCOME $ 769
======
(1) We assumed a standard charge of $500 per residential unit for capital
expenses relating to the property.
(2) Interest income for each property represents interest on rents paid to the
Partnership with respect to the property.
(3) Includes certain revenues and expenses of the Partnership that are not
directly received or incurred by each Partnership property.
APPRAISALS. We also evaluated the property values established by recent
appraisals of the Partnership properties. These appraisals were rendered by
Cushman & Wakefield, an independent real estate valuation advisory firm (the
"Appraiser"). ARV has not retained the Appraiser in the past to render any
appraisal, although the Appraiser has been used to render appraisals by lenders
that have participated in the financing of some of ARV's assets. ARV retained
the Appraiser based upon its reputation as a real estate valuation advisory firm
with experience in the valuation of real property assets similar to those
comprising the Partnership properties. The Appraiser is being paid a fee by ARV
of $46,500 for the Appraisals (defined below).
16
In November 2003, the Appraiser delivered its appraisals of the
Partnership properties to ARV (the "Appraisals"). The aggregate appraised value
of the Partnership properties set forth in the Appraisals was $48,850,000. The
Appraisals cover only the Partnership properties and do not constitute a
recommendation to you as to whether you should tender your Units in the Offer or
consent to the Merger Proposal.
The values set forth in the Appraisals, as of November 14, 2003, are as follows:
Value
Established
------------
Retirement Inn of Burlingame $ 3,250,000
Retirement Inn of Campbell 4,750,000
Retirement Inn of Daly City 3,250,000
Retirement Inn of Fremont 2,450,000
Retirement Inn of Fullerton 2,200,000
Montego Heights Lodge 6,100,000
Retirement Inn of Sunnyvale 6,300,000
Valley View Lodge 17,000,000
Covina Villa 1,600,000
Inn at Willow Glen 1,950,000
------------
Total: $ 48,850,000
============
The Appraiser based its valuation of the Partnership properties on a
physical inspection of the site and improvements, an evaluation of the market
and competition, and an analysis of historical financial data as represented by
the Partnership and its representatives. The Appraiser used three approaches in
developing an opinion of value: cost, sales comparison and income
capitalization. A final value opinion was chosen that either corresponded to one
of the approaches to value, or was a correlation of all of the approaches used
in the Appraisals.
In the cost approach, the Appraiser formed an opinion of the cost of
all improvements, depreciating them to reflect value loss from physical,
functional and external causes. Land value, entrepreneurial profit and
depreciated improvement costs were then added for a total value.
In the sales comparison approach, the Appraiser utilized sales of
comparable properties, adjusted for differences, to indicate a value for the
subject property.
In the income capitalization approach, the Appraiser first determined
the income-producing capacity of the property by utilizing contract rents on
leases in place and by estimating a market rent from rental activity at
competing properties. Deductions were then made for vacancy and collection loss.
Historical operating expenses were adjusted using competitive properties as a
benchmark. The resulting net operating income was capitalized at an overall
capitalization rate to derive an opinion of value. As a result of these
adjustments, the Appraiser's determination of net operating income may differ
substantially from the net operating income used in our analysis of the
properties.
In performing the income capitalization approach for Retirement Inn of
Burlingame, the Appraiser used an income capitalization rate of 11.5% on
projected net operating income of
17
$366,524. The Appraiser's results for Retirement Inn of Burlingame are
summarized in the table below:
Retirement Inn
of Burlingame
--------------
Cost Approach $3,900,000
Sales Comparison Approach $3,300,000
Income Capitalization Approach $3,200,000
Final Value Conclusion $3,250,000
In performing the income capitalization approach for Retirement Inn of
Campbell, the Appraiser used an income capitalization rate of 11.5% on projected
net operating income of $538,880. The Appraiser's results for Retirement Inn of
Campbell are summarized in the table below:
Retirement Inn
of Campbell
--------------
Cost Approach $3,950,000
Sales Comparison Approach $4,800,000
Income Capitalization Approach $4,700,000
Final Value Conclusion $4,750,000
In performing the income capitalization approach for Retirement Inn of
Daly City, the Appraiser used an income capitalization rate of 11.5% on
projected net operating income of $366,464. The Appraiser's results for
Retirement Inn of Daly City are summarized in the table below:
Retirement Inn
of Daly City
--------------
Cost Approach $4,200,000
Sales Comparison Approach $3,400,000
Income Capitalization Approach $3,200,000
Final Value Conclusion $3,250,000
In performing the income capitalization approach for Retirement Inn of
Fremont, the Appraiser used an income capitalization rate of 11.5% on projected
net operating income of $282,356. The Appraiser's results for Retirement Inn of
Fremont are summarized in the table below:
18
Retirement Inn
of Fremont
--------------
Cost Approach $3,200,000
Sales Comparison Approach $2,500,000
Income Capitalization Approach $2,400,000
Final Value Conclusion $2,450,000
In performing the income capitalization approach for Retirement Inn of
Fullerton, the Appraiser used an income capitalization rate of 11.5% on
projected net operating income of $248,224. The Appraiser's results for
Retirement Inn of Fullerton are summarized in the table below:
Retirement Inn
of Fullerton
--------------
Cost Approach $2,600,000
Sales Comparison Approach $2,200,000
Income Capitalization Approach $2,200,000
Final Value Conclusion $2,200,000
In performing the income capitalization approach for Montego Heights
Lodge, the Appraiser used an income capitalization rate of 11.5% on projected
net operating income of $704,378. The Appraiser's results for Montego Heights
Lodge are summarized in the table below:
Montego Heights
Lodge
---------------
Cost Approach $8,500,000
Sales Comparison Approach $5,700,000
Income Capitalization Approach $6,100,000
Final Value Conclusion $6,100,000
In performing the income capitalization approach for Retirement Inn of
Sunnyvale, the Appraiser used an income capitalization rate of 11.5% on
projected net operating income of $723,158. The Appraiser's results for
Retirement Inn of Sunnyvale are summarized in the table below:
19
Retirement Inn
of Sunnyvale
--------------
Cost Approach $7,400,000
Sales Comparison Approach $6,300,000
Income Capitalization Approach $6,300,000
Final Value Conclusion $6,300,000
In performing the income capitalization approach for Valley View Lodge,
the Appraiser used an income capitalization rate of 11.25% on projected net
operating income of $1,939,693. The Appraiser's results for Valley View Lodge
are summarized in the table below:
Valley View
Lodge
-----------
Cost Approach $ 8,600,000
Sales Comparison Approach $16,900,000
Income Capitalization Approach $17,200,000
Final Value Conclusion $17,000,000
In appraising the value of Covina Villa, the Appraiser concluded that
the cost approach and the sales comparison approach are not relevant since the
building is owned subject to a ground lease that expires in 2037. During the
term of the ground lease, any transfer of the building would be subject to the
consent of the ground lessor. At the end of the ground lease term, ownership of
the building reverts to the ground lessor. Due to the length of the remaining
term of the ground lease, the Appraiser used the income capitalization approach
to assess the value of the property. The Appraiser used an income capitalization
rate of 12.25% on projected net operating income of $197,149 to reflect the
finite term of the Partnership's right to lease the ground. The income
capitalization approach yielded a value of $1,600,000.
In appraising the value of Inn at Willow Glen, the Appraiser concluded
that the cost approach and the sales comparison approach are not relevant since
the building is leased under an operating lease that expires in 2007 with an
option to extend until 2017. During the term of the operating lease, any
transfer of the building would be subject to the consent of the lessor. At the
end of the operating lease term, the Partnership would no longer have any right
to use the property. Due to the limited term remaining on the operating lease,
the Appraiser used a discounted cash flow approach assuming $303,007 of net
operating income in year one, growing at a constant rate of 3.5% per year until
2017, discounted back using a factor of 15.5%. The discounted cash flow approach
yielded a value of $1,950,000.
The Appraisals were made in accordance with the accepted techniques,
standards, methods and procedures of the Appraisal Institute and were certified
by the Appraiser. YOU SHOULD NOTE, HOWEVER, THAT APPRAISALS ARE ONLY ESTIMATES
OF CURRENT VALUE AND ACTUAL VALUES REALIZABLE UPON SALE MAY BE SIGNIFICANTLY
DIFFERENT. ARV has not retained the Appraiser in the past to render any
appraisal, although the Appraiser has been used to render appraisals by lenders
that have
20
participated in the financing of some real estate of other partnerships
affiliated with ARV. ARV has not commissioned any current appraisals of the
Partnership properties other than the Appraisals, because ARV believes that
appraisals by the Appraiser reasonably reflect the fair market value of the
properties appraised. While we and ARV took the Appraisals into account in
determining the Offer Price, the Appraisals were not determinative of the Offer
Price.
The Appraisals are available for inspection and copying at the
principal executive offices of ARV during its regular business hours by any
interested Unitholder or such Unitholder's representative who has been so
designated in writing. In addition, the Appraisals have been filed as an exhibit
to the Partnership's Form 8-K, dated December 15, 2003, which is a publicly
available filing with the SEC, and are incorporated herein by reference. See
"OTHER MATTERS -- Available Information; Incorporation by Reference."
FINAL LIQUIDATION VALUATION OF PARTNERSHIP PROPERTIES. We then
determined a final gross property value for each Partnership property, based on
a comparison of the income capitalization approach and the Appraisal. First, we
averaged the value assigned by the Appraiser ($48,850,000) and the value arrived
at by ARV using the income capitalization approach ($49,936,420). Using this
method, we determined that $49,393,210 was therefore the fairest approximation
of the market value for the properties.
After determining our final estimated gross property value for each
Partnership property, we then estimated our estimated net sale value for each
Partnership property by adjusting the final estimated gross property value for
closing costs and other expenses of the hypothetical liquidation. Specifically,
we deducted mortgage balances as of September 30, 2003. The resulting amounts
represent our estimate of the net sale proceeds that might be realized by the
Partnership on a hypothetical sale of the Partnership properties.
Estimated Gross Property Value for Partnership Properties.................... $ 49,388,766
Mortgages............................................................... (41,575,521)
Closing Costs, Commissions, Charges(1).................................. (2,469,438)
------------
Estimated Net Proceeds from Hypothetical Property Sales...................... $ 5,343,807
============
(1) The above estimate of closing costs, commissions and charges is based upon
our assumption that transaction fees and expenses will be approximately 5% of
the gross liquidation value in the hypothetical sales, consisting of a U.S.
Housing and Urban Development, or HUD, transfer fee of 0.5%, a broker commission
of 3.0%, and legal fees and other expenses typically associated with a sale of a
HUD-encumbered property of 1.5%.
VALUATION OF OTHER PARTNERSHIP ASSETS
The Partnership's total other net assets, consisting primarily of cash,
are valued at $3,905,464 ($112 per Unit) as of September 30, 2003.
FINAL COMPUTATION OF LIQUIDATION VALUE PER UNIT
We estimated the total value of the equity of the Partnership by adding
together the estimated net value of the Partnership properties on a hypothetical
sale of the Partnership properties, as set forth above, adding the estimated
amount of available cash to the Partnership and the value of the non-real estate
assets of the Partnership, and deducting the liabilities of the
21
Partnership. Using this net equity value, we determined the proceeds that could
be paid to Unitholders under the Partnership Agreement in the event of a
hypothetical liquidation of the Partnership within one year, based on the terms
of the Partnership Agreement. Accordingly, pursuant to the Partnership
Agreement, 99% of the estimated liquidation proceeds are assumed to be
distributed to Unitholders and an aggregate of 1% of the estimated liquidation
proceeds are assumed to be distributed to ARV, as the general partner of the
Partnership, and the Special Limited Partners.
Total Estimated Net Proceeds from Hypothetical Property Sales................... $ 5,343,807
Value of Other Assets........................................................... 3,905,464
-----------
Total Estimated Liquidation Proceeds Available for Distribution........ $ 9,249,271
General Partner Share of Liquidation Proceeds................................... (925)
Special Limited Partners' Share of Liquidation Proceeds......................... (91,568)
-----------
Total Estimated Unitholder Distribution:........................................ $ 9,156,778
Number of Units........................................................ 35,020
-----------
Estimated Proceeds per Unit............................................ $ 261.47
===========
The liquidation analysis is theoretical only and for the purpose of
providing an alternative analysis for your use in comparison with the Offer
Price. The Partnership is prohibited from repaying any of the loans currently
encumbering the Partnership properties at least until 2006 (see "THE PARTNERSHIP
- -- Description of the Partnership," for a description of the restrictions by
property) and thereafter, there are substantial penalties for prepayment,
declining from 5% to 1% of the outstanding loan balance. Due to these and other
HUD-related restrictions, any potential buyer of the Partnership properties
would have to assume the existing debt and be approved by HUD.
Because of these conditions, we assumed transaction fees and expenses
of approximately 5% of the gross liquidation value in the hypothetical sales,
representing a HUD transfer fee of 0.5%, a third-party broker commission of
3.0%, and legal fees and other expenses typically associated with a sale of a
HUD-encumbered property of 1.5%.
Under certain circumstances ARV would be entitled to one-half of any
brokerage commission paid in connection with the sale of a property (see "--
Fairness of the Offer and the Merger"). We assumed that ARV did not receive a
brokerage commission.
(B) PRICES OF UNITS IN SECONDARY MARKET SALES REPORTED TO THE
PARTNERSHIP
Secondary market sales information may not be a reliable measure of
value because of the limited number of any known trades and the limited number
of Units involved. There is no formal, established public trading market for the
Units, and secondary sales activity for the Units is limited to sporadic sales
which occur within an informal secondary market or in connection with third
party tender offers for Units. Because the Units are not listed on any exchange
or quoted on the Nasdaq National Market, privately negotiated sales and sales
through intermediaries are the primary means available to Unitholders to
liquidate an investment in the Units. While some information is available
through private publications regarding the prices at which such secondary sales
transactions in the Units have been made, these publications expressly disclaim
the accuracy and reliability of the information regarding such trades.
22
For a list of each secondary market sale reported to the Partnership
during the last two completed fiscal years, including the Sales Prices per Unit,
the Net Sales Prices per Unit and the number of Units sold in each transaction,
see "Schedule II - Information Concerning Secondary Market Sales Reported to the
Partnership During the Last Two Fiscal Years" which has been included with this
Offer to Purchase and Consent Solicitation Statement.
The Partnership Agreement requires the purchaser of Units to pay to the
Partnership the lesser of the actual costs and expenses incurred in connection
with the substitution or $150. The Partnership believes that these costs and
expenses have been in excess of $150. Based upon our discussions with brokers
who have in the past effected such transactions in the Units and the terms of
the past "mini-tender" offers of which we are aware, we have determined that the
$150 transfer fee is customarily paid by the seller of the Units. In the Offer,
we will pay this fee to the Partnership in connection with any transfer of your
Units to us in the Offer.
"Sales Price per Unit" refers to the per Unit price at which Units were
sold in these transactions, as reported to the Partnership, before any
deductions for the Partnership transfer fee.
"Net Sales Price per Unit" refers to the net price at which each Unit
was sold in each transaction, which we arrived at by:
- Subtracting the $150 Partnership transfer fee from the
aggregate sales price reported to the Partnership (that is,
the Sales Price per Unit multiplied by the number of Units
sold) in each sale transaction between parties unaffiliated
with us or ARV during the past two years; and then
- Dividing this amount by the number of Units sold in each such
sale transaction.
We determined the "Weighted Average Sales Price per Unit" by:
- Multiplying the Sales Price Per Unit in each sale transaction
between parties unaffiliated with us or ARV during the past
two years by the number of Units sold in each such
transaction; and then
- Dividing the sum of each of these products by the total number
of Units sold in these transactions during this period.
We determined the "Weighted Average Net Sales Price per Unit" by:
- Multiplying the Net Sales Price Per Unit in each sale
transaction between parties unaffiliated with us or ARV during
the past two years by the number of Units sold in each such
transaction; and then
- Dividing the sum of each of these products by the total number
of Units sold in these transactions during this period.
We believe that the Weighted Average Net Sales Price per Unit is a
useful measure by which to evaluate recent secondary market sales reported to
the Partnership because it provides a
23
per Unit average net sales price for transactions during this period while also
taking into account the $150 transfer fee customarily paid by a selling
Unitholder in each transaction.
The calculation of the Weighted Average Sales Price per Unit and the
Weighted Average Net Sales Price per Unit also reduce the effect that
transactions in a small number of Units or those at prices significantly higher
or lower than average over the past two year period would have in the
calculation of a simple average of recent Sales Prices per Unit or Net Sales
Prices per Unit. However, you should note that, because they are averages, the
Weighted Average Sales Price per Unit and the Weighted Average Net Sales Price
per Unit (i) are lower than the Sales Price per Unit and the Net Sales Price per
Unit in the most recent transactions reported to the Partnership and (ii) do not
represent the actual sales price or proceeds received by a selling Unitholder in
any particular transaction.
Because of the limited and inefficient nature of the market for the
Units, we do not believe that the prices at which Units have traded in the past
should be relied upon as a complete and accurate representation of the current
fair value of the Units.
(C) RECENT TENDER OFFERS
In addition to informal secondary market sales, third party investors
have periodically sought to acquire Units by means of a tender offer for
outstanding Units. However, such tender offers generally involve only a limited
number of Units, are held open only for a limited time, and are available only
on a limited basis. In particular, since May 1999, parties unaffiliated with ARV
have made the following "mini-tender" offers:
TENDER OFFER PRICE NET TENDER OFFER PRICE
DATE PER UNIT PER UNIT (1)
- -------------- -------- ------------
May 1999 $ 99 (2) $ 69 (2)
June 1999 $144 (2) $114 (2)
September 1999 $275 $245
January 2000 $234 $204
December 2000 $190 $160
June 2001 $170 $140
June 2003 $300 $270
November 2003 $325 $295
(1) Based on a hypothetical tender of five Units.
(2) These prices have been adjusted to reflect a distribution in July 1999 of
$466 per Unit. Before this adjustment, the sales price per Unit for these
transactions was $565 and $610, respectively.
During the past two years, the average Tender Offer Price in
"mini-tender" offers that we know about was $312.50 per Unit and the average Net
Tender Offer Price in these "mini-tender" offers was $282.50 per Unit.
The "Tender Offer Price per Unit" refers to the per Unit price offered
for Units in these transactions before any deductions for the Partnership
transfer fee. The "Net Tender Offer Price per Unit" refers to the tender offer
prices per Unit that we calculated based upon the hypothetical sale of five
Units at the tender offer prices reported to the Partnership, less the $150
transfer fee
24
per transaction the Partnership charges for substituting the buyer as the new
owner of the transferred Units. The Partnership Agreement requires the purchaser
of Units to pay to the Partnership the lesser of the actual costs and expenses
incurred in connection with the substitution or $150. The Partnership believes
that these costs and expenses have been in excess of $150. The terms of the past
"mini-tender" offers have imposed the $150 transfer fee upon the seller of the
Units. In the Offer, we will pay this fee to the Partnership in connection with
any transfer of your Units to us in the Offer.
We believe that calculating the Net Tender Offer Price per Unit based
upon a hypothetical sale of five Units provides a useful basis on which to
evaluate the net prices at which the typical Unitholder has been able to dispose
of their Units in recent third party tender offers. Unitholders holding five or
fewer Units hold 52% of the Units other than those held by ARV or its
subsidiaries, and the most common number of Units held by Unitholders is five.
Because we will pay the $150 transfer fee in connection with the Offer and
because this fee is a material expense in relation to the aggregate sales price
paid in what we believe is a typical "mini-tender" offer, we believe that the
Net Tender Offer Price per Unit shows a holder of the most common number of
Units held the amount this Unitholder would have received in past "mini-tender"
offers by taking into account the $150 transfer fee that they would have been
required to pay. However, you should note that if a Unitholder had tendered more
or fewer Units in any such tender offer, the $150 transfer fee paid by that
Unitholder would have been spread over more or fewer Units, thus raising or
lowering the net amount that the tendering Unitholder would have received for
each of his or her Units.
The Net Tender Offer Prices shown above do not necessarily reflect the
net sales proceeds actually received by sellers of Units, which may be further
reduced to amounts less than the reported price by costs which are not imposed
by the Partnership.
6. ALTERNATIVES CONSIDERED TO THE OFFER AND THE MERGER
ARV believes that a cash tender offer for the Units and the cash-out
Merger are the best methods for accomplishing its objectives of acquiring the
entire equity interest in the Partnership and of providing our Unitholders with
liquidity for their investment in the Partnership and an opportunity to
eliminate future record-keeping and tax filing requirements. However, ARV also
considered alternatives to the Offer and the Merger that might have addressed
certain aspects of the interests of ARV and Unitholders.
SALE OF ALL OR SUBSTANTIALLY ALL OF THE PARTNERSHIP'S ASSETS. As a
potential alternative to the Offer and the Merger, ARV considered transactions
to provide Unitholders with complete liquidity for their Units through the
transfer of all or substantially all of the Partnership's assets through a sale
of the Partnership's assets and a liquidation of the Partnership. However, ARV
decided not to pursue this structure, because as a Unitholder of approximately
52.5% of the Units, ARV determined to retain its ownership interest in the
Partnership and its assets.
CONTINUED OWNERSHIP. ARV considered continuing to operate the
Partnership for the benefit of Unitholders for a longer period with the
expectation of achieving greater capital appreciation. However, ARV decided not
to pursue this structure because of the significant costs and expenses the
Partnership incurs in remaining a publicly-reporting entity. ARV also considered
the increased flexibility it will have in managing the Partnership's properties
if the Offer and the Merger were consummated and ARV wholly owned the
Partnership's assets.
25
Continued operation of the Partnership also would not provide Unitholders with
an immediate opportunity to obtain liquidity for their investment and thereby to
eliminate future record-keeping and tax filing requirements.
TENDER OFFER WITHOUT A MERGER. ARV considered making the Offer without
also seeking the consent of Unitholders to the Merger. However, completing the
Offer without completing the Merger could result in our acquiring less than the
entire equity interest in the Partnership. Additionally, unless we were to
receive sufficient tenders to reduce the number of Unitholders below 300, we
must also complete the Merger to meaningfully reduce the Partnership's expenses.
Although making the Offer without also seeking to effect the Merger would
provide Unitholders the opportunity to tender their Units and liquidate their
investment, and thereby eliminate future record-keeping and tax filing
requirements, ARV decided not to pursue the Offer without also seeking to effect
the Merger because of its goal of acquiring the entire equity interest in the
Partnership and because of the significant expenses ARV will incur in making the
Offer whether or not it also seeks the consent of Unitholders to the Merger.
In determining to proceed with the Offer and the Merger, ARV concluded
that the Offer and the Merger together were the most expeditious and efficient
way to accomplish the purposes described above and in the Section entitled " --
Purpose of the Offer and the Merger; Future Plans."
7. EFFECTS OF THE OFFER
EFFECT ON VOTING POWER
As a result of the Offer, we and our affiliates would increase our
ownership in the Units. In such case, we and our affiliates will have the voting
rights associated with being the owner of such Units.
EFFECT ON ECONOMIC INTEREST
If the Offer is consummated, we and our affiliates' ownership in the
Partnership, and our interest in the Partnership's profits, losses and
distributions, would be proportionally increased. In this case, we and our
affiliates' interest in the Partnership's book value and net earnings would also
increase proportionally.
EXCHANGE ACT REGISTRATION
The Units are currently registered under the Exchange Act. If there are
fewer than 300 Unitholders remaining after the Offer or any subsequent open
market or privately negotiated purchases, ARV may, and intends to, terminate the
registration of the Units under the Exchange Act. Upon deregistration of the
Units, the Partnership would no longer be legally required to file periodic
reports with the SEC, and certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b) of the Exchange Act, the
requirement to furnish a proxy statement in connection with Unitholders meetings
pursuant to Section 14(a) of the Exchange Act, and the requirements of Rule
13e-3 under the Exchange Act with respect to "going-private" transactions, would
no longer be applicable to the Partnership. In addition, "affiliates" of the
Partnership and persons holding "restricted securities" of the Partnership may
26
be deprived of the ability to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended.
POSSIBLE TRANSACTIONS
If the Offer is completed but the Merger is not consummated, ARV would
continue to serve as the general partner of the Partnership and would continue
to own more than 50% of the Units. In such case, ARV would evaluate the various
alternatives available to it at that time. These may include: (a) continuing to
operate the Partnership as in the past; (b) pursuing an extraordinary
transaction, such as a reorganization or liquidation involving the Partnership,
or a sale or transfer of the assets of the Partnership; or (c) restructuring or
refinancing the assets of the Partnership and declaring one or more
distributions of cash reflecting the proceeds of such refinancing. There can be
no assurance that the amounts that might be received by the remaining
Unitholders in such a transaction would be comparable to the Offer Price being
offered hereby.
OTHER POSSIBLE PURCHASES OF UNITS
Whether or not the Offer is successfully completed or ARV seeks to
consummate a subsequent transaction, unless the Merger is effected, we may
acquire additional Units in open market or in privately negotiated purchases.
Such open market or privately negotiated purchases would be made at market
prices or privately negotiated prices at the time of purchase, which may be
higher or lower than the Offer Price. Our purchase of Units pursuant to any open
market or privately negotiated purchases would reduce the number of Units and
may reduce the number of holders of Units. This could further adversely affect
the liquidity and market value of the remaining Units held by the public.
EFFECT ON TRADING MARKET
Currently, secondary sales activity for the units is limited, informal
and sporadic. If the Offer is completed and you do not tender your Units, or if
we complete the Offer but the Merger is not effected, the number of Unitholders
remaining and the number of Units that are still in the hands of the public will
be even further reduced, and you may consequently experience even more
difficulty in liquidating your investment in the Partnership.
8. EFFECTS OF THE MERGER
EFFECT ON VOTING POWER
As a result of the Merger, we or one of our affiliates would own
directly or indirectly all of the Units. In such case, we will have the voting
rights associated with being the sole Limited Partner of the Partnership and
owning all of the Units.
EFFECT ON ECONOMIC INTEREST
If the Merger is consummated, we or one of our affiliates would own the
entire equity interest in the Partnership which would give us a 100% interest in
the Partnership's profits, losses and distributions. In this case, we would own
the entire interest in the Partnership's book value and net earnings. In
addition, you, the Partnership's other current public Unitholders and
27
the Special Limited Partners would no longer have any interest in the
Partnership's future earnings or growth.
EXCHANGE ACT REGISTRATION
The Units are currently registered under the Exchange Act. If there are
fewer than 300 Unitholders remaining after the Offer or any subsequent open
market or privately negotiated purchases, ARV may, and intends to, terminate the
registration of the Units under the Exchange Act. However, even if the Units
remain registered after the consummation of the Offer, ARV may, and intends to,
terminate the registration of the Units under the Exchange Act after the
consummation of the Merger. Upon deregistration of the Units, the Partnership
would no longer be legally required to file periodic reports with the SEC.
9. TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS; INTEREST IN SECURITIES OF
THE PARTNERSHIP
ARV owns approximately 18,322 Units, or approximately 52.5%, of the
outstanding Units, and is the general partner of the Partnership. Neither we nor
any of ARV's executive officers, directors or affiliates owns any Units. No
other person owns of record, or to the best knowledge of ARV owns beneficially,
more than 5% of the total number of Units outstanding.
No sales of Units were made by or to affiliates of the Partnership
during the last two years.
The Partnership has an agreement with ARV pursuant to which ARV
receives a property management fee equal to 5% of revenues of the Partnership.
ARV earned $1,168,187 in management fees for the fiscal year ended December 31,
2002 and $900,524 in management fees for the nine months ended September 30,
2003. Additionally, pursuant to the Partnership Agreement, the Partnership pays
ARV a Partnership administrative fee of 10% of cash flow before distributions.
ARV earned $248,400 in administrative fees for the fiscal year ended December
31, 2002 and $152,765 in administrative fees for the nine months ended September
30, 2003. Kasman Capital, Inc., a corporation controlled by Joseph D. Kasman, a
director of ARV, is engaged by Lazard Freres Real Estate Investors L.L.C.
("LFREI") to provide real estate consulting and advisory services to LFREI and
its affiliates. Kasman Capital, Inc. does not provide any consulting or advisory
services to the Partnership and receives no compensation from the Partnership.
Except as otherwise set forth in this Offer to Purchase and Consent
Solicitation Statement, (i) neither we nor, to the best knowledge of ARV, the
persons listed on Schedule I nor any of our affiliates other than ARV,
beneficially owns or has a right to acquire any Units, (ii) neither we nor ARV
nor, to the best knowledge of ARV, the persons listed on Schedule I nor any of
our affiliates, or any director, executive officer or subsidiary of any of the
foregoing, has effected any transaction in the Units within the past 60 days,
(iii) neither we nor ARV nor, to the best knowledge of ARV, the persons listed
on Schedule I nor any of our affiliates has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Partnership, including but not limited to, contracts,
arrangements, understandings or relationships concerning the transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies,
consents or authorizations, (iv) during the past two years, there have
28
been no transactions or business relationships, which would be required to be
disclosed under the rules and regulations of the SEC between us or, to the best
knowledge of ARV, the persons listed on Schedule I or any of our affiliates, on
the one hand, and the Partnership or its affiliates, on the other hand, and (v)
during the past two years, there have been no contracts, negotiations or
transactions between us or, to the best knowledge of ARV, the persons listed on
Schedule I or any of our affiliates, on the one hand, and the Partnership or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities or a sale or other
transfer of a material amount of assets. The Partnership has no directors.
10. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
IN GENERAL
The following is a summary of the principal United States federal
income tax consequences to a Unitholder of the sale of Units pursuant to the
Offer or the subsequent Merger. This discussion is based on the United States
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), United
States Treasury regulations promulgated or proposed thereunder, judicial
authorities, published administrative positions of the IRS, and other applicable
authority, all as in effect on the Offer Date. All of the foregoing are subject
to change, possibly with retroactive effect, and any change could affect the
continuing accuracy of this summary. We have not sought any ruling from the IRS
with respect to any matter discussed in this summary, the IRS may take a
different view as to any of the matters discussed in this summary, and,
ultimately, a court may agree with the position taken by the IRS rather than
with the position taken by us. This summary assumes that the Partnership is
properly classified as a partnership, and not as a corporation, for United
States federal income tax purposes, and that the Partnership is not a "publicly
traded partnership" as defined in Section 7704 of the Internal Revenue Code.
This summary deals only with Unitholders that hold the Units as
"capital assets" within the meaning of Section 1221 of the Internal Revenue
Code. This summary does not address tax considerations that may apply (i) to
Unitholders that are or have been subject to special tax rules (such as banks,
insurance companies, tax-exempt organizations, regulated investment companies,
real estate investment trusts, grantor trusts, dealers or traders in securities
or currencies, persons that received, or held, the Units in connection with the
performance of services, persons that hold, or held, the Units as part of a
hedging, "straddle" or "conversion" transaction or otherwise as part of a
holding with any other position, persons that are or have been deemed to sell
Units under the constructive sale provisions of the Internal Revenue Code,
persons that are subject to special passive loss rules governing persons who
materially participate in a real property business, or persons whose functional
currency is or was not the United States dollar) or (ii) under the alternative
minimum tax, any federal tax other than the federal income tax, or any state,
local or foreign tax laws. Except as expressly provided herein, this summary
applies only to a beneficial owner of a Unit that is (i) an individual citizen
or resident of the United States, (ii) a corporation created or organized under
the laws of the United States or any state or political subdivision thereof
(including the District of Columbia), (iii) an estate (other than a foreign
estate, within the meaning of Section 7701(a)(31) of the Internal Revenue Code),
or (iv) a trust over the administration of which a court within the United
States is able to exercise primary supervision, if one or more United States
persons have the authority to control all substantial decisions of the trust
(collectively, "United States holders").
29
UNITHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED
STATES FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES AND AS TO THE NON-UNITED
STATES TAX CONSEQUENCES TO THEM OF TENDERING OR NOT TENDERING UNITS OR OF NOT
TENDERING UNITS AND RETAINING UNITS AFTER COMPLETION OF THE OFFER.
CONSEQUENCES TO A TENDERING UNITHOLDER
Your sale of Units pursuant to the Offer or your receipt of cash in
exchange for all of your Units in the Merger will be treated as a taxable
disposition of your Units for United States federal income tax purposes. You
will recognize gain or loss on the sale in an amount equal to the difference
between the amount realized by you on the sale and your adjusted tax basis in
the Units. The amount realized will be equal to the sum of (x) the amount of
cash received by you pursuant to the Offer or the Merger and (y) the amount of
the liabilities of the Partnership properly allocable to the Units sold for
federal income tax purposes (as determined under Section 752 of the Internal
Revenue Code). Your adjusted tax basis in all your Units in the aggregate
generally will be equal to the amount paid by you for the Units, plus the amount
of the liabilities of the Partnership properly allocable to your Units (as
determined under Section 752 of the Internal Revenue Code) and the Partnership
income or gain allocated to you, less any Partnership deductions or losses
allocated to your Units and any distributions made to you by the Partnership.
For United States federal income tax purposes, as a Unitholder, you are
considered to own a single interest in the Partnership, having a single adjusted
tax basis, without regard to the number of Units that you hold and without
regard to whether all your Units were acquired at the same time. If you sell
fewer than all of your Units in the Offer and we do not effect the Merger, then
you will recover an allocable portion of this overall adjusted tax basis in your
Units. You will not be permitted to identify the cost or other tax basis that is
specifically attributable to the particular Units that you sell. You will be
deemed to have one or more holding periods for the transferred Units in
proportion to your holding period(s) for your overall interest. If you are
considering a tender of less than all of your Units, then you are urged to
consult your own tax advisor as to these and other consequences to you of a
partial sale.
If you sell all of your Units pursuant to the Offer or you receive cash
in exchange for all of your Units in the Merger, you will be allocated a share
of the Partnership's taxable income or loss for the taxable year of the sale in
accordance with the Internal Revenue Code and the Partnership Agreement and the
allocation to you of the Partnership's taxable income or loss, as well as any
distributions made by the Partnership to you, will affect your basis in your
Units and thus the amount of gain or loss that you will recognize on a sale of
your Units. If you sell a portion of your Units pursuant to the Offer or you
receive cash in exchange for a portion of your Units in the Merger, you will be
allocated a share of the Partnership's taxable income or loss for the taxable
year of the sale in accordance with the Internal Revenue Code and the
Partnership Agreement and you should consult your own tax advisor as to the
potential impact of the allocation to you of the Partnership's taxable income or
loss, as well as any distributions made by the Partnership to you, on the amount
of gain or loss that you will recognize on a sale of your Units.
The gain or loss that you recognize generally will be treated as
capital gain or loss. However, any portion of the amount realized by you that is
attributable to the share of the
30
Partnership's "unrealized receivables" or "inventory items" ("Section 751
Property") allocable to the Units sold will be taxable as ordinary income under
Section 751 of the Internal Revenue Code, to the extent that the portion of the
amount realized that is attributable to Section 751 Property exceeds your
allocable share of the Partnership's adjusted tax basis in the Section 751
Property. For this purpose, the "unrealized receivables" allocable to the Units
sold include the share of the Partnership's prior depreciation deductions
allocable to the Units that would be subject to recapture if the depreciated
assets were sold for fair market value. Under Section 751, it is possible that
you may recognize ordinary income on the sale of your Units, even if you realize
a net loss on the sale.
Your capital gain or loss on the sale of Units will be treated as
long-term capital gain or loss if your holding period in the Units for federal
income tax purposes is more than one year. In general, your holding period for
your Units began at the time that you acquired those Units. However, if you
acquired Units at different times, then the Units, although considered for basis
allocation and other tax purposes as a single partnership interest, will have a
divided holding period in your hands, based upon the relative number of Units
that you acquired at the various times. Under current law, long-term capital
gain of non-corporate Unitholders generally is taxable at a maximum rate of 15%
(except that the rate will be 25% on the portion of the gain ("unrecaptured
section 1250 gain") that is attributable to depreciation claimed with respect to
real estate that is not recaptured as ordinary income under Section 1250 of the
Internal Revenue Code), whereas the maximum marginal federal income tax rate for
ordinary income is 35%. The maximum rate of tax applicable to income of
corporate Unitholders, regardless of whether characterized as capital gain or as
ordinary income, is 35%. The ability of a Unitholder to offset capital losses
against ordinary income is limited.
Under the passive activity loss rules contained in Section 469 of the
Internal Revenue Code, which apply to noncorporate taxpayers and, with
modifications, to certain classes of corporations, losses generated by passive
activities generally may be used only to offset income from passive activities
and may not be applied to reduce active income or portfolio income. Passive
activity losses that are suspended because a taxpayer does not have sufficient
passive income to absorb the passive activity losses may be carried over to
future taxable years. Suspended passive activity losses will no longer be
subject to the passive loss limitations in the year in which the taxpayer
completely disposes of the taxpayer's interest in the passive activity that
generated the losses. Under these rules, if a Unitholder is subject to the
passive loss rules:
- In general, income or gain derived by you from the sale of
your Units in the Offer or your receipt of cash in exchange
for your Units in the Merger will be treated as passive income
and may be offset against any passive activity losses derived
by you in the current taxable year or against suspended
passive losses from prior taxable years.
- If you sell all of your Units in the Offer or receive cash in
exchange for all of your Units in the Merger, then any
Partnership losses that have been suspended under the passive
loss limitations will cease to be subject to those
limitations.
- If you do not sell all of your Units in the Offer, and we do
not effect the Merger, then the deductibility of any suspended
losses will continue to be subject to the passive activity
loss limitations until you sell your remaining Units.
31
The limitations on the use of passive activity losses are complex and you are
urged to consult your own tax advisor regarding the impact of the rules on your
ability to use your distributive share of passive losses from the Partnership.
Gain realized by a non-United States Unitholder on a sale of Units in
the Offer or in the Merger will be subject to United States federal income tax.
Under Section 1445 of the Internal Revenue Code, the transferee of an interest
held by a non-United States person in a partnership that owns United States real
property generally is required to deduct and withhold a tax equal to 10% of the
amount realized with respect to the transaction. In order to comply with this
requirement, we will withhold 10% of the amount realized by you in the Offer or
the Merger, unless you properly complete and sign a certificate, under penalties
of perjury, that includes your name, address, and taxpayer identification
number, and that certifies that you are not a non-United States person. Amounts
withheld will be creditable against a Unitholder's income tax liability and, if
in excess thereof, a refund can be obtained from the IRS by filing a United
States federal income tax return.
If you sell Units in the Offer or the Merger, then (unless you are a
Unitholder exempt from the backup withholding rules) 28% of the amount otherwise
payable to you may be subject to withholding under the backup withholding rules.
Such withholding under the backup withholding rules will not be required if you
(i) furnish a correct taxpayer identification number and certify on the
substitute Internal Revenue Service Form W-9 included in the Agreement of
Assignment and Assumption that you are not subject to backup withholding tax,
(ii) provide a certification of foreign status on Internal Revenue Service Form
W-8BEN, or (iii) otherwise establish an exemption from backup withholding tax.
If you do not provide a correct taxpayer identification number, then
you may be subject to penalties imposed by the IRS. Any amount paid as backup
withholding tax does not constitute an additional tax and will be creditable
against your United States federal income tax liability, provided that the
required information is given to the IRS. If backup withholding tax results in
an overpayment of tax, then you can obtain a refund by filing a United States
federal income tax return.
If you sell your Units in the Offer, then you will be required to file
an information statement with your federal income tax returns for the year of
the sale that provides certain information as to the capital gain, unrecaptured
section 1250 gain, and ordinary income that you recognized on the sale. Under
Code section 6050K, transferors of certain partnership interests are required to
inform the partnership of the transfer. We will undertake to send any required
notices to the Partnership on your behalf.
CONSEQUENCES TO A NON-TENDERING UNITHOLDER
If we do not effect the Merger, a Unitholder that does not tender its
Units in the Offer (a "non-tendering Unitholder") should not be subject to any
material United States federal income tax consequences as a result of the
failure to tender.
THE PRECEDING DISCUSSION IS ONLY A SUMMARY OF CERTAIN UNITED STATES
FEDERAL TAX IMPLICATIONS OF THE OFFER AND THE MERGER. WE URGE YOU TO CONSULT
WITH YOUR OWN TAX ADVISOR TO DETERMINE THE
32
TAX IMPLICATIONS OF THE OFFER IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES.
11. FORWARD-LOOKING STATEMENTS
THE PARTNERSHIP'S BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL
CONDITION ARE SUBJECT TO MANY RISKS, INCLUDING THOSE SET FORTH HEREIN. CERTAIN
STATEMENTS CONTAINED IN THIS OFFER TO PURCHASE AND CONSENT SOLICITATION
STATEMENT, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
"BELIEVES," "ANTICIPATES," "EXPECTS," AND WORDS OF SIMILAR IMPORT, CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE PARTNERSHIP'S
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS, OR INDUSTRY RESULTS, TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE
ONLY PREDICTIONS, HOWEVER, AND ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY AS
A RESULT OF RISKS FACING THE PARTNERSHIP. THESE RISKS INCLUDE, BUT ARE NOT
LIMITED TO, THOSE ITEMS DISCUSSED BELOW. CERTAIN OF THESE FACTORS ARE DISCUSSED
IN MORE DETAIL ELSEWHERE IN THIS OFFER TO PURCHASE AND CONSENT SOLICITATION
STATEMENT, INCLUDING BUT NOT LIMITED TO UNDER THE HEADINGS "-- BACKGROUND TO
THE OFFER AND THE MERGER," -- FAIRNESS OF THE OFFER AND THE MERGER," "THE
PARTNERSHIP -- DESCRIPTION OF THE PARTNERSHIP" AND "THE PARTNERSHIP --
PROJECTIONS FOR THE PARTNERSHIP PROPERTIES; BUDGETS." UNITHOLDERS ARE CAUTIONED
THAT, IN ADDITION TO THE OTHER FACTORS SET FORTH UNDER THOSE HEADINGS, THE
FOLLOWING FACTORS MAY CAUSE THE PARTNERSHIP'S ACTUAL FINANCIAL PERFORMANCE TO
DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS:
- supply and demand for the Partnership's products and services;
- our ability to access capital necessary for our operations;
- competitive product and pricing pressures;
- changes in industry laws and regulations; and
- general economic and industry conditions in the assisted
living marketplace.
Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements, which speak only as of the date of
this Offer to Purchase and Consent Solicitation Statement. We and ARV each
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
33
THE PARTNERSHIP
1. DESCRIPTION OF THE PARTNERSHIP
The Partnership was formed on February 9, 1988 to develop, finance,
acquire and operate senior citizen housing. Although the prospectus pursuant to
which Units were offered contained no definite plan to sell any properties in
accordance with a timetable, the management of the general partner at the time
projected that the Partnership might sell or finance a property after operating
that property for a five to seven year period. The Partnership was structured as
a self-liquidating partnership with a finite life, which would distribute its
cash flow during its operating stage and its proceeds from property sales during
its liquidating stage. The Partnership's estimated operational life at the time
of inception was 10 to 15 years from the opening date of the last facility
developed or acquired. Under the Partnership Agreement, there is no fixed
obligation to divest the Partnership's assets and the Partnership will continue
until December 31, 2046, unless sooner terminated in accordance with its terms.
The Partnership currently owns and operates the following eight
Partnership properties: Retirement Inn of Burlingame, Retirement Inn of
Campbell, Retirement Inn of Daly City, Retirement Inn of Fremont, Retirement Inn
of Fullerton, Montego Heights Lodge, Retirement Inn of Sunnyvale and Valley View
Lodge. Each of these properties was acquired by the Partnership in 1989. In
addition, the Partnership acquired the building at Covina Villa, which is
subject to a ground lease, in 1988. The Partnership has also leased the building
at Inn at Willow Glen since 1989.
As of the Offer Date, there were 35,019.880 issued and outstanding
Units held of record by approximately 1,637 Unitholders.
The Partnership's principal executive offices are located at 245
Fischer Avenue, Suite D-1, Costa Mesa, California 92626, and its telephone
number is (714) 751-7400.
PARTNERSHIP PROPERTIES
RETIREMENT INN OF BURLINGAME
Retirement Inn of Burlingame is an assisted living community located at
250 Myrtle Road, Burlingame, San Mateo County, California. The community was
developed in 1977 and purchased by the Partnership in 1989. It has 67 studio and
one-bedroom apartments and is comprised of a 36,000 square foot, four-story
building situated on less than one acre of land. ARV Burlingame, L.P., an entity
wholly owned by the Partnership, has a fee interest in Retirement Inn of
Burlingame. The Partnership believes that Retirement Inn of Burlingame is
adequately covered by insurance.
Retirement Inn of Burlingame is encumbered by a HUD-insured loan
originated by Red Mortgage Capital that bears interest at a fixed rate of 7.79%
per year and matures on April 1, 2036. On September 30, 2003, total indebtedness
remaining under this loan was $3,196,663. The loan documents provide that this
loan is not prepayable prior to May 1, 2006. From and after May 1, 2006, any
prepayment of the loan must be accompanied by a prepayment penalty starting at
5% of the principal balance and decreasing by 1% per year through 2011.
34
The occupancy rate and average monthly revenue per occupied unit at
Retirement Inn of Burlingame for the last three fiscal years and the first 9
months of 2003 are as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 78% $2,239
2001 81% $2,274
2002 78% $2,440
2003 YTD (1) 90% $2,512
(1) Year to date as of September 30, 2003.
As of December 31, 2002, the federal tax basis of the building in
Burlingame was $1,303,000. The rate of depreciation is 3.6% and the claimed life
for depreciation is 27.5 years. The property is depreciated using the straight
line basis. The realty tax rate on the property is 1.05% and annual realty taxes
are $47,246. As of December 31, 2002, there was approximately $135,000 of
federal tax basis of equipment, furniture and fixtures having lives of five to
seven years and depreciated on a double declining balance basis.
RETIREMENT INN OF CAMPBELL
Retirement Inn of Campbell is an assisted living community located at
290 North San Tomas Aquinas Road, Campbell, Santa Clara County, California. The
community was developed in 1975 and purchased by the Partnership in 1989. It has
70 studio apartments and is comprised of a 37,113 square foot, two-story
building situated on just over 1 acre of land. ARV Campbell, L.P., an entity
wholly owned by the Partnership, has a fee interest in Retirement Inn of
Campbell. The Partnership believes that Retirement Inn of Campbell is adequately
covered by insurance.
Retirement Inn of Campbell is encumbered by a HUD-insured loan
originated by Red Mortgage Capital that bears interest at a fixed rate of 8.03%
per year and matures on January 1, 2036. On September 30, 2003, total
indebtedness remaining under this loan was $1,762,165. The loan documents
provide that this loan is not prepayable prior to February 1, 2006. From and
after February 1, 2006, any prepayment of the loan must be accompanied by a
prepayment penalty starting at 5% of the principal balance and decreasing by 1%
per year through 2011.
35
The occupancy rate and average monthly revenue per occupied unit at
Retirement Inn of Campbell for the last three fiscal years and the first 9
months of 2003 are as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 95% $2,281
2001 99% $2,548
2002 97% $2,890
2003 YTD (1) 86% $2,884
(1) Year to date as of September 30, 2003.
As of December 31, 2002, the federal tax basis of the building in
Retirement Inn of Campbell was $1,718,000. The rate of depreciation is 3.6% and
the claimed life for depreciation is 27.5 years. The property is depreciated
using the straight line basis. The realty tax rate on the property is 1.4% and
annual realty taxes are $52,531. As of December 31, 2002, there was
approximately $137,000 of federal tax basis of equipment, furniture and fixtures
having lives of five to seven years and depreciated on a double declining
balance basis.
RETIREMENT INN OF DALY CITY
Retirement Inn of Daly City is an assisted living community located at
501 North King Drive, Daly City, San Mateo County, California. The community was
developed in 1975 and purchased by the Partnership in 1989. It has 60 studio and
one-bedroom apartments and suites and is comprised of a 37,628 square foot,
two-story building situated on just over 1 acre of land. ARV Daly City, L.P., an
entity wholly owned by the Partnership, has a fee interest in Retirement Inn of
Daly City. The Partnership believes that Retirement Inn of Daly City is
adequately covered by insurance.
Retirement Inn of Daly City is encumbered by a HUD-insured loan
originated by Red Mortgage Capital that bears interest at a fixed rate of 7.75%
per year and matures on March 1, 2036. On September 30, 2003, total indebtedness
remaining under this loan was $3,935,998. The loan documents provide that this
loan is not prepayable prior to April 1, 2006. From and after April 1, 2006, any
prepayment of the loan must be accompanied by a prepayment penalty starting at
5% of the principal balance and decreasing by 1% per year through 2011.
36
The occupancy rate and average monthly revenue per occupied unit at
Retirement Inn of Daly City for the last three fiscal years and the first 9
months of 2003 are as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 82% $1,635
2001 96% $1,717
2002 82% $1,960
2003 YTD (1) 78% $2,047
(1) Year to date as of September 30, 2003.
As of December 31, 2002, the federal tax basis of the building in
Retirement Inn of Daly City was $1,607,000. The rate of depreciation is 3.6% and
the claimed life for depreciation is 27.5 years. The property is depreciated
using the straight line basis. The realty tax rate on the property is 1.05% and
annual realty taxes are $51,620. As of December 31, 2002, there was
approximately $101,000 of federal tax basis of equipment, furniture and fixtures
having lives of five to seven years and depreciated on a double declining
balance basis.
RETIREMENT INN OF FREMONT
Retirement Inn of Fremont is an assisted living community located at
38801 Hastings Street, Fremont, Alameda County, California. The community was
developed in 1977 and purchased by the Partnership in 1989. It has 69 studio and
one-bedroom apartments and is comprised of a 38,423 square foot, two-story
building situated on just over 1 acre of land. ARV Fremont, L.P., an entity
wholly owned by the Partnership, has a fee interest in Retirement Inn of
Fremont. The Partnership believes that Retirement Inn of Fremont is adequately
covered by insurance.
Retirement Inn of Fremont is encumbered by a HUD-insured loan
originated by Red Mortgage Capital that bears interest at a fixed rate of 7.75%
per year and matures on March 1, 2036. On September 30, 2003, total indebtedness
remaining under this loan was $2,940,158. The loan documents provide that this
loan is not prepayable prior to April 1, 2011. From and after April 1, 2011,
there are no penalties for prepayment of the loan in whole or in part.
37
The occupancy rate and average monthly revenue per occupied unit at
Retirement Inn of Fremont for the last three fiscal years and the first 9 months
of 2003 are as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 80% $2,000
2001 85% $2,223
2002 94% $2,285
2003 YTD (1) 86% $2,422
(1) Trailing twelve months ended September 30, 2003.
As of December 31, 2002, the federal tax basis of the building in
Retirement Inn of Fremont was $1,172,000. The rate of depreciation is 3.6% and
the claimed life for depreciation is 27.5 years. The property is depreciated
using the straight line basis. The realty tax rate on the property is 1.07% and
annual realty taxes are $58,795. As of December 31, 2002, there was
approximately $119,365 of federal tax basis of equipment, furniture and fixtures
having lives of five to seven years and depreciated on a double declining
balance basis.
RETIREMENT INN OF FULLERTON
Retirement Inn of Fullerton is an assisted living community located at
1621 East Commonwealth Avenue, Fullerton, Orange County, California. The
community was developed in 1974 and purchased by the Partnership in 1989. This
two-story building has 68 studio apartments and is approximately 40,000 square
feet situated on just over 1 acre of land. ARV Fullerton, L.P., an entity wholly
owned by the Partnership, has a fee interest in Retirement Inn of Fullerton. The
Partnership believes that Retirement Inn of Fullerton is adequately covered by
insurance.
Retirement Inn of Fullerton is encumbered by a HUD-insured loan
originated by Red Mortgage Capital that bears interest at a fixed rate of 7.25%
per year and matures on January 1, 2037. On September 30, 2003, total
indebtedness remaining under this loan was $2,182,936. The loan documents
provide that this loan is not prepayable prior to February 1, 2007. From and
after February 1, 2007, any prepayment of the loan must be accompanied by a
prepayment penalty starting at 5% of the principal balance and decreasing by 1%
per year through 2012.
38
The occupancy rate and average monthly revenue per occupied unit at
Retirement Inn of Fullerton for the last three fiscal years and the first 9
months of 2003 are as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 89% $1,878
2001 79% $1,989
2002 72% $2,058
2003 YTD (1) 73% $2,002
(1) Year to date as of September 30, 2003.
As of December 31, 2002, the federal tax basis of the building in
Retirement Inn of Fullerton was $1,562,171. The rate of depreciation is 3.6% and
the claimed life for depreciation is 27.5 years. The property is depreciated
using the straight line basis. The realty tax rate on the property is 2.07% and
annual realty taxes are $34,707. As of December 31, 2002, there was
approximately $5,000 of federal tax basis of equipment, furniture and fixtures
having lives of five to seven years and depreciated on a double declining
balance basis.
MONTEGO HEIGHTS LODGE
Montego Heights Lodge is an assisted living community located at 1400
Montego Way, Walnut Creek, Contra Costa County, California. The community was
developed in 1978 and purchased by the Partnership in 1989. It has 163 studio
and one-bedroom apartments and is comprised of a 106,396 square foot, four-story
building situated on approximately 5 acres of land. ARV Montego Heights, L.P.,
an entity wholly owned by the Partnership, has a fee interest in Montego Heights
Lodge. The Partnership believes that Montego Heights Lodge is adequately covered
by insurance.
Montego Heights Lodge is encumbered by a HUD-insured loan originated by
Red Mortgage Capital that bears interest at a fixed rate of 8.06% per year and
matures on January 1, 2036. On September 30, 2003, total indebtedness remaining
under this loan was $7,645,479. The loan documents provide that this loan is not
prepayable prior to February 1, 2006. From and after February 1, 2006, any
prepayment of the loan must be accompanied by a prepayment penalty starting at
5% of the principal balance and decreasing by 1% per year through 2011.
The occupancy rate and average monthly revenue per occupied unit at
Montego Heights Lodge for the three fiscal years and the first 9 months of 2003
are as follows:
39
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 91% $2,001
2001 83% $2,265
2002 74% $2,495
2003 YTD (1) 68% $2,549
(1) Year to date as of September 30, 2003.
As of December 31, 2002, the federal tax basis of the building in
Montego Heights Lodge was $8,670,310. The rate of depreciation is 3.6% and the
claimed life for depreciation is 27.5 years. The property is depreciated using
the straight line basis. The realty tax rate on the property is 1.25% and annual
realty taxes are $120,400. As of December 31, 2002, there was approximately
$130,000 of federal tax basis of equipment, furniture and fixtures having lives
of five to seven years and depreciated on a double declining balance basis.
RETIREMENT INN OF SUNNYVALE
Retirement Inn of Sunnyvale is an assisted living community located at
175 East Remington Drive, Sunnyvale, Santa Clara County, California. The
community was developed in 1976 and purchased by the Partnership in 1989. It has
123 studio and one-bedroom apartments and is comprised of a 62,968 square foot,
two-story building situated on approximately 2 acres of land. ARV Sunnyvale,
L.P., an entity wholly owned by the Partnership, has a fee interest in
Retirement Inn of Sunnyvale. The Partnership believes that Retirement Inn of
Sunnyvale is adequately covered by insurance.
Retirement Inn of Sunnyvale is encumbered by a HUD-insured loan
originated by Red Mortgage Capital that bears interest at a fixed rate of 8.03%
per year and matures on January 1, 2036. On September 30, 2003, total
indebtedness remaining under this loan was $8,718,766. The loan documents
provide that this loan is not prepayable prior to February 1, 2006. From and
after February 1, 2006, any prepayment of the loan must be accompanied by a
prepayment penalty starting at 5% of the principal balance and decreasing by 1%
per year through 2011.
40
The occupancy rate and average monthly revenue per occupied unit at
Retirement Inn of Sunnyvale for the last three fiscal years and the first 9
months of 2003 are as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 96% $2,270
2001 93% $2,460
2002 78% $2,658
2003 YTD (1) 80% $2,589
(1) Year to date as of September 30, 2003.
As of December 31, 2002, the federal tax basis of the building in
Retirement Inn of Sunnyvale was $3,246,000. The rate of depreciation is 3.6% and
the claimed life for depreciation is 27.5 years. The property is depreciated
using the straight line basis. The realty tax rate on the property is 1.1% and
annual realty taxes are $108,889. As of December 31, 2002, there was
approximately $170,000 of federal tax basis of equipment, furniture and fixtures
having lives of five to seven years and depreciated on a double declining
balance basis.
VALLEY VIEW LODGE
Valley View Lodge is an assisted living community located at 1228
Rossmoor Parkway, Walnut Creek, Contra Costa County, California. The community
was developed in 1976 and purchased by the Partnership in 1989. It has 125
studio and one-bedroom apartments and is comprised of a 97,818 square foot,
two-story building situated on approximately 4.6 acres of land. ARV Valley View,
L.P., an entity wholly owned by the Partnership, has a fee interest in Valley
View Lodge. The Partnership believes that Valley View Lodge is adequately
covered by insurance.
Valley View Lodge is encumbered by a HUD-insured loan originated by Red
Mortgage Capital that bears interest at a fixed rate of 8.00% per year and
matures on January 1, 2036. On September 30, 2003, total indebtedness remaining
under this loan was $11,193,357. The loan documents provide that this loan is
not prepayable prior to February 1, 2006. From and after February 1, 2006, any
prepayment of the loan must be accompanied by a prepayment penalty starting at
5% of the principal balance and decreasing by 1% per year through 2011.
41
The occupancy rate and average monthly revenue per occupied unit at
Valley View Lodge for the last three fiscal years and the first 9 months of 2003
are as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 86% $2,629
2001 97% $2,911
2002 96% $3,232
2003 YTD (1) 98% $3,518
(1) Year to date as of September 30, 2003.
As of December 31, 2002, the federal tax basis of the building in
Valley View Lodge was $5,019,000. The rate of depreciation is 3.6% and the
claimed life for depreciation is 27.5 years. The property is depreciated using
the straight line basis. The realty tax rate on the property is 1.07% and annual
realty taxes are $102,114. As of December 31, 2002, there was approximately
$245,000 of federal tax basis of equipment, furniture and fixtures having lives
of five to seven years and depreciated on a double declining balance basis.
COVINA VILLA
Covina Villa is an assisted living community located at 825 West San
Bernadino Road, Covina, Los Angeles County, California. The community was
developed in 1977 and purchased by the Partnership subject to a ground lease in
1988. It has 62 studio and one-bedroom apartments with a total of approximately
36,000 square feet on 1.09 acres of land. The Partnership has a fee ownership in
Covina Villa, subject to a ground lease. The Partnership believes that Covina
Villa is adequately covered by insurance.
Covina Villa is encumbered by a ground lease that covers the land on
which the community is built. This lease expires on June 30, 2037 and does not
have an extension option. There is no purchase option available to the
Partnership through this lease, nor are there any provisions that allow for
early termination of the lease. Rent expense under the ground lease for 2002,
2001 and 2000 was $127,000, $122,000, and $115,000, respectively.
42
The occupancy rate and average monthly revenue per occupied unit at
Covina Villa for the last three fiscal years and the first 9 months of 2003 are
as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 96% $2,015
2001 82% $2,043
2002 68% $2,163
2003 YTD (1) 91% $2,234
(1) Year to date as of September 30, 2003.
As of December 31, 2002, the federal tax basis of the building for
Covina Villa was $2,056,439. The rate of depreciation is 3.6% and the claimed
life for depreciation is 27.5 years. The realty tax rate on the property is 1.1%
and annual realty taxes are $29,841. As of December 31, 2002, there was
approximately $123,102 of federal tax basis of equipment, furniture and fixtures
having lives of five to seven years and depreciated on a double declining
balance basis.
INN AT WILLOW GLEN
Inn at Willow Glen is an assisted living community located at 1185
Pedro Street, San Jose, Santa Clara County, California. The community was
developed in 1977 and has been leased by the Partnership since 1989. It has 83
studio and one-bedroom apartments with approximately 47,000 square feet set on
approximately 1.6 acres of land. The Partnership operates the Inn at Willow Glen
under an operating lease agreement. The Partnership believes that Inn at Willow
Glen is adequately covered by insurance.
Inn at Willow Glen is subject to an operating lease that expires on
November 22, 2007 and has one 10-year extension option remaining. There is no
purchase option available to the Partnership through this lease, nor are there
any provisions that allow for early termination of the lease. Rent expense under
the operating lease for 2002, 2001, and 2000 was $246,000 each year.
43
The occupancy rate and average monthly revenue per occupied unit at Inn
at Willow Glen for the last three fiscal years and the first 9 months of 2003
are as follows:
Average Monthly Revenue
Year Occupancy Per Occupied Unit
- ------------ --------- -----------------
2000 89% $2,307
2001 95% $2,562
2002 83% $2,710
2003 YTD (1) 81% $2,772
(1) Year to date as of September 30, 2003.
Although the Partnership leases the building at the Inn at Willow Glen,
it invests in improvements to the property and in equipment, furniture and
fixtures for the property. As of December 31, 2002, the federal tax basis of the
improvements to the building at Inn at Willow Glen was $656,318 and the
remaining life for depreciation was 4 years. These improvements are depreciated
using the straight line basis. The realty tax rate on the property is 1.2% and
annual realty taxes are $85,448 which are paid by the Partnership. As of
December 31, 2002, there was approximately $143,413 of federal tax basis of
equipment, furniture and fixtures for the property, which have lives of five to
seven years and are depreciated on a double declining balance basis.
OTHER PARTNERSHIP ASSETS
The Partnership's other assets consist primarily of cash. See "SPECIAL
FACTORS -- Determination of the Offer Price -- (A) Liquidation Valuation Method
- -- Valuation of Other Partnership Assets."
2. BUSINESS RISKS
The Partnership faces a number of business risks, including the
following:
- STAFFING AND LABOR COSTS. The Partnership competes with other
providers of assisted living and senior housing to attract and
retain qualified personnel. The Partnership also relies on the
available labor pool of employees, and unemployment rates are
very low in many areas where we operate. The Partnership makes
a genuine effort to remain competitive with other companies in
our industry. Therefore, if it is necessary for the
Partnership to increase pay and/or enhance benefits to
maintain its competitive status in its industry, the
Partnership's net income would decrease without corresponding
increases in rental, assisted living or management revenue.
- COMPETITION. The assisted living industry is highly
competitive, and we expect that the Partnership's business
will become more competitive in the future. Sources of
competition include family members providing care at home,
numerous local, regional and national providers of assisted
living and long-term care whose facilities and services range
from home-based health care to skilled nursing facilities, and
acute
44
care hospitals. In addition, we believe that as assisted
living receives increased attention among the public and
insurance companies, new competitors focused on assisted
living will enter the market, including hospitality companies
expanding into the market. Some of the Partnership's
competitors operate on a not-for-profit basis or as charitable
organizations, while others have, or are capable of obtaining,
greater financial resources than those available to the
Partnership.
We also expect the Partnership to face increased competition
for the acquisition and development of assisted living
communities. Some of the Partnership's present and potential
competitors are significantly larger or have, or may obtain,
greater financial resources than the Partnership. These forces
could limit the Partnership's ability to attract residents,
attract qualified personnel, expand its business, or increase
the cost of future acquisitions, each of which could have a
material adverse effect on the Partnership's business,
financial condition, results of operations and prospects.
- GOVERNMENT REGULATION. Health care is subject to extensive
regulation and frequent regulatory change. Currently, no
federal rules explicitly define or regulate assisted living.
However, the Partnership is and will continue to be subject to
varying degrees of regulation and licensing by health or
social service agencies and other regulatory authorities in
localities where it operates or intends to operate. Changes in
such laws and regulations, or new interpretations of existing
laws and regulations could have a significant effect on
methods and costs of doing business, and on reimbursement
levels from governmental and other payers. In addition, the
President and Congress have proposed in the past, and may
propose in the future, health care reforms that could impose
additional regulations on the Partnership or limit the amounts
that it may charge for its services. We cannot assess the
ultimate timing and impact that any pending or future health
care reform proposals may have on the assisted living, home
health care, skilled nursing or health care industry in
general. No assurance can be given that any such reform will
not have a material adverse effect on the business, financial
condition or results of operations and prospects of the
Partnership.
- OBTAINING RESIDENTS AND MAINTAINING RATES. As of September 30,
2003, the Partnership properties had a combined occupancy rate
of approximately 87%. Occupancy may drop in these Partnership
properties, primarily due to changes in the health of
residents, increased competition from other assisted living
providers, particularly those offering newer facilities, and
the reassessment of residents' physical and cognitive state.
There can be no assurance that the Partnership properties will
be substantially occupied at current set rates at any time. In
addition, the Partnership may only be able to lease the units
in its Partnership properties at rates below its set rates due
to limitations imposed on rates by local market conditions or
other factors, including the physical obsolescence of the
Partnership properties. Even if the Partnership achieves
substantial occupancy at its set rates, those set rates may
not allow for projected cost recovery and profit if operating
expenses increase.
In addition, in order to increase set rates, the Partnership
must provide advance notice of rate increases, generally at
least 30 days. Because of this advance notice requirement, the
Partnership is not able to reflect cost increases in set rates
until at least several months after such cost increases occur.
In addition, if the Partnership
45
fails to generate sufficient revenue, it may be unable to make
interest and principal payments on indebtedness.
- GEOGRAPHIC CONCENTRATION. All of the Partnership's properties
are located in California. The market value of these assets
and the income generated from them could be negatively
affected by changes in local and regional economic conditions,
specific laws and the regulatory environment in California,
and by acts of nature. We cannot provide assurance that such
geographic concentration will not have an adverse impact on
the Partnership's business, financial condition, operating
results and prospects.
- GENERAL REAL ESTATE RISKS. The performance of the Partnership
properties is influenced by factors generally affecting real
estate investments, and real estate risks specific to the
Partnership properties. These risks include:
- an oversupply of, or a reduction in demand for,
assisted living communities in a particular market;
- the attractiveness of properties to residents;
- zoning, rent control, environmental quality
regulations or other regulatory restrictions;
- competition from other forms of housing;
- the ability to provide adequate maintenance and
insurance; and
- the ability to control operating costs, including
maintenance, insurance premiums and real estate
taxes.
Real estate investments are also affected by such factors as
applicable laws, including tax laws, interest rates and the
availability of financing. Real estate investments are
relatively illiquid and, therefore, limit the Partnership's
ability to vary its portfolio promptly in respect to changes
in economic or other conditions. If the Partnership fails to
operate its properties effectively, it may have a material
adverse effect on its business, financial condition, operating
results and prospects.
- CAPITAL EXPENDITURES. ARV believes that some of the
Partnership's properties are in need of refurbishment or
repair which will require significant capital expenditures for
some period. These expenditures would reduce the Partnership's
cash flow and would reduce the amount of cash otherwise
available for distribution to Unitholders.
- OTHER DISCLOSED RISKS. In addition, the Partnership is subject
to a number of business and market risks as set forth in the
Partnership's Form 10-K for the fiscal year ended December 31,
2002 (the "2002 10-K"). We are delivering a copy of the 2002
10-K with this Offer to Purchase and Consent Solicitation
Statement and the 2002 10-K is also incorporated by reference.
For more information see "OTHER MATTERS -- Available
Information, Incorporation by Reference."
46
3. SOURCE AND AMOUNT OF FUNDS FOR THE OFFER AND THE MERGER
The total amount of funds required for us to purchase all of the
outstanding Units pursuant to the Offer and the Merger and to pay fees and
expenses related thereto, is estimated to be approximately $_______. For a
statement of these related fees and expenses, see "OTHER MATTERS -- Certain Fees
and Expenses." We plan to obtain all funds needed for the Offer and the Merger
from funds to be contributed by ARV. ARV intends to obtain these funds from its
cash on hand. As of September 30, 2003, ARV had $8,012,411 of cash and cash
equivalents.
4. SELECTED HISTORICAL FINANCIAL DATA FOR THE PARTNERSHIP
Below is a summary of certain financial information for the
Partnership, which has been excerpted or derived from the 2002 10-K and the
Partnership's Form 10-Q for the quarter ended September 30, 2003 (the "Third
Quarter 10-Q"). More comprehensive financial and other information is included
in such reports and other documents filed by the Partnership with the SEC, and
the following summary is qualified in its entirety by reference to such reports
and other documents and all the financial information and related notes
contained in those reports and documents and should be read in conjunction with
such related notes. The 2002 10-K and the Third Quarter 10-Q are incorporated in
this Offer to Purchase and Consent Solicitation Statement by reference. We and
ARV disclaim any responsibility for the information included in these documents,
including, without limitation, any information derived from the documents and
included in this Offer to Purchase and Consent Solicitation Statement, other
than any responsibility ARV may have as the general partner of the Partnership.
FOR THE NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
2002 2001 2000 1999 1998 2003 2002
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
REVENUES:
Rent $ 18,869 $ 19,034 $ 17,242 $ 16,411 $ 15,400 $ 14,482 $ 14,217
Assisted Living 4,036 3,929 3,685 4,014 3,663 3,204 3,055
Interest and other 525 495 389 451 536 346 365
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL REVENUES 23,430 23,458 21,316 20,876 19,599 18,032 17,637
---------- ---------- ---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Community property operations 12,477 12,351 11,650 10,938 11,463 9,837 9,382
Assisted living 2,716 2,808 2,654 2,402 1,727 2,063 2,046
General and administrative 1,068 1,177 639 1,004 1,118 1,058 799
Depreciation and amortization 1,477 1,512 2,298 1,802 1,111 1,196 1,101
Property taxes 601 658 711 610 529 473 494
Advertising 363 318 361 217 201 309 278
Interest 3,522 3,583 3,370 2,468 1,637 2,634 2,639
Loss on debt extinguishment - 56 310 - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 22,224 22,463 21,993 19,441 17,786 17,570 16,739
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before franchise tax
expense 1,206 995 (677) 1,435 1,813 462 898
Franchise tax expense 11 10 10 - - 8 8
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 1,195 $ 985 $ (687) $ 1,435 $ 1,813 $ 454 $ 890
========== ========== ========== ========== ========== ========== ==========
Total assets $ 39,336 $ 41,568 $ 39,556 $ 38,543 $ 21,836 $ 39,674 $ 38,987
Partners' capital (deficiency) $ (4,976) $ (3,171) $ (3,656) $ (2,895) $ 13,439 $ (4,522) $ (5,281)
Notes Payable $ 41,776 $ 42,024 $ 41,226 $ 39,545 $ 6,170 $ 41,575 $ 41,840
PER LIMITED PARTNER UNIT:
Net income (loss) $ 33.78 $ 27.85 $ (19.42) $ 40.99 $ 51.25 $ 12.84 $ 25.16
Distributions of earnings $ 84.81 $ 14.13 $ - $ 40.99 $ 51.25 $ - $ 84.81
Distributions - return of
capital - - 2.12 461.33 2.38 - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total distributions $ 84.81 $ 14.13 $ 2.12 $ 502.32 $ 53.63 $ - $ 84.81
========== ========== ========== ========== ========== ========== ==========
47
The Partnership has not historically prepared a ratio of earnings to
fixed charges.
5. PROJECTIONS FOR THE PARTNERSHIP PROPERTIES; BUDGETS
PROJECTIONS. The Partnership does not, as a matter of course, make
public forecasts or projections as to future sales, earnings or other income
statement data of the Partnership. However, in connection with the acquisition
of ARV in 2003, ARV prepared projections, including projections of the future
net operating income of the Partnership properties for the years 2003 to 2006.
However, these projections were not prepared for or in connection with the Offer
or the Merger. These projections were filed as an exhibit to the proxy statement
filed with the SEC with respect to the acquisition of ARV.
BUDGETS. ARV prepares internal annual operating budgets for the
Partnership's properties which are used by management as performance targets for
the purposes of determining incentive compensation for employees. These budgets
do not represent management's expectations as to the future operating results of
the Partnership and were not used in determining the Offer Price. The annual
budget for the 2004 fiscal year (the "2004 Budget") was finalized in January
2004. The 2004 Budget was not prepared with a view to public disclosure and has
been filed as an exhibit to ARV and the Purchaser's Tender Offer Statement on
Schedule TO in respect of the Offer for the limited purpose of giving you access
to financial information of the Partnership.
DISCLAIMERS. Neither the 2004 Budget nor the projections discussed
above (the "Projections") were prepared in accordance with generally accepted
accounting principles, or with a view to compliance with the published
guidelines of the SEC or the American Institute of Certified Public Accountants
regarding projections, which would require a more complete presentation of the
data than as shown above. Neither the 2004 Budget nor the Projections have been
examined, reviewed or compiled by the Partnership's independent auditors, and
accordingly they have not expressed an opinion or any other assurance regarding
such materials.
THE FORECASTED INFORMATION IS REFERENCED HEREIN SOLELY BECAUSE SUCH
INFORMATION WAS PREPARED BY ARV PRIOR TO THE OFFER. ACCORDINGLY, NONE OF ARV,
THE PARTNERSHIP OR ANY OTHER PERSON IS MAKING ANY REPRESENTATION AS TO THE 2004
BUDGET OR THE PROJECTIONS AND NONE OF THEM ASSUMES ANY RESPONSIBILITY AS TO THE
ACCURACY THEREOF. IN ADDITION, BECAUSE THE ESTIMATES AND ASSUMPTIONS UNDERLYING
THE 2004 BUDGET AND THE PROJECTIONS ARE INHERENTLY SUBJECT TO SIGNIFICANT
ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, WHICH ARE DIFFICULT OR
IMPOSSIBLE TO PREDICT ACCURATELY AND ARE BEYOND THE CONTROL OF ARV AND THE
PARTNERSHIP, THERE CAN BE NO ASSURANCE THAT RESULTS SET FORTH IN THE 2004 BUDGET
OR THE PROJECTIONS WILL BE REALIZED. IT IS LIKELY THAT THERE WILL BE DIFFERENCES
BETWEEN ACTUAL AND PROJECTED RESULTS, AND ACTUAL RESULTS MAY BE MATERIALLY
HIGHER OR LOWER THAN THOSE SET FORTH ABOVE.
48
6. DIVIDENDS AND DISTRIBUTIONS
FUTURE DISTRIBUTIONS. If the Partnership declares or makes any
distributions on the Units payable or distributable to Unitholders of record on
a date prior to (i) the transfer of the Units purchased pursuant to the Offer to
us or our nominee or transferees on the books and records of the Partnership or
(ii) the effective time of the Merger, then, subject to the provisions described
in "THE TENDER OFFER -- Conditions to the Offer" and "THE CONSENT SOLICITATION -
The Merger Proposal; Effective Time of the Merger Proposal":
- we will reduce the Offer Price by the amount of any such cash
distributions, and
- the whole of any such noncash distribution to be received by
the tendering Unitholders will (a) be received and held by the
tendering Unitholders for our account and will be required to
be promptly remitted and transferred by each tendering
Unitholder to the Partnership for our account, accompanied by
appropriate documentation of transfer, or (b) at our
direction, be exercised for our benefit, in which case the
proceeds of such exercise will promptly be remitted to us.
With respect to Units acquired pursuant to the Offer, pending such
remittance and subject to applicable law, we will be entitled to all rights and
privileges as owner of any such non-cash distribution and may withhold the
entire Offer Price or deduct from the Offer Price the amount or value thereof,
as determined by us in our sole discretion. Under the Merger Agreement,
Unitholders will be required to surrender to us any non-cash distribution prior
to receiving the Offer Price or we may deduct from the Offer Price the value
thereof, as determined by us in our sole discretion.
HISTORICAL DISTRIBUTIONS. Since its inception on February 9, 1988, the
Partnership has made distributions as follows. There is no restriction on the
Partnership's current or future ability to make distributions.
ANNUAL AMOUNT OF
DISTRIBUTIONS ON A PER
YEAR 5 UNIT BASIS
- ---- ----------------------
1988 $ 102
1989 240
1990 288
1991 316
1992 281
1993 237
1994 279
1995 319
1996 273
1997 163
1998 281
1999 2,562 (1)
2000 11
2001 71
49
ANNUAL AMOUNT OF
DISTRIBUTIONS ON A PER
YEAR 5 UNIT BASIS
- ---- ----------------------
2002 424 (2)
2003 0
- ------------------------
(1) Includes a special distribution of $2,329 from the refinance of a
property.
(2) Includes a special distribution of $396 from the release of reserves.
THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE
Upon the terms of and subject to the conditions to the Offer (including
the terms of and conditions to any extension or amendment of the Offer), we will
accept for payment and pay for all Units validly tendered on or before the
Expiration Date and not withdrawn in accordance with the terms of the section
below entitled, "-- Withdrawal Rights." The term "Expiration Date" shall mean
5:00 p.m., Pacific time, on ________, 2004, unless and until we, in our sole
discretion, extend the period of time for which the Offer is open, in which
event the term "Expiration Date" shall mean the latest time and date on which
the Offer, as extended by us, will expire.
The Offer is conditioned on the satisfaction of certain conditions. See
"-- Conditions to the Offer," which sets forth all the conditions to the Offer.
We reserve the right (but shall not be obligated), in our sole discretion and
for any reason, to waive any or all conditions. If, by the Expiration Date, any
or all such conditions have not been satisfied or waived, we reserve the right
(but shall not be obligated) to (i) decline to purchase any of the Units
tendered, terminate the Offer and return all tendered Units to tendering
Unitholders, (ii) waive all the unsatisfied conditions and, subject to complying
with the applicable rules and regulations of the SEC, purchase all Units validly
tendered, (iii) extend the Offer and, subject to the right of Unitholders to
withdraw Units until the Expiration Date, retain the Units that have been
tendered during the period or periods for which the Offer is extended or (iv)
amend the Offer.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS
Upon the terms of and subject to the conditions to the Offer (including
the terms of and conditions to any extension or amendment of the Offer), we will
accept for payment, and will pay for, all Units validly tendered and not
withdrawn in accordance with the section "-- Withdrawal Rights," as promptly as
practicable following the Expiration Date. Subject to applicable rules and
regulations of the SEC, we expressly reserve the right to delay acceptance for
payment of, or payment for, Units pending receipt of any regulatory or
governmental approvals or pending receipt of any additional documentation
required by the Agreement of Assignment and Transfer or as specified in this
Offer to Purchase and Consent Solicitation Statement. Under the terms of and
subject to the conditions to the Offer, the tendering Unitholders will be paid
promptly subject to and following: (i) receipt of a valid, properly and fully
executed Agreement of Assignment and Transfer, including any confirmations
required
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from any custodian of tendered Units (together with any other applicable
documents), and (ii) the actual transfer of Units to us. If the Units are not
actually transferred to us, we will not be required to purchase such Units. We
reserve the right, in our sole discretion, to pay tendering Unitholders before
our receipt of such confirmation or the actual transfer of Units to us. We will
issue payment only to Unitholders of record and payments will be forwarded only
to the Unitholder's address listed on the Agreement of Assignment and Transfer.
If any tendered Units accepted for payment are not purchased for any
reason, the Agreement of Assignment and Transfer with respect to the Units not
purchased will have no effect from the date the Offer is terminated and no
payments will be made in respect of such Units. If, for any reason, acceptance
for payment of, or payment for, any Units tendered pursuant to the Offer is
delayed or we are unable to accept for payment, purchase or pay for the Units
tendered pursuant to the Offer, then without prejudice to our rights under "--
Conditions to the Offer" (but subject to compliance with Rule 14e-1(c) under the
Exchange Act), we may retain tendered Units, subject to any limitations of
applicable law, and such Units may not be withdrawn except to the extent that
the tendering Unitholders are entitled to withdrawal rights as described in the
Section "-- Withdrawal Rights."
If we increase the consideration offered to Unitholders pursuant to the
Offer, such increased consideration will be paid for all Units accepted for
payment pursuant to the Offer, whether or not such Units were tendered before
the increase.
Unless otherwise prohibited, we reserve the right to transfer such
materials or assign, in whole or from time to time in part, the right to
purchase Units tendered pursuant to the Offer, but any such transfer or
assignment will not relieve us of our obligations under the Offer or prejudice
the rights of tendering Unitholders to receive payment for Units validly
tendered and accepted for payment pursuant to the Offer.
3. PROCEDURE FOR ACCEPTING THE OFFER AND TENDERING UNITS
VALID TENDER
To participate in the Offer and validly tender your Units, you must
complete, in their entirety, the following documents that accompany this Offer
to Purchase and Consent Solicitation Statement and return them to the
Information Agent at the address set forth below (and on the back of this Offer
to Purchase and Consent Solicitation Statement) on or before the Expiration
Date:
- The YELLOW Agreement of Assignment and Transfer; and
- Any other applicable documents included with the Agreement of
Assignment and Transfer or specified in the instructions to
that document.
IF LEGAL TITLE TO YOUR UNITS IS HELD THROUGH AN IRA, KEOGH OR SIMILAR
ACCOUNT, WE WILL SEND ON YOUR BEHALF A COPY OF SUCH COMPLETED MATERIALS TO YOUR
CUSTODIAN TO OBTAIN YOUR CUSTODIAN'S CONFIRMATION. HOWEVER, IN THIS CASE, YOU
SHOULD SEND YOUR COMPLETED MATERIALS TO THE INFORMATION AGENT NOT LESS THAN ONE
WEEK PRIOR TO THE EXPIRATION DATE SO THAT WE HAVE TIME TO OBTAIN SUCH COMPLETED
MATERIALS TO YOUR CUSTODIAN TO OBTAIN YOUR CUSTODIAN'S CONFIRMATION. HOWEVER, IN
THIS CASE, YOU SHOULD SEND YOUR COMPLETED MATERIALS TO THE INFORMATION AGENT NOT
LESS THAN ONE WEEK PRIOR TO THE EXPIRATION DATE SO THAT WE HAVE TIME TO OBTAIN
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SUCH CONFIRMATION PRIOR TO THE EXPIRATION DATE. YOU MAY ALSO SEND YOUR COMPLETED
AGREEMENT OF ASSIGNMENT AND TRANSFER TO YOUR CUSTODIAN TO OBTAIN YOUR
CUSTODIAN'S CONFIRMATION AND THEN RETURN THE AGREEMENT OF ASSIGNMENT AND
TRANSFER TO THE INFORMATION AGENT PRIOR TO THE EXPIRATION DATE.
IN ADDITION, OUR COMPLETION OF THE OFFER IS CONDITIONED ON APPROVAL OF
THE MERGER PROPOSAL BY UNITHOLDERS WHO COLLECTIVELY HOLD MORE THAN 50% OF THE
UNITS NOT OWNED BY ARV OR ITS SUBSIDIARIES. CONSEQUENTLY, IF YOU DECIDE TO
TENDER YOUR UNITS BUT DO NOT DELIVER YOUR CONSENT TO THE MERGER PROPOSAL, YOUR
FAILURE TO CONSENT TO THE MERGER PROPOSAL WILL REDUCE THE LIKELIHOOD THAT THE
OFFER WILL BE COMPLETED AND THAT WE WILL PURCHASE THE UNITS YOU MAY HAVE
TENDERED. WE HAVE THE RIGHT, SUBJECT TO COMPLIANCE WITH SEC REGULATIONS, TO
WAIVE THIS CONDITION, BUT WE ARE UNDER NO OBLIGATION TO DO SO. IF YOU WISH TO
CONSENT TO THE MERGER PROPOSAL AS WELL AS PARTICIPATE IN THE OFFER, YOU SHOULD
ALSO RETURN THE GREEN CONSENT FORM CONSENTING TO THE MERGER PROPOSAL TOGETHER
WITH THE OTHER DOCUMENTS REQUIRED FOR YOU TO VALIDLY TENDER YOUR UNITS (AND
REFERENCED ABOVE).
These documents must be received by the Information Agent by 5:00 P.M.,
PACIFIC TIME, ON _________, 2004 (or such time until which the Offer is
extended) and may be sent by mail, hand delivery, overnight courier or facsimile
to:
ACS Securities Services, Inc.
Attn: American Retirement Villas Properties II, a California limited partnership
3988 N. Central Expressway
Building 5, 6th Floor
Dallas, TX 75204
Tel.: (866) 275-3707
Fax: (866) 275-3710
We enclose a pre-addressed postage paid return envelope for your convenience.
The method of delivery of the Agreement of Assignment and Transfer and
all other required documents is at your option and risk, and delivery will be
deemed made only when actually received by the Information Agent. If delivery is
by mail, we recommend registered mail with return receipt requested. In all
cases, you should allow sufficient time to ensure timely delivery prior to the
expiration of the Offer. If delivery is by facsimile, you must also return the
original documents, which originals, only, may be received after the Expiration
Date provided that the facsimile is received prior to or on the Expiration Date.
You may tender any or all Units that you own.
BACKUP WITHHOLDING TAX
To prevent the possible application of backup withholding tax with
respect to payment of the Offer Price for your tendered Units, you should (i)
provide us with your correct taxpayer identification number and certify that you
are not subject to backup withholding tax. These certifications are described in
"SPECIAL FACTORS -- Certain United States Federal Income Tax Considerations" and
in the Agreement of Assignment and Transfer; (ii) insert your taxpayer
identification number in the space provided on the signature page to the
Agreement of
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Assignment and Transfer; and (iii) complete the Substitute Form W-9 included
with the Agreement of Assignment and Transfer, which contains the certifications
referred to above. Please refer to the instructions to the Agreement of
Assignment and Transfer.
FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT (FIRPTA) WITHHOLDING
To prevent the withholding of federal income tax under Section 1445 of
the Internal Revenue Code in an amount equal to 10% of the amount realized by
you on your sale of Units (the sum of the Offer Price plus the amount of
Partnership liabilities allocable to each Unit tendered), you must properly
complete and sign the certification that is included with the Agreement of
Assignment and Transfer, under penalties of perjury, that includes your name,
address and taxpayer identification number, and in which you certify that you
are not a non-United States person. Please refer to the instructions to the
Agreement of Assignment and Transfer and "SPECIAL FACTORS -- Certain United
States Federal Income Tax Considerations."
APPOINTMENT AS ATTORNEY-IN-FACT AND PROXY
By executing an Agreement of Assignment and Transfer as set forth
above, and subject to " -- Withdrawal Rights" and our acceptance of and payment
for your Units, you irrevocably constitute and appoint us and our designees as
your true and lawful attorneys-in-fact and proxies, in the manner set forth in
the Agreement of Assignment and Transfer, with respect to the Units you tender
and we accept for payment (and with respect to any and all other Units or other
securities issued or issuable in respect of such Units on or after the Offer
Date), with full power of substitution, and to the full extent of your rights
(such power of attorney and proxy being deemed to be an irrevocable durable
power coupled with an interest and being unaffected by your disability,
incapacity, dissolution, termination or bankruptcy) to (i) seek to transfer
ownership of such Units on the Partnership's books to us (and to execute and to
deliver any accompanying evidences of transfer and authenticity which we, the
Partnership or ARV may deem necessary or appropriate in connection therewith,
including, without limitation, any documents or instruments required to be
executed under a "Transferor's (Seller's) Application for Transfer" created by
the NASD, if required), (ii) become a substituted Limited Partner, (iii) receive
any and all distributions made or declared by the Partnership after the Offer
Date in respect of such Units, (iv) receive all benefits and otherwise exercise
all rights of beneficial ownership of such Units in accordance with the terms of
the Offer, (v) execute and deliver to the Partnership and/or ARV (as the case
may be) a change of address form instructing the Partnership to send any and all
future distributions to which we are entitled pursuant to the terms of the Offer
in respect of tendered Units to the address specified in such form, (vi) endorse
any check payable to or upon the order of you representing a distribution to
which we are entitled pursuant to the terms of the Offer, in each case on your
behalf, in favor of us or any other payee we otherwise designate, (vii) exercise
all your voting and other rights as any such attorney-in-fact in its sole
discretion may deem proper at any meeting of Unitholders or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise, (viii) act in such manner as any such attorney-in-fact shall, in its
sole discretion, deem proper with respect to the Units, (ix) execute a loss and
indemnity agreement relating to the Units on your behalf if you fail to include
your original certificate(s) (if any) representing the Units with the Agreement
of Assignment and Transfer or (x) commence any litigation that we or our
designees, in our sole discretion, deem necessary to enforce any exercise of our
or such designees' powers as your attorneys-in-fact as set forth above.
53
Such appointment will be effective upon our receipt of the Agreement of
Assignment and Transfer. Upon such receipt, all prior proxies given by you with
respect to such Units (other than pursuant to the Consent Solicitation) will,
without further action, be revoked, and no subsequent proxies may be given (and
if given will not be effective).
The proxy described in this section is separate and apart from the
power of attorney and proxy we are seeking from you in the Consent Solicitation
to effect the Merger Proposal.
ASSIGNMENT OF ENTIRE INTEREST IN THE PARTNERSHIP
By executing and delivering the Agreement of Assignment and Transfer,
you irrevocably sell, assign, transfer, convey and deliver to us all of your
right, title and interest in and to the Units tendered and accepted for payment
pursuant to the Offer and any distributions (whether cash, non-cash, in-kind or
otherwise, including voting rights and other benefits of any nature whatsoever
and whenever distributable or allocable to the Units under the Partnership
Agreement) issued or issuable in respect of the tendered Units on or after the
Offer Date, unconditionally to the extent that the rights appurtenant to the
Units may be transferred and conveyed without the consent of ARV. In addition,
by executing an Agreement of Assignment and Transfer, and not otherwise timely
withdrawing pursuant to the provisions of " -- Withdrawal Rights," you also
assign to us all of your rights to receive distributions from the Partnership
with respect to the Units which are accepted for payment and purchased pursuant
to the Offer, including those cash distributions made or declared on or after
the Offer Date. ARV, as the general partner of the Partnership, is expected to
provide its written acknowledgement that the provisions and procedures of the
Partnership Agreement governing the assignment of Units have been followed in
connection with the Offer.
DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS; NO OBLIGATION
TO GIVE NOTICE OF DEFECTS
All questions as to the validity, form, eligibility (including time of
receipt), payment and acceptance for payment of any tender of Units pursuant to
the procedures described above or in " -- Acceptance for Payment and Payment for
Units" will be determined by us, in our sole discretion, which determination
shall be final and binding. We reserve the absolute right to reject any or all
tenders if not in proper form or if the acceptance of, or payment for, the Units
tendered may, in the opinion of our counsel, be unlawful. We also reserve the
right to waive any defect or irregularity in any tender with respect to any
particular Units of any particular Unitholder, and our interpretation of the
terms of and conditions to the Offer (including the Agreement of Assignment and
Transfer and the instructions thereto) will be final and binding. Neither we nor
any other person will be under any duty to give notification of any defects or
irregularities in the tender of any Units or will incur any liability for
failure to give any such notification.
A tender of Units pursuant to any of the procedures described above
will constitute a binding agreement between the tendering Unitholder and us upon
the terms of and subject to the conditions to the Offer, including the tendering
Unitholder's representation and warranty that (i) such Unitholder owns the Units
being tendered within the meaning of Rule 14e-4 under the Exchange Act and (ii)
the tender of such Units complies with Rule 14e-4. Rule 14e-4 requires, in
general, that a tendering security holder be able to deliver the security
subject to the tender offer, and is of concern particularly to any Unitholder
who has granted options to sell or
54
purchase the Units, holds option rights to acquire such securities, maintains
"short" positions in the Units (i.e., who has borrowed the Units) or has lent
the Units to a short seller. Because of the nature of limited partnership units,
we believe that it is unlikely that any option trading or short selling activity
exists with respect to the Units. In any event, a Unitholder will be deemed to
tender Units in compliance with Rule 14e-4 and the Offer if the holder is the
record owner of the Units and the holder (i) delivers the Units pursuant to the
terms of the Offer, (ii) causes such delivery to be made, (iii) guarantees such
delivery, (iv) causes a guaranty of such delivery or (v) uses any other method
of delivery permitted in the Offer.
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this section, all tenders of Units
pursuant to the Offer are irrevocable, provided that Units tendered pursuant to
the Offer may be withdrawn at any time before the Expiration Date, and, if and
to the extent that we have not accepted tendered Units for payment by ________,
2004 (60 days after the date of this Offer to Purchase and Consent Solicitation
Statement), at any time thereafter until we have accepted tendered Units for
payment.
For withdrawal to be effective, a written notice of withdrawal must be
timely received by the Information Agent (i.e., a valid notice of withdrawal
must be received after the date of this Offer to Purchase and Consent
Solicitation Statement but on or before ___________, 2004, or such other date to
which the Offer may be extended) at the address or facsimile number set forth in
the attached Agreement of Assignment and Transfer. Any such notice of withdrawal
must be in the form accompanying this Offer to Purchase and Consent Solicitation
Statement, must specify the name of the person who tendered the Units to be
withdrawn and must be signed by the same person(s) who signed the Agreement of
Assignment and Transfer. If the Units are held in the name of two or more
persons, all such persons must sign the notice of withdrawal.
If purchase of, or payment for, Units is delayed for any reason
(including because of the terms of the Offer), or if we are unable to purchase
or pay for Units for any reason, then, without prejudice to our rights under the
Offer, we may retain tendered Units and such Units may not be withdrawn except
to the extent that tendering Unitholders are entitled to withdrawal rights as
set forth in this section, subject to Rule 14e-1(c) under the Exchange Act,
which provides, in part, that no person who makes a tender offer shall fail to
pay the consideration offered or return the securities (i.e., Units) deposited
by or on behalf of security holders promptly after the termination or withdrawal
of the tender offer.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by us, in our sole discretion, which
determination shall be final and binding. Neither we nor any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or will incur any liability for failure to give any such
notification. Any Units properly withdrawn will be deemed to not be validly
tendered for purposes of the Offer. Withdrawn Units may be re-tendered by
following the procedures described in " -- Procedure for Accepting the Offer and
Tendering Units" at any time before the Expiration Date.
55
5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT
We expressly reserve the right, in our sole discretion and regardless
of whether any of the conditions set forth in " -- Conditions to the Offer"
shall have been satisfied, at any time and from time to time, to (i) extend the
period of time during which the Offer is open and thereby delay acceptance for
payment of, and the payment for, validly tendered Units and (ii) amend the Offer
in any respect, including, without limitation, by increasing or decreasing the
consideration offered or the number of Units being sought in the Offer or both
or changing the type of consideration. We also expressly reserve the right to
terminate the Offer and not accept for payment any Units not theretofore
accepted for payment or paid for if there shall fail to occur any of the
conditions specified in " -- Conditions to the Offer." Any extension,
termination or amendment will be followed as promptly as practicable by public
announcement, the announcement in the case of an extension to be issued no later
than 9:00 a.m., Eastern time, on the next business day after the previously
scheduled Expiration Date, in accordance with the public announcement
requirement of Rule 14d-4(c) under the Exchange Act. Without limiting the manner
in which we may choose to make any public announcement, except as provided by
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act),
we will have no obligation to publish, advertise or otherwise communicate any
such public announcement, other than by issuing a release to the Dow Jones News
Service. We may also be required by applicable law to disseminate to Unitholders
certain information concerning the extensions of the Offer or any other material
changes in the terms of the Offer.
If we extend the Offer or if we (whether before or after our acceptance
for payment of Units) are delayed in our payment for Units or are unable to pay
for Units pursuant to the Offer for any reason (including because of the terms
of the Offer), then, without prejudice to our rights under the Offer, we may
retain tendered Units on our behalf, and such Units may not be withdrawn except
to the extent that tendering Unitholders are entitled to withdrawal rights as
described in " -- Withdrawal Rights." However, our ability to delay payment for
Units that we have accepted for payment is limited by Rule 14e-1 under the
Exchange Act, which requires that we pay the consideration offered or return the
securities deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of the Offer.
If we make a material change in the terms of the Offer or the
information concerning the Offer or waive a material condition to the Offer, we
will extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and
14e-1 under the Exchange Act. The minimum period during which an offer must
remain open following a material change in the terms of the Offer or information
concerning the Offer, other than a change in price or a change in the percentage
of securities sought, will depend upon the facts and circumstances, including
the relative materiality of the change in the terms or information. With respect
to a change in price (including any reduction in price resulting from a cash
distribution by the Partnership made or declared on or after the Offer Date) or
a change in percentage of securities sought, however, a minimum ten business-day
period is generally required to allow for adequate dissemination to security
holders and for investor response. As used in this Offer to Purchase and Consent
Solicitation Statement, "business day" means any day other than a Saturday,
Sunday or a federal holiday, and consists of the time period from 12:01 a.m.
through 5:00 p.m., Pacific time.
56
6. CONDITIONS TO THE OFFER
The Offer is conditioned on approval of the Merger Proposal by
Unitholders holding a majority of the Units that ARV or its subsidiaries do not
own, as well as on the other conditions discussed below.
Notwithstanding any other terms of the Offer and in addition to (and
not in limitation of) our rights to extend, amend or terminate the Offer at any
time in our sole discretion, we shall be required to accept for payment and,
subject to any applicable rules or regulations of the SEC, to pay for any Units
tendered, only if (and we may postpone the acceptance for payment or, subject to
the restriction referred to above, the payment for any Units tendered, unless):
(A) all authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, necessary for the completion of the
transactions contemplated by the Offer shall have occurred or been obtained at
any time before the time of payment for the Units (whether or not Units have
theretofore been accepted for payment); (B) no preliminary or permanent
injunction or other order of any federal or state court, government or
governmental authority or agency, which imposes or confirms a prohibition on our
ability to complete the Offer or effect the Merger, shall have been issued and
remain in effect at any time before the time of payment for the Units (whether
or not the Units have theretofore been accepted for payment); (C) on or before
the Expiration Date, no legal or governmental action would prohibit the purchase
of Units tendered in the Offer; and (D) on or before the Expiration Date, we
determine, in our reasonable judgment, that none of the following conditions
shall exist:
(a) a preliminary or permanent injunction or other order
of any federal or state court, government or governmental authority or
agency, other than an injunction or other order described in clause (B)
above, shall have been issued and shall remain in effect which, in our
view, (i) makes illegal, delays or otherwise directly or indirectly
restrains or prohibits the making of the Offer or the acceptance for
payment of or payment for any Units by us or the consummation of the
Merger, (ii) imposes, confirms or seeks to impose or confirm
limitations on our ability to effectively exercise full rights of
ownership of any Units, including, without limitation, the right to
vote any Units acquired by us pursuant to the Offer or the Merger or
otherwise on all matters properly presented to the Partnership's
Unitholders, (iii) requires divestiture by us of any Units, (iv) might
cause any material diminution of the economic benefits expected to be
derived by us or any of our affiliates as a holder of Units or the
voting or other rights expected to be derived by us or any of our
affiliates as a Limited Partner, in each case as a result of the
transactions contemplated by the Offer or the Merger, (v) might
materially adversely affect our or the Partnership's business,
properties, assets, liabilities, financial condition, capitalization,
partners' equity, licenses, franchises, tax status, operations, results
of operations or prospects, (vi) challenges the acquisition by us of
the Units or seeks to obtain any material damages as a result thereof
or (vii) challenges or adversely affects the Offer or the Merger;
(b) there shall be any action taken, or any statute,
rule, regulation or order proposed, enacted, enforced, promulgated,
issued or deemed applicable to the Offer or the Merger by any federal
or state court, government or governmental authority or
57
agency, which might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (vii) of paragraph (a)
above;
(c) there shall have been threatened or instituted or be
pending any action, proceeding, application, audit, claim or
counterclaim by any government or governmental authority or agency, or
any other person, domestic or foreign, or by or before any court or
governmental, regulatory or administrative agency, authority or
tribunal, domestic, foreign or supranational, which might, directly or
indirectly, result in any of the consequences referred to in clauses
(i) through (vii) of paragraph (a) above;
(d) any change, development, condition or event shall
have occurred or been threatened since September 30, 2003, in the
business, properties, assets, liabilities, financial condition,
capitalization, partners' equity, licenses, franchises, tax status,
operations, results of operations or prospects of the Partnership,
which, in our reasonable judgment, is or may be adverse to the
Partnership, or we shall have become aware of any fact that, in our
reasonable judgment, does or may have an adverse effect on the value of
the Units;
(e) there shall have occurred (i) any general suspension
of trading in, or limitation on prices for, securities on any national
securities exchange or in the over-the-counter market in the United
States, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not
mandatory), (iii) any limitation (whether or not mandatory) by any
governmental authority, or other event which might have a material
adverse effect, on the extension of credit by banks or lending
institutions or which might result in any imposition of currency
controls in the United States, (iv) a commencement or material
escalation of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United
States that, in each case, materially adversely affects the
Partnership's business or (v) a material change in United States or
other currency exchange rates or a suspension or limitation on the
currency markets;
(f) (i) any of the following shall occur, or ARV or the
Partnership shall propose to effect any of the following: (A) a
material change in the capital structure of the Partnership, (B) a
material change in the obligations or rights of Unitholders with
respect to the Partnership, (C) a material change in the ownership or
management of the Partnership, (D) an issuance or sale of any Units or
rights to receive Units, conditional or otherwise, or (E) a
distribution (whether cash, non-cash, in-kind or otherwise) with
respect of the Units; or (ii) any event shall occur that materially
damages or causes a material impairment of the Partnership's properties
or prevents the Partnership from operating assisted living communities
in a manner substantially similar to the manner in which it was
operating assisted living communities as of the date of this Offer to
Purchase and Consent Solicitation Statement;
(g) except with respect to the Merger, the Partnership or
any of its subsidiaries shall have authorized, recommended, proposed or
announced an agreement or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business
combination, any acquisition or disposition of a material amount of
assets or securities or any comparable event, not in the ordinary
course of business consistent with past practices;
58
(h) the failure to occur of any approval or authorization
by any federal or state authorities necessary for the completion of the
purchase of all or any part of the Units to be acquired hereby, which
in our reasonable judgment in any such case, and regardless of the
circumstances (including any action of ours) giving rise thereto, makes
it inadvisable to proceed with such purchase or payment;
(i) we shall become aware that any material right of the
Partnership or any of its subsidiaries under any governmental license,
permit or authorization relating to any environmental law or regulation
is reasonably likely to be impaired or otherwise adversely affected as
a result of, or in connection with, the Offer or the Merger;
(j) the Partnership or ARV shall have amended, or
proposed or authorized any amendment to, the Limited Partnership
Agreement or we shall have become aware that the Partnership or ARV has
proposed any such amendment; or
(k) there is a material possibility that the acceptance
by us of the Units tendered and not withdrawn pursuant to the Offer or
the transfer of such Units to us would cause the Partnership to be
classified as a corporation or as a publicly traded partnership, within
the meaning of Section 7704 of the Internal Revenue Code.
Notwithstanding anything to the contrary in this Offer to Purchase and
Consent Solicitation Statement, the foregoing conditions are for the sole
benefit of us and our affiliates and may be asserted by us regardless of the
circumstances giving rise to such conditions (including, without limitation, any
action or inaction by us or any of our affiliates) or may be waived by us in
whole or in part at any time and from time to time in our sole discretion on or
after the Offer Date and on or before the Expiration Date (other than the
conditions in clauses (A) and (B) of the second paragraph of this Section 6,
which may be asserted or waived at any time or from time to time on or after the
Offer Date and before the time of payment for the Units). Our failure, at any
time, to exercise the foregoing rights will not be deemed a waiver of such
rights, which will be deemed to be ongoing and may be asserted at any time and
from time to time on or after the Offer Date and on or before the Expiration
Date (other than the conditions in clauses (A) and (B) of the second paragraph
of this Section 6, which may be asserted at any time or from time to time on or
after the Offer Date and before the time of payment for the Units). Any
determination by us concerning the events described above will be final and
binding upon all parties.
7. CERTAIN LEGAL MATTERS; REQUIRED REGULATORY APPROVALS
Except as set forth in this Section, we are not aware of (i) any
filings, approvals or other actions by any domestic or foreign governmental or
administrative or regulatory agency that would be required before our
acquisition of Units pursuant to the Offer other than the filing of a Tender
Offer Statement on Schedule TO (which has been filed) and any required
amendments thereto or (ii) any licenses or regulatory permits that would be
material to the business of the Partnership, taken as a whole, and that might be
adversely affected by our acquisition of Units as contemplated in this Offer to
Purchase and Consent Solicitation Statement. Should any such approval or other
action be required, it is our intention that such additional approval or action
would be sought. While we have no intent to delay the purchase of Units tendered
pursuant to the Offer pending receipt of any such additional approval or the
taking of any such action, there can be no assurance that any such additional
approval or action, if needed, would be obtained
59
without substantial conditions or that adverse consequences might not result to
the Partnership's business, or that certain parts of the Partnership's business
might not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or action, any of
which could cause us to elect to terminate the Offer without purchasing Units
thereunder. Our obligation to purchase and pay for Units is subject to certain
conditions, including conditions related to the legal matters discussed in this
Section 7.
ANTITRUST
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the rules and regulations that have been
promulgated thereunder by the Federal Trade Commission (the "FTC"), certain
acquisition transactions may not be completed until certain information and
documentary material has been furnished for review by the Antitrust Division of
the Department of Justice and the FTC and certain waiting period requirements
have been satisfied. We do not believe that the HSR Act is applicable to the
acquisition of Units pursuant to the Offer or to the consummation of the Merger.
ERISA
By executing and returning the Agreement of Assignment and Transfer, a
Unitholder will be representing that either (a) the Unitholder is not subject to
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Internal Revenue Code, or an entity deemed to
hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101 et seq.,
or (b) the tender and acceptance of Units pursuant to the Offer will not result
in a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975
of the Internal Revenue Code.
MARGIN REQUIREMENTS
The Units are not "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System and, accordingly, such
regulations are not applicable to the Offer.
STATE TAKEOVER LAWS
A number of states have adopted anti-takeover laws which purport, to
varying degrees, to be applicable to attempts to acquire securities of
corporations or other entities which are incorporated or organized in such
states or which have substantial assets, substantial numbers of security holders
or principal executive officers or principal places of business in such states.
Although we have not attempted to comply with any state anti-takeover statutes
in connection with the Offer, we reserve the right to challenge the validity or
applicability of any state law allegedly applicable to the Offer, and nothing in
this Offer to Purchase and Consent Solicitation Statement nor any action taken
in connection therewith is intended as a waiver of such right. If any state
anti-takeover statute is applicable to the Offer, we might be unable to accept
for payment or purchase Units tendered pursuant to the Offer or be delayed in
continuing or consummating the Offer. In such case, we may not be obliged to
accept for purchase or pay for any Units tendered.
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THE CONSENT SOLICITATION
1. RECORD DATE; OUTSTANDING UNITS; VOTING RIGHTS
Only a holder of Units of record at the close of business on January
__, 2004, the date of this Offer to Purchase and Consent Solicitation Statement,
who has been admitted as a Limited Partner, shall be entitled to vote by written
consent on the Merger Proposal. As of the Offer Date, there were 1,637 holders
of record and approximately 35,019 Units issued and outstanding. As of the date
of this Offer to Purchase and Consent Solicitation Statement, ARV owns
approximately 18,322 Units, representing approximately 52.5% of the outstanding
Units, and we do not own any Units. Each Unitholder who has been admitted to the
Partnership as a Limited Partner, and each Special Limited Partner, is entitled
to cast one vote for each Unit held of record.
2. THE MERGER PROPOSAL; EFFECTIVE TIME OF THE MERGER PROPOSAL
We are soliciting your consent to the Merger Proposal described below.
By granting your consent to the Merger Proposal, you will also be appointing us
as your attorney-in-fact and proxy for the purpose of taking any action we
consider necessary or desirable to effect the Merger Proposal. The form of the
power of attorney and proxy is set forth in its entirety on the Consent Form.
Your abstention or failure to timely return the enclosed Consent Form will have
the same effect as not consenting to the Merger Proposal.
We are seeking your approval of the principal terms of the Merger
Agreement and the Merger. Pursuant to the Merger Agreement, each Unit not owned
by ARV or tendered to us in the Offer would be converted into the right to
receive the Offer Price, or $___ in cash, less the amount of any cash
distributions made or declared with respect to the Units on or after the date of
this Offer to Purchase and Consent Solicitation Statement until the effective
time of the Merger, to the extent that we do not receive such distributions with
respect to any such Units. Any non-cash distribution made or declared during
this time will be held by each Unitholder for our account and transferred to us
or exercised for our benefit, in which case the proceeds of such exercise will
be promptly remitted to us. Each Unit owned by ARV or tendered to us in the
Offer would remain issued and outstanding, and our limited partnership interests
would be automatically converted and become one fully paid and nonassessable
Unit. Pursuant to the Merger Agreement, each special limited partnership
interest will be converted into the right to receive $____ in cash less the sum
of all distributions of cash from the Partnership attributable to the special
limited partnership interests that are declared or made on or after the date of
this Offer to Purchase and Consent Solicitation Statement, to the extent that we
do not receive such distributions. Unitholders whose tendered Units are accepted
for purchase in the Offer will not be entitled to also receive $___ per Unit if
the Merger is consummated. Upon completion of the Merger, ARV would own the
entire equity interest in the Partnership and ARV would remain the general
partner of the Partnership.
The Merger is conditioned upon our receipt of consents to the Merger
Proposal by the limited partners who collectively hold more than 50% of the
Units that are not held by ARV or its subsidiaries.
Your consent would be effective at the time at which we receive
sufficient consents for approval of the Merger Proposal. The Merger would be
consummated pursuant to the Merger
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Agreement. We reserve the right to make changes to the Merger Agreement at any
time prior to effecting the Merger, so long as those changes do not adversely
affect the interests of Unitholders that have consented to this Merger Proposal.
In addition, as a condition to granting its approval of the fairness of the
Merger, the California Commissioner of Corporations may require us to modify the
terms of the Merger Agreement, including the consideration that will be paid to
Unitholders upon consummation of the Merger. Without limiting the foregoing,
while the Merger Agreement contemplates the merger of Purchaser (or another
affiliate of ARV) with and into the Partnership, we reserve the right instead to
cause the Partnership to merge with and into Purchaser (or another affiliate of
ARV).
For more information about the terms and conditions to the Merger, you
should read Annex A to this Offer to Purchase and Consent Solicitation Statement
for the full text of the Merger Agreement.
3. THE MERGER; REQUIRED APPROVALS
Under applicable California partnership law, the Merger Agreement must
be approved by both the Partnership and by us as the other business entity that
desires to enter into the Merger. ARV, as the general partner of both us and the
Partnership, has approved the Merger Agreement.
In addition, under applicable California law, because ARV, our
affiliate and general partner, owns more than 50% but less than 90% of the
outstanding Units, there are certain restrictions on our ability to effect a
merger with the Partnership in which Unitholders who do not tender their Units
to us in the Offer receive cash rather than nonredeemable interests or
securities in ourselves or our parent in exchange for their Units. Specifically,
in order to effect the Merger with the Partnership in which non-tendering
Unitholders receive cash in exchange for their Units, either:
- we must receive the consent to the Merger Agreement by all
Unitholders other than ARV; or
- the California Commissioner of Corporations must approve the
terms and conditions of the Merger and the fairness of such
terms and conditions at a hearing conducted pursuant to the
rules and regulations of the California Corporations Code.
We would not be required to obtain the consent to the Merger Agreement
by all Unitholders other than ARV or the approval of the California Commissioner
of Corporations to effect the Merger, if we acquire enough Units in the Offer so
that, together with those Units owned by ARV, we hold directly or indirectly in
excess of 90% of the outstanding Units upon completion of the Offer.
Although we believe that the terms of the Offer and the consideration
to be paid to non-tendering Unitholders in the Merger are substantively fair to
and in the best interests of the Limited Partners (See "SPECIAL FACTORS --
Fairness of the Offer and the Merger"), we may not be able to acquire in excess
of 90% of the outstanding Units upon completion of the Offer. Therefore, so long
as the Merger Proposal to approve the Merger is approved by Limited Partners who
collectively hold more than 50% of the Units that are not held by ARV or its
subsidiaries, we intend to apply for a hearing before the California
Commissioner of
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Corporations to be held following completion of the Offer and Consent
Solicitation at which we will present our arguments and evidence as to the
fairness of the transaction and seek to obtain the Commissioner's approval of
the Merger. Notice of any such hearing will be published in accordance with the
rules and regulations under the California Corporations Code, and any party
interested in the Merger will be entitled, at their own cost and expense, to
attend and participate in the hearing.
You should be aware that while some of the conditions to the Offer and
the Merger are similar, the conditions to the Offer and the Merger are not the
same. In particular, while the Merger is conditioned upon the California
Commissioner of Corporations' approval of the terms and conditions of the Merger
and determination that such terms and conditions are fair (unless ARV and its
subsidiaries own at least 90% of the Units after the Offer is completed), the
Offer is not conditioned upon this approval or any similar determination of
fairness by the California Commissioner of Corporations or anyone else. We may
complete the Offer and purchase the Units tendered prior to any fairness hearing
by the California Commissioner of Corporations. Even if a hearing is held and we
fail to obtain a favorable determination and approval, we may still complete the
Offer and purchase the Units tendered, subject to the terms of the Offer.
However, we will not complete the Merger unless the conditions to the Merger
described above have been satisfied. Please see "SPECIAL FACTORS -- Effects of
the Offer" for a description of the effects on the Partnership if we complete
the Offer but do not complete the Merger.
These requirements of California law are intended to provide you with
certain procedural protections regarding the fairness of the terms and
conditions of the Merger Agreement and the Offer Price to be paid upon the cash
out of Units in the Merger. These procedural protections are therefore not
available to you should you make an individual decision whether or not to tender
your Units in the Offer, and the number of Units to be tendered.
Notwithstanding our intention to effect the Merger following the
procedures and approvals outlined above, we reserve the right to waive any and
all conditions to the Merger or to abandon the Merger whether or not the Offer
is completed, the Merger Proposal is approved or the other conditions to the
Merger have been satisfied.
4. SOLICITATION PERIOD
The solicitation period is the time during which Unitholders may vote
for or against the Merger Proposal (the "Solicitation Period"). The Solicitation
Period will commence upon delivery of this Offer to Purchase and Consent
Solicitation Statement and will continue until 5:00 p.m., Pacific time, on
________ 2004, unless the Offer is extended by Purchaser, in which case the
Solicitation Period will be extended to such later date that coincides with the
Expiration Date of the Offer.
5. VOTING AND REVOCATION OF CONSENTS
A GREEN Consent Form is included with this Offer to Purchase and
Consent Solicitation Statement. The Consent Form should be properly executed and
received by the Information Agent by 5:00 P.M., PACIFIC TIME, ON ___________,
2004 (or such later time to which the expiration of the Solicitation Period may
be extended) and may be sent by mail, hand delivery, overnight courier or
facsimile to the Information Agent:
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ACS Securities Services, Inc.
Attn: American Retirement Villas Properties II, a California limited partnership
3988 N. Central Expressway
Building 5, 6th Floor
Dallas, TX 75204
Tel.: (866) 275-3707
Fax: (866) 275-3710
We enclose a pre-addressed postage-paid return envelope for your
convenience. For the Consent Forms transmitted via facsimile to be valid, the
entire Consent Form (front and back) must be received by the Information Agent.
Consent Forms transmitted via facsimile will be deemed to have been received and
dated on the date they are actually received by the Information Agent. If
delivery is by facsimile, you must also return the original Consent Form, which
original, only, may be received after the Expiration Date provided that the
facsimile is received prior to or on the Expiration Date.
IF LEGAL TITLE TO YOUR UNITS IS HELD THROUGH AN IRA, KEOGH OR SIMILAR
ACCOUNT, WE WILL SEND ON YOUR BEHALF A COPY OF YOUR COMPLETED CONSENT FORM TO
YOUR CUSTODIAN TO OBTAIN YOUR CUSTODIAN'S CONFIRMATION. HOWEVER, IN THIS CASE,
YOU SHOULD SEND YOUR COMPLETED CONSENT FORM TO THE INFORMATION AGENT NOT LESS
THAN ONE WEEK PRIOR TO THE EXPIRATION DATE SO THAT WE HAVE TIME TO OBTAIN SUCH
CONFIRMATION PRIOR TO THE EXPIRATION DATE. YOU MAY ALSO SEND YOUR COMPLETED
CONSENT FORM TO YOUR CUSTODIAN TO OBTAIN YOUR CUSTODIAN'S CONFIRMATION AND THEN
RETURN THE CONSENT FORM TO THE INFORMATION AGENT PRIOR TO THE EXPIRATION DATE.
PLEASE KEEP IN MIND THAT WE ARE NOT REQUIRED TO COMPLETE THE OFFER OR
PURCHASE ANY UNITS THAT YOU MAY OTHERWISE WISH TO TENDER UNLESS WE RECEIVE,
AMONG OTHER THINGS, THE CONSENT TO THE MERGER PROPOSAL FROM UNITHOLDERS HOLDING
A MAJORITY OF THE UNITS THAT ARE NOT HELD BY ARV AND ITS SUBSIDIARIES.
Consent Forms may be revoked and votes may be changed at any time on or
prior to the earlier of the date on which we receive sufficient consents to
adopt the Merger Proposal or the Expiration Date (the "Approval Date"). For a
revocation or change of vote to be effective, you must execute and deliver to
the Information Agent, on or prior to the Approval Date, a subsequently dated
Consent Form or a written notice to the Information Agent stating that you
revoke your consent or change your vote as to the Merger Proposal. Unitholders
may submit a subsequently dated Consent Form or written notice via mail, hand
delivery, overnight courier or facsimile, provided that it is received by the
Information Agent on or prior to the Approval Date. For subsequently dated
Consent Forms transmitted via facsimile to be valid, the entire subsequently
dated Consent Forms (front and back) must be received by the Information Agent
on or prior to the Approval Date. Any subsequently dated Consent Form or written
revocation notices transmitted via facsimile will be deemed to have been
received and dated on the date they are actually received by the Information
Agent. If delivery is by facsimile, you must also return the original documents,
which originals, only, may be received after the Approval Date provided that the
facsimile is received prior to or on the Approval Date.
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All properly executed Consent Forms that are received and not withdrawn
prior to the Approval Date will become binding and irrevocable after the
Approval Date and will be deemed to be coupled with an interest. Consent Forms
will be effective only when actually received by the Information Agent on or
prior to the Approval Date. Valid Consent Forms submitted prior to the Approval
Date will remain valid and outstanding after the Approval Date and will be
subject to the instructions contained therein. Consent Forms or notices of a
change of vote dated after the Approval Date will not be valid.
If no instructions are indicated, your Consent Form will have the same
effect as consenting to the Merger Proposal; it will constitute a vote "FOR" the
Merger Proposal. However, the failure to return the enclosed Consent Form will
have the same effect as not consenting to the Merger Proposal; it will
constitute a vote "AGAINST" the Merger Proposal.
Questions concerning (1) how to complete the Consent Form, (2) where to
remit the Consent Form or (3) how to obtain additional Consent Forms should be
directed to the Information Agent toll free at (866) 275-3707.
In accordance with Exchange Act Rule 14a-3(e)(1), only one Offer to
Purchase and Consent Solicitation Statement may be delivered to two or more
Unitholders who share an address, unless the Partnership has received contrary
instructions from one or more of Unitholders. We will undertake to deliver
promptly upon written or oral request a separate copy of the Offer to Purchase
and Consent Solicitation Statement to a Unitholder at a shared address to which
a single copy of the documents was delivered. If you are a Unitholder who shares
an address and you wish to receive a separate copy of the Offer to Purchase and
Consent Solicitation Statement, or if you and the other Unitholder(s) who share
an address have received multiple copies of this Offer to Purchase and Consent
Solicitation Statement and you wish to request delivery of a single copy of all
future transmittals with respect to this Offer to Purchase and Consent
Solicitation Statement, you should contact the Information Agent:
ACS Securities Services, Inc.
Attn: American Retirement Villas Properties II, a California limited partnership
3988 N. Central Expressway
Building 5, 6th Floor
Dallas, TX 75204
Tel.: (866) 275-3707
Fax: (866) 275-3710
6. EFFECTIVE TIME OF THE MERGER
As soon as practicable after all conditions to the Merger have been
satisfied (or waived) ARV, the general partner of the Partnership, will file a
certificate of merger with the California Secretary of State (the "Certificate
of Merger"). The Merger will become effective upon the filing of the Certificate
of Merger with the California Secretary of State or upon such later date and
time as is provided in the Certificate of Merger.
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7. NO SPECIAL MEETING
The Partnership Agreement does not require a special meeting of
Unitholders or Special Limited Partners to consider the Merger or the Merger
Proposal. Accordingly, no special meeting of Unitholders or Special Limited
Partners will be held.
8. INTERESTS OF CERTAIN PERSONS IN THE MATTERS TO BE ACTED UPON
In considering whether to vote for or against the Merger Proposal, you
should carefully review the sections of this Offer to Purchase and Consent
Solicitation Statement that address the potential conflicts of interest inherent
in this transaction that arise out of our and ARV's relationships to the
Partnership. See "SPECIAL FACTORS -- Risk Factors -- ARV, the general partner of
the Partnership, may have a conflict of interest with respect to the Offer and
the Consent Solicitation," and "SPECIAL FACTORS -- Transactions, Negotiations
and Agreements; Interest in Securities of the Partnership."
9. COSTS OF THE CONSENT SOLICITATION
All of the costs of the Consent Solicitation will be borne by ARV and
Purchaser.
OTHER MATTERS
1. CERTAIN FEES AND EXPENSES
We have retained ACS Securities Services, Inc. as Information Agent in
connection with the Offer and Consent Solicitation. ACS Securities Services,
Inc. will also serve as the paying agent with respect to the Offer and, if
consummated, the Merger. The Information Agent may contact Unitholders by mail,
telephone, telex, telegraph and personal interview and may request custodians,
brokers, dealers and other nominee Unitholders to forward material relating to
the Offer and Consent Solicitation to beneficial owners. The Information Agent
has not been retained to make solicitations or recommendations in its role as
Information Agent. Customary compensation will be paid for all such services in
addition to reimbursement of reasonable out-of-pocket expenses. We have agreed
to indemnify the Information Agent against certain liabilities and expenses,
including liabilities under the United States Federal securities laws.
We will not reimburse any costs that the Partnership may incur in
connection with the Offer and Consent Solicitation.
The following table presents the estimated fees and expenses we expect
to incur in connection with the Offer and Consent Solicitation:
Legal fees and expenses $ _______
Printing and mailing costs 10,000
Filing fees 397
Information Agent _______
Transfer fees 208,650(1)
Appraisals 46,500
Miscellaneous 84,888
Total $ _______
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(1) Pursuant to the Partnership Agreement, actual transfer fees will equal the
lesser of $150 and the actual costs and expenses incurred in connection
with each transfer of Units. The Partnership believes that these costs and
expenses have been in excess of $150.
Except as set forth above, we will not pay any fees or commissions to
any broker, dealer or other person for soliciting tenders of Units pursuant to
the Offer and Consent Solicitation. We will reimburse custodians, brokers,
dealers, commercial banks and trust companies and other nominees will, upon
request, for customary clerical and mailing expenses they incur in forwarding
materials to their customers. We have not made any provisions in connection with
the Offer and Consent Solicitation to provide counsel or legal advice or
appraisal services to Unitholders at our expense.
2. AVAILABLE INFORMATION; INCORPORATION BY REFERENCE
The Partnership is subject to the reporting requirements of the
Exchange Act and is required to file periodic reports, proxy statements and
other documents with the SEC relating to its business, financial conditions and
other matters. Such reports, proxy statements and other documents may be
examined and copies may be obtained from the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Web site at http://www.sec.gov. Copies
should be available by mail upon payment of the SEC's customary charges by
writing to the SEC's principal offices at 450 Fifth Street, N.W., Washington,
D.C. 20549. We incorporate by reference into this Offer to Purchase and Consent
Solicitation Statement the documents set forth below that the Partnership
previously filed with the SEC. These documents contain important information
about the Partnership and its financial performance:
- The Partnership's 2002 10-K (a copy of which accompanies this
Offer to Purchase and Consent Solicitation Statement),
- The Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2003,
- The Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2003,
- The Partnership's Quarterly Report on Form 10-Q for the first
quarter ended March 31, 2003, and
- The Partnership's Current Reports on Form 8-K dated January
17, 2003, May 9, 2003, October 2, 2003 and December 15, 2003.
Copies of the reports, opinions, and appraisals described herein are
available for inspection and copying at the principal executive offices of ARV
during regular business hours by any Unitholder or its representative who has
been so designated in writing, and will be provided to any such Unitholder or
representative upon written request without charge. Unitholders interested in
obtaining a copy of any such reports, opinions, or appraisals should contact ARV
Assisted Living, Inc., 245 Fischer Avenue, Suite D-1, Costa Mesa, CA 92626,
Attention: Doug Armstrong. We and ARV disclaim any responsibility for the
information included in the Partnership's reports filed with the SEC, other than
the responsibility ARV may have as the general partner of the Partnership. We
and ARV disclaim any responsibility for the reports, statements, appraisals,
opinions and other documents of any other person.
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3. NO DISSENTER'S RIGHTS
Dissenter's rights are not available in the Offer or the Merger. Under
California partnership law, dissenters' rights do not apply in transactions such
as the Merger to California limited partnerships formed prior to January 1, 1991
unless the partnership agreement so provides or if all general partners and a
majority in interest of the Limited Partners determine that dissenters' rights
shall apply. The Partnership was formed on February 9, 1988, the Partnership
Agreement does not provide for dissenters' rights and there has never been a
determination by the general partners and limited partners that dissenters'
rights apply to the Partnership. Therefore, if we consummate the Merger, whether
or not you have consented to the Merger Agreement and the Merger, your Units not
tendered in the Offer will be converted into the right to receive cash in an
amount equal to the price per Unit payable in the Offer. As noted above in `THE
CONSENT SOLICITATION - The Merger; Required Approvals," Unitholders will be
entitled to receive notice of, and at their own cost and expense, to attend and
participate in any hearing regarding the Merger held before the California
Commissioner of Corporations.
4. MISCELLANEOUS
THE OFFER AND CONSENT SOLICITATION IS BEING MADE TO ALL UNITHOLDERS TO
THE EXTENT KNOWN BY PURCHASER. THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS
BE ACCEPTED FROM OR ON BEHALF OF) UNITHOLDERS IN ANY JURISDICTION IN WHICH THE
MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE LAWS OF SUCH JURISDICTION. PURCHASER IS NOT AWARE OF ANY JURISDICTION WITHIN
THE UNITED STATES IN WHICH THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF
WOULD BE ILLEGAL. THE OFFER AND CONSENT SOLICITATION IS NOT BEING MADE TO THE
SPECIAL LIMITED PARTNERS.
No person has been authorized to give any information or to make any
representation on our behalf not contained in this Offer to Purchase and Consent
Solicitation Statement or in the Agreement of Assignment and Transfer and, if
given or made, such information or representation must not be relied upon as
having been authorized.
Pursuant to Rules 14d-3 and 13e-3 of the General Rules and Regulations
under the Exchange Act, we have filed with the SEC a Tender Offer Statement on
Schedule TO, together with exhibits, furnishing certain additional information
with respect to the Offer. Pursuant to
Regulation 14A under the Exchange Act, we have filed with the SEC a Proxy
Statement on Schedule 14A. Such statements and any amendments thereto, including
exhibits, may be inspected and copies may be obtained at the same places and in
the same manner as set forth with respect to information concerning the
Partnership in " -- Available Information; Incorporation by Reference."
ARVP II ACQUISITION, L.P.
JANUARY [ ], 2004
68
SCHEDULE I
INFORMATION CONCERNING THE PARTNERSHIP, ARV, PURCHASER
AND CERTAIN OF THEIR AFFILIATES
The following sets forth certain information relating to the
Partnership, ARV, Purchaser, and certain of their affiliates that we are
required to provide under the SEC's rules.
PARTNERSHIP
General
The Partnership is a California limited partnership. The Partnership
was formed on February 9, 1988 to develop, finance, acquire and operate senior
citizen housing. The Partnership currently owns and operates the following eight
Partnership properties: Retirement Inn of Burlingame, Retirement Inn of
Campbell, Retirement Inn of Daly City, Retirement Inn of Fremont, Retirement Inn
of Fullerton, Montego Heights Lodge, Retirement Inn of Sunnyvale and Valley View
Lodge. Each of these properties was acquired by the Partnership in 1989. In
addition, the Partnership acquired the building at Covina Villa, which is
subject to a ground lease, in 1988. The Partnership has also leased the building
at Inn at Willow Glen since 1989. The Partnership's executive offices are
located at 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626
(Telephone: (714) 751-7400).
ARV
General
ARV is a Delaware corporation and general partner of the Partnership.
ARV, together with its affiliates, is a fully integrated provider of assisted
living accommodations and services in the United States. ARV operates, acquires,
and develops assisted living centers that offer a combination of housing,
personalized support services, and healthcare in a non-institutional setting.
ARV's assisted living centers are designed to respond to the individual needs of
elderly residents who require assistance with certain activities of daily
living, but who do not require the intensive nursing care provided in a skilled
nursing facility. ARV's executive offices are located at 501 South Fourth
Avenue, Suite 140, Louisville, KY 40202 (Telephone (502) 719-1600).
Executive Officers and Directors
The names and positions of the executive officers and directors of ARV
are set forth below. Each executive officer and director is a citizen of the
United States of America. During the last five years, neither ARV, nor to the
best of its knowledge, any of its respective directors or executive officers (a)
has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (b) was a party to any judicial or administrative
proceeding (except for matters that were dismissed without sanctions or
settlement) that resulted in a judgment, decree or final order enjoining further
violations of, or prohibiting activities, subject to, federal or state
securities laws or finding any violation of such federal or state securities
laws.
Directors
John A. Moore
Joseph D. Kasman
Matthew J. Lustig Chairman of the Board
Executive Officers
John A. Moore Chief Executive Officer
Mark D. Jessee Chief Financial Officer
Carmin Grandinetti Senior Vice President, General Counsel and Secretary
Douglas Armstrong Senior Vice President, Special Counsel and Assistant
Secretary
Julie Harding Chief Marketing and Sales Officer
Bernard Wheeler-Medley Senior Vice President and Chief Quality Officer
Material Occupations, Positions, Offices or Employment During Previous Five
Years
John A. Moore. From November 1996 to March 1998, Mr. Moore was
Executive Vice President of Finance for World Financial Properties, a
Canadian-based real estate company with global interests, located at One Liberty
Plaza, New York, New York 10006. From March 1998 to December 2001, he was a
Principal and Chief Financial Officer of LFREI. Since January 2002, Mr. Moore
has acted as a Managing Principal and the Chief Financial Officer of LFREI.
Since October 2003, Mr. Moore has served as Chief Executive Officer of ARV.
Joseph D. Kasman. Since January 1994, Mr. Kasman has served as
President of Kasman Capital, Inc., a real estate firm located at 401 Clairmont
Avenue, Suite 3, Thornwood, New York 10594. Since June 2001, Mr. Kasman has
served as Managing Member of Katonah Storage Partners, LLC, a storage company
located at 401 Clairmont Avenue, Suite 3, Thornwood, New York 10594.
Matthew J. Lustig. Since 1994, Mr. Lustig has served as Managing
Director of Lazard Freres & Co. LLC. From April 1999 to September 1999, Mr.
Lustig served as acting Chief Executive Officer of LFREI. Since January 2002,
Mr. Lustig has served as Managing Principal of LFREI.
Mark D. Jessee. Since October, 2003, Mr. Jessee has served as Chief
Financial Officer of ARV. Since March 2001, Mr. Jessee has served as Chief
Financial Officer for Atria Senior Living Group, Inc. (formally Atria, Inc.).
From July 1997 until February 2001, Mr. Jessee served as Vice President of
Finance for Atria, Inc.
Carmin Grandinetti. Since November 19, 2003, Mr. Grandinetti has served
as Senior Vice President, Secretary and General Counsel of ARV. Since April 12,
1999, Mr. Grandinetti has served as Senior Vice President and General Counsel
for Atria Senior Living Group, Inc.
(formally Atria, Inc.). From January 1, 1989 to April 11, 1999, Mr. Grandinetti
was a member of the law firm of Greenbaum Doll & McDonald, PLLC, engaged in the
private practice of law.
Julie Harding. Since June 2003, Ms. Harding has served as Chief
Marketing and Sales Officer for ARV and as Chief Marketing Officer for Atria
Senior Living Group, Inc. (formally Atria, Inc.). Before that time, she served
as the Senior Vice President, Sales/Marketing for Atria Retirement and Assisted
Living since June 2000 after working in various senior corporate communications
functions since joining the company in April 1998.
Bernard Wheeler-Medley. Mr. Wheeler-Medley joined the legal department
of ARV in 1996 and served as an officer and Associate General Counsel for ARV
until 2002. Since 2002, Mr. Wheeler-Medley has served as Chief Quality Officer
of ARV.
Douglas Armstrong. Mr. Armstrong was promoted to Senior Vice President,
Secretary and General Counsel of ARV in January 2002 and on November 19, 2003,
became Senior Vice President, Special Counsel and Assistant Secretary. Mr.
Armstrong was retained in January 1998 as legal counsel. Subsequently, he was
promoted to the position of Vice President, Legal Counsel for ARV.
ATRIA SENIOR LIVING GROUP, INC.
General
Atria Senior Living Group, Inc. ("Atria") is a Delaware corporation and
sole stockholder of ARV. Atria's executive offices are located at 501 South
Fourth Avenue, Suite 140, Louisville, KY 40202 (Telephone (502) 719-1600).
Executive Officers and Directors
The names and positions of the executive officers and directors of
Atria are set forth below. Each executive officer and director is a citizen of
the United States of America. During the last five years, neither Atria, nor to
the best of its knowledge, any of its respective directors or executive officers
(a) has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (b) was a party to any judicial or administrative
proceeding (except for matters that were dismissed without sanctions or
settlement) that resulted in a judgment, decree or final order enjoining further
violations of, or prohibiting activities, subject to, federal or state
securities laws or finding any violation of such federal or state securities
laws.
Directors
John A. Moore
Joseph D. Kasman
Matthew J. Lustig Chairman of the Board
Mark S. Ticotin
Robert C. Larson
Marjorie L. Reifenberg
Executive Officers
John A. Moore Chief Executive Officer
Mark D. Jessee Chief Financial Officer
Carmin Grandinetti Senior Vice President, General Counsel and Secretary
Douglas Armstrong Senior Vice President, Special Counsel and Assistant
Secretary
Julie Harding Chief Marketing Officer
Bernard Wheeler-Medley Senior Vice President and Chief Quality Officer
Material Occupations, Positions, Offices or Employment During Previous Five
Years
John A. Moore. From November 1996 to March 1998, Mr. Moore was
Executive Vice President of Finance for World Financial Properties, a
Canadian-based real estate company with global interests, located at One Liberty
Plaza, New York, New York 10006. From March 1998 to December 2001, he was a
Principal and Chief Financial Officer of LFREI. Since January 2002, Mr. Moore
has acted as a Managing Principal and the Chief Financial Officer of LFREI.
Since October 2003, Mr. Moore has served as Chief Executive Officer of ARV.
Joseph D. Kasman. Since January 1994, Mr. Kasman has served as
President of Kasman Capital, Inc., a real estate firm located at 401 Clairmont
Avenue, Suite 3, Thornwood, New York 10594. Since June 2001, Mr. Kasman has
served as Managing Member of Katonah Storage Partners, LLC, a storage company
located at 401 Clairmont Avenue, Suite 3, Thornwood, New York 10594.
Matthew J. Lustig. Since 1994, Mr. Lustig has served as Managing
Director of Lazard Freres & Co. LLC. From April 1999 to September 1999, Mr.
Lustig served as acting Chief Executive Officer of LFREI. Since January 2002,
Mr. Lustig has served as Managing Principal of LFREI.
Mark S. Ticotin. From 1997 to 1998, Mr. Ticotin was President and Chief
Operating Officer of Corporate Property Investors, one of the leading shopping
mall companies in the United States, located at 305 East 47th Street, New York,
New York 10017. From 1998 to March 1999, Mr. Ticotin was a Senior Executive Vice
President of Simon Property Group, a real estate investment trust engaged in the
ownership and management of regional malls and shopping centers, located at 115
West Washington Street, Indianapolis, IN 46204. From April 1999 to December
1999, Mr. Ticotin served as acting Chief Operating Officer of LFREI. From
January 2000 to December 2001, he acted as Principal and Executive Vice
President of LFREI. Since January 2002, Mr. Ticotin has been a Managing
Principal of LFREI.
Robert C. Larson. Since September 1999, Mr. Larson has been a Managing
Director of Lazard Freres & Co. LLC and Chairman of LFREI. Since January 2002,
he has also been a Managing Principal of LFREI. From 1974 to 2001, Mr. Larson
was Chairman of Taubman Realty Group, a partnership engaged in the ownership,
management, leasing, acquisition, development and expansion of regional shopping
centers, and Vice Chairman and Director of Taubman Centers, Inc., a real estate
investment trust that acquires, owns, and develops regional shopping centers in
nine U.S. states, both of which are located at 200 East Long Lake Road,
Bloomfield Hills, Michigan 48304. Since 2000, he has also acted as Chairman of
Larson Realty Group, a privately-owned company engaged in real estate
investment, development, management, leasing and consulting, located at 38500
Woodward Avenue, Bloomfield Hills, Michigan 48304.
Marjorie L. Reifenberg. From October 1994 to June 1998, Ms. Reifenberg
was a Partner at Kirkland & Ellis, a law firm with offices at 153 E. 53rd
Street, New York, New York 10022. From July 1998 to May 1999, she acted as Vice
President and General Counsel of LFREI. Since June 1999, Ms. Reifenberg has
acted as a Principal and General Counsel of LFREI.
Mark D. Jessee. Since October 2003, Mr. Jessee has served as Chief
Financial Officer of ARV. Since March 2001, Mr. Jessee has served as Chief
Financial Officer for Atria Senior Living Group, Inc. (formally Atria, Inc.).
From July 1997 until February 2001, Mr. Jessee served as Vice President of
Finance for Atria, Inc.
Carmin Grandinetti. Since November 19, 2003, Mr. Grandinetti has served
as Senior Vice President, Secretary and General Counsel of ARV. Since April 12,
1999, Mr. Grandinetti has served as Senior Vice President and General Counsel
for Atria Senior Living Group, Inc. (formally Atria, Inc.). From January 1, 1989
to April 11, 1999, Mr. Grandinetti was a member of the law firm of Greenbaum
Doll & McDonald, PLLC, engaged in the private practice of law.
Julie Harding. Since June 2003, Ms. Harding has served as Chief
Marketing and Sales Officer for ARV and as Chief Marketing Officer for Atria
Senior Living Group, Inc. (formally Atria, Inc.). Before that time, she served
as the Senior Vice President, Sales/Marketing for Atria Retirement and Assisted
Living since June 2000 after working in various senior corporate communications
functions since joining the company in April 1998.
Bernard Wheeler-Medley. Mr. Wheeler-Medley joined the legal department
of ARV in 1996 and served as an officer and Associate General Counsel for ARV
until 2002. Since 2002, Mr. Wheeler-Medley has served as Chief Quality Officer
of ARV.
Douglas Armstrong. Mr. Armstrong was promoted to Senior Vice President,
Secretary and General Counsel of ARV in January 2002 and on November 19, 2003
became Senior Vice President, Special Counsel and Assistant Secretary. Mr.
Armstrong was retained in January 1998 as legal counsel. Subsequently, he was
promoted to the position of Vice President, Legal Counsel for ARV.
ATRIA HOLDINGS LLC
Atria Holdings LLC ("Atria Holdings") is a Delaware limited liability
company and has no directors or executive officers. Atria Holdings is the sole
stockholder of Atria. Atria Holdings' executive offices are located at c/o
Lazard Freres Real Estate Investors L.L.C., Attn: General Counsel, 30
Rockefeller Plaza, New York, New York 10020 (Telephone: (212) 632-6000).
During the last five years, Atria Holdings (a) has not been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors)
nor (b) was it a party to any judicial or administrative proceeding (except for
matters that were dismissed without sanctions
or settlement) that resulted in a judgment, decree or final order enjoining
further violations of, or prohibiting activities, subject to, federal or state
securities laws or finding any violation of such federal or state securities
laws.
PROMETHEUS SENIOR QUARTERS LLC
Prometheus Senior Quarters LLC ("PSR LLC") is a Delaware limited
liability company and has no directors or executive officers. PSR LLC is the
sole member of Atria Holdings. PSR LLC's executive offices are located at c/o
Lazard Freres Real Estate Investors L.L.C., Attn: General Counsel, 30
Rockefeller Plaza, New York, New York 10020 (Telephone: (212) 632-6000).
During the last five years, PSR LLC (a) has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) nor
(b) was it a party to any judicial or administrative proceeding (except for
matters that were dismissed without sanctions or settlement) that resulted in a
judgment, decree or final order enjoining further violations of, or prohibiting
activities, subject to, federal or state securities laws or finding any
violation of such federal or state securities laws.
LF STRATEGIC REALTY INVESTORS II L.P., LFSRI II ALTERNATIVE PARTNERSHIP L.P. AND
LFSRI II-CADIM ALTERNATIVE PARTNERSHIP L.P.
LF Strategic Realty Investors II L.P. ("LFSRI II"), LFSRI
II-Alternative Partnership, L.P. ("LFSRI II-Alternative") and LFSRI II-CADIM
Alternative Partnership L.P. ("LFSRI II-CADIM," and together with LFSRI II and
LFSRI II-Alternative, the "Funds") is each a Delaware limited partnership and
each has no directors or executive officers. Each Fund is an investment
partnership formed to invest in companies active in the real estate industry.
Each Fund is a managing member of PSR LLC. The business address and phone number
of each Fund is c/o Lazard Freres Real Estate Investors L.L.C., Attn: General
Counsel, 30 Rockefeller Plaza, New York, New York 10020 (Telephone: (212)
632-6000).
During the last five years, none of the Funds (a) has been convicted in
a criminal proceeding (excluding traffic violations or similar misdemeanors) or
(b) was a party to any judicial or administrative proceeding (except for matters
that were dismissed without sanctions or settlement) that resulted in a
judgment, decree or final order enjoining further violations of, or prohibiting
activities, subject to, federal or state securities laws or finding any
violation of such federal or state securities laws.
LAZARD FRERES REAL ESTATE INVESTORS L.L.C.
General
Lazard Freres Real Estate Investors L.L.C. ("LFREI") is a New York
limited liability company and is the general partner of LFSRI II, LFSRI
II-Alternative and LFSRI II-CADIM. LFREI's activities consist principally of
acting as a general partner of several real estate investment partnerships. The
business address and phone number of LFREI is Attn: General Counsel, 30
Rockefeller Plaza, New York, New York 10020 (Telephone: (212) 632-6000). Lazard
Freres & Co. LLC, a New York limited liability company, is the managing member
of
LFREI. Lazard Freres & Co. LLC's activities consist principally of financial
advisory services. The business address and phone number of Lazard Freres & Co.
LLC is Attn: General Counsel, 30 Rockefeller Plaza, New York, New York 10020
(Telephone: (212) 632-6000). On a day-to-day basis, Lazard Freres & Co. LLC is
run by a management committee. Lazard Freres & Co. LLC is wholly-owned by Lazard
LLC, a Delaware limited liability company and therefore, Lazard LLC may be
viewed as controlling Lazard Freres & Co. LLC. Lazard LLC is a holding company.
The Head of Lazard controls Lazard LLC, subject to the approval of certain
significant matters by the Lazard Board of Lazard LLC. The principal business
office of Lazard LLC is 3711 Kennett Pike, Suite 120, P.O. Box 4649, Greenville,
Delaware 19807-4649.
Executive Officers and Members of the Investment Committee of LFREI
The names of each of the executive officers and members of the
investment committee of LFREI and the present and principal occupation for each
such person and the corporation or other organization in which such employment
is conducted are set forth below. Except as otherwise indicated, each executive
officer and member of the investment committee of LFREI is a citizen of the
United States of America. During the last five years, neither LFREI, nor to the
best of its knowledge, any of the executive officers or members of the
investment committee of LFREI (a) has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (b) was a party to any
judicial or administrative proceeding (except for matters that were dismissed
without sanctions or settlement) that resulted in a judgment, decree or final
order enjoining further violations of, or prohibiting activities, subject to,
federal or state securities laws or finding any violation of such federal or
state securities laws. The business address and phone number of the following
persons is: c/o Lazard Freres Real Estate Investors L.L.C., Attn: General
Counsel, 30 Rockefeller Plaza, New York, New York 10020 (Telephone: (212)
632-6000).
LFREI Executive Officers
NAME PRINCIPAL OCCUPATION
---- --------------------
Robert C. Larson Chairman and Managing Principal of LFREI and Managing
Director of Lazard Freres & Co. LLC
Matthew J. Lustig Managing Principal of LFREI and Managing Director of
Lazard Freres & Co. LLC
John A. Moore Managing Principal and Chief Financial Officer of LFREI
Mark S. Ticotin Managing Principal of LFREI
Gary Ickowicz Principal of LFREI
Marjorie L. Reifenberg Principal, General Counsel and Secretary of LFREI
Douglas N. Wells Principal of LFREI
(citizen of Canada)
Henry C. Herms Controller of LFREI
LFREI Investment Committee
NAME PRINCIPAL OCCUPATION
---- --------------------
Albert H. Garner Managing Director of Lazard Freres & Co. LLC
Steven J. Golub Managing Director of Lazard Freres & Co. LLC
Jonathan H. Kagan Managing Director of Lazard Freres & Co. LLC
Robert C. Larson Chairman and Managing Principal of LFREI and Managing
Director of Lazard Freres & Co. LLC
Matthew J. Lustig Managing Principal of LFREI and Managing Director of
Lazard Freres & Co. LLC
James A. Paduano Managing Director of Lazard Freres & Co. LLC
Mark S. Ticotin Managing Principal of LFREI
Ali E. Wambold Managing Director of Lazard Freres & Co. LLC
Material Occupations, Positions, Offices or Employment During Previous Five
Years
Robert C. Larson. Since September 1999, Mr. Larson has been a Managing
Director of Lazard Freres & Co. LLC and Chairman of LFREI. Since January 2002,
he has also been a Managing Principal of LFREI. From 1974 to 2001, Mr. Larson
was Chairman of Taubman Realty Group, a partnership engaged in the ownership,
management, leasing, acquisition, development and expansion of regional shopping
centers, and Vice Chairman and Director of Taubman Centers, Inc., a real estate
investment trust that acquires, owns, and develops regional shopping centers in
nine U.S. states, both of which are located at 200 East Long Lake Road,
Bloomfield Hills, Michigan 48304. Since 2000, he has also acted as Chairman of
Larson Realty Group, a privately-owned company engaged in real estate
investment, development, management, leasing and consulting, located at 38500
Woodward Avenue, Bloomfield Hills, Michigan 48304.
Matthew J. Lustig. Since 1994, Mr. Lustig has served as Managing
Director of Lazard Freres & Co. LLC. From April 1999 to September 1999, Mr.
Lustig served as acting Chief Executive Officer of LFREI. Since January 2002,
Mr. Lustig has served as Managing Principal of LFREI.
John A. Moore. From November 1996 to March 1998, Mr. Moore was
Executive Vice President of Finance for World Financial Properties, a
Canadian-based real estate company with global interests, located at One Liberty
Plaza, New York, New York 10006. From March 1998 to December 2001, he was a
Principal and Chief Financial Officer of LFREI. Since January 2002, Mr. Moore
has acted as a Managing Principal and the Chief Financial Officer of LFREI.
Since October 2003, Mr. Moore has served as Chief Executive Officer of ARV.
Mark S. Ticotin. From 1997 to 1998, Mr. Ticotin was President and Chief
Operating Officer of Corporate Property Investors, one of the leading shopping
mall companies in the United States, located at 305 East 47th Street, New York,
New York 10017. From 1998 to March 1999, Mr. Ticotin was a Senior Executive Vice
President of Simon Property Group, a real estate investment trust engaged in the
ownership and management of regional malls and
shopping centers, located at 115 West Washington Street, Indianapolis, IN 46204.
From April 1999 to December 1999, Mr. Ticotin served as acting Chief Operating
Officer of LFREI. From January 2000 to December 2001, he acted as Principal and
Executive Vice President of LFREI. Since January 2002, Mr. Ticotin has been a
Managing Principal of LFREI.
Gary Ickowicz. From 1990 to December 2001, Mr. Ickowicz was a Director
of Real Estate Investment Banking at Lazard Freres & Co. LLC. Since January
2002, he has acted as a Principal of LFREI.
Marjorie L. Reifenberg. From October 1994 to June 1998, Ms. Reifenberg
was a Partner at Kirkland & Ellis, a law firm with offices at 153 E. 53rd
Street, New York, New York 10022. From July 1998 to May 1999, she acted as Vice
President and General Counsel of LFREI. Since June 1999, Ms. Reifenberg has
acted as a Principal and General Counsel of LFREI.
Douglas N. Wells. From July 1997 to December 2001, Mr. Wells served as
Vice President of LFREI. Since January 2002, he has been a Principal of LFREI.
Henry C. Herms. Since October 1997, Mr. Herms has served as Controller
of LFREI.
Albert H. Garner. Since 1997, Mr. Garner has served as a Managing
Director of Lazard Freres & Co. LLC.
Steven J. Golub. Since 1997, Mr. Golub has served as a Managing
Director of Lazard Freres & Co. LLC.
Jonathan H. Kagan. From 1995 to 2001, Mr. Kagan was Managing Director
of Centre Partners Management LLC, a financial institution specializing in
private equity, located at 30 Rockefeller Plaza, Suite 5050, New York, New York
10020. Since 2001, he has served as a Managing Director of Lazard Freres & Co.
LLC.
James A. Paduano. Since November 1972, Mr. Paduano has acted as a
banker for Lazard Freres & Co. LLC. From May 2001 to December 2003, he was
Chairman and Chief Executive Officer of Container and Pallet Services, Inc., a
provider of reusable containers, totes, pallets and caps, located at 425
Washington Street, San Francisco, California 94111. Additionally, since 1974,
Mr. Paduano has been a Director of Donovan Data Systems, Inc., a leading
supplier of data processing and information management services to the
advertising industry, located at 115 West 18th Street, New York, New York. Since
1997, he has also acted as a Director of Secure Products, Inc., a licensor of
security technology, located at 436 Springfield Avenue, Summit, New Jersey.
Since December 2002, he has also been a Director of Pilgrim Electronics, Inc., a
wholesale electronic component part distributor, located at 60 Beaver Brook
Road, Danbury, Connecticut 06810.
Ali E. Wambold. Since 1987, Mr. Wambold has been a Managing Director
(or equivalent) of Lazard Freres & Co. LLC. Since 1993, he has also been a
Managing Director of Lazard & Co., Limited (formerly known as Lazard Brothers &
Co., Limited), located at 50 Stratten Street, London W1J 8LL, United Kingdom.
Lazard & Co., Limited's activities consist principally of financial advisory
services. Since 1999, Mr. Wambold has been primarily responsible for the
coordination and development of Lazard's alternative investment activities.
Members of the Management Committee of Lazard Freres & Co. LLC
The names of each of the members of the management committee of Lazard
Freres & Co. LLC and the present and principal occupation for each such person
and the corporation or other organization in which such employment is conducted
are set forth below. Except as otherwise indicated, each of the following
persons is a citizen of the United States of America. During the last five
years, neither Lazard Freres & Co. LLC, nor to the best of its knowledge, any of
the members of the management committee of Lazard Freres & Co. LLC (a) has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (b) was a party to any judicial or administrative proceeding
(except for matters that were dismissed without sanctions or settlement) that
resulted in a judgment, decree for final order enjoining further violations of,
or prohibiting activities, subject to, federal or state securities laws or
finding any violation of such federal or state securities laws. Except as
otherwise indicated, the business address and phone number of the following
persons is: c/o Lazard Freres & Co. LLC, Attn: General Counsel, 30 Rockefeller
Plaza, New York, New York 10020 (Telephone: (212) 632-6000).
NAME PRINCIPAL OCCUPATION
---- --------------------
Michael J. Castellano Managing Director of Lazard Freres & Co. LLC
Norman Eig Co-Chief Executive Officer and Director of Lazard Asset
Management LLC
Steven J. Golub Managing Director of Lazard Freres & Co. LLC
Scott D. Hoffman Managing Director of Lazard Freres & Co. LLC
Kenneth M. Jacobs Deputy Chairman of Lazard and Managing Director and
Head of House of Lazard Freres & Co. LLC
Gary S. Shedlin Managing Director of Lazard Freres & Co. LLC
Charles Stonehill Managing Director of Lazard Freres & Co. LLC
(citizen of the United
States and the United
Kingdom)
David L. Tashjian Managing Director of Lazard Freres & Co. LLC
Ali E. Wambold Managing Director of Lazard Freres & Co. LLC
Charles G. Ward, III President of Lazard LLC
Material Occupations, Positions, Offices or Employment During Previous Five
Years
Michael J. Castellano. From September 1995 to March 1999, Mr.
Castellano was a Senior Vice President and Controller of Merrill Lynch & Co., a
financial services company, located at Four World Financial Center, New York,
New York 10080. From March 1999 to August 2001, he was Senior Vice President and
Chief Control Officer for Merrill Lynch & Co., Inc. From January 2000 to August
2001, he was Chairman of Merrill Lynch International Bank
for Merrill Lynch & Co., Inc. Since August 2001, Mr. Castellano has been
Managing Director and Chief Financial Officer of Lazard Freres & Co. LLC.
Norman Eig. Since January 2003, Mr. Eig has served as Co-Chief
Executive Officer and Director of Lazard Asset Management LLC. From May 1997
through January 12, 2003, Mr. Eig served as Vice Chairman of Lazard Freres & Co.
LLC.
Steven J. Golub. Since 1997, Mr. Golub has served as a Managing
Director of Lazard Freres & Co. LLC.
Scott D. Hoffman. From January 1998 to December 1998, Mr. Hoffman was a
Director and Assistant Counsel for Lazard Freres & Co. LLC. From January 1999 to
December 2000, Mr. Hoffman was Managing Director and Assistant Counsel of Lazard
Freres & Co. LLC. Since January 2001, Mr. Hoffman has been Managing Director and
General Counsel of Lazard Freres & Co. LLC and Lazard LLC.
Kenneth M. Jacobs. Since 1988, Mr. Jacobs has been a Managing Director
of Lazard Freres & Co. LLC. Since January 2002, Mr. Jacobs has been a Deputy
Chairman of Lazard and Head of House of Lazard Freres & Co. LLC.
Gary S. Shedlin. Since 1997, Mr. Shedlin has been a Managing Director
of Lazard Freres & Co. LLC.
Charles Stonehill. Since August 2002, Mr. Stonehill has been a Managing
Director and Head of Global Capital Markets of Lazard Freres & Co. LLC. From
late 1997 until May 2002, Mr. Stonehill was a Managing Director and Head of the
Investment Banking Division in the Americas at Credit Suisse First Boston, a
financial management company, with offices at 11 Madison Avenue New York, New
York 10010. He was also a member of the Operating Committee of Credit Suisse
First Boston.
David L. Tashjian. Since 1997, Mr. Tashjian has been a Managing
Director and Head of U.S. Capital Markets of Lazard Freres & Co. LLC.
Ali E. Wambold. Since 1987, Mr. Wambold has been a Managing Director
(or equivalent) of Lazard Freres & Co. LLC. Since 1993, he has also been a
Managing Director of Lazard Brothers & Co., Limited, located at 50 Stratten
Street, London W1J 8LL, United Kingdom. Lazard Brothers & Co., Limited's
activities consist principally of financial advisory services. Since 1999, Mr.
Wambold has been primarily responsible for the coordination and development of
Lazard's alternative investment activities.
Charles G. Ward, III. From February 1994 to February 2002, Mr. Ward
served as President, Head or Co-Head of Global Investment Banking and Private
Equity at Credit Suisse First Boston, a financial management company, located at
11 Madison Avenue, New York, New York 10010. Since February 2002, Mr. Ward has
been President of Lazard LLC.
Members of the Lazard Board of Lazard LLC
The names of each of the members of the Lazard Board of Lazard LLC and
the present and principal occupation, business address and citizenship for each
such person and the corporation or other organization in which such employment
is conducted are set forth below. During the last five years, neither Lazard
LLC, nor to the best of its knowledge, any of the members of the Lazard Board of
Lazard LLC (a) has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (b) was a party to any judicial or
administrative proceeding (except for matters that were dismissed without
sanctions or settlement) that resulted in a judgment, decree or final order
enjoining further violations of, or prohibiting activities, subject to, federal
or state securities laws or finding any violation of such federal or state
securities laws.
PRESENT AND PRINCIPAL OCCUPATION AND BUSINESS
---------------------------------------------
NAME ADDRESS CITIZENSHIP
---- ------- -----------
Marcus Agius Deputy Chairman of Lazard and Chairman of Lazard United Kingdom
& Co., Limited
Lazard & Co., Limited
50 Stratten Street
London W1J 8LL
United Kingdom
Antoine Bernheim Investor and Chairman of Assicurazioni Generali France
S.p.A.
Lazard Freres S.A.S.
121 Boulevard Haussmann
75382 Paris Cedex 08 France
Gerardo Braggiotti Deputy Chairman of Lazard; Managing Director of Italy
Lazard Freres S.A.S., Lazard Freres & Co.
LLC and Lazard & Co., Limited; Chairman of
the Board of Lazard AB Stockholm; Vice
Chairman of the Board of Lazard Asesores
Financieras S.A.; Chairman of the Board of
Lazard & Co. (Milan); and Vice Chairman of
the Advisory Committee of Lazard & Co.
(Frankfurt) Gmbh
Lazard Freres S.A.S.
121 Boulevard Haussmann
75382 Paris Cedex 08 France
Michel A. David-Weill Chairman of Lazard and Chairman of the Lazard France
Board of Lazard LLC
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, NY 10020, USA
Jean Guyot Investor France
Lazard Freres S.A.S.
121 Boulevard Haussmann
75382 Paris Cedex 08 France
PRESENT AND PRINCIPAL OCCUPATION AND BUSINESS
---------------------------------------------
NAME ADDRESS CITIZENSHIP
---- ------- -----------
Kenneth M. Jacobs Deputy Chairman of Lazard; and Managing Director USA
and Head of House of Lazard Freres & Co. LLC
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, NY 10020, USA
Alain Merieux President Directeur General (CEO) of BioMerieux France
S.A. and Nouvelle bioMerieux Alliance
BioMerieux S.A. and Nouvelle bioMerieux Alliance
69280 Marcy L'Etoile
France
Bruno M. Roger Chairman of Lazard Freres S.A.S. France
Lazard Freres S.A.S.
121 Boulevard Haussmann
75382 Paris Cedex 08 France
Patrick Sayer Chief Executive Officer of Eurazeo France
Eurazeo
3 Rue Jacques Bingen
75017 Paris France
Francois Voss Managing Director of Lazard Freres S.A. S. France
Lazard Freres S.A.S.
121 Boulevard Haussmann
75382 Paris Cedex 08 France
Bruce Wasserstein Head of Lazard LLC and Chairman of the Executive USA
Committee of Lazard Strategic Coordination
Company LLC
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, NY 10020, USA
Material Occupations, Positions, Offices or Employment During Previous Five
Years
Marcus Agius. From 1997 to May 2001, Mr. Agius was Deputy
Chairman of Lazard & Co., Limited, an investment bank. Since May 2001,
he has acted as Chairman of Lazard & Co., Limited.
Antoine Bernheim. From January 1967 to March 2000, Mr. Bernheim served
as a Managing Director and/or a Limited Partner of Lazard Freres & Cie, 121
Boulevard Haussmann, 75008 Paris, France, an investment bank, and from January
1977 to March 2000, as a Managing Director and/or a Limited Partner of Maison
Lazard & Cie, 12 Avenue Percier, 75008 Paris, France, a holding company. Since
July 1989, he has been a Managing Director and/or a Member of the board of
Lazard LLC, and a Managing Director and/or a Limited Partner, since May 1989, of
Partena, 12 Avenue Percier, 75008 Paris, France, a diversified holdings concern.
From January 1988 to April 2001, he was President of the board of La France
Participations et Gestion, 7/9, Boulevard Haussmann, 75009 Paris, France, an
insurance company, and from March 1973
to May 2001, he was President of Euralux, 4 Rue Carlo Hemmet, 1734 Luxembourg,
Luxembourg, an investment activity organization. From July 1984 to April 2001,
Mr. Bernheim was Vice-President of the board of Eurafrance, 12 Avenue Percier,
75008 Paris, France, a diversified holdings concern. Since February 1988, he has
been Vice President and/or a Director of Mediobanca, Piazzetta Enrico Cuccia 1,
20121 Milan, Italy, a banking organization, and since April 1999, he has been a
Director, Vice President and/or President of Assicurazioni Generali S.p.A.,
Piazza Duca degli Abruzzi 2, 34132 Trieste, Italy, an insurance company. Since
October 1996, Mr. Bernheim has been a Director, Vice President and/or President
of the board of Generali France Holding, 76 Rue Saint-Lazare, 75009 Paris,
France and a Director, from June 1997 to June 2001, of Generali France
Assurances, 5 rue de Londres, 75009 Paris, France, both of which are insurance
companies. Since September 1998, Mr. Bernheim has been a Member of the
Supervisory Board, a Director and/or Vice-President of the board of LVMH Moet
Hennessy Louis Vuitton, 30 Avenue Hoche, 75008 Paris, France, a provider of
luxury goods. He has been a Director of the following organizations: Rue
Imperial (formerly Societe Anonyme de la Rue Imperiale de Lyon), 49 Rue de la
Republique, 69002 Lyon, France, a holding and real estate company, since June
1968; La France Vie, 7/9 Boulevard Haussmann, 75009 Paris, France, an insurance
company, from 1967 to 1999; Societe Immobiliere Marseillaise, 12 Rue de la
Republique, 13001 Marseille, France, a real estate company, from January 1968 to
April 2002; Ciments Francais, 5 Place de la Pyramide, Tour Generale, 92008 Paris
la Defense, France, a cement company, since June 1993; Cereol (formerly Eridania
Beghin-Say), 59239 Thumeries, France, a sugar company, from July 1993 to
September 2001; and Bollere (formerly Bollore Technologies), Odet, 29500 Ergue
Gaberic, France, an investment company, since June 1997. He was a Member of the
Supervisory Board, from January 1997 to April 2001, of Axa, 9 Place Vendome,
75001 Paris, France, an insurance company. Since January 1994, he has been a
Director and/or Vice President of the board of Bollore Investissement (formerly
Albatros Investissement), Odet, 29500 Ergue Gaberic, France, an investment
concern. Since July 1985, he has been a Director and/or Member of the
Supervisory Board of Eurazeo (formerly Azeo and Financiere et Industrielle Gaz &
Eaux), 3 Rue Jacques Bingen, 75017 Paris, France, a diversified holdings
concern. Since March 2001, he has been President and a Director of B.B
Investissement, 31-32 Quai de Dion-Bouton, 92800 Puteaux, France, an investment
company. Mr. Bernheim has also served as a Director of the following
organizations: Sofibol, Odet, 29500 Ergue Gaberic, France, a holding company,
from June 1989 to May 1999, and again from October 1999 to June 2002; Aachener
and Munchener Betelligungs-Aktiengeselischaft, Aachener and Munchener Allee 9,
52002 Aachen, Germany, an insurance company, since July 1998; Banca della
Svizzera Italiana, Via Magatti 2, 6901 Lugano, Switzerland, a banking
organization, since November 1998; Generali Holding Vienna AG, Landskrongasse
1-3, 1010 Vienna, Austria, an insurance company, since June 1996; IntesaBci
S.p.A., Piazza Paolo Ferrari 10, 20121 Milan, Italy, a banking organization,
since December 2002; Financiere Agache, 11 Rue Francois ler, 75008 Paris,
France, a holding company, from September 1986 to April 2001, and again from May
2001 to October 2002; Christian Dior SA, 30 Avenue Montaigne, 75008 Paris,
France, a luxury goods provider, from September 1986 to April 2001, and again
from May 2001 to October 2002; Christian Dior Couture, 30 Avenue Montaigne,
75008 Paris, France, a luxury goods provider, from December 1995 to March 2001,
and again from November 2001 to the present; Maison Lazard Developpement
(formerly Maison Lazard International), 12 Avenue Percier, 75008 Paris, France,
an investment services company, from July 1996 to June 2000; and La Federation
Continentale, 11 Boulevard Haussmann, 75009 Paris, France, an insurance
company, from May 1997 to October 1999. Mr. Bernheim was, from October 1998 to
October 1999, President of the board and/or Director of Generali France
Participations, 76 Rue Saint-Lazare, 75009 Paris, France, an insurance company.
Additionally, he was a Director of the following organizations: Lazard Asia
Limited, 80 Raffles Place, UOB Plaza II -22-20, Singapore 04862, an investment
banking concern, from December 1994 to May 2001; VLGI, 23 Rue de 1'Arcade, 75008
Paris, France, a real estate company, from April 1986 to December 2002; and AON
France, 45 Rue Kleber, 92697 Levallois-Perret Cedex, France, an insurance
company, from December 1999 to December 2002.
Gerardo Braggiotti. From 1997 to March 1998, Mr. Braggiotti was Deputy
Chief Executive Officer of Mediobanca, located at Piazzetta Enrico Ciccia 1, Via
Filodrammatici, 20121 Milan, Italy. From March 1998 to December 2001, he was
Managing Director and Member of the Executive Committee of Lazard LLC. Since
January 2002, Mr. Braggiotti has served as Deputy Chairman and Member of the
Executive Committee of Lazard LLC.
Michel A. David-Weill. From September 1997 to January 2002, Mr.
David-Weill was Chairman and Chief Executive Officer of Lazard Freres & Co. LLC.
Since January 2002, he has been Chairman of Lazard LLC.
Jean Guyot. Since 1993, Mr. Guyot has been a Limited Partner of Lazard
Freres & Cie, an investment bank. Since 1993, he has been a Limited Partner of
Maison Lazard & Cie and Partena. Since June 1972, Mr. Guyot has been a Director
of Eurafrance. Since April 1989, he has been a Partner of Fonds Partenaire
Gestion. Since January 1986, he has been a Director of Gaz & Eaux, a diversified
holdings concern located at 3 Rue Jacque Bingen, 75017 Paris, France. From
September 1983 until 1999, he was a Director of Industrial Vehicles Corporation
(IVECO) (Hollande), a provider of industrial vehicles located at IVECO Central
Europe Robert Schuman Strausse No. 1 Unnterschleissheim, Munich. Additionally,
Mr. Guyot has been a Managing Director of Lazard LLC since July 1984. Since
March 2000, he has served as a Managing Director of Boulainvilliers SNC, an
investment company located at 121 Boulevard Haussmann, 75008 Paris, France.
Kenneth M. Jacobs. Since 1988, Mr. Jacobs has been a Managing Director
of Lazard Freres & Co. LLC. Since January 2002, Mr. Jacobs has been a Deputy
Chairman of Lazard and Head of House of Lazard Freres & Co. LLC.
Alain Merieux. Since 1997, Mr. Merieux has served as Chief Executive
Officer of BioMerieux SA, a company specializing in in-vitro diagnostics, as
well as Chief Executive Officer of Accra, a company specializing in portfolio
administration, each of which is located at Marcy 1'Etoile, 69280 France. From
1997 until 2002, he served as Chief Executive Officer of BMH, a holding company,
located at Marcy 1'Etoile, 69280 France. From 1997 until 2002, he served as
Chief Executive Officer of Transgene, a genetics research company, located at 11
Rue de Molsheim, Strasburg, 67000 France. Since 2002, he has served as a
Director of the same company. From 2000 until 2002, he served as Chief Executive
Officer of bioMerieux-Pierre Fabre, a holding company, located at Marcy
1'Etoile, 69280 France. Since 2000, he served as Chairman of B.M.A. (now
S.G.H.), a holding company, located at 43 Avenue du 11/11/1918, Tassin la
Demi-Lune, 69160 France. Since 1997, he has served as a Director of
C.G.I.P./Wendel Investissement, a financial company, located at 89 Rue Taitbout,
75009 Paris, France. Since
1997, he has served as a Director of Societe de la Rue Imperiale de Lyon, an
estate rental specialist, located at 49 Rue de la Republique, 69002 Lyon,
France. Since 1997, he has served as a Director of Compagnie Plastic Omnium, a
holding company, located at 19 Avenue Jules Carteret, 69007 Lyon, France. Since
1998, he has served as a Director of Financiere at Industrielle Gazeo Eurazeo, a
holding company, located at 3 Rue Jacques Bingen, 75017 Paris, France. From 1999
until 2002, he served as a Director of Harmonie SA, a financial company, located
at 3 Bd. Prince Henri, L-1724 Luxembourg, Luxembourg. Since 1999, he has served
as a Managing Director of SCI Accra, an estate rental specialist, located at
Marcy 1'Etoile, 69280 France. From 2000 until 2002, he served as Managing
Director of FM SARL, a holding company, located at Marcy 1'Etoile, 69280 France.
From 1997 to 2001, he served as Chairman of bioMerieux, Inc., an in-vitro
diagnostic distribution company, located at 100 Rodolphe Street, Durham, North
Carolina. Since 2000, he has served as Chairman of Silliker bioMerieux, Inc., a
holding company, located at 900 Maplewood Road, Homewood, Illinois 60430 (now
Silliker Group Corporation). Since 2000, he has served as Chairman of bioMerieux
Italia S.p.A., an in-vitro diagnostic distribution company, located at Via Fiume
Bianco 56, 00144 Rome, Italy. Since 2002, he has served as a member of the
Supervisory Board of Akzo-Nobel, a holding company located at Velperweg 76
Arnhem PO 9300 6800 Arnhem Netherlands. Since 2000, he has served as Director of
Lazard LLC. Since 2002, he has served as President of the Board of Directors of
bioMerieux Hellas, an invitro diagnostic company, located at 35, Michalakopoulou
Street, 11528 Greece.
Bruno M. Roger. Since 1978, Mr. Roger has served as Managing Director
of Lazard Freres S.A.S., an investment bank. From March 1990 to April 2001, Mr.
Roger was Chairman and Chief Executive Officer of Azeo (formerly Gaz & Eaux), an
investment company with investments in the U.S., Europe and Asia, located at 3
Rue Jacques Bingen, 75017 Paris, France. From March 2000 to January 2002, Mr.
Roger served as Vice-Chairman and Chief Executive Officer of Lazard Freres
S.A.S. From April 2001 to May 2002, he served as Chairman and Chief Executive
Officer of Eurazeo, an investment company with diversified holdings, located at
3 Rue Jacques Bingen, 75017 Paris, France. Since January 2002, Mr. Roger has
served as Chairman of Lazard Freres S.A.S. and from May 2002 to July 2003 as
Chairman of the Supervisory Board of Eurazeo.
Patrick Sayer. From July 1995 to June 2002, Mr. Sayer was a Managing
Director of Lazard Freres S.A.S. From February 2000 to June 2002, he was a
Managing Director of Lazard Freres & Co. LLC. Since May 2002, Mr. Sayer has been
the Chief Executive Officer of Eurazeo.
Francois Voss. Since 1978, Mr. Voss has been a Managing Director of
Lazard Freres SAS, an investment bank, located at 121 Boulevard Haussmann, 75008
Paris, France. Since 1978, he has also been a Managing Director of Maison Lazard
SAS, a holding company, located at 12 Avenue Percier, 75008 Paris, France. Since
1978, he has also been a Managing Director of Partena, a diversified holdings
concern. Since 1999, he has also been Chief Executive Officer of Lazard Service
Investissement, a financial consulting firm, located at 12 Avenue Percier, 75008
Paris, France. Additionally, since 1999, he has been a Managing Director of
Lazard LLC. Since October 1995, he has been a Managing Director and Limited
Partner of Lazard Freres Gestion, an asset management company, located at 10
Avenue Percier, 75008 Paris, France. Since December 1995, Mr. Voss has been
President of Groupama Oblig-Europe, an investment
company, located at 8-10 Rue d'Astorg, 75008 Paris, France. Mr. Voss has served
as a Director for the following organizations: BNP Epargne Patrimoine, an asset
management company, located at 18 Boulevard Montmartre, 75008 Paris, France,
since November 1979; Rue Imperiale, a holding and real estate company, located
at 49 Rue de la Republique, 69002 Paris, France, since October 1994; Les Fils
Dreyfus & Cie, a banking concern, located at 16 Aeschenvorstadt CH 4002 Bale,
Switzerland, since March 2002; Sovaclux, an investment company, located at 14
Rue Aldrigen, Luxembourg, Luxembourg, since November 1980; Lazard Japan Fund
Ltd., an investment company, located at The Aall Building, North Church
Street-Grand Cayman, Cayman Islands, BWI, since November 1985; The World Trust
Fund, an investment company, located at 14 Rue Aldrigen, Luxembourg, Luxembourg,
since June 1991; and Lazard Far East Investors (Holding) Limited, an investment
company, located in Jersey, Channel Island, since September 1988. Additionally,
he has been a non-voting Director of Objectif France, an investment company,
located at 121 Boulevard Haussmann, 75008 Paris, France, since October 1991, and
of Fonds Partenaires Gestion S.A., a private equity leveraged buyout fund
management company, located at 10 Rue Treilhard, 75008 Paris, France, since
1995. Mr Voss has served as representant permanent of Lazard Freres Gestion on
the boards of the following organizations: Objectif Capitalisation, since June
1988; Objectif Japon, since June 2001; Objectif Actions Internationales, since
September 1997; Objectif Dynamique Internationales, since 2002; and Objectif
Signatures Privees, since 2002; all of which are investment companies located at
121 Boulevard Haussmann, 75008 Paris, France. Since March 1997, he has served as
representant permanent of LFG. Additionally, he serves as representant permanent
of Somargest on the boards of the following organizations: Objectif Patrimoine,
since May 2002, and Objectif Actions Euro, since November 2002; all of which are
investment companies located at 121 Boulevard Haussmann, 75008 Paris, France.
Bruce Wasserstein. From February 1988 to January 2001, Mr. Wasserstein
served as the Chief Executive Officer of Wasserstein Perella & Co. (acquired by
Dresdner Bank AG in January 2001), located at 1301 Avenue of the Americas, New
York, New York 10019. From January 2001 to November 2001, he was Co-Chief
Executive Officer of Dresdner Kleinwort Wasserstein, located at 1301 Avenue of
the Americas, New York, New York 10019. Since January 2002, Mr. Wasserstein has
acted as the Head of Lazard.
ARVP II ACQUISITION, L.P.
Purchaser was formed in California on November 12, 2003 by ARV in
contemplation of the Offer and proposed Merger. ARV formed Purchaser for the
sole purpose of effecting the Offer and the Merger. Purchaser has not been
engaged in any business activities other than those in connection with its
formation, the Offer and the Merger. ARV is the general partner of Purchaser.
Purchaser will be merged with and into the Partnership if the Merger is
consummated, subject to the terms of the Merger Agreement. ARV will then be the
sole general partner of the Partnership following the merger, and ARVP II
Acquisition LLC, a Delaware limited liability company of which ARV is the sole
member, will be the sole limited partner of the Partnership following the
merger. Purchaser's executive offices are located at 245 Fischer Avenue, Suite
D-1, Costa Mesa, California 92626 (Telephone: (714) 751-7400).
During the last five years, Purchaser (a) has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) nor
(b) was it a party to any judicial or
administrative proceeding (except for matters that were dismissed without
sanctions or settlement) that resulted in a judgment, decree or final order
enjoining further violations of, or prohibiting activities, subject to, federal
or state securities laws or finding any violation of such federal or state
securities laws.
SCHEDULE II
INFORMATION CONCERNING SECONDARY MARKET SALES REPORTED TO
THE PARTNERSHIP DURING THE LAST TWO FISCAL YEARS
The following table sets forth certain information relating to sales of
Units during the last two years between parties unaffiliated with us or ARV
where a sales price per Unit was reported to the Partnership:
MONTH OF REPORTED NUMBER OF UNITS NET SALES PRICE PER
TRANSACTION SALES PRICE PER UNIT SOLD UNIT
April 2002 $245 5.000 $215.00
June 2002 $425 10.875 $411.21
September 2002 $303 10.000 $288.00
September 2002 $305 10.000 $290.00
September 2002 $118 3.500 $ 75.14
October 2002 $240 20.000 $232.50
October 2002 $240 5.000 $210.00
October 2002 $240 10.000 $225.00
January 2003 $280 8.251 $261.82
January 2003 $230 2.000 $155.00
April 2003 $150 10.000 $135.00
April 2003 $194 5.000 $164.00
April 2003 $297 10.000 $282.00
May 2003 $236 6.000 $211.00
May 2003 $266 5.000 $236.00
June 2003 $241 4.000 $203.50
July 2003 $300 5.000 $270.00
July 2003 $300 25.000 $294.00
July 2003 $300 8.000 $281.25
July 2003 $300 20.000 $292.50
July 2003 $300 10.000 $285.00
July 2003 $300 6.091 $275.37
July 2003 $300 7.558 $280.15
July 2003 $300 10.000 $285.00
July 2003 $300 7.000 $278.57
MONTH OF REPORTED NUMBER OF UNITS NET SALES PRICE PER
TRANSACTION SALES PRICE PER UNIT SOLD UNIT
July 2003 $300 20.000 $292.50
July 2003 $300 15.000 $290.00
August 2003 $300 7.000 $278.57
August 2003 $300 10.000 $285.00
August 2003 $300 10.000 $285.00
August 2003 $300 7.370 $279.65
August 2003 $300 25.000 $294.00
September 2003 $300 4.000 $262.50
October 2003 $325 4.000 $287.50
October 2003 $301 5.000 $271.00
November 2003 $244 5.000 $214.00
December 2003 $308 10.000 $293.00
December 2003 $325 5.000 $295.00
December 2003 $325 5.000 $295.00
December 2003 $325 5.000 $295.00
December 2003 $325 5.342 $296.92
December 2003 $325 5.000 $295.00
December 2003 $325 5.000 $295.00
During the last two fiscal years, the Weighted Average Sales Price per
Unit for sale transactions between parties unaffiliated with us or ARV and
reported to the Partnership was $289.16 per Unit, and the Weighted Average Net
Sales Price per Unit for these transactions was $272.39 per Unit.
The Net Sales Prices per Unit shown above do not necessarily reflect
the net sales proceeds actually received by sellers of Units, which may be
further reduced to amounts less than the reported price by costs that are not
imposed by the Partnership.
ANNEX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), is entered into
as of __________ ___, 2004, by and between American Retirement Villas Properties
II, a California limited partnership ("ARVP II"), and ARVP II Acquisition, L.P.,
a California limited partnership ("Purchaser").
RECITALS
WHEREAS, the board of directors of ARV Assisted Living, Inc., a
Delaware corporation ("ARV"), the general partner of ARVP II and Purchaser, has
approved this Agreement and the merger of Purchaser with and into ARVP II (the
"Merger"); and
WHEREAS, ARVP II Acquisition, LLC, a Delaware limited liability company
and sole limited partner of Purchaser, has approved this Agreement and the
Merger.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME; EFFECTS OF MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3) and in accordance
with Article 7.5 of the California Revised Limited Partnership Act (the "LP
Act") and the respective organizational documents of ARVP II and Purchaser,
Purchaser shall be merged with and into ARVP II and the separate legal existence
of Purchaser shall thereupon cease, ARVP II shall be the surviving entity of the
Merger (hereinafter sometimes referred to as the "Surviving Partnership") and
the separate existence of ARVP II will continue unaffected by the Merger.
SECTION 1.2 The Closing. Upon the terms and subject to the conditions
set forth in this Agreement, the closing of the Merger (the "Closing") shall
take place at such time, date and place as the parties may agree but in no event
prior to the satisfaction or waiver, where permitted, of the conditions set
forth in Section 3.1 hereof. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date."
SECTION 1.3 Effective Time. Upon the terms and subject to the
conditions set forth in this Agreement, following the Closing, the parties
hereto shall, at such time as they deem advisable, cause a certificate of merger
(the "Certificate of Merger") to be executed and filed with the Secretary of
State of California and make all other filings or recordings required by
California law in connection with the Merger. The Merger shall become effective
upon the filing of the Certificate of Merger with the Secretary of State of
California or at such other future
A-1
effective date or time as Purchaser and ARVP II shall agree and specify in the
Certificate of Merger (the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects
specified in the LP Act and this Agreement.
SECTION 1.5 Restructuring. Notwithstanding anything to the contrary in
this Agreement, the parties shall have the right, in their sole discretion, to
(i) change the type or structure of, and/or the parties to, the Merger,
including changing the structure of the Merger so that (x) ARVP II merges with
and into Purchaser with Purchaser being the surviving entity, (y) ARVP II merges
with and into an affiliate of ARV other than Purchaser with ARVP II being the
surviving entity and (z) an affiliate of ARV other than Purchaser merges with
and into ARVP II with such other affiliate being the surviving entity and/or
(ii) assign any or all of their rights, interests, duties or obligations under
this Agreement to any affiliate of ARV, provided that any action taken by any
party pursuant to this Section 1.5 shall not, individually or when taken
together with any or all other actions under this Section 1.5, have an adverse
effect on any Limited Partner or special limited partner of ARVP II (a "Special
Limited Partner"). If an entity other than Purchaser is a party to the Merger,
then, without the need for any additional act or consent of any other person or
entity, such entity shall execute a counterpart to the Agreement and shall
thereupon become a party hereto.
ARTICLE II
EFFECT ON UNITS AND INTERESTS
SECTION 2.1 Effect on Units and Interests. At the Effective Time, by
virtue of the Merger and without any further action on the part of Purchaser,
ARVP II, ARV or the limited partners of ARVP II ("Limited Partners"):
(a) The limited partnership interest in Purchaser owned by ARVP II
Acquisition LLC, a Delaware limited liability company and wholly-owned
subsidiary of ARV ("ARVP LLC"), shall automatically be converted into and become
one fully paid and non-assessable limited partnership unit of ARVP II (a "Unit")
representing a Limited Partner interest in ARVP II;
(b) Each Unit that is owned by ARV, any affiliate of ARV, or
Purchaser immediately prior to the Effective Time shall remain issued and
outstanding and continue to represent a Limited Partner interest in ARVP II;
(c) Each Unit issued and outstanding immediately prior to the
Effective Time (other than Units that shall remain issued and outstanding
pursuant to Section 2.1(b)) (collectively, the "Non-affiliate Units"), including
all accrued and unpaid distributions thereon, shall automatically be converted
into and become the right to receive $___ in cash less the sum of all
distributions of cash from the Partnership attributable to each such Unit that
are declared or made on or after ____________ __, 2004 (the "Reference Date"),
to the extent that ARV, any affiliate of ARV or Purchaser do not receive such
distributions with respect to any such Unit, including, without limitation, all
distributions of cash from operations and capital proceeds, without regard
A-2
to whether the applicable sale, financing, refinancing or other disposition took
place before or after the Reference Date (the "LP Merger Consideration"). At the
Effective Time, all such Units shall automatically be canceled and shall cease
to exist, and each holder of Units (a "Unitholder") immediately prior to the
Effective Time (i) who was a Limited Partner shall cease to be a Limited Partner
of ARVP II, and (ii) shall cease to have any rights with respect to such Units,
except the right to receive the LP Merger Consideration;
(d) Each special limited partnership interest issued and
outstanding immediately prior to the Effective Time (collectively, the "SLP
Interests"), including all accrued and unpaid distributions thereon, shall
automatically be converted into and become the right to receive $____ in cash
less the sum of all distributions of cash from the Partnership attributable to
each such SLP Interest that are declared or made on or after the Reference Date,
to the extent that ARV, any affiliate of ARV or Purchaser do not receive such
distributions with respect to any such SLP Interests, including, without
limitation, all distributions of cash from operations and capital proceeds,
without regard to whether the applicable sale, financing, refinancing or other
disposition took place before or after the Reference Date (the "SLP Merger
Consideration" and, together with the LP Merger Consideration, the "Merger
Consideration"). At the Effective Time, all such SLP Interests shall
automatically be canceled and shall cease to exist, and each holder of an SLP
Interest immediately prior to the Effective Time (i) who was a Special Limited
Partner shall cease to be a Special Limited Partner or Limited Partner of ARVP
II or to have any other right, title or interest in the Partnership, except the
right to receive the SLP Merger Consideration in accordance with the terms of
this Agreement, and (ii) shall cease to have any rights with respect to such SLP
Interests, except the right to receive the SLP Merger Consideration; and
(e) Notwithstanding anything to the contrary in this Agreement, if
the Merger is of another type or structure contemplated by Section 1.5, (i) each
Non-affiliate Unit shall be converted into the right to receive the LP Merger
Consideration, (ii) each SLP Interest shall be converted into the right to
receive the SLP Merger Consideration, and (iii) the other provisions of this
Section 2.1 shall be modified by the parties hereto to give the effect to such
type or structure.
SECTION 2.2 Payment Procedures.
(a) Paying Agent. Prior to the Effective Time, Purchaser shall
deposit, or cause to be deposited, with ACS Securities Services, Inc., as paying
agent for the Merger Consideration (the "Paying Agent"), at least an amount in
cash equal to the sum of (i) the product of (A) the LP Merger Consideration and
(B) the number of Non-affiliate Units and (ii) the product of (A) the SLP Merger
Consideration and (B) the number of SLP Interests (the "Payment Fund") for the
purpose of paying the Merger Consideration.
(b) Payment Procedure. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each Unitholder and each Special
Limited Partner of record immediately prior to the Effective Time whose Units or
SLP Interests, as the case may be, were converted into the right to receive the
Merger Consideration, pursuant to Sections 2.1(c) and (d) and this Section
2.2(b), a form of letter of transmittal (the "Letter of Transmittal") which
shall specify that delivery shall be effected, and risk of loss and title to the
Units or SLP Interests held by a person or entity shall pass, only upon (i)
delivery or presentation to the Paying Agent of
A-3
evidence reasonably satisfactory to the Paying Agent that such person or entity
was, immediately prior to the Effective Time, either (A) the Unitholder of
record of the Units it purported to own as of such time or (B) the Special
Limited Partner of record of the SLP Interests it purported to own as of such
time ("Ownership Evidence") and (ii) surrender to the Paying Agent, for the
account and benefit of the Surviving Partnership, of any non-cash distribution
declared or made by the Partnership after the Reference Date (or any proceeds
obtained or obtainable upon the exercise or conversion thereof) which is
attributable to each such Unit or SLP Interest and has been received by each
such Unitholder or Special Limited Partner (the "Non-Cash Distributions"). Upon
delivery or presentation to the Paying Agent of a properly completed and
executed Letter of Transmittal, together with Ownership Evidence (including any
information or certification required for tax purposes), any Non-Cash
Distributions attributable to each such Unit or SLP Interest and such other
documents or evidence as the Surviving Partnership or the Paying Agent may
reasonably request: (x) the Unitholder shall be entitled to receive the LP
Merger Consideration for each Unit owned immediately prior to the Effective Time
or (y) the Special Limited Partner shall be entitled to receive the SLP Merger
Consideration for each SLP Interest owned immediately prior to the Effective
Time, as the case may be, and as determined pursuant to this Agreement. In the
event that Non-Cash Distributions attributable to a Unit or SLP Interest are not
surrendered to the Paying Agent in accordance with this Section 2.2(b), the
Merger Consideration payable upon the conversion of each such Unit or SLP
Interest may, at the Surviving Partnership's option, be reduced by the value of
such Non-Cash Distributions, as determined by the Surviving Partnership in its
sole discretion. No interest shall be paid or shall accrue on any Merger
Consideration payable pursuant to this Agreement or otherwise.
(c) No Further Ownership Rights in Units. All Merger Consideration
paid in exchange for Units or SLP Interests in accordance with this Article II
shall be full satisfaction for such Units or SLP Interests, as the case may be,
exchanged for such Merger Consideration and all rights related to such Units or
SLP Interests. At the close of business on the date on which the Effective Time
occurs, the transfer records of ARVP II shall be closed and there shall be no
further registration of transfers of Units or SLP Interests on the transfer
records of the Surviving Partnership of Units or SLP Interests that were
outstanding immediately prior to the Effective Time.
(d) Termination of Payment Fund. Any portion of the Payment Fund
that remains undistributed to Unitholders or Special Limited Partners for twelve
(12) months after the Effective Time shall be delivered to the Surviving
Partnership, upon demand, and any Unitholders or Special Limited Partners who
have not theretofore complied with this Article II shall thereafter look solely
to the Surviving Partnership for, and, subject to Section 2.2(e), the Surviving
Partnership shall remain liable for, payment of their claim for Merger
Consideration.
(e) No Liability. None of Purchaser, ARV, ARVP II or the Paying
Agent shall be liable to any person or entity in respect of cash from the
Payment Fund in each case delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Units or SLP
Interests have not been exchanged for Merger Consideration prior to the second
anniversary of the date on which the Effective Time shall occur (or immediately
prior to such earlier date on which any Merger Consideration would otherwise
escheat to or become the property of any governmental entity), any such Merger
Consideration in respect thereof shall, to
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the extent permitted by applicable law, become the property of the Surviving
Partnership, free and clear of all claims or interest of any person or entity
previously entitled thereto.
(f) Investment of Payment Fund. The Paying Agent shall invest the
Payment Fund on a daily basis as directed by the Surviving Partnership;
provided, however, that such investments shall be solely in (i) obligations of
or guaranteed by the United States of America and backed by the full faith and
credit of the United States of America or (ii) commercial paper obligations
rated A-1 or P-1 by Moodys' Investors Service, Inc. or Standard & Poor's
Corporation, respectively. All interest and other income resulting from such
investments shall be paid to the Surviving Partnership.
(g) Withholding Rights. Purchaser, ARV and/or the Paying Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any Unitholder or Special Limited Partner
such amounts as Purchaser, ARV or the Paying Agent is required to deduct and
withhold with respect to making such payment under the Internal Revenue Code or
any provision of domestic or foreign (whether national, federal, state,
provincial, local, or otherwise) tax law. To the extent that amounts are so
withheld and paid over to the appropriate taxing authority by Purchaser, ARV or
the Paying Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the Unitholder or Special Limited Partner
in respect of which such deduction and withholding was made by Purchaser, ARV or
the Paying Agent.
ARTICLE III
CONDITIONS
SECTION 3.1 Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the satisfaction or waiver of the
following conditions at or prior to the Closing Date:
(a) Each of Purchaser and ARVP II shall have received all
governmental approvals and third party consents required to be obtained in
connection with the Merger except where the failure to so obtain any such
approval or consent would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, financial condition
or results of operations of Purchaser or ARVP II (a "Material Adverse Effect");
(b) No temporary restraining order, preliminary or permanent
injunction or other order or decree issued by any court or governmental entity
of competent jurisdiction or other legal restraint or prohibition that could
reasonably be expected to have (i) a Material Adverse Effect or (ii) the effect
of preventing the consummation of the Merger, shall be in effect;
(c) There shall be no pending or threatened litigation or
governmental action or proceeding challenging the Merger that could reasonably
be expected to have a Material Adverse Effect;
(d) Either (i) the principal terms of the Merger Agreement and the
Merger shall have been consented to and approved by the Limited Partners of ARVP
II, collectively holding more
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than 50% of the outstanding Units that neither ARV nor any affiliate of ARV nor
Purchaser held as of the Reference Date, or (ii) Purchaser, together with its
affiliates, shall have acquired title to or a contractual right to acquire more
than 90% of the outstanding Units; and
(e) In the event that Purchaser, together with its affiliates, has
not acquired title to or a contractual right to acquire more than 90% of the
outstanding Units, the California Commissioner of Corporations shall have held a
hearing pursuant to Section 25142 of the California Corporate Securities Law of
1968 and shall have finally and conclusively approved (without the possibility
of appeal) the terms and conditions of the Merger and the fairness of such terms
and conditions in accordance with Section 15678.3 of the LP Act, and such
approval shall not have been revoked, modified or amended in any respect and
shall otherwise remain in full force and effect.
SECTION 3.2 Waiver of Conditions. Notwithstanding anything to the
contrary contained herein, either ARVP II or Purchaser may, in their sole
discretion, waive any of the conditions to their obligations to consummate the
transactions contemplated by this Agreement set forth in Section 3.1 above.
ARTICLE IV
TERMINATION
SECTION 4.1 Termination of Agreement by ARV. This Agreement may be
terminated, and the Merger abandoned, by ARV, in its sole discretion, at any
time prior to the Effective Time.
SECTION 4.2 Termination of Agreement by Either Party. This Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time if:
(a) The transactions contemplated by this Agreement have not been
consummated on or before ____________, 2004; or
(b) Any condition set forth in Section 3.1 to any party's
obligation to consummate the transactions contemplated by this Agreement shall
become incapable of being satisfied (unless such condition has been waived).
SECTION 4.3 Effect of Abandonment. In the event of the termination of
this Agreement and the abandonment of the Merger pursuant to this Article IV,
this Agreement shall forthwith become null and void and have no effect and no
party hereto (or any of its general partners, directors, officers or employees)
shall have any liability or further obligation to any other party to this
Agreement.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Further Assurances. Each of Purchaser and ARVP II shall use
its reasonable best efforts to take all actions necessary and appropriate to
effectuate the Merger,
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including, if necessary, executing any additional documents or other instruments
and filing such documents or other instruments with the appropriate governmental
authorities.
SECTION 5.2 No Appraisal Rights. The Unitholders and Special Limited
Partners are not entitled to any appraisal or dissenters' rights under
applicable law as a result of the Merger.
SECTION 5.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 5.4 Entire Agreement. This Agreement, including the exhibits
hereto, reflects the entire agreement of the parties regarding the subject
matter hereof and supercedes all prior agreements and understandings among the
parties with respect thereto.
SECTION 5.5 Severability. If any provision of this Agreement is held or
deemed to be void, unenforceable or otherwise of no force and effect, each other
provision of this Agreement shall remain in full force and effect and shall be
construed without giving effect to the provision that is void, unenforceable or
of no force and effect.
SECTION 5.6 Amendment. This Agreement shall be amended only by a
writing signed by all parties hereto.
SECTION 5.7 No Third Party Beneficiary. This Agreement shall be for the
sole and exclusive benefit of the parties hereto and ARV, and no other party
shall have any direct or indirect right or interest in or arising out of this
Agreement.
SECTION 5.8 Counterparts. This Agreement may be signed in two or more
counterparts which, when taken together, shall constitute a fully executed
version of this Agreement.
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IN WITNESS HEREOF, the parties have executed this Agreement and caused
the same to be delivered on their behalf as of the date first above written.
AMERICAN RETIREMENT VILLAS
PROPERTIES II, A CALIFORNIA LIMITED
PARTNERSHIP
By: ARV Assisted Living, Inc.,
its General Partner
By: ___________________________________
Name: _________________________________
Title: ________________________________
ARVP II Acquisition, L.P.
By: ARV Assisted Living, Inc.,
its General Partner
By: ___________________________________
Name: _________________________________
Title: ________________________________
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