EXHIBIT 2.2
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(Name of Subject Company)
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
(Name of Persons Filing Statement)
LIMITED PARTNERSHIP INTERESTS
(Title of Class of Securities)
029317203
(CUSIP Number of Class of Securities)
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XXXXXXX X. XXXXXXXX
CHIEF EXECUTIVE OFFICER
ARV ASSISTED LIVING, INC.
000 XXXXXXX XXXXXX, X-0
XXXXX XXXX, XX 00000
(000) 000-0000
(Name, address and telephone
number of person authorized to
receive notices and communications on
behalf of the persons filing statement)
WITH A COPY TO:
XXXX X. XXXXXX, ESQ.
O'MELVENY & XXXXX LLP
000 XXXXXXX XXXXXX XXXXX
XXXXX 0000
XXXXXXX XXXXX, XX 00000
(000) 000-0000
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION
The name of the subject company is American Retirement Villas Properties
III, L.P., a California limited partnership (the "Partnership"), and the address
of the principal executive offices of the Partnership is 000 Xxxxxxx Xxxxxx,
Xxxxx X-0, Xxxxx Xxxx, Xxxxxxxxxx 00000. The telephone number of the principal
executive offices of the Partnership is (000) 000-0000. The title of the classes
of equity securities to which this statement relates are the limited partnership
units of the Partnership (the "Units"). As of October 16, 2001, there were
18,666 Units outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON
(a) The name, address and telephone number of the Partnership, which is the
person filing this Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Statement"), are set forth in Item 1 above.
(b) This Statement relates to the tender offer by C3 Capital, LLC, a
California limited liability company ("C3 Capital"), disclosed in a tender offer
statement on Schedule TO (the "C3 Schedule TO"), dated October 4, 2001 and filed
with the Securities and Exchange Commission (the "Commission"), to purchase up
to 10,000 Units at a net cash purchase price of $300 per Unit upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated October 4,
2001, and in the related letter of transmittal included in the Schedule TO (the
"Hostile Offer"). In addition, on October 4, 2001, C3 Capital filed on Schedule
14A with the Commission a consent solicitation (the "Consent Solicitation")
pursuant to which C3 Capital seeks to remove the existing General Partner, and
elect C3 Capital as the general partner of the Partnership.
According to the C3 Schedule TO, the address of the principal executive
offices of C3 Capital is 000 Xxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx Xxxxx, XX
00000. All information contained in this Statement or incorporated herein by
reference concerning C3 Capital or its affiliates, or actions or events with
respect to any of them, was provided by C3 Capital, and the Partnership assumes
no responsibility therefor.
(c) This Statement also relates to the tender offer by ARVP Acquisition,
L.P. ("ARVP Acquisition"), a California limited partnership wholly-owned by ARV
Assisted Living, Inc., a Delaware Corporation and the General Partner of the
Partnership (the "General Partner"), disclosed in a Tender Offer Statement on
Schedule TO that the General Partner filed with the Commission on the date
hereof. The General Partner's offer is to purchase up to 10,000 outstanding
Units at a price of $360 per Unit, net to the seller in cash, without interest,
upon the terms and subject to the conditions set forth in the Offer to Purchase,
dated October 18, 2001 and in the related Letter of Transmittal, dated October
18, 2001 (which, as they may be amended or supplemented from time to time,
together constitute the "General Partner Offer"). The General Partner's Offer to
Purchase and the Letter of Transmittal are being mailed to Unitholders
concurrently with this Schedule 14d-9 and are filed as Exhibits.
The address of the principal executive offices of the General Partner and
ARVP Acquisition is 000 Xxxxxxx Xxxxxx, Xxxxx X-0, Xxxxx Xxxx, Xxxxxxxxxx 00000.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
(a) General Partner Offer
In response to the Hostile Offer, our General Partner has commenced the
General Partner Offer.
(b) Compensation to our General Partner
Our Partnership has no officers or directors. We are managed by our General
Partner. Our General Partner is compensated as set forth below.
Acquisition Fees A property acquisition fee of 2% of Gross Offering
Proceeds as defined in the Partnership Agreement (the "Partnership Agreement")
is required to be paid for services in connection with the selection and
purchase of assisted living communities ("ALCs") and related negotiations. In
addition, a development, processing and renovation fee of 3.5% of Gross Offering
Proceeds is required to be paid for
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services in connection with negotiations for or the renovation or improvement of
existing communities and the development, processing or construction of ALCs
developed by us. There were no property acquisition, development, and renovation
fees for the years ended December 31, 2000, 1999 and 1998, or the six months
ended June 30, 2001.
Rent-Up and Staff Training Fees Our General Partner receives rent-up and
staff training fees of 4.5% of the gross offering proceeds allocated to each
specific acquired or developed ALCs. Such fees are paid for services in
connection with the opening and initial operations of the ALCs including,
without limitation, design and implementation of the advertising, direct
solicitation and other campaigns to attract residents and the initial hiring and
training of managers, food service specialists, activities directors and other
personnel employed in the individual communities. There were no rent-up and
staff training fees for the years ended December 31, 2000, 1999 and 1998 or the
six months ended June 30, 2001.
Property Management Fees A property management fee of 5% of gross revenues
is required to be paid for managerial services including general supervision,
hiring of onsite management personnel employed by the Partnership, renting of
Units, installation and provision of food service, maintenance, and other
operations. Property management fees for the years ended December 31, 2000, 1999
and 1998 and for the six months ended June 30, 2001 were $442,000, $421,000,
$472,000, and $220,000, respectively.
Partnership Management Fees A Partnership management fee of 10% of cash
flow before distributions is paid for implementing the Partnership's business
plan, supervising and management of its affairs including general
administration, coordination of legal, audit, tax, and insurance matters.
Partnership management fees for the years ended December 31, 2000, 1999 and 1998
and for the six months ended June 30, 2001 were $178,000 $151,000, $140,000 and
$88,000, respectively.
Sale of Partnership Projects Our Partnership Agreement neither
specifically authorizes nor prohibits payment or compensation in the form of
real estate commissions to our General Partners or its affiliates. Any such
payments or compensation are subordinated to a return to the Partnership's
limited partners of their capital contributions plus an 8% per annum,
cumulative, but not compounded, return thereon from all sources, including prior
distributions of cash flow. Any such compensation cannot exceed 3% of the gross
sales price or 50% of the standard real estate brokerage commission, whichever
is less. Upon the sale of the Partnership's interest in ARVP III/Bradford
Square, L.P. on December 21, 2000, a $240,060 real estate selling commission was
paid to the General Partner by a limited partnership in which the Partnership
had 50% interest. For the years ended December 31, 1999 and 1998, and for the
six months ended June 30, 2001, no real estate selling commissions were paid to
the General Partner.
Subordinated Incentive Compensation Our General Partner is entitled to
receive 15% of the proceeds of a sale or refinancing, subordinated to a return
of initial Capital Contributions (as defined in our Partnership Agreement), plus
cumulative, but not compounded, return on capital contributions varying from 8%
to 10% per annum. For the years ended December 31, 2000, 1999 and 1998, and for
the six months ended June 30, 2001, no incentive compensation was paid.
Partnership Interest The General Partner and Special Limited Partners are
entitled to receive an aggregate of 1% of all items of capital, profit or loss,
and liquidating distributions, subject to a capital account adjustment.
Reimbursed Expenses & Credit Enhancement Our General Partner may receive
fees for personal guarantees of loans made to the Partnership. All of the
Partnership's expenses are billed directly to and paid by the Partnership. Our
General Partner may be reimbursed for the actual cost of goods and materials
obtained from unaffiliated entities and used for or by the Partnership. Our
General Partner will be reimbursed for administrative services necessary to the
Partnership's prudent operation, provided that such reimbursement is at the
lower of its actual cost or the amount that we would be required to pay to
independent parties for comparable administrative services in the same
geographic location. The total reimbursements to our General Partner amounted to
$3.1 million, $3.7 million, $2.5 million and $1.2 million for the years ended
December 31, 2000, 1999 and 1998, and for the six months ended June 30, 2001,
respectively.
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Right to Indemnification The Partnership Agreement provides that the
General Partner and its affiliates will have no liability to you or the
Partnership for losses suffered by the Partnership arising out of actions or
inactions of the General Partner or its affiliates. This provision only applies
if the General Partner has determined in good faith that the action or inaction
was in the best interests of the Partnership and the General Partner and its
affiliates have not been negligent or engaged in misconduct. The General Partner
and its affiliates are similarly indemnified by the Partnership Agreement for
losses suffered by them in connection with claims sustained by them in
conjunction with the Partnership. No claims have been made or are contemplated
by us under these provisions.
CONFLICTS OF INTEREST WITH OUR GENERAL PARTNER
Other than the compensation earned by our General Partner as set forth
above, no General Partner or affiliate receives any direct or indirect
compensation from the Partnership. The General Partner receives a property
management fee of 5% of Gross Revenues (as defined in the Partnership
Agreement). Because this fee is payable without regard to whether particular
properties are generating cash flow or otherwise benefiting us, a conflict of
interest could arise in that it might be to the advantage of our General Partner
that a property be retained or re-financed rather than sold. On the other hand,
an affiliate of our General Partner may earn a real estate commission on sale of
a property, creating incentive to sell what might be a profitable property.
Our General Partner has authority to invest the Partnership's funds in
properties or entities in which it or any of its affiliates has an interest,
provided we acquire a controlling interest. In any such investment, duplicate
property management or other fees will not be permitted. Our General Partner or
any of its affiliates may, however, purchase property in their own names and
temporarily hold title to facilitate acquisitions for us, provided that such
property is purchased by us at cost (including acquisition, closing and carrying
costs). Our General Partner will not commingle the Partnership's funds with
those of itself or any other person or entity.
Conflicts of interest exist to the extent that properties owned or operated
by the Partnership compete, or are in a position to compete, for residents,
general managers or key employees with ALCs owned or operated by our General
Partner and any of its affiliates in the same geographic area. The General
Partner seeks to reduce any such conflicts by offering such persons their choice
of residence or employment on comparable terms in any community.
Further conflicts may exist if and to the extent that other affiliated
owners of ALCs managed by the General Partner seek to refinance or sell at the
same time as us. Our General Partner will seek to reduce any such conflicts by
making prospective purchasers aware of all properties available for sale.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation Relating to the Hostile Offer
Following receipt of the Hostile Offer, our General Partner reviewed and
considered the Hostile Offer. THE GENERAL PARTNER BELIEVES THAT THE HOSTILE
OFFER IS NOT IN THE BEST INTERESTS OF THE UNITHOLDERS, AND RECOMMENDS THAT
UNITHOLDERS REJECT THE HOSTILE OFFER AND NOT TENDER THEIR UNITS PURSUANT
THERETO.
(b) Recommendation Relating to the General Partner Offer
We believe that the General Partner Offer is fair to you. The terms of the
General Partner Offer, however, were established unilaterally by the General
Partner and were not negotiated with the Partnership or any representative for
the Unitholders. Except as follows, we are not making any recommendation to you
as to whether you should tender your Units to ARVP Acquisition because of our
inherent conflict of interest and our belief that the value of the Units may be
higher than the General Partner's $360 offer price. You should make this
decision only after consulting with your financial and tax advisors and
considering carefully all information given to you in the General Partner Offer.
If you intend to tender Units to C3 Capital, however, we recommend that you
tender your Units instead to ARVP Acquisition because the terms and conditions
of the General Partner Offer are superior to the Hostile Offer.
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(c) Reasons for Recommendations
If C3 Capital successfully consummates the Hostile Offer and acquires
sufficient Units to constitute a majority of the outstanding Units of the
Partnership, it will be in a position to control your Partnership and change the
general partner of the Partnership. The Hostile Offer does not require C3
Capital to acquire all the outstanding Units, and would likely result, if
successful, in your continued ownership of Units (in smaller quantities) than
you now own. In making our recommendation that you not accept the Hostile Offer,
we considered a number of factors, including the following:
(i) General Partner Offer at $360 per Unit. On October 18, 2001, our
General Partner commenced the General Partner Offer and offered to
purchase, through ARVP Acquisition, 10,000 Units, constituting a 54%
interest in the Partnership, at $360 per Unit, net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in
the Offer to Purchase and related Letter of Transmittal. The General
Partner's primary purpose in making the General Partner Offer is to enable
Unitholders to realize a price for their Units that is substantially higher
than that being offered by C3 Capital, and closer to the value that we
believe may be realizable if the Partnership were to be liquidated, as
described in the General Partner Offer under "SPECIAL
FACTORS -- Alternatives Considered to the Offer." The price to be paid in
the General Partner Offer is $60 per Unit higher than the price to be paid
by C3 Capital in the Hostile Offer, representing a 20% premium over C3
Capital's price. The General Partner believes that the other terms and
conditions of the General Partner Offer are equal or superior to the terms
contained in the Hostile Offer.
(ii) Acceleration of Loans. As set forth above, C3 Capital is
proposing to replace the general partner of the Partnership. If C3 Capital
is successful in replacing us as the general partner of the Partnership,
this could constitute an event of default under the Partnership's loan
documents, causing all outstanding amounts, in the aggregate principal
amount of approximately $13.8 million, to become immediately due and
payable. If there is an event of default, the lender could invoke its power
under the loan agreements and California law to sell the properties to
repay the outstanding indebtedness. Although it is not likely you would
lose your equity in the Partnership's assets, the value could be reduced.
Moreover, one of the loan agreements restricts prepayments until 2006, at
which time there is a prepayment penalty of 5% of the outstanding loan
amount. In any event, it would create an unnecessary and inappropriate
financial burden on the Partnership and be detrimental to Unitholders who
do not tender or cannot tender because of limits on the number of units
that C3 Capital has committed to purchase. You should know that C3 Capital
has not received any lender consents to avoid an event of default under the
loan agreements, and there is no assurance that C3 Capital will be able to
do so.
In addition, a loan with a current balance of $8,005,395 matures on one of
your Partnership's properties on January 1, 2002. On October 10, 2001, the
Partnership's lender, Red Mortgage Capital Inc., has committed to extend
the loan for one year to January 2003 if the General Partner remains in
control of the Partnership. This extension period should allow the General
Partner ample time to secure attractive long-term financing. In the Hostile
Offer, C3 Capital has not disclosed the source of capital, if any, from
which they expect the Partnership to refinance or pay this debt. Should C3
Capital gain control of your Partnership, your investment in the
Partnership will therefore be unnecessarily put at risk.
(iii) C3 Capital's History and Track Record. Key members of the
management of C3 Capital were senior executives of our General Partner at
the time that the Partnership was formed in 1989 and the Partnership's two
remaining assisted living communities, Villa Las Xxxxx and Xxxxxxxx Villas
(the "Partnership Properties") were acquired and developed. They remained
in those roles until they terminated their employment with the General
Partner in 1997 and 1998. Accordingly, since C3 Capital seeks to regain
control of the Partnership and its assets, our General Partner believes
that C3 Capital's history and track record, both in general and with
respect to the Partnership Properties, is important to Unitholders. As
noted below, the Hostile Offer contains no information with respect to C3
Capital's track record with respect to the Partnership Properties, or with
respect to other properties it currently manages. The track record of the
Partnership while it was under the control of C3 Capital's current
management, compared to the track record of the Partnership under the
control of our General Partner's current management team, is reflected in
the following table, derived from the information reported to Unitholders
on their annual Form K-1s for federal income tax purposes.
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AMERICAN RETIREMENT VILLAS PROPERTIES III
DISTRIBUTIONS TO A HOLDER OF FIVE UNITS
($1,000 PER UNIT INITIAL PURCHASE PRICE)
YEAR CASH DISTRIBUTIONS
---- ------------------
Under Control of C3 Capital's Senior Management
1989...................................................... $ 59
1990...................................................... 188
1991...................................................... 341
1992...................................................... 313
1993...................................................... 175
1994...................................................... 750
1995...................................................... 75
1996...................................................... 125
1997...................................................... 0
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Total Distributions under Prior Management.................. $2,026
Under Control of Current Management
1998...................................................... 250
1999...................................................... 2,603
2000...................................................... 106
2001...................................................... 1,222
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Total Distributions under Current Management................ $4,181
The low returns during the period from 1989 through 1997 were
attributable in part to the fact that the Partnership had acquired and held
a large parcel of undeveloped land (which later became Villa Las Xxxxx)
that was not income producing until 1998.
During the nine years in which C3 Capital's senior management was in
control of the Partnership, the aggregate distributions on a $5,000 initial
investment (i.e., to a holder of five Units) was approximately $2,026,
representing an average annual cash return of approximately 4.5% per year.
During that same time, the holder of five Units would have received tax
deductions aggregating approximately $1,721, resulting in the distributions
being substantially tax sheltered.
During the approximately four years in which current management of the
General Partner has been in control of the Partnership, the aggregate
distributions on a $5,000 initial investment (i.e., to a holder of five
Units) Units have been $4,181, representing an average annual cash return
of approximately 22.3% per year. These distributions were not tax
sheltered.
(iv) Possible Values of the Units. The General Partner has
established its own estimated liquidation value of the Partnership
Properties and obtained an independent appraisal on those properties to
determine a fair offer price. See "SPECIAL FACTORS -- Determination of the
Offer Price" in the General Partner Offer. As described in the General
Partner Offer, we believe that the Units have a value substantially higher
than both the $300 being offered by C3 Capital and the $360 being offered
in the General Partner Offer.
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(v) Misleading Statements in or Omissions from the Offering Materials
Associated with the Hostile Offer. The General Partner believes that the
offering materials pursuant to which C3 Capital has made the Hostile Offer
contain numerous material misstatements or omissions that our General
Partner believes are material to a decision on the part of a Unitholder
deciding whether to tender Units to C3 Capital. These include the
following:
Restrictions on Transfer of Units. C3 Capital failed to disclose
in the Hostile Offer that the Units are subject to transfer restrictions
pursuant to California Blue Sky laws. It may be unlawful for you to sell
the Units without the prior written consent of the California
Commissioner of Corporations, unless an exemption applies. To the
General Partner's knowledge, C3 Capital has not obtained a permit that
would allow you to transfer your Units to C3 Capital without violating
California state securities laws.
Unequal Treatment of Unitholders. All Unitholders are not treated
equally in the Hostile Offer. In the Hostile Offer, it appears that,
unless you agree to tender all of your Units, you will be required to
retain at least five Units, or if your Units are held in a qualified
benefit plan, you must retain two Units. This provision treats
Unitholders who hold large numbers of Units more favorably than small
holders and, we believe, is not in compliance with applicable law.
Furthermore, the Hostile Offer misstates that the Partnership Agreement
requires Unitholders that desire to tender less than all of their Units
to retain a minimum of five units, or two if held in a qualified benefit
plan. In fact, the Partnership Agreement requires only that the minimum
number of Units allowed to be purchased or transferred is five, or two
if to a qualified benefit plan, and does not address how many Units must
be retained.
(c) Intent to Tender
After reasonable inquiry, to the best of the General Partner's knowledge,
the General Partner is the only officer or affiliate of the Partnership who owns
Units. The General Partner owns 58.4 Units and has decided not to tender its
Units pursuant to the Hostile Offer.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED
Neither the Partnership nor any person acting on its behalf has employed or
retained or will compensate any other person to make solicitations or
recommendations to Unitholders on behalf of the Partnership with respect to the
Hostile Offer or the General Partner Offer.
The General Partner has retained Xxxxxxxxx Shareholder Communications Inc.
("Xxxxxxxxx") in connection with the General Partner Offer. See "THE TENDER
OFFER -- Certain Fees and Expenses" of the General Partner Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
Neither our General Partner nor, to the best knowledge of our General
Partner, any of its executive officers, directors, affiliates or subsidiaries
has effected any transactions in the Units during the past sixty (60) days.
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ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
In response to the Hostile Offer, the General Partner has made the General
Partner Offer. The General Partner has not negotiated this offer with the
Partnership.
The Partnership is not currently undertaking or engaged in any negotiations
in response to the Offer that relate to: (a) a tender offer for or other
acquisition of the Partnership's Units by the Partnership, any subsidiary of the
Partnership, or any other person, (b) an extraordinary transaction, such as a
merger, reorganization, or liquidation, involving the Partnership or any of its
subsidiaries, (c) a purchase, sale, or transfer of a material amount of assets
of the Partnership or any of its subsidiaries, or (d) any material change in the
present dividend rate or policy, or indebtedness or capitalization of the
Partnership.
Except as described above, there are no transactions, board resolutions,
agreements in principle, or signed contracts in response to the Hostile Offer or
the General Partner Offer that would relate to one or more of the matters
referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION
Reference is hereby made to the Offer to Purchase and the Letter of
Transmittal of the General Partner Offer filed as Exhibits (a)(3) and (a)(4) and
are incorporated herein by this reference in their entirety.
This document does not constitute a solicitation of proxies or consents
from holders of Units. Any such solicitation that may be made by the Partnership
will be made only pursuant to separate materials complying with the requirements
of Section 14(a) of the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.
ITEM 9. EXHIBITS
The following exhibits are filed herewith:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(a)(1)(A) -- General Partner Offer to Purchase, dated October 18, 2001.
(a)(1)(B) -- General Partner Letter of Transmittal, dated October 18,
2001.
(a)(1)(C) -- Notice of Withdrawal.
(a)(2) -- Not applicable.
(a)(3) -- Not applicable.
(a)(4) -- Not applicable.
(a)(5)(A) -- Press release dated October 5, 2001.
(a)(5)(B) -- Press release dated October 8, 2001.
(a)(5)(C) -- Letter to Unitholders dated October 18, 2001.
(a)(5)(D) -- Press release concerning General Partner Offer, dated
October 18, 2001.
(a)(5)(E) -- Information Letter to Unitholders.
(a)(5)(G) -- Urgent Letter to Unitholders.
(e) -- Not applicable.
(g) -- Not applicable.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
AMERICAN RETIREMENT VILLAS PROPERTIES
III, L.P.
By: ARV Assisted Living, Inc., its
General Partner
/s/ XXXXXXX X. XXXXXXXX
---------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Chairman and Chief Executive
Officer
Dated: October 18, 2001
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(a)(1)(A) -- General Partner Offer to Purchase, dated October 18, 2001.
(a)(1)(B) -- General Partner Letter of Transmittal, dated October 18,
2001.
(a)(1)(C) -- Notice of Withdrawal.
(a)(2) -- Not applicable.
(a)(3) -- Not applicable.
(a)(4) -- Not applicable.
(a)(5)(A) -- Press release dated October 5, 2001.
(a)(5)(B) -- Press release dated October 8, 2001.
(a)(5)(C) -- Letter to Unitholders dated October 18, 2001.
(a)(5)(D) -- Press release concerning General Partner Offer, dated
October 18, 2001.
(a)(5)(E) -- Information Letter to Unitholders.
(a)(5)(G) -- Urgent Letter to Unitholders.
(e) -- Not applicable.
(g) -- Not applicable.
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