SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9/A
(Amendment No. 1)
Solicitation/Recommendation Statement Pursuant to Section
14(d)(4) of the Securities Exchange Act of 1934
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ILM II SENIOR LIVING, INC.
(Name of Subject Company)
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ILM II SENIOR LIVING, INC.
(Name(s) of Person(s) Filing Statement)
Shares of Common Stock $.01 Par Value
(Title of Class of Securities)
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None
(CUSIP Number of Class of Securities)
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Lawrence A. Cohen
President and Chief Executive Officer
ILM II Senior Living, Inc.
28 State Street, Suite 1100
Boston, MA 02109
(888) 257-3550
(Name, Address and Telephone Number of Persons Authorized
to Receive Notices and Communications on Behalf of the
Person(s) Filing Statement)
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With a copy to:
Judith D. Fryer, Esq.
Greenberg Traurig Hoffman Lipoff Rosen & Quentel
200 Park Avenue
New York, New York 10166
(212) 801-9200
Item 1. Security and Subject Company.
This Schedule 14D-9/A (the "Statement") relates to shares of common stock,
$.01 par value per share (the "Common Stock"), of the subject company, ILM II
Senior Living, Inc., a Virginia corporation (the "Company"). The address of the
principal executive offices of the Company is 28 State Street, Suite 1100,
Boston, Massachusetts 02109.
Item 2. Tender Offer of the Bidder.
This Statement relates to an unsolicited tender offer disclosed in a
Tender Offer Statement on Schedule 14D-1, dated June 4, 1998, filed by Redwood
Investors, LLC, a Delaware limited liability company (the "Purchaser"), to
purchase up to 500,000 outstanding shares of Common Stock (the "Shares")
representing approximately 9.65 percent of the outstanding shares of Common
Stock, at a price of $7.00 per share, as amended by Amendment No. 1 to the
Schedule 14D-1 dated June 11, 1998 (the "Schedule 14D-1") to increase the price
to $8.00 per Share (the "Offer Price"), net to the seller in cash, without
interest, upon the terms and subject to the conditions set forth in an Amended
Offer to Purchase dated June 11, 1998 (the "Offer to Purchase") and the related
cover letter and agreement of sale, as each may be supplemented or amended from
time to time (which together constitute the "Offer"). The Offer to Purchase
states that the Purchaser was organized for the purpose of acquiring the Shares
pursuant to the Offer. The Manager of the Purchaser is Arlen Capital, LLC, a
California limited liability company (the "Manager"), which is controlled by its
two members, Don Augustine and Lynn T. Wells. None of the Purchaser, its Manager
or their affiliates are affiliated with the Company. The Offer to Purchase
states that the address of the principal executives offices of the Purchaser and
its Manager is 1650 Hotel Circle North, Suite 200, San Diego, California 92108.
Item 3. Identity and Background.
(a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements, or understandings
between the Company and its executive officers, directors or affiliates are
described in the sections entitled "Related Transactions" and "Compensation of
Directors and Executive Officers" on pages 9-11 of the Company's Proxy Statement
for the Annual Meeting of Shareholders (the "Annual Meeting") originally
scheduled to be held on July 7, 1998 (the "Proxy Statement"). A copy of the
relevant portions of the Proxy Statement is filed as Exhibit 1 hereto and the
portions of such Proxy Statement referred to above are incorporated herein by
reference.
(2) To the best knowledge of the Company, there are no material contracts,
agreements, arrangements or understandings, or any actual or potential conflicts
of interest, between the Company, its executive officers, directors or
affiliates, on the one hand, and the Purchaser, the Manager, or the executive
officers, directors or affiliates of either the Purchaser or the Manager, on the
other hand.
Item 4. The Solicitation or Recommendation.
(a) At a meeting of the Board of Directors of the Company (the "Board")
held on June 16, 1998 (the "June 16 Meeting"), the Board carefully considered
the Company's business, financial condition and prospects, the terms and
conditions of the Offer and other matters, including presentations by its legal
and financial advisors.
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At the June 16 Meeting, the members of the Board unanimously
concluded, among other things, that the Offer is inadequate and not in the best
interests of the Company and its shareholders. Accordingly, the Board
unanimously recommends that the Company's shareholders reject the Offer and not
tender their Shares pursuant to the Offer.
(b) In reaching the conclusions referred to in Item 4(a), the Board took
into account numerous factors, including but not limited to the following:
(i) The Board considered, among other things, the business,
financial condition, prospects and current business strategy of the
Company, and the nature of the Company's properties and concluded that the
Offer does not reflect the underlying net asset value of the Shares. In
this regard, the Board particularly considered the fact that the Company
has achieved substantial increases in cash flow and value for the
Company's shareholders during fiscal year 1997:
o The Company's property revenues were more than 9% higher than
the prior year.
o Cash flow from the Company's properties after capital
expenditures improved by more than 20% from the prior year.
o Property management fees were 2% lower than the fees for the
prior year.
o The Company's dividend rate has been increased by 50% since
the end of fiscal year 1996.
(ii) The opinion of Schroder & Co. Inc. ("Schroders"), the Company's
financial advisor, that the Offer Price is inadequate, from a financial
point of view, to the shareholders (the "Schroders Opinion"). Such opinion
is based on various assumptions and subject to various limitations set
forth in full in the opinion. Such assumptions include that (i) the
information furnished by the Company or any publicly available information
reviewed is accurate and complete, (ii) the financial and operating
forecasts of the Company were reasonably prepared, and (iii) the Company
will effect certain contemplated restructuring alternatives intended to
increase shareholder value. The contemplated restructuring alternatives
referred to in the Schroders Opinion involve a number of possible
scenarios, including (x) a possible merger of the Company and its
affiliate, ILM Senior Living, Inc. ("ILM I"), and the implied enterprise
value of such combined entities as a real estate investment trust (a
"REIT") to be valued either on a basis comparable to health care REITs or
as a company which might be sold to a health care REIT, (y) a possible
merger of the Company and ILM I and their associated operating companies
(ILM I Lease Corporation and ILM II Lease Corporation), to the end that
such combined entities would be valued in a sale or exchange as a senior
living operating company, and (z) an early dissolution and liquidation of
the Company and ILM I following the disposition of their properties. A
copy of the Schroders Opinion containing all such assumptions and
limitations is attached hereto as Exhibit 3 and is incorporated herein by
reference. Shareholders are urged to read the Schroders Opinion carefully
in its entirety.
(iii) All dividend payments and distributions by the Company from
May 1, 1998 and later will be payable to the Purchaser rather than the
tendering shareholders who otherwise would be entitled to such payment.
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(iv) The Offer Price is lower than recent secondary market resale
prices of the Shares.
(v) There are other options available to shareholders who are
interested in selling their Shares such as contacting registered
securities brokers or other secondary market sources of sale such as
so-called "partnership exchanges" and selling the Shares in the secondary
resale market.
(vi) As previously disclosed by the Company in its Annual Report on
Form 10-K for the fiscal year ended August 31, 1997 (the "Form 10-K"), the
Company is continuing to review various transactions in order to enhance
shareholder equity, including mergers and other business combinations
which, based on evaluations of its financial advisor, would provide
greater value to the Company's shareholders than the Offer Price under the
Offer.
(vii) The Offer is subject to conditions which are in the discretion
of the Purchaser, and can be changed.
(viii) The Offer Price offered by the Purchaser is significantly
below the 1996 year-end estimated net asset valuation of $9.69 per Share
that was prepared by PaineWebber Properties Incorporated.
(ix) There have been other recent limited tender offers for the
Shares which have been at equal or higher prices. In May 1998, an offer
was made by an unaffiliated party at $7.50 per Share and in November 1997,
an offer was made by an unaffiliated party at $7.25 per Share.
The foregoing discussion of the information and factors considered
by the Board is not intended to be exhaustive but includes all material factors
considered by the Board. The Board did not assign relative merits to the
foregoing factors or determine that any factor was of particular importance, and
individual directors may have given differing weights to different factors.
Rather, the Board viewed its position and recommendation as being based on the
totality of the information presented to and considered by it.
Item 5. Persons Retained, Employed or to Be Compensated.
The Company has retained Schroders as the Company's financial
advisor in connection with the evaluation of and response to the Offer and other
matters arising in connection therewith. In addition, the Company has retained
D.F. King & Co., Inc. ("D.F. King") to assist the Company in connection with its
communications with shareholders with respect to, and to provide other services
to the Company in connection with, the Offer.
(a) Schroder & Co. Inc.
Pursuant to a letter agreement dated June 16, 1998 which confirms
arrangements made on June 11, 1998 (the "Letter Agreement"), the Company
retained Schroders as its financial advisor with respect to the Offer and
such engagement is limited to Schroders rendering an opinion with respect
thereto. The Company has agreed to pay Schroders fees in the amount of
$60,000 for the preparation and delivery of such opinion (the "Advisory Fee").
The Company has also agreed to reimburse Schroders for all
reasonable out-of-pocket expenses, including the fees and disbursements of
legal counsel arising in connection with its
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engagement by the Company. In addition, the Company has agreed to indemnify
Schroders against certain liabilities, including liabilities under the federal
securities laws.
The Company previously engaged Schroders (the "Engagement") as its
financial advisor in connection with an examination of various alternatives for
maximizing shareholder values, and in connection with any sale of the Company to
a third party, which the Company determines to pursue. Contingent upon the
consummation of such a transaction, the Company agreed to pay Schroders a
customary success fee. Schroders could have a conflict of interest in evaluating
the fairness of the Offer if Redwood were to become a significant shareholder of
the Company and if Redwood disagreed with the alternative selected by the
Company to enhance shareholder value. The Board has reason to believe based on,
among other things, Redwood's disclosures in its Offer to Purchase, that Redwood
supports management and would support alternatives which would enhance
shareholder value. In fact, it may be easier for the Company to obtain the
super-majority vote required to enter into certain of these transactions with
the support of a significant shareholder, as opposed to attempting to obtain the
vote of many individual shareholders.
(b) D.F. King & Co., Inc.
The Company has also retained D.F. King to assist the Company in
connection with its communications with shareholders with respect to, and to
provide other services to the Company in connection with, the Offer. The Company
will pay D.F. King reasonable and customary compensation for its services and
will reimburse D.F. King for its reasonable out-of-pocket expenses incurred in
connection therewith. In addition, D.F. King has been engaged to solicit proxies
for voting at the Company's 1998 Annual Meeting for a fee of approximately
$5,000.
Except as disclosed herein, neither the Company nor any person
acting on its behalf currently intends to employ, retain or compensate any other
person to make solicitations or recommendations to shareholders on its behalf
concerning the Offer.
Item 6. Recent Transactions and Intent with Respect to Securities.
(a) To the best of the Company's knowledge, no transaction in the Common
Stock has been effected during the past 60 days by the Company or by any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, none of the Company's
executive officers, directors, affiliates or subsidiaries presently intends to
tender to the Purchaser pursuant to the Offer or sell any shares of Common Stock
that are held of record or beneficially owned by such persons, but rather such
persons presently intend to continue to hold such securities.
Item 7. Certain Negotiations and Transactions of the Subject Company.
(a) The Company had been considering a merger with its affiliate ILM I,
and other business combinations prior to commencement of the Offer and continues
to consider alternative structures for enhancing shareholder value. Such
alternative structures could also include a merger or other combination,
strategic acquisition or transfer of assets or stock. Pursuant to the
Engagement, Schroders is serving as the Company's financial advisor in
connection with this analysis and Schroders has performed in depth analysis of
such alternatives. The Company has stated in the Form 10-K that the Company has
not fully evaluated any of these alternatives and is not in a position at this
time to
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recommend any actions to the shareholders with respect to these alternatives.
Although the Board desires to enhance shareholder value and has determined that
allowing the forced sale of assets upon the termination of the term of the
Company as set forth in its Articles of Incorporation is unlikely to enhance
shareholder value, the Board has not yet determined the appropriate method to
enhance such value. Because of the lawsuits pending against the Company and the
fact that the Board is being restructured, the Board determined to wait to
choose an alternative until the lawsuits could be better assessed and the
changes to the Board effectuated.
Except as contemplated by the prior paragraph, no negotiation is
being undertaken or is underway by the Company in response to the Offer which
relates to or would result in:
(1) An extraordinary transaction such as a merger or
reorganization, involving the Company or any subsidiary of the
Company;
(2) A purchase, sale or transfer of a material amount of assets by
the Company or any subsidiary of the Company;
(3) A tender offer for or other acquisition of securities by or of
the Company; or
(4) Any material change in the present capitalization or dividend
policy of the Company.
(b) The Company has not entered into any transaction, board resolution,
agreement in principle or signed contract in response to the Offer which relates
to or would result in one or more of the matters referred to in Item 7(a)(1),
(2), (3) or (4).
Item 8. Additional Information to Be Furnished.
(a) Articles of Incorporation and By-laws.
The Company's Articles of Incorporation and By-laws restrict any
single shareholder from holding more than 9.8 percent of the Company's total
outstanding shares of Common Stock, unless the person acquiring such "excess
shares" provides the independent directors of the Company's Board with evidence
that the Company's qualification as a Real Estate Investment Trust will not be
jeopardized.
(b) Virginia Affiliated Transactions Statute.
The Virginia affiliated transactions statute (Article 14, Va. Code
Sec. 13.1-725 et seq.) (the "Virginia Affiliated Transactions Statute") is not
expected to affect the Purchaser's Offer because the Purchaser is seeking to
acquire less than 10% of the outstanding shares of Common Stock and, with one
exception, the Company's By-Laws restrict ownership of more than 9.8% of the
Company's outstanding shares of Common Stock by one investor. Nevertheless, were
the Purchaser and its affiliates to acquire more than 10% of the Company's
outstanding Common Stock, the Virginia Affiliated Transactions Statute, could
have the effect of significantly delaying the Purchaser's ability to acquire the
entire equity interest in the Company.
In general, the Virginia Affiliated Transactions Statute prevents
the Company from engaging in any "affiliated transaction" (defined as a variety
of transactions, including mergers, as set forth below) with any "interested
shareholder" (defined generally as a person who "beneficially owns" (as such
term is defined in the Virginia Affiliated Transactions Statute) more than ten
percent (10%) of
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any class of the Company's outstanding voting shares or an "affiliate" or
"associate" (as such terms are defined in the Virginia Affiliated Transactions
Statute) of the Company and at any time within the preceding three years was an
interested shareholder of the Company) for three years following the date such
person became an interested shareholder (the "determination date") unless such
transaction is approved by the affirmative vote of a majority (but not less than
two) of the "disinterested directors" of the Board of Directors of the Company
and by the affirmative vote of the holders of two-thirds of the voting shares
other than shares beneficially owned by the interested shareholder. For purposes
of the Virginia Affiliated Transactions Statute, a "disinterested director"
means with respect to any interested shareholder (i) any member of the Board of
Directors of the Company who was a member of the Board of Directors before the
later of January 1, 1988 and the determination date, and (ii) any member of the
Board of Directors of the Company who was recommended for election by, or was
elected to fill a vacancy and received the affirmative vote of, a majority of
the disinterested directors then on the Board.
The Virginia Affiliated Transactions Statute provides that during
the three-year period following the date a person becomes an interested
shareholder, the Company may not merge with an interested shareholder or with
any other corporation that immediately after the merger would be an "affiliate"
(as such term is defined in the Virginia Affiliated Transactions Statute) of any
interested shareholder that was an interested shareholder immediately before the
merger. In addition, during this three-year period, the Company may not engage
in certain other transactions, including, without limitation, (i) any share
exchange pursuant to Sec. 13.1-717 of the Virginia Stock Corporation Act in
which an interested shareholder acquires voting shares of the Company or any of
its subsidiaries, (ii) except for transactions in the ordinary course of
business, any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
interested shareholder of any assets of the corporation or of any of its
subsidiaries having an aggregate market value in excess of five percent (5%) of
the Company's consolidated net worth as of the date of the most recently
available financial statements, or any guaranty by the Company or any of its
subsidiaries of indebtedness of any interested shareholder in an amount in
excess of five percent (5%) of the Company's consolidated net worth as of the
date of the most recently available financial statements, (iii) the sale or
other disposition by the Company or any of its subsidiaries to an interested
shareholder (in one transaction or in a series of transactions) of any voting
shares of the Company or any of its subsidiaries having an aggregate fair market
value in excess of five percent (5%) of the aggregate fair market value of all
outstanding voting shares of the Company as of the determination date except
pursuant to a share dividend or the exercise of rights or warrants distributed
or offered on a basis affording substantially proportionate treatment to all
holders of the same class or series of voting shares, (iv) the dissolution of
the Company if proposed by or on behalf of an interested shareholder, or (v) any
reclassification of securities, including any reverse stock split, or
recapitalization of the Company, or any merger of the Company with any of its
subsidiaries or any distribution or other transaction, whether or not with or
into or otherwise involving an interested shareholder, which has the effect,
directly or indirectly (in one transaction or a series of transactions), of
increasing by more than five percent (5%) the percentage of the outstanding
voting shares of the Company or any of its subsidiaries beneficially owned by
any interested shareholder.
According to the Offer to Purchase, the Purchaser beneficially owns
less than 1% and is seeking to acquire approximately 9.65% of the total number
of shares of Common Stock outstanding as of June 4, 1998. Although the Purchaser
has stated in the Offer to Purchase that it does not have any present plans or
intentions to effect a change in management or any plans with respect to a
liquidation, sale of assets or refinancing of the Company's properties, it also
states that the Purchaser and its affiliates may acquire additional shares of
Common Stock. If the Purchaser makes any acquisition of shares of Common Stock
that causes it to become an interested shareholder without approval by a
7
majority of the disinterested directors prior to the Purchaser's determination
date or if the Purchaser proposes a merger not approved by the affirmative vote
of a majority (but not less than two) of the disinterested directors of the
Board of Directors of the Company and by the affirmative vote of the holders of
two-thirds of the voting shares other than shares beneficially owned by the
interested shareholder, the Purchaser will be unable to effect a merger with the
Company until three years after such determination date and will be prevented
from engaging, or causing the Company to engage, in certain transactions during
such period.
The foregoing description of the Virginia Affiliated Transactions
Statute is qualified in its entirety by reference to the Virginia Affiliated
Transactions Statute.
(c) Virginia Control Share Acquisitions Statute.
Under certain circumstances, the Virginia Control Share Acquisitions
Statute (Article 14, Va. Code Secs. 13.1-728.1 et seq.) (the "Virginia Control
Share Acquisitions Statute") may have the effect of eliminating all voting
rights attached to shares acquired by the Purchaser, and may subject such shares
to redemption by the Company.
In summary terms, a "control share acquisition" is the direct or
indirect acquisition, other than an "excepted acquisition" (as defined in the
Virginia Control Share Acquisitions Statute), by any person of "beneficial
ownership" (as defined in the Virginia Control Share Acquisitions Statute) of
shares of the Company that, except for the Virginia Control Share Acquisitions
Statute, would have voting rights and would, when added to all other shares of
the Company which then have voting rights and are beneficially owned by such
person, cause such person to become entitled, immediately upon acquisition of
such shares, to vote or direct the vote of, shares having voting power within
any of the following ranges of the votes entitled to be cast in an election of
directors: (i) one-fifth or more but less than one-third of such votes; (ii)
one-third or more but less than a majority of such votes; or (iii) a majority or
more of such votes.
Pursuant to the Virginia Control Share Acquisitions Statute, shares
acquired in a control share acquisition have no voting rights unless voting
rights are granted by resolution of the shareholders of the Company. For such a
resolution to be adopted, it must be approved by a majority of all the votes
which could be cast in a vote on the election of directors by all the
outstanding shares other than "interested shares." Interested shares are not
entitled to vote on the resolution and, for purposes of determining whether a
quorum exists, are disregarded. "Interested shares" means the shares of the
Company the voting power of which in an election of directors may be exercised
or directed by any of the following persons: (i) a person who has made or
proposes to make a control share acquisition (an "acquiring person") with
respect to a control share acquisition, (ii) any officer of the Company, or
(iii) any employee of the Company who is also a director of the Company.
An acquiring person may, after any control share acquisition or
before any proposed one, deliver a control share acquisition statement to the
Company setting forth, among other things, certain information regarding the
acquiring person, its holdings of shares of the Company and details of such
person's control share acquisition or proposed control share acquisition. If the
acquiring person so requests at the time of delivery of a control share
acquisition statement and gives an undertaking to pay the Company's expenses of
a special meeting, within ten (10) days thereafter the directors of the Company
shall (subject to certain limited exceptions) call a special meeting of
shareholders for the purposes of considering the voting rights to be granted the
shares acquired or to be acquired in the
8
control share acquisition. Such a special meeting shall be held within fifty
days after receipt by the Company of such request (subject to certain conditions
and notice requirements set forth therein).
Although the Purchaser has stated in the Offer to Purchase that it
and its affiliates may acquire additional shares of the Common Stock, the
Purchaser and/or its affiliates must make a "control share acquisition" in order
for this statute to be applicable to the Purchaser's shares of Common Stock.
The foregoing description of the Virginia Control Share Acquisitions
Statute is qualified in its entirety by reference to the Virginia Control Share
Acquisitions Statute.
(d) Litigation.
There is currently no pending litigation filed against the Company
or by the Company in connection with the Offer. There is, however, other pending
litigation against the Company.
On July 29, 1996 ILM II Lease Corporation ("Lease II") and ILM II
Holding, Inc. ("ILM II Holding"), a subsidiary of the Company (collectively for
this discussion, with Lease II and ILM II Holding, the "Companies") terminated
the property management agreement ("Agreement") with Angeles Housing Concepts,
Inc. ("AHC") covering the six senior housing facilities (the "Senior Housing
Facilities") then leased by the Companies. Such Agreement was terminated for
cause pursuant to Sections 1.05(a)(i), and (iii) and (iv) of the Agreement.
Simultaneously with the termination of the Agreement, the Companies, together
with certain affiliated entities, filed suit against AHC in the United States
District Court for the Eastern District of Virginia for breach of contract,
breach of fiduciary duty and fraud (the "Virginia Litigation"). In November
1996, AHC filed with Virginia District Court an Answer in response to the
litigation initiated by the Companies and a Counterclaim against ILM Holding.
The Counterclaim alleges that the Agreement was wrongfully terminated for cause
and requested damages which include the payment of the termination fee in the
amount of $750,000, payment of management fees pursuant to the Agreement from
August 1, 1996 through October 15, 1996, which is the earliest date that the
Agreement could have been terminated without cause, and recovery of attorney's
fees and expenses. The aggregate amount of damages against all parties are
requested in AHC's Counterclaim exceeds $2,000,000. The Company has guaranteed
the payment of the termination fee at issue in these proceedings to the extent
that any termination fee is deemed payable by the court and in the event that
Lease II fails to perform pursuant to its obligations under the Agreement. On
June 13, 1997 and July 8, 1997, the court issued orders purporting to enter
judgement against the Company and ILM Senior Living Inc. ("ILM") in the amounts
of $1,000,000 (the "Orders"). On July 10, 1997, the Company, ILM, Lease II and
ILM I Lease Corporation ("Lease I") filed a notice of appeal to the United
States Court of Appeals for the Fourth Circuit from the Orders.
On February 4, 1997, AHC filed a complaint in the Superior Court of
the State of California against Capital Senior Living, Inc., an affiliate of
Capital Senior Management 2, Inc. ("Capital"), the Company's property manager,
Lawrence A. Cohen, a director and the President and Chief Executive Officer of
the Company, and others alleging that the defendants intentionally interfered
with AHC's Agreement (the "California Litigation"). The complaint sought damages
of at least $2,000,000. On March 4, 1997, the defendants moved the case to the
Federal District Court in the Central District of California. At a Board meeting
on February 26, 1997, the Company's Board of Directors concluded that since all
of Mr. Cohen's actions relating to the California Litigation were taken either
on behalf of the Company under the direction of the Board or as a PaineWebber
employee, the Company or its affiliates should indemnify Mr. Cohen with respect
to any expenses arising from the California Litigation, subject to any insurance
recoveries for those expenses. The Company's Board also concluded that, subject
to
9
certain conditions, the Company or its affiliates should advance up to $20,000
to pay reasonable legal fees and expenses incurred by Capital in the California
Litigation. Subsequently, the boards of directors of Lease I and Lease II voted
to increase the maximum amount of the advance to Capital to $100,000. By the end
of November 1997, Capital had incurred $100,000 of legal expenses in the
California Litigation. On February 2, 1998, the amount to be advance to Capital
was increased to include 75% of the California Litigation legal fees and costs
incurred by Capital for December 1997 and January 1998, plus 75% of cash legal
fees and costs incurred by Capital thereafter, not to exceed $500,000. The
Company intends to vigorously defend its interests in the Virginia Litigation.
On May 8, 1998, Andrew A. Feldman and Jeri Feldman, as Trustees for
the Andrew A. & Jeri Feldman Revocable Trust Dated 9/18/90, commenced a
purported class action on behalf of that trust and all other shareholders of the
Company and ILM Senior Living, Inc ("ILM I") in the Supreme Court of the State
of New York, County of New York against the Company, ILM I and the directors of
both corporations. Andrew A. Feldman and Jeri Feldman, as Trustees for the
Andrew A. & Jeri Feldman Revocable Trust Dated 9/18/90, on behalf of themselves
and other similarly situated, v. Lawrence A. Cohen, Jeffry R. Dwyer, J. William
Sharman, Jr., Carl J. Schramm, Julien G. Redele, ILM Senior Living, Inc. and ILM
II Senior Living, Inc. (N.Y. Sup. Ct. N.Y. County). The class action complaint
alleges that the directors engaged in wasteful and oppressive conduct and
breached fiduciary duties in preventing the sale or liquidation of the assets of
the Company and ILM I, diverting certain of the funds' assets and changing the
nature of the Company and ILM I. The complaint seeks damages in an unspecified
amount, punitive damages, the judicial dissolution of the Company and ILM I, an
order requiring the directors to take all steps to maximize shareholder value,
including either an auction or liquidation, and rescinding certain agreements,
and attorneys' fees. The Company, ILM I and the directors have not yet been
required to respond to the complaint in this action. The Company and ILM I
believe that the action is without merit and intend vigorously to contest this
action.
Item 9. Materials to Be Filed as Exhibits.
Exhibit 1 Excerpts from the Company's Proxy Statement for the
Annual Meeting of Shareholders originally scheduled to
be held on July 7, 1998.
Exhibit 2 Letter to Shareholders dated July 7, 1998.
Exhibit 3 Opinion of Schroder & Co. Inc. dated June 17, 1998.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: July 7, 1998
ILM II SENIOR LIVING, INC.
By: /s/ Lawrence A. Cohen
-------------------------------------
Lawrence A. Cohen
President and Chief Executive Officer
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1 Excerpts from the Company's Proxy Statement for
the Annual Meeting of Shareholders originally scheduled
to be held on July 7, 1998.
2 Letter to Shareholders dated July 7, 1998.
3 Opinion of Schroder & Co. Inc. dated June 17, 1998.