PREM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant x                     Filed by a Party other than the Registrant ¨

Check the appropriate box:

 

x Preliminary Proxy Statement

 

¨ Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

¨ Definitive Proxy Statement

 

¨ Definitive Additional Materials

 

¨ Soliciting Material Under Rule 14a-12

ASSISTED LIVING CONCEPTS, INC.

(Name of Registrant as Specified in its Charter)

Payment of Filing Fee (Check the appropriate box):

 

¨ No fee required

 

x Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

 

  (1) Title of each class of securities to which transaction applies:

Assisted Living Concepts, Inc. Class A common stock, par value $0.01 per share (“Class A common stock”).

Assisted Living Concepts, Inc. Class B common stock, par value $0.01 per share (“Class B common stock”).

 

 

  (2) Aggregate number of securities to which transaction applies:

(a)(i) 20,073,025 shares of Class A common stock and (ii) 517,366 shares of Class A common stock underlying

tandem stock options/stock appreciation rights of the Company.

(b) 2,897,516 shares of Class B common stock.

 

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

The maximum aggregate value of the transaction was determined based upon the sum of: (A) (i) 20,073,025 shares of Class A common stock multiplied by $12.00 per share (the “Class A per share merger consideration”), (ii) 130,666 shares of Class A common stock underlying the Company tandem stock options/stock appreciation rights with an exercise price of $12.00 or less multiplied by the excess of the Class A per share merger consideration over the weighted average exercise price of the tandem stock option/stock appreciation rights of $7.93, and (iii) 2,897,516 shares of Class B common stock multiplied by $12.90 per share.

The filing fee equals the product of 0.0001364 multiplied by the maximum aggregate value of the transaction.

 

 

  (4) Proposed maximum aggregate value of transaction:

$278,786,067.02

 

 

  (5) Total fee paid:

$38,026.42

 

 

¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

 

  (2) Form, Schedule or Registration Statement No.:

 

 

  (3) Filing party:

 

 

  (4) Date Filed:

 

 

 

 

 


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PRELIMINARY PROXY MATERIAL SUBJECT TO COMPLETION

ASSISTED LIVING CONCEPTS, INC.

W140 N8981 Lilly Road

Menomonee Falls, Wisconsin 53051

(262) 257-8888

[            ], 2013

To the Stockholders of Assisted Living Concepts, Inc.:

You are cordially invited to attend a special meeting of stockholders of Assisted Living Concepts, Inc., a Nevada corporation (the “Company,” “we,” “usorour”), to be held at 10:00 a.m., local time, on [            ], 2013, at [            ].

On February 25, 2013, we entered into an Agreement and Plan of Merger (the “merger agreement”) with Aid Holdings, LLC, a Delaware limited liability company (“Parent”), and Aid Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “merger”), with the Company surviving the merger as a wholly-owned subsidiary of Parent. Parent and Merger Sub are affiliates of TPG Capital, L.P. At the special meeting, we will ask you to approve the merger agreement.

If the merger is completed, each share of Class A common stock of the Company (“Class A common stock”) issued and outstanding immediately prior to the effective time of the merger (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent) will be converted automatically into the right to receive $12.00 in cash, without interest (the “Class A per share merger consideration”). Each share of Class B common stock of the Company (“Class B common stock”) issued and outstanding immediately prior to the effective time of the merger (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent or stockholders who have properly exercised and perfected dissenters’ rights under Nevada law) will be converted automatically into the right to receive $12.90 in cash, without interest (as required under the Company’s Amended and Restated Articles of Incorporation based on the Class A per share merger consideration).

A Special Committee of the board of directors of the Company, consisting entirely of independent directors, carefully reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and adopted and approved the merger agreement, the merger and the other transactions contemplated thereby. The Special Committee also unanimously recommended that the board of directors approve the merger and that, at a special meeting of the stockholders of the Company, (a) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (b) the holders of Class A common stock (other than (i) holders of shares of Class B common stock, (ii) holders of shares of Class A common stock to which shares of Class A common stock were transferred by any holder of shares of Class B common stock after the date of the merger agreement, (iii) Parent or Merger Sub, (iv) any officers or directors of the Company or (v) any affiliates or associates of any of the foregoing (the “excluded Class A holders”)), voting as a single, separate class, vote in favor of approval of the merger agreement. The board of directors, after careful consideration and acting after having received the unanimous recommendation of the Special Committee, unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and adopted and approved the merger agreement, the merger and the other transactions contemplated thereby. The board of directors also unanimously directed that the merger agreement be submitted to the stockholders of the Company for approval and recommended that, at a special meeting of the stockholders of the Company, (a) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (b) the holders of Class A common stock (other than the excluded Class A holders), voting as a single, separate class, vote in favor of approval of the merger agreement.


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At the special meeting, the stockholders of the Company will be asked to vote on a proposal to approve the merger agreement and a non-binding, advisory proposal to approve the compensation that may be paid or become payable to the Company’s named executive officers in connection with, or following, the consummation of the merger, as specified and disclosed in the accompanying proxy statement, which we refer to as the “non-binding compensation proposal.”

The Special Committee unanimously recommends that the stockholders of the Company vote “FOR” approval of the merger agreement. The board of directors (after having received the unanimous recommendation of the Special Committee) also unanimously recommends that the stockholders of the Company vote “FOR” approval of the merger agreement. In addition, the board of directors of the Company unanimously recommends that the stockholders of the Company vote “FOR” the non-binding compensation proposal.

The merger cannot be completed without (i) the approval by the holders of a majority of the voting power of outstanding shares of Class A common stock and Class B common stock, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes) and (ii) the approval by the holders of a majority of the voting power of outstanding shares of Class A common stock, excluding shares owned, directly or indirectly, by excluded Class A holders, voting as a single separate class. More information about the merger is contained in the accompanying proxy statement and a copy of the merger agreement is attached thereto as Annex A.

We encourage you to read the accompanying proxy statement in its entirety because it explains the merger, the documents related to the merger and other related matters.

Regardless of the number of shares of Company common stock you own, your vote is important. The failure to vote will have the same effect as a vote against the proposal to approve the merger agreement. Whether or not you plan to attend the special meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. If your shares of Company common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee, you should instruct your broker, dealer, commercial bank, trust company or other nominee how to vote in accordance with the voting instruction form furnished by your broker, dealer, commercial bank, trust company or other nominee.

We appreciate your continued support of the Company.

 

Sincerely,
Melvin A. Rhinelander
Co-Vice Chair of the Board of Directors and Chairman of the Special Committee

The merger has not been approved or disapproved by the Securities and Exchange Commission or any state securities commission. Neither the Securities and Exchange Commission nor any state securities commission has passed upon the merits or fairness of the merger or upon the adequacy or accuracy of the information contained in this document or the accompanying proxy statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement is dated [            ], 2013 and is first being mailed to stockholders on or about [            ], 2013.


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ASSISTED LIVING CONCEPTS, INC.

W140 N8981 Lilly Road

Menomonee Falls, Wisconsin 53051

(262) 257-8888

ASSISTED LIVING CONCEPTS, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD [            ], 2013

NOTICE IS HEREBY GIVEN that the special meeting of stockholders of Assisted Living Concepts, Inc. (the “Company,” “we,” “us” or “our”) will be held at 10:00 a.m., local time, on [            ], 2013 at [            ], for the following purposes:

 

  1. To approve the Agreement and Plan of Merger, dated February 25, 2013 (the “merger agreement”), by and among the Company, Aid Holdings, LLC, a Delaware limited liability company (“Parent”), and Aid Merger Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “merger”), with the Company surviving the merger as a wholly-owned subsidiary of Parent (Parent and Merger Sub are affiliates of TPG Capital, L.P.); and

 

  2. To consider and vote on a non-binding, advisory proposal to approve the compensation that may be paid or become payable to the Company’s named executive officers in connection with, or following, the consummation of the merger, as specified and disclosed in the accompanying proxy statement, which we refer to as the “non-binding compensation proposal.”

For more information about the merger and the other transactions contemplated by the merger agreement, please review the accompanying proxy statement and the merger agreement attached thereto as Annex A.

A Special Committee of the board of directors of the Company, consisting entirely of independent directors, carefully reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and adopted and approved the merger agreement, the merger and the other transactions contemplated thereby. The Special Committee also unanimously recommended that the board of directors approve the merger and that, at a special meeting of the stockholders of the Company, (a) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (b) the holders of Class A common stock of the Company (“Class A common stock”) (other than (i) holders of shares of Class B common stock of the Company (“Class B common stock”), (ii) holders of shares of Class A common stock to which shares of Class A common stock were transferred by any holder of shares of Class B common stock after the date of the merger agreement, (iii) Parent or Merger Sub, (iv) any officers or directors of the Company or (v) any affiliates or associates of any of the foregoing (the “excluded Class A holders”), voting as a single, separate class, vote in favor of approval of the merger agreement. The board of directors, after careful consideration and acting after having received the unanimous recommendation of the Special Committee, unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and adopted and approved the merger agreement, the merger and the other transactions contemplated thereby. The board of directors also unanimously directed that the merger agreement be submitted to the stockholders of the Company for approval and recommended that, at a special meeting of the stockholders of the Company, (a) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (b) the holders of Class A common stock (other than the excluded Class A holders), voting as a single, separate class, vote in favor of approval of the merger agreement.

The Special Committee unanimously recommends that the stockholders of the Company vote “FOR” approval of the merger agreement. The board of directors (after having received the unanimous recommendation of the Special Committee) also unanimously recommends that the stockholders of the


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Company vote “FOR” approval of the merger agreement. In addition, the board of directors of the Company unanimously recommends that the stockholders of the Company vote “FOR” the non-binding compensation proposal.

Only stockholders of record at the close of business on [                ], 2013 are entitled to notice of and to vote at the special meeting and at any and all adjournments or postponements thereof.

The approval of the merger agreement requires (i) the approval by the holders of a majority of the voting power of shares of Class A common stock and Class B common stock outstanding at the close of business on the record date, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes) and (ii) the approval by the holders of a majority of the voting power of shares of Class A common stock outstanding at the close of business on the record date, excluding shares owned, directly or indirectly, by excluded Class A holders, voting as a single separate class. The approval of the non-binding compensation proposal requires the affirmative vote of the holders of a majority of the total number of votes cast with respect to the non-binding compensation proposal in respect of shares of Class A common stock and Class B common stock, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes). Please be advised that the non-binding compensation proposal is advisory only and will not be binding on the Company or the board of directors of the Company.

Regardless of the number of shares of Company common stock you own, your vote is important. The failure to vote will have the same effect as a vote against the proposal to approve the merger agreement. Whether or not you plan to attend the special meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. If your shares of Company common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee, you should instruct your broker, dealer, commercial bank, trust company or other nominee how to vote in accordance with the voting instruction form furnished by your broker, dealer, commercial bank, trust company or other nominee.

Holders of Class B common stock who do not vote in favor of approval of the merger agreement will have dissenters’ rights in accordance with Nevada law and receive the fair value of their shares of Class B common stock as determined under Nevada law if the merger closes but only if they properly exercise their dissenters’ rights by complying with the required procedures under Nevada law, which are summarized in the accompanying proxy statement.

If you plan to attend the special meeting, please note that you may be asked to present valid photo identification, such as a driver’s license or passport. If you wish to attend the special meeting and your shares of Company common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee (i.e., in “street name”), you must bring to the special meeting a proxy from the record holder of those shares of Company common stock authorizing you to vote at the special meeting.

 

By Order of the Board of Directors,
Mary T. Zak-Kowalczyk
Secretary

[                ], 2013


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Important Notice of Internet Availability

This proxy statement for the special meeting to be held on [                ], 2013 is available free of charge under the heading “Periodic Reports and Proxy Statements” in the “Investor Relations” section at www.alcco.com.

YOUR VOTE IS IMPORTANT

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE ENCOURAGED TO VOTE AS SOON AS POSSIBLE. YOU MAY VOTE YOUR SHARES OF COMPANY COMMON STOCK BY TELEPHONE, OVER THE INTERNET, OR BY COMPLETING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED. VOTING BY PROXY WILL NOT PREVENT YOU FROM ATTENDING THE MEETING AND VOTING IN PERSON IF YOU SO DESIRE.


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SUMMARY VOTING INSTRUCTIONS

Ensure that your shares of Company common stock can be voted at the special meeting by submitting your proxy or contacting your broker, dealer, commercial bank, trust company or other nominee.

If your shares of Company common stock are registered in the name of a broker, dealer, commercial bank, trust company or other nominee: check the voting instruction card forwarded by your broker, dealer, commercial bank, trust company or other nominee to see which voting options are available or contact your broker, dealer, commercial bank, trust company or other nominee in order to obtain directions as to how to ensure that your shares of Company common stock are voted at the special meeting.

If your shares of Company common stock are registered in your name: submit your proxy as soon as possible by telephone, via the Internet or by signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope, so that your shares of Company common stock can be voted at the special meeting.

Instructions regarding telephone and Internet voting are included on the proxy card.

The failure to vote will have the same effect as a vote against the proposal to approve the merger agreement. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the proposal to approve the merger agreement and the non-binding compensation proposal.

If you have any questions, require assistance with voting your proxy card,

or need additional copies of proxy material, please call Georgeson at the phone number listed below.

 

LOGO

480 Washington Blvd, 26th Floor

Jersey City, NJ 07310

(800) 509-0984 (Toll Free)

Banks and Brokerage Firms please call:

(800) 223-2064

 


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     Page  

PROXY STATEMENT

     1   

SUMMARY TERM SHEET

     1   

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     10   

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     14   

THE PARTIES

     15   

Assisted Living Concepts, Inc.

     15   

Aid Holdings, LLC

     15   

Aid Merger Sub, LLC

     15   

THE SPECIAL MEETING

     15   

Date, Time and Place

     15   

Purpose of the Special Meeting

     16   

Recommendation of the Special Committee and the Board

     16   

Record Date; Stockholders Entitled to Vote; Quorum

     16   

Vote Required

     17   

Stock Ownership and Interests of Certain Persons

     18   

Voting Agreement

     18   

Voting Procedures

     19   

Other Business

     20   

Revocation of Proxies

     20   

Rights of Stockholders Who Object to the Merger

     20   

Solicitation of Proxies

     21   

Assistance

     21   

THE MERGER

     22   

Overview of the Transaction

     22   

Officers and Directors of the Surviving Corporation; Articles of Incorporation and Bylaws of the Surviving Corporation

     22   

Background of the Merger

     23   

Recommendation of the Special Committee and Board; Reasons for Recommending the Approval of the Merger Agreement

     35   

Opinion of Citigroup Global Markets, Inc., Financial Advisor to the Special Committee

     39   

Certain Effects of the Merger

     45   

Effects on the Company if Merger Is Not Completed

     46   

Prospective Financial Information

     47   

Financing of the Merger

     49   

Limited Guarantee

     50   

Interests of the Company’s Directors and Executive Officers in the Merger

     50   

Dividends

     54   

Regulatory Matters

     55   

Material U.S. Federal Income Tax Consequences

     55   

Delisting and Deregistration of the Shares of Class A Common Stock

     58   

Litigation Relating to the Merger

     58   

THE MERGER AGREEMENT

     59   

Explanatory Note Regarding the Merger Agreement

     59   

Effects of the Merger; Directors and Officers; Articles of Incorporation; Bylaws

     59   

Closing and Effective Time of the Merger

     60   

Treatment of Common Stock and Equity Awards

     60   

Representations and Warranties

     62   

Conduct of Our Business Pending the Merger

     64   

Acquisition Proposals; Change in Recommendation

     66   

 

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(continued)

 

     Page  

Stockholders Meeting

     69   

Cooperation; Best Efforts; Transaction Litigation

     69   

Healthcare Permits

     69   

Financing Covenant; Company Cooperation

     69   

Employee Benefit Matters

     70   

Indemnification; Directors’ and Officers’ Insurance

     70   

Access

     71   

Other Covenants

     71   

Conditions to the Merger

     71   

Termination

     73   

Termination Fees and Reimbursement of Expenses

     74   

Remedies

     76   

Amendments

     77   

COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

     78   

Security Ownership of Certain Beneficial Owners

     78   

Security Ownership of Directors and Management

     82   

DISSENTERS’ RIGHTS

     83   

MARKET PRICE AND DIVIDEND INFORMATION

     84   

STOCKHOLDER PROPOSALS AND NOMINATIONS

     85   

WHERE YOU CAN FIND MORE INFORMATION

     85   

Presentation of Comprehensive Income

     86   

 

ANNEX A:

   AGREEMENT AND PLAN OF MERGER      A-1   

ANNEX B:

   AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION      B-1   

ANNEX C:

   AMENDED AND RESTATED BYLAWS OF THE SURVIVING CORPORATION      C-1   

ANNEX D:

   FINANCIAL ADVISOR OPINION      D-1   

ANNEX E:

   NEVADA REVISED STATUTES SECTIONS 92A.300 TO 92A.500      E-1   

 

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ASSISTED LIVING CONCEPTS, INC.

SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD [                ], 2013

 

 

PROXY STATEMENT

 

 

This proxy statement contains information related to a special meeting of stockholders of Assisted Living Concepts, Inc. (“ALC,” the “Company,” “we,” “us” or “our”) which will be held at 10:00 a.m., local time, on [            ], 2013, at [            ] and any adjournments or postponements thereof. We are furnishing this proxy statement to stockholders of the Company as part of the solicitation of proxies by a Special Committee of the board of directors of the Company (referred to herein as the “Special Committee”) and the board of directors of the Company (referred to herein as the “Board”) for use at the special meeting. This proxy statement is dated [            ], 2013 and is first being mailed to stockholders on or about [             ], 2013.

SUMMARY TERM SHEET

This summary term sheet highlights selected information in this proxy statement and may not contain all of the information about the merger that is important to you. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary term sheet. You should carefully read this proxy statement in its entirety, including the annexes and the other documents to which we have referred you, for a more complete understanding of the matters being considered at the special meeting. You may obtain without charge copies of documents incorporated by reference into this proxy statement by following the instructions under “Where You Can Find More Information” beginning on page 85. In this proxy statement, the terms “we,” “us,” “our,” “ALC” and the “Company” refer to Assisted Living Concepts, Inc. and its subsidiaries. We refer to TPG Capital, L.P. as “TPG” and to TPG Partners VI, L.P. as “TPG VI.” We refer to Aid Holdings, LLC as “Parent” and to Aid Merger Sub, LLC as “Merger Sub.” When we refer to the “merger agreement,” we mean the Agreement and Plan of Merger, dated as of February 25, 2013, among the Company, Parent and Merger Sub.

The Parties (page 15)

Assisted Living Concepts, Inc., incorporated in 1994, is a Nevada corporation that operates senior living residences that provide seniors with a supportive, home-like setting with care and services including 24-hour assistance with activities of daily living, medication management, life enrichment, health and wellness, and other services either directly from ALC employees or indirectly through wholly-owned health care service subsidiaries. The Company operates entirely in the United States.

Both Parent and Merger Sub were formed for the sole purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. Both Parent and Merger Sub are affiliates of TPG VI.

Overview of the Transaction (page 22)

The Company, Parent and Merger Sub entered into the merger agreement on February 25, 2013. Under the terms of the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent. Subject to the terms and conditions in the merger agreement, the following will occur in connection with the merger:

 

   

each share of Class A common stock of the Company (“Class A common stock”) issued and outstanding immediately prior to the effective time of the merger (which we refer to as the “effective

 

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time”) (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent) will be converted automatically into the right to receive the Class A per share merger consideration, as described below;

 

   

each share of Class B common stock of the Company (“Class B common stock” and, together with Class A common stock, “Company common stock”) issued and outstanding immediately prior to the effective time (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent or stockholders who have properly exercised and perfected dissenters’ rights under Nevada law) will be converted automatically into the right to receive the Class B per share merger consideration, as described below;

 

   

all shares of Class A common stock so converted will, at the effective time, be canceled, and each holder of any such shares of Class A common stock (whether certificated or uncertificated) shall cease to have any rights with respect thereto, except the right to receive the Class A per share merger consideration upon surrender of such shares and all shares of Class B common stock so converted will, at the effective time, be canceled, and each holder of any such shares of Class B common stock (whether certificated or uncertificated) will cease to have any rights with respect thereto, except the right to receive the Class B per share merger consideration upon surrender of such shares; and

 

   

each tandem stock option/stock appreciation right with respect to shares of Class A common stock (a “Tandem Option/SAR”) that is outstanding immediately prior to the effective time (whether or not then exercisable or vested) will be canceled at the effective time and converted into the right to receive the Tandem Option/SAR consideration, as described below.

Following and as a result of the merger:

 

   

Company stockholders will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth;

 

   

shares of Class A common stock will no longer be listed on The New York Stock Exchange (“NYSE”), and price quotations with respect to shares of Class A common stock in the public market will no longer be available; and

 

   

the registration of shares of Class A common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be terminated.

The Special Meeting (page 15)

The special meeting will be held on [                ], 2013 at [                ]. At the special meeting, you will be asked to, among other things, approve the merger agreement. Please see the section of this proxy statement captioned “Questions and Answers About the Special Meeting and the Merger” for additional information on the special meeting, including how to vote your shares of Company common stock.

Record Date; Stockholders Entitled to Vote; Vote Required to Approve the Merger Agreement (page 16)

You may vote at the special meeting if you owned any shares of Company common stock at the close of business on [            ], 2013, the record date for the special meeting (the “record date”). On that date, there were [                ] shares of Class A common stock outstanding and entitled to vote at the special meeting and [                ] shares of Class B common stock outstanding and entitled to vote at the special meeting. You may cast one vote for each share of Class A common stock that you owned on that date and ten votes for each share of Class B common stock that you owned on that date. Approval of the merger agreement requires (a) the approval by the holders of a majority of the voting power of shares of Class A common stock and Class B common stock outstanding at the close of business on the record date, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes) (the “requisite approval”) and (b) the approval by the holders of a majority of the voting power of shares of Class A common stock outstanding at the close of business on the record date, excluding shares owned, directly or

 

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indirectly, by (i) holders of shares of Class B common stock, (ii) holders of shares of Class A common stock to which shares of Class A common stock were transferred by any holder of shares of Class B common stock after the date of the merger agreement, (iii) Parent or Merger Sub, (iv) any officers or directors of Company or (v) any affiliates or associates of any of the foregoing (the “excluded Class A holders”), voting as a single separate class (the “unaffiliated approval” and, together with the requisite approval, the “Company stockholder approvals”). See “The Special Meeting” beginning on page 15 for additional information.

Treatment of Common Stock (page 60)

If the merger is completed pursuant to the merger agreement, each share of Class A common stock issued and outstanding immediately prior to the effective time (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent) will be converted automatically into the right to receive $12.00 in cash, without interest. We refer to this amount as the “Class A per share merger consideration.” Each share of Class B common stock issued and outstanding immediately prior to the effective time (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent or stockholders who have properly exercised and perfected dissenters’ rights under Nevada law) will be converted automatically into the right to receive $12.90 in cash, without interest (as required under the Company’s Amended and Restated Articles of Incorporation based on the Class A per share merger consideration). We refer to this amount as the “Class B per share merger consideration.” We refer to the Class A per share merger consideration or the Class B per share merger consideration, as applicable, as the “applicable per share merger consideration.” Company common stock held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent will be canceled without payment of the applicable per share merger consideration. Holders of Class B common stock have dissenters’ rights in accordance with Nevada law and will receive the fair value of their shares of Class B common stock as determined under Nevada law if the merger closes but only if they properly exercise their dissenters’ rights by complying with the required procedures under Nevada law.

A paying agent will send written instructions for surrendering your shares of Company common stock and obtaining the applicable per share merger consideration after we have completed the merger. Do not return your stock certificates with your proxy card and do not forward your stock certificates to the paying agent prior to receipt of the written instructions. See “The Merger Agreement—Treatment of Common Stock and Equity Awards—Exchange and Payment Procedures” beginning on page 60 for additional information.

Treatment of Equity Awards (page 60)

Each Tandem Option/SAR that is outstanding immediately prior to the effective time (whether or not then exercisable or vested) will be canceled at the effective time and converted into the right to receive cash in an amount equal to (i) the excess, if any, of the Class A per share merger consideration over the exercise price per share of the Class A common stock subject to the Tandem Option/SAR, multiplied by (ii) the number of shares of Class A common stock subject to the Tandem Option/SAR immediately prior to the effective time (such consideration, the “Tandem Option/SAR consideration”). The Tandem Option/SAR consideration will be paid no later than 4 days after the effective time.

See “The Merger Agreement—Treatment of Common Stock and Equity Awards” beginning on page 60 for additional information.

Recommendation of the Special Committee and Board; Reasons for Recommending the Approval of the Merger Agreement (page 35)

The Special Committee, consisting entirely of independent directors, carefully reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and

 

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adopted and approved the merger agreement, the merger and the other transactions contemplated thereby. The Special Committee after careful consideration, unanimously recommends that our stockholders vote “FOR” the proposal to approve the merger agreement.

The Board determined that the merger is fair to, and in the best interests of, the Company and its stockholders. The Board (after careful consideration and receipt of the unanimous recommendation of the Special Committee) also unanimously recommends that the stockholders of the Company vote “FOR” the proposal to approve the merger agreement. In addition, the Board unanimously recommends that the stockholders of the Company vote “FOR” the non-binding, advisory proposal to approve the compensation that may be paid or become payable to the Company’s named executive officers in connection with, or following, the consummation of the merger, as specified and disclosed in this proxy statement, which we refer to as the “non-binding compensation proposal.”

For a detailed description of the determinations and recommendations of the Special Committee and the Board, see “The Merger—Recommendation of the Special Committee and Board; Reasons for Recommending the Approval of the Merger Agreement” beginning on page 35.

Opinion of Citigroup Global Markets Inc., Financial Advisor to the Special Committee (page 39)

Citigroup Global Markets Inc., which we refer to as “Citi,” was retained to act as financial advisor to the Special Committee in connection with the Special Committee’s exploration of strategic alternatives for the Company. In connection with this engagement, the Special Committee requested Citi to render an opinion to the Special Committee as to the fairness, from a financial point of view, of the Class A per share merger consideration to the holders of shares of Class A common stock (other than excluded Class A holders). On February 25, 2013, Citi rendered to the Special Committee an oral opinion, which was confirmed by delivery of a written opinion dated February 25, 2013, to the effect that, as of that date and based on and subject to the factors, assumptions and limitations described in its opinion, the Class A per share merger consideration was fair, from a financial point of view, to the holders of shares of Class A common stock (other than excluded Class A holders). The full text of Citi’s written opinion, which is attached to this proxy statement as Annex D, sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken. The summary of Citi’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion. Citi’s opinion was provided for the information of the Special Committee in connection with its evaluation of the merger from a financial point of view. Citi’s opinion does not address any other aspects or implications of the merger and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matters relating to the merger. Citi also expressed no view as to, and Citi’s opinion does not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation to any officers, directors or employees of any parties to the merger, or any class of such persons, relative to the Class A per share merger consideration. Citi’s opinion does not address the underlying business decision of the Company to effect the merger, the relative merits of the merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transaction in which the Company might engage. See “The Merger—Opinion of Citigroup Global Markets Inc., Financial Advisor to the Special Committee” beginning on page 39.

Financing of the Merger (page 49)

Parent estimates that the total amount of funds required to complete the merger and related transactions, including payment of fees and expenses in connection with the merger, to be approximately $485 million. This amount is expected to be provided through an equity contribution from TPG VI totaling approximately $485 million (a portion of such equity contribution is expected to be funded through third party debt financing; however, TPG VI’s obligation to fund such equity contribution is not conditioned on the availability of such debt financing). See “The Merger —Financing of the Merger” beginning on page 49 for additional information.

 

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Limited Guarantee (page 50)

TPG VI has agreed to guarantee certain obligations of Parent under the merger agreement including, under certain circumstances, to pay a reverse termination fee, reimburse certain expenses and make certain indemnification payments. See “The Merger —Limited Guarantee” beginning on page 50 for additional information.

Voting Agreement (page 18)

In connection with the execution of the merger agreement, Thornridge Holdings Limited (“Thornridge”) entered into a voting agreement (the “voting agreement”) with Parent and Merger Sub, pursuant to which Thornridge has agreed to, among other things, vote all of its shares of Company common stock in favor of the transactions contemplated under the merger agreement and vote against any alternative acquisition proposals. The voting agreement terminates upon the termination of the merger agreement. Pursuant to the voting agreement, Thornridge also has waived its dissenters’ rights under the Nevada Revised Statutes (the “NRS”) in connection with the merger. See “The Special Meeting—Voting Agreement” beginning on page 18.

Interests of the Company’s Directors and Executive Officers in the Merger (page 50)

In considering the recommendations of the Special Committee and the Board that the stockholders vote to approve the merger proposal, you should be aware that certain of the Company’s directors and executive officers have financial interests in the merger that are different from, or are in addition to, the interests of the Company’s stockholders generally. The members of the Special Committee and the Board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the Company’s stockholders that they approve the merger proposal.

The interests of the Company’s non-employee directors include, among other things, the right to accelerated vesting of any unvested Tandem Options/SARs and the right to receive the Tandem Option/SAR consideration with respect to the director’s Tandem Options/SARs.

The interests of the Company’s executive officers include the rights to:

 

   

accelerated vesting of any unvested Tandem Options/SARs and receipt of the Tandem Option/SAR consideration with respect to the executive officers’ Tandem Options/SARs; and

 

   

certain contractual severance payments in the event of a qualifying termination of employment following the merger.

The Board and executive officers also have the right to indemnification and insurance coverage that will survive the completion of the merger. Please see the section titled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 50 for additional information about these interests.

Conditions to the Merger (page 71)

The respective obligations of each of the Company, Parent and Merger Sub to consummate the merger are subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, please see “The Merger Agreement—Conditions to the Merger” beginning on page 71.

Regulatory Matters (page 55)

Based on prior informal interpretations of the staff of the Premerger Notification Office of the Federal Trade Commission, there is no filing pursuant to, waiting period under or other approval required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) applicable to the merger agreement, the merger or any of the other transactions contemplated by the merger agreement.

 

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The obligations of Parent and Merger Sub to consummate the merger are subject to the receipt by Parent of certain state licenses and permits to operate the Company’s facilities. See “The Merger —Regulatory Matters” beginning on page 55.

Acquisition Proposals (page 66)

Until the effective time or the termination of the merger agreement, the Company and its representatives may not, directly or indirectly:

 

   

solicit, request, initiate, encourage (including by way of furnishing or disclosing nonpublic information) or knowingly take any other action to facilitate or initiate the making of any acquisition proposal (as described below in “The Merger Agreement—Acquisition Proposals; Change in Recommendation” beginning on page 66) or any inquiry, proposal or offer that could reasonably be expected to lead to an acquisition proposal;

 

   

continue or otherwise participate in discussions or negotiations with, or furnish or disclose any nonpublic information to, any person in connection with any acquisition proposal or any inquiry, proposal or offer that could reasonably be expected to lead to an acquisition proposal;

 

   

approve, endorse, recommend, execute, enter into or agree to enter into any letter of intent, agreement in principle or agreement contemplating or otherwise relating to any acquisition proposal or any proposal or offer that could reasonably be expected to lead to an acquisition proposal;

 

   

grant any waiver, amendment or release under any confidentiality agreement (other than certain waivers, amendments or releases of standstill or similar provisions therein) or any “fair price,” “moratorium,” “control share acquisition” or other similar law.

However, if at any time before the Company stockholder approvals are obtained, the Company receives an unsolicited, bona fide written acquisition proposal, the Company and its representatives may participate in discussions or negotiations with, and furnish or disclose nonpublic information to, the person making such acquisition proposal pursuant to a confidentiality agreement if:

 

   

the Special Committee determines in good faith, based on the information then available and after consultation with its financial advisor and outside legal counsel, that such acquisition proposal constitutes or is reasonably likely to result in a superior proposal (as described below in “The Merger Agreement—Acquisition Proposals; Change in Recommendation” beginning on page 66); and

 

   

the Special Committee determines in good faith, based on the information then available and after consultation with its outside legal counsel, that failing to take such action would be inconsistent with the directors’ fiduciary duties.

The Company must advise Parent of any acquisition proposal, the identity of the person making such acquisition proposal and the material terms and conditions of such acquisition proposal (and, if applicable, provide Parent with copies of any material written requests, proposals or offers with respect to such acquisition proposal) and keep Parent reasonably apprised on a prompt basis of any related material developments, amendments, discussions and negotiations.

Termination (page 73)

The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time, whether before or after the Company stockholder approvals are obtained, under certain circumstances, including by mutual written agreement of Parent and the Company or by either Parent or the Company if specified conditions have not been met. Please see “The Merger Agreement—Termination” beginning on page 73 for additional information.

 

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Termination Fees and Reimbursement of Expenses (page 74)

The merger agreement contains certain termination rights for the Company and Parent. Upon termination of the merger agreement under specified circumstances, the Company will be required to pay Parent a termination fee of $7,250,000. In addition, under specified circumstances, the Company has agreed to reimburse Parent for up to $2,750,000 of reasonable documented out-of-pocket expenses incurred by Parent and its affiliates in connection with the merger agreement and the transactions contemplated thereby. The merger agreement also provides that Parent will be required to pay the Company a reverse termination fee of $40,000,000 under specified circumstances. Payment of the reverse termination fee is guaranteed by TPG VI pursuant to the terms of a limited guarantee. For more information, see “The Merger Agreement—Termination Fees and Reimbursement of Expenses” beginning on page 74.

Remedies (page 76)

If the Company terminates the merger agreement under certain circumstances, the Company’s receipt of the reverse termination fee (including interest thereon as provided in the merger agreement) from Parent (or TPG VI pursuant to the limited guarantee) and certain reimbursement and indemnification payments from Parent (or TPG VI pursuant to the limited guarantee) will be the sole and exclusive remedy of the Company against Parent, Merger Sub or TPG VI or any of their respective former, current or future equityholders, controlling persons, directors, officers, employees, agents, attorneys, representatives, affiliates, members, managers, general or limited partners, stockholders or assignees for any loss suffered as a result of any breach of the merger agreement, the failure of the merger to be consummated or otherwise related to the merger agreement. Under no circumstances will the Company be entitled to monetary damages in excess of the amount of the reverse termination fee, including interest thereon as provided in the merger agreement, and certain reimbursement and indemnification payments from Parent.

If the merger agreement is terminated under certain circumstances, Parent’s receipt of the termination fee and/or expense reimbursement, as applicable (including interest thereon as provided in the merger agreement), if accepted by Parent, shall be the sole and exclusive remedy of Parent, Merger Sub, TPG VI and their respective affiliates against the Company or any of its former, current or future equity holders, controlling persons, directors, officers, employees, agents, attorneys, representatives, affiliates, members, managers, general or limited partners, stockholders or assignees for any loss suffered as a result of any breach of the merger agreement, the failure of the merger to be consummated or otherwise related to the merger agreement, except that the Company’s liability for fraud, willful misconduct, willful and material breach or failure to perform any covenants in the merger agreement is not limited.

In addition to the rights to monetary damages described above, the parties are entitled to an injunction or injunctions, or any other appropriate form of equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which they are entitled under the merger agreement at law or in equity. However, the right of the Company to obtain an injunction, or other appropriate form of equitable relief to cause, or to cause Parent and Merger Sub to cause, the equity financing to be funded will be subject to the requirements that (i) all conditions to Parent’s and Merger Sub’s obligations to effect the merger have been satisfied and remain satisfied, (ii) Parent and Merger Sub have failed to consummate the merger and (iii) the Company has confirmed that (a) all conditions to the Company’s obligation to effect the merger have been satisfied or waived and (b) if specific performance is granted and the equity financing is funded, then the merger will occur.

While the Company may pursue both a grant of specific performance and the payment of the reverse termination fee, under no circumstances will the Company be permitted or entitled to receive both a grant of specific performance and monetary damages, including all or any portion of the reverse termination fee.

 

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Dissenters’ Rights (page 83)

If the merger is consummated, persons who are holders of Class B common stock will have certain dissenters’ rights under Nevada law under which such holders may dissent and receive the fair value of their shares of Class B common stock as determined under Nevada law in lieu of the Class B per share merger consideration. Any shares of Class B common stock held by a person who does not vote in favor of approval of the merger agreement and properly exercises and perfects dissenters’ rights under Nevada law will not be converted into the right to receive the Class B per share merger consideration. The fair value per share of Class B common stock could be more or less than, or the same as, the Class B per share merger consideration.

You should read “Dissenters’ Rights” beginning on page 83 for a more complete discussion of the dissenters’ rights in relation to the merger as well as Annex E, which contains a full text of the applicable Nevada statute.

Litigation Relating to the Merger (page 58)

Since the announcement of the merger, the Company and its directors have been named as defendants in five purported class action complaints brought by an alleged Company stockholder.

On February 28, 2013, an amended complaint was filed in a pre-existing shareholder derivative action in the Eighth Judicial District Court of the State of Nevada in and for Clark County, captioned Guy Somers, Derivatively on Behalf of Assisted Living Concepts, Inc., and on Behalf of all Others Similarly Situated, v. Laurie A. Bebo, et al., Case No. A-12-674054-C (the “Somers Complaint”), adding purported class action claims for breach of fiduciary duties in connection with the merger against certain of the Company’s directors and aiding and abetting breaches of fiduciary duty claims against TPG, Parent and Merger Sub.

On March 4, 5, and 6, 2013, three additional complaints were filed in the Eighth Judicial District Court of the State of Nevada in and for Clark County, captioned Scott Simpson, on behalf of himself and all others similarly situated v. Assisted Living Concepts, Inc., et al., Case No. A-13-677683-C (the “Simpson Complaint”), David Raul as Custodian for Malka Raul Utma NY, on behalf of itself and on behalf of all others similarly situated v. Assisted Living Concepts, et al., Case No. A-13-677797-C (the “Raul Complaint”), and Elizabeth Black, Individually and on behalf of all others similarly situated v. Assisted Living Concepts, et al., Case No. A-13-677838-C (the “Black Complaint”), respectively. The Simpson Complaint, Raul Complaint and Black Complaint, each of which purportedly was brought on behalf of a class of Company stockholders, assert claims that the Company’s directors breached their fiduciary duties to Company stockholders in connection with the merger. These complaints further claim that TPG, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duties.

Also on March 6, 2013, an additional complaint was filed in the Eighth Judicial District Court of the State of Nevada in and for Clark County, captioned The Joel Rosenfeld IRA, on Behalf of Itself and All Others Similarly Situated v. Assisted Living Concepts, Inc., et al., Case No. A-13-677902-C (the “Rosenfeld IRA Complaint”). The Rosenfeld IRA Complaint purportedly was brought on behalf of a class of Company stockholders against the Company and certain of the Company’s directors and asserts that the Company’s directors breached their fiduciary duties in connection with the merger.

The plaintiffs in all five actions seek equitable relief, including an injunction preventing the consummation of the merger, rescission in the event the merger is consummated and an award of attorneys’ and other fees and costs. We believe that the claims are without merit. See “The Merger—Litigation Relating to the Merger” beginning on page 58.

 

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Material U.S. Federal Income Tax Consequences (page 55)

The exchange of shares of Company common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder (as defined below in the section of this proxy statement captioned “The Merger—Material U.S. Federal Income Tax Consequences”) who receives cash for shares of Company common stock pursuant to the merger will recognize gain or loss, if any, equal to the difference between the amount of cash received and the U.S. Holder’s adjusted U.S. federal income tax basis in the shares of Company common stock. You should read “The Merger —Material U.S. Federal Income Tax Consequences” beginning on page 55 for more information regarding the U.S. federal income tax consequences of the merger to stockholders. Because individual circumstances may differ, we urge stockholders to consult their tax advisors for a complete analysis of the effect of the merger on their U.S. federal, state, local and/or non-U.S. taxes.

Where You Can Find More Information (page 85)

You can find more information about the Company in the periodic reports and other information we file with the SEC. The information is available at the SEC’s public reference facilities and at the website maintained by the SEC at www.sec.gov. For a more detailed description of the additional information available, please see the section entitled “Where You Can Find More Information” beginning on page 85.

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

 

Q: Why am I receiving this proxy statement?

 

A: On February 25, 2013, we entered into the merger agreement providing for the merger of Merger Sub with and into the Company (the “merger”), with the Company surviving the merger as a wholly-owned subsidiary of Parent. Parent and Merger Sub are affiliates of TPG. You are receiving this proxy statement in connection with the solicitation of proxies by the Special Committee and Board in favor of the approval of the merger agreement.

 

Q: What matters will be voted on at the special meeting?

 

A: You will be asked to consider and vote on the following proposals:

 

   

Approval of the merger agreement; and

 

   

The non-binding compensation proposal.

 

Q: As a Class A stockholder, what will I receive in the merger?

 

A: If the merger is completed, you will be entitled to receive $12.00 in cash, without interest thereon and less any required withholding taxes, for each share of Class A common stock that you own immediately prior to the effective time as described in the merger agreement.

 

     The exchange of shares of Class A common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. See “The Merger—Material U.S. Federal Income Tax Consequences” beginning on page 55 for a more detailed description of the U.S. federal tax consequences of the merger. You should consult your own tax advisor for a full understanding of how the merger will affect your U.S. federal, state, local and/or non-U.S. taxes.

 

Q: As a Class B stockholder, what will I receive in the merger?

 

A: If the merger is completed, you will be entitled to receive $12.90 in cash, without interest thereon and less any required withholding taxes, for each share of Class B common stock that you own immediately prior to the effective time as described in the merger agreement.

 

     The exchange of shares of Class B common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. See “The Merger—Material U.S. Federal Income Tax Consequences” beginning on page 55 for a more detailed description of the U.S. federal tax consequences of the merger. You should consult your own tax advisor for a full understanding of how the merger will affect your federal, state, local and/or non-U.S. taxes.

 

Q: What will happen to outstanding Company equity compensation awards in the merger?

 

A: For information regarding the treatment of the Company’s equity compensation awards, please see the section titled “The Merger AgreementTreatment of Common Stock and Equity Awards” beginning on page 60.

 

Q: When and where is the special meeting of our stockholders?

 

A: The special meeting of stockholders will be held at 10:00 a.m., local time, on [                ], 2013, at [                ].

 

Q: What vote of our stockholders is required to approve the merger agreement?

 

A:

For us to complete the merger, (i) the holders of a majority of the voting power of shares of Class A common stock and Class B common stock outstanding at the close of business on the record date, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes) and (ii) the holders of a majority of the voting power of shares

 

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  of Class A common stock outstanding at the close of business on the record date, excluding shares owned, directly or indirectly, by excluded Class A holders, voting as a single separate class, must each vote “FOR” the proposal to approve the merger agreement.

 

     At the close of business on [            ], 2013, the record date, [            ] shares of Class A common stock and [            ] shares of Class B common stock were outstanding and entitled to vote at the special meeting.

 

Q: Who can attend and vote at the special meeting?

 

A: All stockholders of record as of the close of business on [            ], 2013, the record date for the special meeting, are entitled to receive notice of and to attend and vote at the special meeting, or any postponement or adjournment thereof. If you wish to attend the special meeting and your shares of Company common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee (i.e., in “street name”), you must bring to the special meeting a proxy from the record holder of those shares of Company common stock authorizing you to vote at the special meeting. Seating will be limited at the special meeting. Admission to the special meeting will be on a first-come, first-served basis.

 

Q: How does the Special Committee and Board recommend that I vote?

 

A: The Special Committee unanimously recommends that our stockholders vote “FOR” the proposal to approve the merger agreement. The Board (after having received the unanimous recommendation of the Special Committee) also unanimously recommends that the stockholders of the Company vote “FOR” the proposal to approve the merger agreement. In addition, the Board unanimously recommends that the stockholders of the Company vote “FOR” the non-binding compensation proposal.

 

     You should read “The Merger—Recommendation of the Special Committee and Board; Reasons for Recommending the Approval of the Merger Agreement” beginning on page 35 for a discussion of the factors that the Special Committee and the Board considered in deciding to recommend the approval of the merger agreement. In addition, in considering the recommendations of the Special Committee and the Board, you should be aware that certain of the Company’s directors and executive officers have financial interests in the merger that are different from, or in addition to, the interests of the Company’s stockholders generally. See “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger,” beginning on page 50.

 

Q: How will our directors and executive officers vote on the proposal to approve the merger agreement?

 

A: Our directors and current executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of their shares of Company common stock in favor of the approval of the merger agreement. As of [            ], 2013, the record date for the special meeting, our directors and current executive officers owned, in the aggregate, [            ] shares of Class A common stock and [            ] shares of Class B common stock, which together represents approximately [    ]% of the total voting power of the Company common stock, voting together as a single class. As our directors and officers are excluded Class A holders, their shares will not be included for purposes of the unaffiliated approval.

 

    

As of the close of business on the record date, Thornridge owned [345,316] shares of Class A common stock and [2,722,000] shares of Class B common stock, which together represents approximately [56]% of the total voting power of the Company common stock, voting together as a single class. The Chairman of the Board, Mr. David J. Hennigar, is chairman, chief executive officer and a director of Thornridge. Mr. Hennigar disclaims beneficial ownership of the shares held by Thornridge. In connection with the execution of the merger agreement, Thornridge entered into the voting agreement with Parent and Merger Sub, pursuant to which Thornridge has agreed to, among other things, vote all of its shares of Company common stock in favor of the transactions contemplated under the merger agreement and vote against any alternative acquisition proposals. The voting agreement terminates upon the termination of the merger agreement. Pursuant to the voting agreement, Thornridge also has waived its dissenters’ rights under the

 

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  NRS in connection with the merger. As a result of Thornridge’s shares and the voting agreement, so long as the voting agreement remains effective and each of the Special Committee and the Board does not change its recommendation with respect to the merger, the requisite approval is effectively assured. As Thornridge is an excluded Class A holder, Thornridge’s shares will not be included for purposes of the unaffiliated approval.

 

Q: Do any of the Company’s executive officers or directors have any interests in the merger that are different from, or are in addition to, my interests as a stockholder?

 

A: In considering the recommendations of the Special Committee and the Board, you should be aware that certain of the Company’s directors and executive officers have financial interests in the merger that are different from, or in addition to, the interests of the Company’s stockholders generally. The members of the Special Committee and the Board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger and in recommending to the Company’s stockholders that they approve the proposal to approve the merger agreement.

 

     The interests of the Company’s non-employee directors include, among other things, the right to accelerated vesting of any unvested Tandem Options/SARs and the right to receive the Tandem Option/SAR consideration with respect to the directors’ Tandem Options/SARs.

 

     The interests of the Company’s executive officers include the rights to:

 

   

accelerated vesting of any unvested Tandem Options/SARs and receipt of the Tandem Option/SAR consideration with respect to the executive officers’ Tandem Options/SARs; and

 

   

certain contractual severance payments in the event of a qualifying termination of employment following the merger.

 

     The Board and executive officers also have the right to indemnification and insurance coverage that will survive the completion of the merger. Please see the section titled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 50 for additional information about these interests.

 

Q: Am I entitled to exercise dissenters’ rights instead of receiving the per share merger consideration for my shares of Company common stock?

 

A: Holders of Class A common stock are not entitled to exercise dissenters’ rights.

 

     Holders of Class B common stock who do not vote in favor of approval of the merger agreement will have the right to seek dissenters’ rights and receive the fair value of their shares of Class B common stock (which may be more than, the same as or less than the Class B per share merger consideration applicable to those shares) in lieu of receiving the Class B per share merger consideration if the merger closes, but only if they properly exercise and perfect their dissenters’ rights by complying with the required procedures under Nevada law. See “Dissenters’ Rights” beginning on page 83. For the full text of the NRS Sections 92A.300 to 92A.500, please see Annex E hereto.

 

Q: How do I cast my vote if I am a holder of record?

 

A: If you were a holder of record on [            ], 2013, you may vote in person at the special meeting or by submitting a proxy for the special meeting. You can submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed, postage paid envelope. Holders of record may also vote by telephone or the Internet by following the instructions on the proxy card.

 

     If you properly transmit your proxy, but do not indicate how you want to vote, your proxy will be voted “FOR” the proposal to approve the merger agreement and “FOR” the non-binding compensation proposal.

 

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Q: How do I cast my vote if my shares of Company common stock are held in “street name” by my broker, dealer, commercial bank, trust company or other nominee?

 

A: If you hold your shares in “street name,” which means your shares of Company common stock are held of record on [            ], 2013 by a broker, dealer, commercial bank, trust company or other nominee, you must provide the record holder of your shares of Company common stock with instructions on how to vote your shares of Company common stock in accordance with the voting directions provided by your broker, dealer, commercial bank, trust company or other nominee. If you do not provide your broker, dealer, commercial bank, trust company or other nominee with instructions on how to vote your shares, your shares of Company common stock will not be voted, which will have the same effect as voting “AGAINST” the proposal to approve the merger agreement. Please refer to the voting instruction card used by your broker, dealer, commercial bank, trust company or other nominee to see if you may submit voting instructions using the Internet or telephone.

 

Q: What will happen if I abstain from voting or fail to vote on the proposal to approve the merger agreement?

 

A: If you abstain from voting, fail to cast your vote in person or by proxy or fail to give voting instructions to your broker, dealer, commercial bank, trust company or other nominee, it will have the same effect as a vote against the approval of the merger agreement.

 

Q: Can I change my vote after I have delivered my proxy?

 

A: Yes. If you are a record holder, you can change your vote at any time before your proxy is voted at the special meeting by properly delivering a later-dated proxy either by mail, the Internet or telephone or attending the special meeting in person and voting. You also may revoke your proxy by delivering a notice of revocation to the Company’s Corporate Secretary prior to the vote at the special meeting. If your shares of Company common stock are held in street name, you must contact your broker, dealer, commercial bank, trust company or other nominee to revoke your proxy.

 

Q: What should I do if I receive more than one set of voting materials?

 

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement or multiple proxy or voting instruction cards. For example, if you hold your shares of Company common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares of Company common stock. If you are a holder of record and your shares of Company common stock are registered in more than one name, you will receive more than one proxy card. Please submit each proxy and voting instruction card that you receive.

 

Q: If I am a holder of certificated shares of Company common stock, should I send in my share certificates now?

 

A: No. Promptly after the merger is completed, each holder of record as of the time of the merger will be sent written instructions for surrendering their shares of Company common stock for the applicable per share merger consideration. These instructions will tell you how and where to surrender your shares of Company common stock for your cash consideration. You will receive your cash payment after the paying agent receives the documents requested in the instructions, including any stock certificates. Please do not send stock certificates with your proxy.

 

Q: What happens if the merger is not completed?

 

A:

If the Company stockholder approvals are not obtained, or if the merger is not completed for any other reason, our stockholders will not receive any payment for their Company common stock pursuant to the merger agreement. Instead, we will remain as a public company and our Class A common stock will continue to be registered under the Exchange Act and listed and traded on the NYSE. Under specified

 

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  circumstances, we may be required to pay Parent a termination fee of $7,250,000 and/or reimburse Parent for up to $2,750,000 of its out-of-pocket expenses or Parent may be required to pay us a reverse termination fee of $40,000,000. See “The Merger Agreement—Termination Fees and Reimbursement of Expenses.”

 

Q: When is the merger expected to be completed?

 

A: We are working to complete the merger as quickly as possible. We currently expect the transaction to close in the summer of 2013; however, we cannot predict the exact timing of the merger. In order to complete the merger, we must obtain the Company stockholder approvals and the other closing conditions under the merger agreement must be satisfied or waived.

 

Q: What is householding and how does it affect me?

 

A: The Securities and Exchange Commission (“SEC”) permits companies to send a single set of certain disclosure documents to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the Company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. This householding process reduces the volume of duplicate information and reduces printing and mailing expenses. We will promptly deliver a separate copy of the proxy materials to each stockholder who has been “householded” if he or she requests the Company to do so. If you desire to receive separate copies of any of our future proxy materials, or if you are receiving multiple copies of such proxy materials and would like to receive only one copy for your household, you should contact your bank, broker or other nominee holder, or you may contact us by telephone at (262) 257-8888 or by mail at W140 N8981 Lilly Road, Menomonee Falls, Wisconsin 53051. Our proxy materials are also available on the internet free of charge under the heading “Periodic Reports and Proxy Statements” in the “Investor Relations” section at www.alcco.com.

 

Q: Who can help answer my questions?

 

A: If you have any questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card, you should contact Georgeson toll free at (800) 509-0984 (banks and brokers may call at (800)  223-2064).

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements about the expected timing, completion and effects of the merger, and all other statements made in this proxy statement that are not historical facts are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements may be identified by the use of words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “continuing,” “believe,” or “project,” or the negative of those words or other comparable words. Any forward-looking statements included in this proxy statement are made as of the date hereof only, based on information available to ALC as of the date hereof, and, subject to any applicable law to the contrary, ALC undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Such forward-looking statements are not a guarantee of future performance and are subject to a number of risks, assumptions and uncertainties that could cause ALC’s actual results to differ from those projected in such forward-looking statements. Such risks and uncertainties include: any conditions imposed on the parties in connection with consummation of the transactions contemplated by the merger agreement; the ability to obtain regulatory approvals of the transactions contemplated by the merger agreement on the proposed terms and schedule; the failure of ALC’s stockholders to approve the transactions contemplated by the merger agreement; ALC’s ability to maintain relationships with customers, employees or suppliers following the announcement of the merger agreement; the ability of the parties to satisfy the conditions to closing of the transactions contemplated by the merger agreement; the risk that the transactions contemplated by the merger agreement may not be completed in the time frame expected by the parties or at all; and the risks

 

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that are described from time to time in ALC’s reports filed with the SEC, including the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the SEC on March 12, 2012, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and in other of ALC’s filings with the SEC; and general industry and economic conditions.

THE PARTIES

Assisted Living Concepts, Inc.

Assisted Living Concepts, Inc., which we refer to as the “Company,” incorporated in 1994, is a Nevada company that operates senior living residences that provide seniors with a supportive, home-like setting with care and services including 24-hour assistance with activities of daily living, medication management, life enrichment, health and wellness, and other services either directly from ALC employees or indirectly through wholly-owned health care service subsidiaries. The Company operates entirely in the United States. The principal executive offices of the Company are located at W140 N8981 Lilly Road, Menomonee Falls, WI 53051 and its telephone number is (262) 257-8888.

Aid Holdings, LLC

Aid Holdings, LLC, which we refer to as “Parent,” was caused to be formed by TPG VI solely for the purpose of owning the Company after the merger, arranging the related financing transactions and engaging in other activities in connection with the merger and the other transactions contemplated by the merger agreement. Parent is an affiliate of TPG VI and TPG. Parent has not engaged in any business except for activities incidental to its formation and in connection with the merger and the other transactions contemplated by the merger agreement. The principal executive offices of Parent are located at 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102, and its telephone number is (817) 871-4000.

TPG is a leading global private investment firm founded in 1992 with more than $54.5 billion of assets under management as of September 30, 2012 and offices in San Francisco, Fort Worth, Austin, Beijing, Chongqing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, São Paulo, Shanghai, Singapore and Tokyo. TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings.

Aid Merger Sub, LLC

Aid Merger Sub, LLC, which we refer to as “Merger Sub,” was formed by Parent solely for the purpose of completing the merger. Merger Sub is wholly-owned by Parent and has not engaged in any business except for activities incidental to its formation and in connection with the merger and the other transactions contemplated by the merger agreement. Upon the completion of the merger, Merger Sub will cease to exist. The principal executive offices of Merger Sub are located at 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102, and its telephone number is (817) 871-4000.

THE SPECIAL MEETING

We are furnishing this proxy statement to the Company’s stockholders as part of the solicitation of proxies by the Special Committee and the Board for use at the special meeting.

Date, Time and Place

We will hold the special meeting at [            ], local time, on [            ], 2013, at [            ]. Seating will be limited. Admission to the special meeting will be on a first-come, first-served basis. If you plan to attend the special meeting, please note that you may be asked to present valid photo identification, such as a driver’s license

 

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or passport. If you wish to attend the special meeting and your shares of Company common stock are held in an account at a broker, dealer, commercial bank, trust company or other nominee (i.e., in “street name”), you must bring to the special meeting a proxy from the record holder of those shares of Company common stock authorizing you to vote at the special meeting.

Purpose of the Special Meeting

The special meeting is being held for the following purposes:

 

   

To approve the merger agreement (see “The Merger Agreement” beginning on page 59); and

 

   

To consider and vote on the non-binding compensation proposal (please see the section titled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger—Advisory Vote on Merger-Related Compensation Arrangements” beginning on page 53).

A copy of the merger agreement is attached as Annex A to this proxy statement.

Recommendation of the Special Committee and the Board

The Special Committee, consisting entirely of independent directors, carefully reviewed and considered the terms and conditions of the merger agreement and the transactions contemplated by the merger agreement, including the merger, and unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and adopted and approved the merger agreement, the merger and the other transactions contemplated thereby. The Special Committee also unanimously recommended that the Board approve the merger and that, at a special meeting of the stockholders of the Company, (a) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (b) the holders of Class A common stock (other than shares of Class A common stock owned, directly or indirectly, by excluded Class A holders), voting as a single, separate class, vote in favor of approval of the merger agreement. The Board, after careful consideration and acting after having received the unanimous recommendation of the Special Committee, unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and adopted and approved the merger agreement, the merger and the other transactions contemplated thereby. The Board also unanimously directed that the merger agreement be submitted to the stockholders of the Company for approval and recommended that, at a special meeting of the stockholders of the Company, (a) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (b) the holders of Class A common stock (other than shares of Class A common stock owned, directly or indirectly, by excluded Class A holders), voting as a single, separate class, vote in favor of approval of the merger agreement.

The Special Committee unanimously recommends that the stockholders of the Company vote “FOR” approval of the merger agreement. The Board (after having received the unanimous recommendation of the Special Committee) also unanimously recommends that the stockholders of the Company vote “FOR” approval of the merger agreement. In addition, the Board unanimously recommends that the stockholders of the Company vote “FOR” the non-binding compensation proposal.

Record Date; Stockholders Entitled to Vote; Quorum

Only holders of record of Company common stock at the close of business on [            ], 2013, the record date, are entitled to notice of and to vote at the special meeting. On the record date, [            ] shares of Class A common stock were issued and outstanding and held by [            ] holders of record and [            ] shares of Class B common stock were issued and outstanding and held by [            ] holders of record.

Each share of Class A common stock entitles the holder thereof to one vote and each share of Class B common stock entitles the holder thereof to ten votes.

 

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A complete list of stockholders entitled to vote at the meeting will be open to examination by any stockholder at the time and place where the special meeting is to be held.

Pursuant to the Amended and Restated Bylaws of the Company, to constitute a quorum for the transaction of business at the special meeting, including the requisite approval and the non-binding compensation proposal, the holders of a majority of the voting power of shares of Class A common stock and Class B common stock outstanding and entitled to vote at the special meeting must be present in person or represented by proxy. As a result of Thornridge’s shares and the voting agreement, so long as the voting agreement remains effective and each of the Special Committee and the Board does not change its recommendation with respect to the merger, a quorum for the transaction of business at the special meeting, including the requisite approval and the non-binding compensation proposal, is effectively assured.

In addition to the general quorum requirement above, for the unaffiliated approval, the holders of a majority of the voting power of shares of Class A common stock outstanding and entitled to vote at the special meeting (other than shares of Class A common stock owned, directly or indirectly, by excluded Class A holders) must be present in person or represented by proxy.

In the event that either of the required quorums is not present, or if there are insufficient votes to approve the merger agreement at the time of the special meeting, the Chairman of the special meeting, who is expected to be the Chairman of the Special Committee, has the authority pursuant to the Company’s Amended and Restated Bylaws to adjourn the special meeting to solicit additional proxies in favor of the approval of the merger agreement.

Abstentions (including shares of Company common stock for which proxies have been received but for which the holders have abstained from voting) and “broker non-votes” (shares of common stock for which proxies have been returned by a broker, dealer, commercial bank, trust company or other nominee indicating that the broker, dealer, commercial bank, trust company or other nominee has not received voting instructions from the beneficial owner of the shares and does not have discretionary authority to vote the shares with respect to one or more proposals) will be treated as present for purposes of determining the presence of a quorum.

Vote Required

Approval of the Merger Agreement

The approval of the merger agreement requires (i) the approval by the holders of a majority of the voting power of shares of Class A common stock and Class B common stock outstanding at the close of business on the record date, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes) and (ii) the approval by the holders of a majority of the voting power of shares of Class A common stock outstanding at the close of business on the record date, excluding shares owned, directly or indirectly, by excluded Class A holders, voting as a single separate class.

Failure to vote, abstentions and broker non-votes will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement.

Approval of the Non-Binding Compensation Proposal

The approval of the non-binding compensation proposal requires the affirmative vote of the holders of a majority of the total number of votes cast with respect to the non-binding compensation proposal in respect of shares of the Class A common stock and Class B common stock, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes).

Assuming a quorum is present, failure to vote, abstentions and broker non-votes will have no effect on the non-binding compensation proposal.

 

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Stock Ownership and Interests of Certain Persons

Our directors and current executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of their shares of Company common stock in favor of the approval of the merger agreement. As of [            ], 2013, the record date for the special meeting, our directors and current executive officers owned, in the aggregate, [            ] shares of Class A common stock and [            ] shares of Class B common stock, which together represents approximately [    ]% of the total voting power of the Company common stock, voting together as a single class. As our directors and officers are excluded Class A holders, their shares will not be included for purposes of the unaffiliated approval.

As of the close of business on the record date, Thornridge owned [345,316] shares of Class A common stock and [2,722,000] shares of Class B common stock, which together represents approximately [56]% of the total voting power of the Company common stock, voting together as a single class. The Chairman of the Board, Mr. David J. Hennigar, is chairman, chief executive officer and a director of Thornridge. Mr. Hennigar disclaims beneficial ownership of the shares held by Thornridge.

In considering the recommendations of the Special Committee and the Board, you should be aware that certain of the Company’s directors and executive officers have financial interests in the merger that are different from, or in addition to, the interests of the Company’s stockholders generally. The members of the Special Committee and the Board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the Company’s stockholders that they approve the proposal to approve the merger agreement.

The interests of the Company’s non-employee directors include, among other things, the right to accelerated vesting of any unvested Tandem Options/SARs and the right to receive the Tandem Option/SAR consideration with respect to the directors’ Tandem Options/SARs.

The interests of the Company’s executive officers include the rights to:

 

   

accelerated vesting of any unvested Tandem Options/SARs and receipt of the Tandem Option/SAR consideration with respect to the executive officers’ Tandem Options/SARs; and

 

   

certain contractual severance payments in the event of a qualifying termination of employment following the merger.

The Board and executive officers also have the right to indemnification and insurance coverage that will survive the completion of the merger. Please see the section titled “The Merger Agreement—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 50 for additional information about these interests.

Voting Agreement

In connection with the execution of the merger agreement, Thornridge entered into the voting agreement with Parent and Merger Sub, pursuant to which Thornridge has agreed to, among other things, vote all of its shares of Company common stock in favor of the transactions contemplated under the merger agreement and vote against any alternative acquisition proposals. The voting agreement terminates upon the termination of the merger agreement. Pursuant to the voting agreement, Thornridge also has waived its dissenters’ rights under the NRS in connection with the merger. As a result of Thornridge’s shares and the voting agreement, so long as the voting agreement remains effective and each of the Special Committee and the Board does not change its recommendation with respect to the merger, the requisite approval and the approval of the non-binding compensation proposal are effectively assured. As Thornridge is an excluded Class A holder, Thornridge’s shares will not be included for purposes of the unaffiliated approval.

 

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Voting Procedures

Ensure that your shares of Company common stock can be voted at the special meeting by submitting your proxy or contacting your broker, dealer, commercial bank, trust company or other nominee.

If your shares of Company common stock are registered in the name of a broker, dealer, commercial bank, trust company or other nominee: check the voting instruction card forwarded by your broker, dealer, commercial bank, trust company or other nominee to see which voting options are available or contact your broker, dealer, commercial bank, trust company or other nominee in order to obtain directions as to how to ensure that your shares of Company common stock are voted at the special meeting.

If your shares of Company common stock are registered in your name: submit your proxy as soon as possible by telephone, via the Internet or by signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope, so that your shares of Company common stock can be voted at the special meeting.

Instructions regarding telephone and Internet voting are included on the proxy card.

Failure to vote, abstentions and broker non-votes will have the same effect as a vote against the proposal to approve the merger agreement. Assuming a quorum is present, failure to vote, abstentions and broker non-votes will have no effect on the non-binding compensation proposal. If you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the proposal to approve the merger agreement and the non-binding compensation proposal.

For additional questions about the merger, assistance in submitting proxies or voting shares of Company common stock, or to request additional copies of the proxy statement or the enclosed proxy card, please contact:

 

LOGO

480 Washington Blvd, 26th Floor

Jersey City, NJ 07310

(800) 509-0984 (Toll Free)

Banks and Brokerage Firms please call:

(800) 223-2064

 

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Voting by Proxy or in Person at the Special Meeting

Holders of record can ensure that their shares of Company common stock are voted at the special meeting by completing, signing, dating and delivering the enclosed proxy card in the enclosed postage-paid envelope. Submitting by this method or voting by telephone or the Internet as described below will not affect your right to attend the special meeting and to vote in person. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares of Company common stock are held in “street name” by a broker, dealer, commercial bank, trust company or other nominee and you wish to vote at the special meeting, you must bring to the special meeting a proxy from the record holder of those shares of Company common stock authorizing you to vote at the special meeting.

If you vote your shares of Company common stock by submitting a proxy, your shares will be voted at the special meeting as you indicated on your proxy card or Internet or telephone proxy. If no instructions are indicated on your signed proxy card, all of your shares of Company common stock will be voted “FOR” the approval of the merger agreement and the non-binding compensation proposal. You should return a proxy by mail, by telephone or via the Internet even if you plan to attend the special meeting in person.

Electronic Voting

Our holders of record and many stockholders who hold their shares of Company common stock through a broker, dealer, commercial bank, trust company or other nominee will have the option to submit their proxy cards or voting instruction cards electronically by telephone or the Internet. Please note that there are separate arrangements for voting by telephone and Internet depending on whether your shares of Company common stock are registered in our records in your name or in the name of a broker, dealer, commercial bank, trust company or other nominee. If you hold your shares of Company common stock through a broker, dealer, commercial bank, trust company or other nominee, you should check your voting instruction card forwarded by your broker, dealer, commercial bank, trust company or other nominee to see which options are available.

Please read and follow the instructions on your proxy card or voting instruction card carefully.

Other Business

We do not expect that any matter will be brought before the special meeting other than (a) the proposal to approve the merger agreement and (b) the non-binding compensation proposal. If, however, other matters are properly presented at the special meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters.

Revocation of Proxies

A stockholder of record may revoke a proxy at any time before it is voted by filing with our corporate secretary a duly executed revocation of proxy, by properly submitting a proxy by mail, the Internet or telephone with a later date or by appearing at the special meeting and voting in person. A stockholder of record may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy. Attendance at the special meeting without voting will not itself revoke a proxy. If your shares of Company common stock are held in street name, you must contact your broker, dealer, commercial bank, trust company or other nominee to revoke your proxy.

Rights of Stockholders Who Object to the Merger

Holders of Class B common stock are entitled to dissenters’ rights under Nevada law in connection with the merger. This means that holders of Class B common stock are entitled to receive the fair value of their shares of Class B common stock (which may be more than, the same as or less than the Class B per share merger

 

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consideration applicable to those shares) in lieu of receiving the Class B per share merger consideration if the merger closes, but only if they properly exercise and perfect their dissenters’ rights by complying with the required procedures under Nevada law.

To exercise their dissenters’ rights, holders of Class B common stock must submit a written notice of their intent to demand payment for their shares of Class B common stock to us before the vote is taken on the merger agreement and must NOT vote in favor of the approval of the merger agreement. Your failure to follow exactly the procedures specified under Nevada law will result in the loss of your dissenters’ rights. See “Dissenters’ Rights” beginning on page 83 and the text of NRS Sections 92A.300 to 92A.500, which is reproduced in its entirety as Annex E to this proxy statement.

Solicitation of Proxies

This proxy solicitation will be paid for by the Company. The Company has retained Georgeson, a proxy solicitation firm, to assist it in the solicitation of proxies for the special meeting and provide related advice and informational support, for a service fee of $10,000 and the reimbursement of customary disbursements. The Company’s directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. The Company will also request brokers, dealers, commercial banks, trust companies and other nominees to forward proxy solicitation material to the beneficial owners of shares of Company common stock that the brokers, dealers, commercial banks, trust companies and other nominees hold of record. Upon request, the Company will reimburse them for their reasonable out-of-pocket expenses.

Assistance

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact:

 

LOGO

480 Washington Blvd, 26th Floor

Jersey City, NJ 07310

(800) 509-0984 (Toll Free)

Banks and Brokerage Firms please call:

(800) 223-2064

 

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THE MERGER

The following is a description of the material aspects of the merger. While we believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the merger agreement attached to this proxy statement as Annex A, for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement.

Overview of the Transaction

The Company, Parent and Merger Sub entered into the merger agreement on February 25, 2013. Under the terms of the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent. Parent and Merger Sub are affiliates of TPG. The following will occur in connection with the merger:

 

   

each share of Class A common stock issued and outstanding immediately prior to the effective time (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent) will be converted automatically into the right to receive $12.00 in cash, without interest; and

 

   

each share of Class B common stock issued and outstanding immediately prior to the effective time (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent or stockholders who have properly exercised and perfected dissenters’ rights under Nevada law) will be converted automatically into the right to receive $12.90 in cash, without interest (as required under the Company’s Amended and Restated Articles of Incorporation based on the Class A per share merger consideration);

 

   

all shares of Company common stock so converted will, at the effective time, be canceled, and each holder of any such shares of Company common stock (whether certificated or uncertificated) shall cease to have any rights with respect thereto, except the right to receive the applicable per share merger consideration upon surrender of such shares; and

 

   

each Tandem Option/SAR that is outstanding immediately prior to the effective time (whether or not then exercisable or vested) will be canceled at the effective time and converted into the right to receive the Tandem Option/SAR consideration, as described below.

Following and as a result of the merger:

 

   

Company stockholders will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth;

 

   

shares of Class A common stock will no longer be listed on the NYSE, and price quotations with respect to shares of Class A common stock in the public market will no longer be available; and

 

   

the registration of shares of Class A common stock under the Exchange Act will be terminated.

Officers and Directors of the Surviving Corporation; Articles of Incorporation and Bylaws of the Surviving Corporation

The officers of the Company immediately prior to the effective time shall at the effective time be the officers of the surviving corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. The board of directors of the surviving corporation effective as of, and immediately following, the effective time shall consist of such persons designated in writing by Parent prior to the effective time to be the board of directors of the surviving corporation, to serve in such capacity until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

At the effective time, the Amended and Restated Articles of Incorporation of the Company shall be amended and restated as set forth in Annex B to this proxy statement and, as so amended and restated, shall be

 

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the articles of incorporation of the surviving corporation, until thereafter amended in accordance with the provisions thereof and applicable law. At the effective time, the Amended and Restated Bylaws of the Company shall be amended and restated as set forth in Annex C to this proxy statement and, as so amended and restated, shall be the bylaws of the surviving corporation, until thereafter amended in accordance with the provisions thereof, the provisions of the articles of incorporation of the surviving corporation and applicable law.

Background of the Merger

The Board continually reviews and assesses the Company’s long-term strategic plan. As part of this ongoing process, the Board also periodically reviews the Company’s corporate alternatives with a view to enhancing shareholder value.

In December 2010, the Board contacted Citi and asked Citi to provide its views with respect to the Company. In response, Citi delivered to the Board a presentation with respect to the Company based on publicly available information.

In February 2011, the Board contacted Citi and asked Citi to identify parties, including strategic and financial acquirors, that might be interested in a potential transaction with the Company pursuant to which the entire Company or its real estate assets would be sold (a “potential transaction”) in order to help the Board determine whether a potential transaction could deliver significant value to the Company’s stockholders. In determining the list of potential interested parties, consideration was given to which potential acquirors likely would have the financial ability to consummate a potential transaction and which potential acquirors likely would assign the highest value to the Company. In particular, Citi worked with the Board to identify U.S. healthcare real estate investment trusts (“REITs”) and other financial and strategic acquirors that were active in operating or investing in real estate. The Board and Citi discussed the process for generating meaningful preliminary indications of interest from such parties with respect to a potential transaction while protecting the confidentiality of the process. Accordingly, the Board determined that approaching a limited number of the most likely potential acquirors was the optimal way to proceed. The Board then directed Citi to initiate a dialogue with selected U.S. healthcare REITs about their interest in assisted living facilities in general and in a potential transaction specifically.

In July 2011, the Board instructed Citi to initiate an outreach on a confidential basis to a group of six healthcare REITs about a potential transaction. Subsequently, Citi requested that each of the six REITs execute confidentiality agreements in order to facilitate the disclosure of confidential Company information. Three of the REITs contacted by Citi (Party A, Party B and Party C) executed confidentiality agreements with the Company.

In early September 2011, the Board directed Citi to provide Party A, Party B and Party C with a confidential information package and a letter inviting them to submit written proposals to acquire the Company by September 29, 2011. The submission deadline was later extended to October 3, 2011.

On October 3, 2011, Party C submitted a written indication expressing interest in a potential transaction and proposed a valuation range of $17.00 to $20.00 per share of Class A common stock, which was subject to reaching an agreement with an operating partner, among other conditions. Party C was the only REIT to submit an indication of interest by the October 3, 2011 deadline.

On November 3, 2011, a meeting of the Board was held at the offices of the Company, which was attended by all members of the Board. The Board determined that it was in the best interests of the Company and its stockholders to form the Special Committee to consider a potential transaction and the Company’s alternatives thereto in light of the fact that certain of the directors and officers of the Company or its affiliates may be deemed to have interests in a potential transaction that are different from, or in addition to, the interests of the Company’s stockholders generally. The Board appointed Mr. Mel Rhinelander, Ms. Malen S. Ng, Dr. Charles H. Roadman II and Mr. Michael J. Spector as members of the Special Committee, and to the fullest extent permitted by law, delegated to the Special Committee the power and authority of the Board as to the exploration of strategic alternatives for the Company.

 

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On November 9, 2011, a meeting of the Special Committee was held at the offices of Foley & Lardner LLP (“Foley”), which was attended by all members of the Special Committee. Representatives of Foley also were present. The members of the Special Committee first discussed the purpose, mandate and broad range of responsibilities delegated to the Special Committee by the Board. The Special Committee then designated Mr. Rhinelander as Chairman of the Special Committee, instructing Mr. Rhinelander to provide day-to-day oversight over the process of exploring strategic alternatives in order to facilitate a timely response to developments as they arise, but with major decisions being subject to the action of the Special Committee. A representative of Foley reviewed the fiduciary duties of the Special Committee under applicable law. The members of the Special Committee discussed that the Special Committee would be independent and fully empowered to control the process of exploring strategic alternatives, including having the power to say “no” to proposed transactions and offers. After considering the qualifications, expertise and reputation of Foley and Citi in mergers and acquisitions and special committee assignments, the Special Committee determined to engage Foley and Citi as independent legal counsel and independent financial advisor, respectively, for the Special Committee. The Special Committee reviewed a presentation prepared by Citi regarding the selection of participants in a potential sale process. After discussion, the Special Committee instructed Citi to solicit offers to acquire the Company from potential buyers including healthcare REITs, private equity firms and assisted living facility operators.

Between November 11, 2011 and January 23, 2012, 10 potential buyers (forming seven bidding groups) executed confidentiality agreements with the Company (Party C, Party D/Party E, Party F, Party G/Party H, Party I, Party J and TPG/Party K). After signing confidentiality agreements, the potential buyers were provided with a confidential information package and a letter inviting them to submit written proposals to acquire the Company by January 23, 2012. Party D is an operator of assisted living facilities and Party H and Party I are operators of senior living facilities. Party C and Party G are healthcare REITs. Party E, Party F, Party J, Party K and TPG are private investment firms.

By January 23, 2012, the Company had received four written proposals indicating an interest in a potential transaction. Party C offered $18.00 to $19.00 per share of Class A common stock in cash, Party D/Party E offered $19.00 per share of Class A common stock in cash, Party F offered $18.50 to $19.50 per share of Class A common stock in cash and Party G/Party H offered $21.00 per share of Class A common stock ($16.00 in cash and $5.00 in convertible preferred equity). Party I, Party J, Party K and TPG did not submit proposals to acquire the Company.

On January 26, 2012, a meeting of the Special Committee was held at the offices of Foley. Mr. Rhinelander, Dr. Roadman and Mr. Spector attended the entire meeting and Ms. Ng attended for a portion of the meeting. Representatives of Foley and Citi also were present. During the meeting, Citi made a presentation to the Special Committee that included, among other things, an update on the process, profiles of the potential buyers and an analysis and comparison of the offers made by the potential buyers. Citi also discussed with the members of the Special Committee strategic alternatives other than the sale of the Company. Representatives of Foley then reviewed the fiduciary duties of the Special Committee under applicable law. After discussion, the Special Committee instructed Citi to proceed with the next round of offers.

By February 23, 2012, each of the four potential buyers that had submitted written proposals had been provided with access to an electronic data room, as well as the opportunity to meet the Company’s senior management and visit certain facilities of the Company.

Party K (originally a bidding partner with TPG) subsequently contacted Citi and expressed interest in continuing in the process. After discussion with Mr. Rhinelander, representatives of Citi suggested that Party K consider partnering with Party J (who had also expressed an interest in finding a bidding partner) to make a joint offer to acquire the Company. Instead, Party K asked for permission to partner with Party L. Subsequently, Mr. Rhinelander approved the Party K/Party L partnership and invited Party K/Party L to participate in the process.

 

 

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Mr. Rhinelander advised Citi that he had instructed Sagent Advisors, LLC, a boutique investment banking firm, to conduct an outreach to six additional financial sponsors in order to gauge their interest in a potential transaction. Party M, Party N, Party O and Party P executed confidentiality agreements with the Company and received confidential information about the Company, while Party Q and Party R did not sign confidentiality agreements. After reviewing the confidential information, Party M, Party N and Party O indicated interest in moving forward. In response, Mr. Rhinelander directed Citi to request that such potential buyers submit a written indication of interest in a potential transaction.

On or around March 1, 2012, The SeniorCare Investor, an industry newsletter, published an article citing rumors that the Company was evaluating a potential sale of the Company.

On March 6, 2012, Party K/Party L submitted a written proposal to acquire the Company for $20.00 to $21.00 per share of Class A common stock in cash.

On March 7, 2012, a meeting of the Special Committee was held at the Radisson Hotel in Menomonee Falls, Wisconsin, which was attended by all members of the Special Committee. Foley also was present. The Special Committee discussed developments in the process, including Party K/Party L’s offer of March 6, 2012. The Special Committee then discussed Party C’s interest in continuing to participate in the sale process with Party S as a bidding partner. The Special Committee discussed its concerns with Party S’s potential participation in the sale process, noting that Party S is a competitor of the Company. A representative of Foley then reviewed the fiduciary duties of the Special Committee under applicable law. After discussion, the Special Committee determined to allow Party C to partner with Party S, but to closely monitor Party S’s participation in the process.

On March 8, 2012, Party F informed Citi that it would not continue in the process.

On March 12, 2012, Party O submitted a written proposal to acquire the Company for $20.00 per share of Class A common stock in cash. After consultation with Mr. Rhinelander, Citi invited Party O to join the ongoing process. Party M and Party N never submitted proposals to acquire the Company.

On March 16, 2012, Party J informed Citi that it wanted to rejoin the process.

On March 19, 2012, Party D/Party E informed Citi that it would not continue in the process.

Also on March 19, 2012, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Foley and Citi also were present. A representative of Citi provided an update on the process, stating that four bidders remained involved: Party C/Party S, Party G/Party H, Party K/Party L and Party O. A representative of Foley reviewed the fiduciary duties of the Special Committee under applicable law. The members of the Special Committee discussed the amount of time the Company’s management was spending on providing diligence information to bidders and whether focusing on the bidders with the highest offers would allow the process to be accelerated and permit the Company’s management to concentrate on operations. After such discussion, the Special Committee instructed Citi to obtain final round bids from the three bidders with outstanding offers equal to or greater than $20.00 per share of Class A common stock: Party G/Party H, Party K/Party L and Party O.

On March 23, 2012, Citi sent letters to Party G/Party H, Party K/Party L and Party O, instructing the potential buyers to submit final round bids (including a mark-up of the Company’s draft merger agreement) by April 18, 2012.

Also on March 23, 2012, Party J submitted a written proposal to acquire the Company for $20.50 per share of Class A common stock in cash.

On March 27, 2012, Party G/Party H informed Citi that it would not continue in the process.

 

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On March 30, 2012, a telephonic meeting of the Special Committee was held, which was attended by Mr. Rhinelander, Dr. Roadman and Mr. Spector. A representative of Foley also was present. The Special Committee discussed the status of the process, noting that Party K/Party L and Party O remained as potential buyers. The members of the Special Committee also discussed Party J’s offer of March 23, 2012 and expressed concern that Party J would not be able to submit a final round offer by the April 18, 2012 deadline set for Party K/Party L and Party O and discussed the potential impact of extending the process to accommodate Party J. After discussion, the Special Committee determined that Party J would only be allowed to participate in the process at that time if its participation would not jeopardize the timeline for the process, including the receipt of final round offers from Party K/Party L and Party O.

Between March 30, 2012 and April 18, 2012, Party T and Party U contacted Citi and expressed interest in a potential transaction. Consistent with the Special Committee’s treatment of Party J, Mr. Rhinelander determined that Party T and Party U would only be allowed to participate in the process at that time if their participation would not jeopardize the timeline for the process, including the receipt of final round offers from Party K/Party L and Party O. Ultimately, Party J, Party T and Party U were not invited to join the process at that time because it was concluded that their participation would have jeopardized the process by causing a substantial delay.

On or around April 1, 2012, The SeniorCare Investor published another article citing rumors that the Company was evaluating a potential sale of the Company.

On April 10, 2012, a meeting of the Board was held at the Gateway Hotel in Toronto, which was attended by all members of the Board except Ms. Ng. During the meeting, Mr. Rhinelander provided the Board with an update on the process, including that final round bids were expected on April 18, 2012.

On April 18, 2012, Party K/Party L submitted a written proposal to acquire the Company for $19.00 to $20.00 per share of Class A common stock in cash. Party K/Party L’s proposal included definitive transaction documentation, including a mark-up of the draft merger agreement and a debt commitment letter. However, Party K/Party L’s proposal was conditioned on the Company reaching an agreement with Party K/Party L with respect to the resolution of an issue regarding facilities leased by the Company from Ventas, Inc. (“Ventas”). Party K/Party L stated that its reduced offer reflected its view of the Ventas issue and additional staffing needed at the Company’s owned facilities due to the number of open positions and targeted service requirements. Party O did not submit a proposal to acquire the Company (or an offer price) but submitted a mark-up of the draft merger agreement and verbally indicated that it held discussions with financing sources.

Also on April 18, 2012, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. A representative of Foley also was present. Mr. Alan Bell, a member of the Board, also attended at the Special Committee’s request due to his knowledge of the Ventas issue. The Special Committee discussed the developments in the sale process and the Ventas issue, considering how various options of the Company in respect of Ventas would affect bidders’ offers and their related valuations of the Company.

On April 19, 2012, Party O informed Citi that it would not continue in the process.

On April 24, 2012, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Foley and Citi also were present. Mr. Rhinelander provided the other members of the Special Committee with an update regarding conversations between the Company and Ventas. A representative of Citi then made a presentation to the Special Committee that included, among other things, an analysis of Party K/Party L’s offer of April 18, 2012 and a comparison of such offer with the previous offers made by Party K/Party L and other bidders. A representative of Foley reviewed the definitive transaction documentation submitted by Party K/Party L. After discussion of the Ventas issue and the Party K/Party L offer, the members of the Special Committee determined that, in light of the current status of the Ventas issue, they would not reach a definitive decision regarding the Party K/Party L offer at that time.

 

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On April 26, 2012, Ventas instituted a lawsuit against the Company that sought a declaratory judgment that the Company had breached its obligations under the leases with Ventas and forfeited its right to possession of the facilities leased thereunder. On May 3, 2012, the Board determined to investigate possible irregularities in connection with the Company’s leases with Ventas.

On May 21, 2012, Party K/Party L submitted a revised proposal to acquire the Company for $17.00 to $18.00 per share of Class A common stock in cash, a $2.00 per share reduction from its prior proposal. Party K/Party L indicated that the reduction resulted from an assumption of higher costs associated with resolution of the Ventas issue.

On May 29, 2012, the Board terminated Ms. Laurie Bebo’s employment as the President and Chief Executive Officer of the Company for cause and appointed Dr. Roadman as Interim President and Chief Executive Officer of the Company. As a result, Dr. Roadman resigned from his position on the Special Committee and the Audit Committee of the Board.

On June 15, 2012, the Company reached an agreement with Ventas to acquire 12 facilities leased from Ventas for $97,000,000. As part of the agreement, the Company also agreed to pay Ventas a $3,000,000 litigation settlement fee and reimburse Ventas for the expenses incurred by Ventas in connection with the litigation.

On June 29, 2012, Ms. Bebo initiated an arbitration proceeding against the Company disputing the existence of cause for her termination and alleging that she is entitled to more than $2.4 million in severance pay and other termination benefits because her termination was without cause. Also, on June 29, 2012, Ms. Bebo filed a lawsuit against the Company, seeking an order requiring the Company to produce certain company records previously requested by Ms. Bebo as a director of the Company and a judgment requiring the Company to indemnify Ms. Bebo for all expenses incurred in connection with the Company’s internal investigation relating to the Ventas leases and to advance Ms. Bebo all expenses incurred by her in connection with the investigation.

In July 2012, representatives of Party K/Party L met with Mr. Rhinelander to reiterate Party K/Party L’s continued interest in acquiring the Company.

On August 2, 2012, the Company was informed by the SEC that its staff was conducting an investigation of the Company. As part of the investigation, the SEC issued a subpoena to the Company. The first subpoena was subsequently withdrawn and replaced by a new subpoena requesting additional information, including the Company’s compliance with occupancy covenants in the former Ventas leases and leasing of units for employee use.

On August 6, 2012, the Company publicly disclosed that it expected expenses to increase due to increased staffing needs at its facilities.

On August 17, 2012, a telephonic meeting of the Board was held, which was attended by all members of the Board. During the meeting, Mr. Rhinelander provided the Board with an update on the process, including that Party K/Party L had expressed continued interest in acquiring the Company.

On August 21, 2012, Mr. Rhinelander instructed Citi to solicit a revised offer from Party K/Party L.

On August 29, 2012, a putative securities class action lawsuit was filed against the Company and Ms. Bebo on behalf of individuals and entities who allegedly purchased or otherwise acquired Class A common stock between March 12, 2011 and August 6, 2012. The allegations relate to disclosures made by the Company pertaining to the former Ventas leases.

Also on August 29, 2012, Party K/Party L submitted a revised written proposal to acquire the Company for $13.50 per share of Class A common stock in cash. Party K/Party L stated that the reduction in its offer price

 

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reflected its view of increased expenses due to increased staffing needs. In addition, Party K/Party L indicated that its offer price would be reduced by any liabilities related to the Company’s SEC investigation and other litigation matters.

On August 30, 2012, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Foley and Citi also were present. A representative of Citi discussed with the Special Committee Party K/Party L’s offer of August 29, 2012. A representative of Foley then reviewed the fiduciary duties of the Special Committee under applicable law. Following discussion, the members of the Special Committee determined that they could not support Party K/Party L’s offer of August 29, 2012 at that time. The Special Committee then asked Citi to work with the Company’s management to prepare an illustrative future stock price analysis of the Company on a stand alone basis in order to compare such analysis with the Party K/Party L offer.

On September 4, 2012, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. A representative of Foley also was present. Mr. Rhinelander informed the other members of the Special Committee that Party V, a pension fund, had expressed an interest in (a) acquiring the Company for $13.50 to $14.00 per share of Class A common stock, based solely on publicly available information about the Company, or (b) providing financing to the Company. The Special Committee then reviewed, among other things, an illustrative future stock price analysis of the Company that Citi had prepared with the assistance of the Company’s management. After discussion, the Special Committee determined to instruct Citi to communicate to Party K/Party L that a price of at least $15.00 per share was necessary in order to acquire the Company. After considering the impact of the Company’s SEC investigation and other litigation matters on a potential transaction, the Special Committee determined to ask Mr. Bell to help support the negotiations with potential bidders due to his specialized knowledge of the SEC investigation and other litigation matters.

On September 13, 2012, a lawsuit was filed derivatively by an alleged stockholder of the Company against certain of the Company’s current and former executive officers and directors and the Company, as nominal defendant, alleging that the individual defendants breached their fiduciary duties to exercise good faith to ensure that the Company was operated in a diligent, honest and prudent manner and to exercise good faith in taking appropriate action to prevent and correct certain issues relating to the Company’s legal and regulatory compliance.

Also on September 13, 2012, Citi presented Party K/Party L with a counterproposal pursuant to which Party K/Party L would acquire the Company for $15.25 per share of Class A common stock in cash, without reduction for liabilities related to the Company’s SEC investigation and other litigation matters.

On September 20, 2012, Party K/Party L submitted a revised written proposal to acquire the Company for $14.00 per share of Class A common stock in cash. However, Party K/Party L indicated that its offer price would be reduced by any liabilities related to the Company’s SEC investigation and other litigation matters.

Between September 20, 2012 and September 28, 2012, Mr. Rhinelander and representatives of Citi discussed interest in a potential transaction demonstrated to Citi by each of Party J, Party O and Party W. Following such discussions, Mr. Rhinelander directed Citi to solicit new offers to acquire the Company from Party J, Party O and Party W.

On September 28, 2012, a telephonic meeting of the Special Committee was held. Mr. Rhinelander and Ms. Ng attended the entire meeting and Mr. Spector attended for a portion of the meeting. Representatives of Foley and Citi also were present. Mr. Bell also attended at the Special Committee’s request. A representative of Citi reviewed the status of the negotiations with Party K/Party L, focusing on Party K/Party L’s offer of September 20, 2012 and its concern about exposure to liabilities relating to the SEC investigation and other litigation matters. The representative of Citi also informed the members of the Special Committee that Party O

 

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had given an oral offer of $12.00 to $15.00 per share of Class A common stock in cash, subject to due diligence on liabilities related to the Company’s SEC investigation and other litigation matters. The representative of Citi also reported that Citi had revised its illustrative future stock price analysis of the Company (prepared with the assistance of the Company’s management) in order to include potential liabilities related to the Company’s SEC investigation and other litigation matters. After discussion, the Special Committee instructed Citi to present Party K/Party L with two options: (a) limited exclusivity with Party K/Party L if Party K/Party L offered to acquire the Company for at least $14.00 per share of Class A common stock in cash (without reduction for liabilities related to the Company’s SEC investigation and other litigation matters) or (b) no exclusivity with Party K/Party L.

On October 2, 2012, Party W submitted an indication of interest, based on publicly available information, to acquire the Company for $15.00 per share of Class A common stock in cash. However, Party W indicated that its offer price would be reduced by any liabilities related to the Company’s SEC investigation and other litigation matters.

On October 3, 2012, Party O submitted a written proposal to acquire the Company for $12.00 to $15.00 per share of Class A common stock in cash, but such proposal did not address the treatment of contingent liabilities or explain the rationale for the size of the range.

On or around October 15, 2012, the Company learned that on July 26, 2012, Ms. Bebo filed a purported Sarbanes-Oxley whistleblower complaint with the Occupational Safety and Health Administration of the U.S. Department of Labor, alleging that her termination was in retaliation for her purported suggestion that the Company disclose that the reason for the delay in the announcement of the Company’s results for the first quarter of 2012 was the lawsuit instituted by Ventas against the Company.

On October 16, 2012, Party K/Party L submitted a revised written proposal to acquire the Company for $14.25 per share of Class A common stock in cash, without reduction for liabilities related to the Company’s SEC investigation and other litigation matters. Party K/Party L also requested exclusivity.

On or around October 19, 2012, the Board received a demand letter from another potential derivative plaintiff, asserting matters similar to those asserted in the lawsuit filed on September 13, 2012. The Board later determined to defer detailed consideration of the demand until a ruling is made on the motion to dismiss the lawsuit filed on September 13, 2012.

Also on October 19, 2012, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Foley also were present. The members of the Special Committee reviewed Party K/Party L’s offer of October 16, 2012 and considered the possibility of receiving revised bids from Party O and Party W. A representative of Foley then summarized certain important provisions in the proposed revised draft merger agreement to be sent to Party K/Party L (responding to Party K/Party L’s mark-up of the draft merger agreement received on April 18, 2012). The members of the Special Committee focused on the termination fee and fiduciary out provisions to ensure that higher offers from other bidders would not be precluded and considered the timing and certainty of closing a transaction with Party K/Party L.

On October 22, 2012, a representative of Foley sent a revised draft merger agreement to Party K/Party L.

On October 29, 2012, following completion of further due diligence, Party K/Party L revised its proposal to acquire the Company, offering $12.25 per share of Class A common stock in cash at closing and up to $2.00 per share of Class A common stock in contingent cash payments after closing (after deducting the costs associated with the Company’s SEC investigation and other litigation matters).

On November 2, 2012, in connection with the announcement of the Company’s results for the third quarter of 2012, the Company publicly announced that (a) the Company would be commencing a process to dispose of seven New Jersey facilities owned by the Company and (b) the Board is also considering a divestiture of certain

 

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closed and underperforming facilities. The Company also publicly announced that the Special Committee would continue its strategic review process to explore corporate alternatives with a view to enhancing shareholder value.

Following negotiations between Citi and Party K/Party L, on November 9, 2012, Party K/Party L submitted a “best and final” proposal to acquire the Company for $12.75 per share of Class A common stock in cash at closing and up to $1.00 per share of Class A common stock in contingent cash payments after closing (after deducting the costs associated with the Company’s SEC investigation and other litigation matters). However, the proposal was subject to investment committee approval.

On November 12, 2012, Party K/Party L informed Citi that Party K/Party L was withdrawing its offer of November 9, 2012 because such offer had failed to receive investment committee approval.

Later on November 12, 2012, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Foley and Citi also were present. Mr. Bell also attended at the Special Committee’s request. Notwithstanding that Party K/Party L had withdrawn its offer of November 9, 2012, a representative of Citi made a presentation to the Special Committee that included, among other things, a valuation analysis of the Company (prepared with the assistance of the Company’s management) and an analysis of Party K/Party L’s offer using various valuation metrics. Foley reviewed the fiduciary duties of the Special Committee under applicable law. After discussion, the Special Committee determined to continue to negotiate with Party K/Party L but also actively solicit offers from other bidders.

On November 14, 2012, the Special Committee instructed Citi to contact parties that had previously participated in the process, gauge their interest in rejoining the process and invite them to submit a written proposal for the acquisition of the Company by December 7, 2012.

On November 15, 2012, TPG independently contacted Citi and expressed its desire to rejoin the process.

On November 16, 2012, representatives of Citi contacted Party F, Party J, Party O and TPG and invited them to rejoin the process. Representatives of Citi offered each party access to an electronic data room and the opportunity to meet with the Company’s management.

During the week of December 3, 2012, Party O and TPG attended presentations by the Company’s management.

On December 7, 2012, TPG submitted a written proposal to acquire the Company for $11.00 to $13.00 per share of Class A common stock in cash. Party F, Party J and Party O declined to submit proposals to acquire the Company. Party F did express an interest in acquiring certain of the Company’s assets rather than the Company in its entirety, but, after consultation with Mr. Rhinelander and at his direction, Citi informed Party F the Special Committee’s strategy at that time did not include selling the assets in which Party F expressed an interest in acquiring.

On December 8, 2012, Party K/Party L submitted a revised written proposal to acquire the Company for $11.25 per share of Class A common stock in cash at closing plus an unspecified amount in contingent cash payments after closing, based on the proceeds from the sale of certain New Jersey properties owned by the Company and the costs associated with the Company’s SEC investigation and other litigation matters.

Later on December 8, 2012, Mr. Rhinelander and representatives of Citi discussed TPG’s offer of December 7, 2012 and Party K/Party L’s offer of December 8, 2012. Following such discussion, Mr. Rhinelander instructed Citi to solicit final round offers (including definitive transaction documentation) from TPG and Party K/Party L by January 28, 2013.

 

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On December 21, 2012, a lawsuit was filed derivatively by an alleged stockholder of the Company against certain of the Company’s current and former executive officers and directors and the Company, as nominal defendant. The substantive allegations are similar to the allegations in the lawsuit filed on September 13, 2012. Unlike the lawsuit filed on September 13, 2012, which purports to allege only a breach of the fiduciary duty of good faith, however, the lawsuit filed on December 21, 2012 purports to allege four causes of action: breach of fiduciary duty, contribution and indemnification, waste of corporate assets and unjust enrichment.

On December 31, 2012, the Company entered into a waiver and amendment with respect to its $125,000,000 Credit Agreement dated as of February 18, 2011, as amended (the “credit agreement”), among the Company, the lenders party thereto and U.S. Bank National Association (“U.S. Bank”), pursuant to which the Company agreed to, by March 31, 2013, provide to the lenders under the credit agreement an agreement that provides for the repayment of all of the Company’s obligations under the credit agreement by August 15, 2013 (subject to extension to September 30, 2013).

On January 10, 2013, a representative of Citi sent a draft merger agreement to TPG.

On January 16, 2013, a meeting of the Special Committee was held, which was attended by all members of the Special Committee. Mr. Bell also was present at the Special Committee’s request. The members of the Special Committee reviewed Foley’s status as legal counsel to the Special Committee in light of the fact that Foley also was acting as legal counsel to U.S. Bank in U.S. Bank’s capacity as administrative agent and collateral agent under the credit agreement. Mr. Bell noted that representatives of Foley had confirmed that an ethical wall had been established at Foley in order to protect Foley and the Special Committee from conflicts. However, the members of the Special Committee agreed that it was fundamental to the successful fulfillment of the Special Committee’s mandate that the independence of the Special Committee and its advisors and the evaluation of strategic alternatives be maintained in both fact and perception. As a result, the Special Committee determined to terminate Foley as legal counsel to the Special Committee. The Special Committee also determined to retain Cravath, Swaine & Moore LLP (“Cravath”) as independent legal counsel to the Special Committee, after considering the qualifications, expertise and reputation of Cravath in mergers and acquisitions and special committee assignments, subject to Cravath’s confirmation that Cravath has no conflict issues and would be independent for purposes of acting as legal counsel to the Special Committee. Cravath subsequently so confirmed and was retained by the Special Committee.

On January 27, 2013, Party F contacted Citi and reiterated its interest in acquiring certain of the Company’s assets rather than the Company in its entirety.

On January 28, 2013, Party K/Party L submitted a revised written proposal to acquire the Company for $10.50 per share of Class A common stock in cash at closing and up to $1.00 per share of Class A common stock in contingent cash payments after closing, based on the proceeds from the sale of certain New Jersey properties owned by the Company and the costs associated with the Company’s SEC investigation and other litigation matters. Party K/Party L’s proposal included definitive transaction documentation, including a mark-up of the draft merger agreement sent to Party K/Party L on October 22, 2012, an equity commitment letter, a debt commitment letter and a limited guarantee. Also on January 28, 2013, TPG submitted a revised written proposal to acquire the Company that included definitive transaction documentation, including a mark-up of the draft merger agreement sent to TPG on January 10, 2013, an equity commitment letter and a limited guarantee, but did not contain a proposed purchase price. TPG indicated that it would submit a proposed purchase price no later than February 4, 2013 (after receiving investment committee approval). Both Party K/Party L and TPG stated that they required exclusivity in order to move forward.

On February 1, 2013, TPG verbally submitted an offer to acquire the Company for $11.00 to $11.50 per share of Class A common stock in cash. After a discussion with representatives of Citi about the offer, Mr. Rhinelander instructed Citi to tell TPG that TPG should offer at least $12.00 per share of Class A common stock in cash. Citi promptly complied with the instructions.

 

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On February 2, 2013, TPG verbally submitted its “best and final” offer to acquire the Company for $11.75 per share of Class A common stock in cash.

Later on February 2, 2013, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Cravath and Citi also were present. Mr. Bell also attended at the Special Committee’s request. A representative of Citi made a presentation to the Special Committee that included, among other things, a review of the process to date and a discussion of the Party K/Party L offer of January 28, 2013 and the TPG offer of February 2, 2013. The representative of Citi described how each bidder proposed to finance the acquisition of the Company, noting that Party K/Party L’s offer required a four-week period involving substantial assistance from the Company to arrange a debt financing, while TPG’s offer included no debt financing and a two-week timeline for signing definitive transaction documentation. The representative of Citi also noted that Party K/Party L’s price included contingent cash payments to be made after closing. A representative of Cravath then reviewed the fiduciary duties of the Special Committee under applicable law. The Special Committee discussed the possibility of obtaining, with respect to the merger agreement, the approval of a majority of the unaffiliated holders of Class A common stock (i.e., excluding directors and officers of the Company and the holders of Class B common stock) in addition to the approval of all stockholders mandated by Nevada law. Representatives of Cravath then reviewed the definitive transaction documentation submitted by Party K/Party L and TPG. After discussion, including consideration of the conversations with TPG after the January 28, 2013 bid deadline and the option of not entering into any transaction at that time, the Special Committee instructed Citi to inform Party K/Party L that Party K/Party L must raise its offer to at least $12.00 per share in cash with no debt financing contingency if it wished to have a leading offer. Citi promptly complied with the instructions.

On February 5, 2013, Party K/Party L submitted its “best and final” offer to acquire the Company for $11.50 per share of Class A common stock in cash and removed the debt financing contingency contained in its offer of January 28, 2013. However, only Party L, and not Party K, received approval from its investment committee to make such offer.

On February 6, 2013, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Cravath and Citi also were present. Mr. Bell also attended at the Special Committee’s request. A representative of Citi reviewed with the Special Committee TPG’s proposal of February 2, 2013 and Party K/Party L’s proposal of February 5, 2013. The representative of Citi also informed the Special Committee that, despite multiple attempts by Citi, both TPG and Party K/Party L had declined to offer a price higher than the price contained in their latest proposals. The members of the Special Committee discussed the two latest proposals, including their reservations concerning the entry into an exclusivity agreement, but determined that they would be willing to authorize the entry into such an agreement if such exclusivity would likely lead to the best offer for the stockholders of the Company. The Special Committee then instructed Citi and Cravath to inform TPG that it was the leading bidder and that the Special Committee expected to enter into definitive transaction documentation within two weeks. Citi and Cravath promptly complied with the instructions.

Later on February 6, 2013, representatives of TPG informed Citi and Cravath that TPG would not move forward without an exclusivity agreement. A representative of TPG subsequently sent to Citi a draft exclusivity agreement, pursuant to which the Company and its affiliates and representatives were required to not solicit any proposals from, or engage in any discussions with, any third party with respect to a competing transaction until 11:59 p.m. P.T. on February 25, 2013.

On February 7, 2013, a representative of Cravath sent to Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), counsel to TPG, revised drafts of the merger agreement, the equity commitment letter and the limited guarantee. Cravath also sent to Skadden a draft voting agreement prepared by O’Melveny & Myers LLP (“O’Melveny”), counsel to Thornridge.

 

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On February 7, 2013 and February 8, 2013, representatives of Citi and Cravath engaged in discussions with representatives of TPG and Skadden with respect to the exclusivity agreement. Late on February 8, 2013, the Company and TPG signed an exclusivity agreement with an exclusivity period that terminated at 11:59 p.m. P.T. on February 25, 2013.

On February 9, 2013, a telephonic meeting of the Board was held, which was attended by all members of the Board. Representatives of Cravath and Citi also were present. A representative of Citi made a presentation to the Board that included, among other things, a review of the Special Committee process to date and a summary of the latest proposals from Party K/Party L and TPG. The representative of Citi informed the Board that the Special Committee had determined to move forward with TPG as the leading bidder and signed an exclusivity agreement with TPG. A representative of Cravath then reviewed the fiduciary duties of the Board under applicable law. The Board discussed the possibility of obtaining, with respect to the merger agreement, the approval of a majority of the unaffiliated holders of Class A common stock (i.e., excluding directors and officers of the Company and the holders of Class B common stock) in addition to the approval of all stockholders mandated by Nevada law.

Later on February 9, 2013, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Cravath and Citi also were present. A representative of Cravath informed the Special Committee that Thornridge had requested that the Company reimburse Thornridge for the reasonable and documented out-of-pocket expenses it incurs pursuant to the negotiation of the voting agreement or otherwise in connection with the proposed transaction with TPG. After discussion, the Special Committee determined to not reimburse Thornridge’s expenses. In response to the Special Committee’s request for disclosures and commitments related to potential conflicts of interest, the representatives of Citi informed the Special Committee that (a) no representative of Citi acting in an advisory capacity to the Special Committee owns any equity or debt interests in, or has any other financial relationship with, the Company or TPG, (b) Citi will not provide debt financing to a potential bidder for the Company and (c) TPG and its affiliates collectively are one of the top fee payers to Citi. After Citi departed the meeting, the members of the Special Committee discussed the disclosures and commitments made by Citi, focusing on the fact that TPG pays substantial fees to Citi, but acknowledging that any large financial institution likely receives similar fees from TPG. After such discussion, the members of the Special Committee concluded that the relationship between Citi and TPG would not impact the ability of Citi to provide independent advice to the Special Committee, subject to continuing review should additional conflicting facts become known.

On February 15, 2013, Mr. Rhinelander and Citi received an unsolicited written proposal from Party K/Party L to acquire the Company at a price of $12.00 per share of Class A common stock in cash, without a debt financing contingency. In addition, the unsolicited written proposal stated that Party K/Party L has completed all of its diligence, has secured all necessary internal approvals and is prepared to finalize definitive documentation within a few days. Promptly following receipt of the unsolicited written proposal, Cravath informed Skadden that the Special Committee had received an unsolicited written proposal from a third party. Cravath described to Skadden the terms of the unsolicited written proposal, but made clear to Skadden that the Special Committee and its advisors would continue to work in good faith with TPG to sign definitive transaction documentation, but subject to coming to agreement on mutually acceptable terms, including price.

Also on February 15, 2013, the putative securities class action lawsuit previously filed on August 29, 2012 was amended to, among other things, change the start date of the class period to March 4, 2011. The lawsuit, as amended, asserts that the Company did not accurately disclose occupancy data, falsely touted the success of its “private pay” business model and falsely reported that it was in compliance with the former Ventas leases.

On February 17, 2013, representatives of Citi, Cravath, TPG, Goldman Sachs & Co. (“Goldman”), financial advisor to TPG, and Skadden participated in a conference call to discuss TPG’s outstanding due diligence requests.

 

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On February 18, 2013, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Cravath and Citi also were present. Mr. Bell also attended at the Special Committee’s request. Representatives of Cravath and Citi updated the Special Committee on the discussions with TPG.

On February 20, 2013, a representative of Skadden sent to Cravath a revised draft of the merger agreement. Later on February 20, 2013, representatives of Cravath, TPG, Skadden and KPMG, accounting advisor to TPG, participated in a conference call with the representatives of the Company and Grant Thornton LLP, the independent auditor of the Company. On February 21, 2013, a representative of Cravath sent to Skadden a revised draft of the merger agreement, reflecting a price of $12.00 per share of Class A common stock in cash. On February 22, 2013, representatives of Citi, Cravath, TPG and Skadden met at the offices of Cravath to negotiate the definitive transaction documentation. During such negotiation, TPG and Skadden took the position that there should be no required approval of stockholders of the Company other than the approval of all stockholders mandated by Nevada law. However, Cravath and Citi made clear that the Special Committee would not approve a transaction that did not also require the approval of a majority of the unaffiliated holders of Class A common stock (i.e., excluding directors and officers of the Company and the holders of Class B common stock).

Between February 22, 2013 and February 25, 2013, representatives of Citi, Cravath, TPG and Skadden continued to negotiate the definitive transaction documentation. Between February 23, 2013 and February 25, 2013, representatives of O’Melveny and Skadden negotiated the voting agreement.

On February 24, 2013, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Cravath and Citi also were present. A representative of Citi made a presentation to the Special Committee that included, among other things, a summary of the key terms of the offer made by TPG and a valuation analysis of the Company (prepared with the assistance of the Company’s management) using various metrics. The representative of Citi also informed the members of the Special Committee that Citi would be prepared to render its fairness opinion on February 25, 2013. Representatives of Cravath reviewed the fiduciary duties of the Special Committee under applicable law and then described the terms and conditions of the definitive transaction documentation, highlighting the material matters that remained open at that time. The members of the Special Committee engaged in a discussion of the terms and conditions of the proposed potential transaction in light of the Company’s strategic alternatives. In the course of such discussion, the members of the Special Committee also considered the option of not entering into any transaction at that time. The Special Committee then unanimously resolved to recommend to the Board that the Board approve the proposed potential transaction with affiliates of TPG, subject to resolution of the material open matters on terms acceptable to the Special Committee and its advisors.

On February 25, 2013, a telephonic meeting of the Board was held, which was attended by all members of the Board. Representatives of Cravath and Citi also were present. A representative of Citi made a presentation to the Board that included, among other things, a summary of the key terms of the offer made by TPG and a valuation analysis of the Company (prepared with the assistance of the Company’s management) using various metrics. Thereafter, Citi rendered to the Special Committee an oral opinion, which was confirmed by delivery of a written opinion dated February 25, 2013 to the effect that, as of that date and based on and subject to the factors, assumptions and limitations described in the opinion, the Class A per share merger consideration is fair, from a financial point of view, to the holders of Class A common stock (other than the excluded Class A holders). Representatives of Cravath reviewed the fiduciary duties of the Board under applicable law and then described the terms and conditions of the definitive transaction documentation. Mr. Rhinelander, on behalf of the Special Committee, informed the Board that the Special Committee recommended that the Board approve the proposed potential transaction with affiliates of TPG. The members of the Board engaged in a discussion of the terms and conditions of the proposed potential transaction in light of the Company’s strategic alternatives. In the course of such discussion, the members of the Board considered the recommendation of the Special Committee and the option of not entering into any transaction at that time. The Board then, for the reasons detailed in the section of this proxy statement captioned “Recommendation of the Special Committee and the Board; Reasons

 

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for Recommending the Approval of the Merger Agreement” below, unanimously determined that the merger was fair to, and in the best interests of, the Company and its stockholders, adopted the merger agreement, resolved that the merger agreement be submitted for approval by the stockholders of the Company at a meeting of stockholders and recommended that the stockholders of the Company vote in favor of approval of the merger agreement.

Also on February 25, 2013, a telephonic meeting of the Special Committee was held, which was attended by all members of the Special Committee. Representatives of Cravath also were present. A representative of Cravath updated the members of the Special Committee on the recent developments in the negotiations with TPG, including the material matters that had remained open on February 24, 2013. The representative of Cravath also reviewed with the members of the Special Committee the fiduciary duties of the Special Committee under applicable law. The members of the Special Committee then engaged in a discussion of the terms and conditions of the proposed potential transaction in light of the Company’s strategic alternatives. In the course of such discussion, the members of the Special Committee also considered the option of not entering into any transaction at that time. The Special Committee then, for the reasons detailed in the section of this proxy statement captioned “Recommendation of the Special Committee and the Board; Reasons for Recommending the Approval of the Merger Agreement” below, unanimously determined that the merger was fair to, and in the best interests of, the Company and its stockholders, adopted the merger agreement and recommended that the stockholders of the Company vote in favor of approval of the merger agreement.

Late on February 25, 2013, Parent, Merger Sub, the Company and Thornridge, as applicable, executed the merger agreement and the other definitive transaction documentation. Early on February 26, 2013, the Company issued a press release announcing its entry into the merger agreement.

Recommendation of the Special Committee and Board; Reasons for Recommending the Approval of the Merger Agreement

Special Committee

The Special Committee, at a meeting held on February 25, 2013, unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders and adopted and approved the merger agreement, the merger and the other transactions contemplated thereby.

The Special Committee also unanimously recommended that, at a special meeting of the stockholders of the Company, (a) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (b) the holders of Class A common stock (other than the excluded Class A holders), voting as a single, separate class, vote in favor of approval of the merger agreement.

The Special Committee unanimously recommends that the stockholders of the Company vote “FOR” approval of the merger agreement.

In reaching its determination, the Special Committee consulted with and received presentations and advice from the Company’s management and the Special Committee’s independent financial and legal advisors and considered a number of factors that it believed supported its determination, including, but not limited to, the following:

 

   

the $12.00 per share price to be paid in cash in respect of each share of Class A common stock, which represents (a) a 49.8% premium over the closing price of the Class A common stock on the NYSE on November 1, 2012 (the last trading day prior to the announcement of the Special Committee’s strategic review process), (b) a 56.5% premium over the weighted average closing price of the Class A common stock on the NYSE during the period from August 8, 2012 to November 1, 2012 (the undisturbed

 

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period beginning after the Company disclosed that it expected expenses to increase due to increased staffing needs at its facilities and that the SEC is conducting an investigation of the Company) and (c) an 18.2% premium over the closing price on the NYSE on February 22, 2013 (the last trading day prior to the Special Committee’s adoption of the merger agreement);

 

   

the $12.90 per share price to be paid in cash in respect of each share of Class B common stock, which price is required under the Company’s Amended and Restated Articles of Incorporation based on the Class A per share merger consideration;

 

   

the process conducted by the Special Committee with the assistance of Citi prior to entering into the merger agreement, including that 20 parties were contacted over the course of the process and a public announcement of the process was made on November 2, 2012;

 

   

the fact that the amount TPG will pay to the Company’s stockholders was the result of negotiations and price increases by TPG from its proposed price range of $11.00 to $11.50 per share of Class A common stock;

 

   

the uncertainty with respect to the trading price of the Class A common stock reaching and sustaining at least $12.00 per share, as adjusted for present value;

 

   

the fact that the consideration to be paid in the merger is all cash, which provides certainty of value and liquidity to the Company’s stockholders while avoiding long-term business risk, including the risks and uncertainties relating to the Company’s prospects (including the prospects described in management’s projections summarized in the section of this proxy statement captioned “The MergerProspective Financial Information” below);

 

   

the fact that the Company would have been in default under the credit agreement if, by March 31, 2013, the Company had not provided the lenders under the credit agreement with an agreement that provides for the repayment of all of the Company’s obligations under the credit agreement by August 15, 2013 (subject to extension to September 30, 2013);

 

   

the financial analyses presented to the Special Committee by Citi and the opinion of Citi, dated February 25, 2013, to the Special Committee to the effect that, as of that date and based on and subject to the factors, assumptions and limitations described in the opinion, the Class A per share merger consideration is fair, from a financial point of view, to the holders of Class A common stock (other than the excluded Class A holders), as more fully described in the section of this proxy statement captioned “The MergerOpinion of Citigroup Global Markets, Inc., Financial Advisor to the Special Committee” below;

 

   

the fact that Citi confirmed that (a) no representative of Citi acting in an advisory capacity to the Special Committee owns any equity or debt interests in, or has any other financial relationship with, the Company or TPG and (b) Citi will not provide debt financing to any potential bidder for the Company;

 

   

the strategic alternatives available to the Company other than a sale of the Company (including continuing to operate as a standalone enterprise), which the Special Committee determined to be less favorable to the Company’s stockholders than the merger given the potential risks, rewards, likely value creation and uncertainties associated with these alternatives;

 

   

the likelihood that the merger would be consummated based on, among other things (not in any relative order of importance):

 

   

the fact that Parent had obtained committed equity financing for the transaction and the limited number and nature of the conditions to the equity financing, each of which, in the reasonable judgment of the Special Committee, increases the likelihood of such financing being completed;

 

   

the absence of a financing condition in the merger agreement and the absence of a debt financing contingency in the transaction;

 

   

the likelihood and anticipated timing of consummating the merger in light of the scope of the conditions to closing;

 

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the Company’s ability to seek specific performance of (a) Parent’s obligation to cause TPG VI to make the equity contributions to Parent pursuant to the equity commitment letter or (b) TPG VI’s obligation to fund the equity contributions to Parent pursuant to the equity commitment letter;

 

   

the fact that the merger agreement provides that, upon termination, the Company can require Parent to pay the Company a $40,000,000 reverse termination fee under certain circumstances, without the Company having to establish any damages, and the guarantee of such payment obligation by TPG VI pursuant to the limited guarantee;

 

   

the Company’s ability, under certain circumstances pursuant to the merger agreement, to seek specific performance to prevent breaches of the merger agreement and to enforce specifically the terms of the merger agreement;

 

   

the reputation of TPG; and

 

   

TPG’s ability to consummate acquisition transactions;

 

   

the other terms of the merger agreement and the other definitive transaction documentation, including:

 

   

the Company’s ability, at any time prior to the time that the Company stockholder approvals are obtained, to furnish non-public information to a person making an unsolicited written acquisition proposal and to engage in discussions or negotiations with such person, if the Special Committee determines in good faith, based on information then available and after consultation with its financial advisor and outside legal counsel, that such acquisition proposal either constitutes a superior proposal or is reasonably likely to result in a superior proposal and the failure to take such action would be inconsistent with the directors’ fiduciary duties;

 

   

the ability of each of the Special Committee and the Board, under certain circumstances, to withhold, withdraw, qualify or modify its recommendation that the Company’s stockholders vote to approve the merger agreement;

 

   

the Company’s ability, under certain circumstances, to terminate the merger agreement in order to enter into an agreement providing for a superior proposal, provided that the Company complies with its obligations relating to the entry into any such agreement and concurrently with the termination of the merger agreement pays to Parent a termination fee of $7,250,000 and reimburses up to $2,750,000 of Parent’s expenses;

 

   

the termination fee payable to Parent and the reimbursement of Parent’s expenses under certain circumstances, including as described above, in connection with a termination of the merger agreement, which the Special Committee concluded were reasonable in the context of termination fee and expenses reimbursement provisions in comparable transactions and in light of the overall terms of the merger agreement, including the per share merger consideration, and the belief of the Special Committee that the termination fee payable to Parent and the reimbursement of Parent’s expenses would not preclude another party from making a competing proposal for the Company;

 

   

the fact that the merger agreement would need to be approved by (a) the holders of a majority of the voting power of the outstanding shares of Company common stock, voting as a single class, and (b) the holders of a majority of the voting power of the outstanding shares of Class A common stock (other than the excluded Class A holders), voting as a single, separate class;

 

   

the fact that the termination date under the merger agreement allows for sufficient time to consummate the merger; and

 

   

the fact that (a) the obligation of Thornridge under the voting agreement to vote for the approval of the merger agreement terminates if the Board or the Special Committee change its recommendation of the transaction and (b) the voting agreement terminates upon the termination of the merger agreement;

 

   

the fact that TPG has not discussed new employment or compensation arrangements with management of the Company;

 

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the Special Committee’s views and opinions on the current and prospective business climate in the senior living residence industry and market competition;

 

   

the Special Committee’s understanding of the business, assets, operations, financial condition, earnings, alternatives and prospects of the Company, including the prospects of the Company as a standalone enterprise; and

 

   

the risk that prolonging the sale process further could have resulted in the loss of an opportunity to consummate a transaction and distracted senior management from implementing the Company’s business plan.

In the course of its deliberations, the Special Committee also considered a variety of risks and other countervailing factors related to the merger agreement and the merger, including:

 

   

the risk that the merger might not be consummated in a timely manner or at all, including the risk that the merger will not occur if the financing contemplated by the equity commitment, described in the section of this proxy statement captioned “The MergerFinancing of the Merger” below, is not obtained, as Parent does not on its own possess sufficient funds to consummate the merger;

 

   

that the stockholders of the Company will have no ongoing equity interest in the surviving corporation following the merger, meaning that the stockholders will cease to participate in the Company’s future earnings or growth, or to benefit from any increases in the value of the Company’s common stock;

 

   

the restrictions on the conduct of the Company’s business prior to the consummation of the merger, which may delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company;

 

   

the risks and costs to the Company if the merger does not close, including the diversion of management and employee attention, potential employee attrition and the potential disruptive effect on business and customer relationships;

 

   

that if the merger is not consummated, the Company will be required to pay its own expenses associated with the merger agreement, the merger and the other transactions contemplated by the merger agreement as well as, under certain circumstances, pay Parent a termination fee of $7,250,000 and, under certain circumstances, reimburse up to $2,750,000 of Parent’s expenses, in connection with the termination of the merger agreement;

 

   

the possibility that the Company’s obligation to reimburse up to $2,750,000 of Parent’s expenses and pay Parent a termination fee of $7,250,000 upon the termination of the merger agreement could discourage other potential acquirors from making a competing bid to acquire the Company;

 

   

the fact that Parent and Merger Sub are newly formed corporations with essentially no assets other than the equity commitment of TPG VI and that, if specific performance is not granted by a court of competent jurisdiction, the Company’s remedy in the event of breach of the merger agreement by Parent or Merger Sub may be limited to receipt of the $40,000,000 reverse termination fee, which is guaranteed by TPG VI, and that under certain circumstances the Company may not be entitled to a termination fee at all;

 

   

the possible effect of the public announcement, pendency or consummation of the transactions contemplated by the merger agreement, including any suit, action or proceeding in respect of the merger agreement or the transactions contemplated by the merger agreement;

 

   

the fact that an all cash transaction would be taxable to the Company’s stockholders that are U.S. holders for U.S. federal income tax purposes; and

 

   

the fact that our executive officers and directors may have interests in the transaction that are different from, or in addition to, those of our stockholders (see the section of this proxy statement captioned “The MergerInterests of the Company’s Directors and Executive Officers in the Merger” below).

 

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The Board

The Board, at a meeting held on February 25, 2013, unanimously determined that the merger agreement, the merger and the other transactions contemplated thereby are fair to, and in the best interests of, the Company and its stockholders, and adopted and approved the merger agreement, the merger and the other transactions contemplated thereby.

The Board also unanimously directed that the merger agreement be submitted to the stockholders of the Company for approval and recommended that, at a special meeting of the stockholders of the Company, (a) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (b) the holders of Class A common stock (other than the excluded Class A holders), voting as a single, separate class, vote in favor of approval of the merger agreement.

The Board unanimously recommends that the stockholders of the Company vote “FOR” approval of the merger agreement.

In reaching its determination, the Board consulted with and received presentations, advice and information from the Company’s management and the Special Committee’s financial and legal advisors and considered a number of factors that it believed supported its determination, including, but not limited to, the factors considered by the Special Committee that are listed above and the unanimous recommendation of the Special Committee that the Board approve the transaction.

The foregoing discussion of the factors considered by the Special Committee and the Board is not intended to be exhaustive, but rather includes the principal factors considered by the Special Committee and the Board, as applicable. The Special Committee and the Board reached the conclusion to adopt and approve the merger agreement, the merger and the other transactions contemplated by the merger agreement in light of the various factors described above and other factors that the members of the Special Committee and the Board believed were appropriate. In view of the wide variety of factors considered by the Special Committee and the Board and the complexity of these matters, the Special Committee and the Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors they considered in reaching their decisions and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determinations of the Special Committee and the Board. Rather, the Special Committee and the Board made their determinations and recommendations based on the totality of information presented to them and the investigation conducted by them. In considering the factors discussed above, individual directors may have given different weights to different factors. It should be noted that this explanation of the reasoning of the Special Committee and the Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors discussed in the section of the proxy statement captioned “Cautionary Statement Regarding Forward-Looking Statements” above.

Opinion of Citigroup Global Markets, Inc., Financial Advisor to the Special Committee

Citi was retained to act as financial advisor to the Special Committee in connection with the Special Committee’s exploration of strategic alternatives for the Company. In connection with this engagement, the Special Committee requested Citi to render an opinion to the Special Committee as to the fairness, from a financial point of view, of the Class A per share merger consideration to the holders of shares of Class A common stock (other than excluded Class A holders). On February 25, 2013, Citi rendered to the Special Committee an oral opinion, which was confirmed by delivery of a written opinion dated February 25, 2013, to the effect that, as of that date and based on and subject to the factors, assumptions and limitations described in its opinion, the Class A per share merger consideration was fair, from a financial point of view, to the holders of shares of Class A common stock (other than excluded Class A holders).

 

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The full text of Citi’s written opinion, dated February 25, 2013, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached to this proxy statement as Annex D and is incorporated herein by reference in its entirety. You are urged to read the opinion in its entirety. Citi’s opinion was provided for the information of the Special Committee in connection with its evaluation of the merger from a financial point of view. Citi’s opinion does not address any other aspects or implications of the merger and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matters relating to the merger. Citi also expressed no view as to, and Citi’s opinion does not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation to any officers, directors or employees of any parties to the merger, or any class of such persons, relative to the Class A per share merger consideration. Citi’s opinion does not address the underlying business decision of the Company to effect the merger, the relative merits of the merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transaction in which the Company might engage. The following is a summary of Citi’s opinion and the methodology that Citi used to render its opinion.

In arriving at its opinion, Citi, among other things:

 

   

reviewed the merger agreement;

 

   

held discussions with certain senior officers, directors and other representatives and advisors of the Company concerning the businesses, operations and prospects of the Company;

 

   

examined certain publicly available business and financial information relating to the Company;

 

   

examined certain financial forecasts and other information and data relating to the Company which were provided to or discussed with Citi by the management of the Company;

 

   

reviewed the financial terms of the merger as set forth in the merger agreement in relation to, among other things: current and historical market prices and trading volumes of the Class A common stock, the historical and projected earnings and other operating data of the Company, and the capitalization and financial condition of the Company;

 

   

considered, to the extent publicly available, the financial terms of certain other transactions which Citi considered relevant in evaluating the merger;

 

   

analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations Citi considered relevant in evaluating those of the Company; and

 

   

conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion.

In rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with Citi and upon the assurances of the management of the Company that they were not aware of any relevant information that was omitted or that remained undisclosed to Citi. With respect to financial forecasts and other information and data relating to the Company provided to or otherwise reviewed by or discussed with Citi, Citi was advised by the management of the Company that such forecasts and other information and data were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company as to the future financial performance of the Company.

Citi assumed, with the Special Committee’s consent, that the merger would be consummated in accordance with the terms of the merger agreement, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the merger. Citi assumed, based on its discussions with the Company’s

 

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management, that the Company would have been in default of the credit agreement as of March 31, 2013 unless it entered into an agreement for the repayment of all obligations under the credit agreement on or prior to such date and that obtaining any alternative financing to make such repayment is not assured. Citi did not make and was not provided with an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, and Citi did not make any physical inspection of the properties or assets of the Company. Citi’s opinion was necessarily based upon information available to Citi, and financial, stock market and other conditions and circumstances existing, as of the date of its opinion.

In preparing its opinion, Citi performed a variety of financial and comparative analyses, including those described below. The summary of these analyses is not a complete description of the analyses underlying Citi’s opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, Citi believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

In its analyses, Citi considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of the Company. No company, business or transaction used in those analyses as a comparison is identical or directly comparable to the Company or the merger, and an evaluation of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed.

The estimates contained in Citi’s analyses and the valuation ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not necessarily purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Citi’s analyses are inherently subject to substantial uncertainty.

The type and amount of consideration payable in the merger was determined through negotiations between the Company and Parent, and the decision to enter into the merger was solely that of the Special Committee and the Board (after having received the unanimous recommendation of the Special Committee). Citi’s opinion was only one of many factors considered by the Special Committee and the Board in their evaluation of the merger and should not be viewed as determinative of the views of the Special Committee, the Board or the Company’s management with respect to the merger or the applicable per share merger consideration.

The following is a summary of the material financial analyses presented to the Special Committee in connection with the delivery of Citi’s opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand Citi’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Citi’s financial analyses. In connection with Citi’s financial analysis summarized below, Citi reviewed financial forecasts and other information and data relating to the Company which were prepared by the Company’s management.

 

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Undisturbed Trading Range. Citi observed that during the period between August 8, 2012 (two days after the Company’s disclosure of increased staffing expenses and one day after the Company’s disclosure of the commencement of an investigation of the Company by the SEC) and November 1, 2012 (one day before the Company’s disclosure that the Special Committee would continue its strategic review process to explore corporate alternatives) the Class A common stock traded in a range of $7.01 to $8.38 per share and that the closing price per share of Class A common stock on November 1, 2012 was $8.01. Citi noted that the Class A per share merger consideration was above that range.

Research Price Targets. Citi compared the Class A per share merger consideration to the one-year price per share targets for the Class A common stock of two Wall Street research analysts, as of February 21, 2013, found in publicly available public equity research on the Company. As of that date, the two research analysts who covered the Company and reported one-year price targets published price per share targets for the Class A common stock of $6.00 and $8.00. Citi noted that the Class A per share merger consideration was above those one-year price targets.

Key Comparable Companies Analysis. Citi reviewed financial and stock market information and derived certain trading multiples for the following key selected publicly traded companies. These companies were selected generally because, among other factors, they are publicly traded companies that operate senior living facilities.

 

   

the Company

 

   

Five Star Quality Care, Inc.

While Five Star Quality Care, Inc. is not directly comparable to the Company, it has operations that, for purposes of this analysis, may be considered similar to certain of the Company’s business’ results, market size and product profile.

As part of its key comparable companies analysis, Citi calculated and analyzed each selected company’s ratio of adjusted firm value to its 2013 estimated adjusted earnings before interest, taxes, depreciation, amortization and rent expense (EBITDAR). Based on the key comparable company metrics analyzed and its professional judgment, Citi selected a multiple range of 7.6x to 8.0x and applied such multiples to the corresponding data of the Company. Financial data for the key comparable companies were based on information available from FactSet, Wall Street research reports and public filings. This analysis indicated the following implied equity value per share reference range for the Company, as compared to the Class A per share merger consideration:

 

Implied Equity Value Per Share

    Reference Range for the Company    

  

Class A Per Share

                 Merger Consideration                

$6.75 — $8.00

   $12.00

In addition to the key comparable companies, Citi reviewed financial and stock market information for each of Capital Senior Living Corp., Emeritus Corp., and Brookdale Senior Living, Inc.; however, Citi did not include those companies in its key comparable company analysis because it determined, based on its professional judgment, that each of those companies was not sufficiently comparable to the Company because they have different real estate business results, market size and product profiles.

Premiums Paid Analysis. Citi reviewed publicly available data relating to transactions involving U.S. public targets, announced between January 1, 2007 and February 20, 2013, with a transaction value between $250 million and $1 billion and in which the target stockholders received all cash consideration, excluding transactions where the target’s principal business was as a financial institution or in real estate. Citi reviewed the implied premiums paid in such transactions over the closing stock prices of the target companies one trading day prior to public announcement of the relevant transaction based on information publicly available at that time. Citi

 

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observed the interquartile range of premiums among the selected transactions of 14.1% (for transactions in the 25th percentile) to 47.8% (for transactions in the 75th percentile). Citi applied such premiums to the undisturbed closing per share price of the Class A common stock on November 1, 2012 (one day before the Company’s disclosure that the Special Committee would continue its strategic review process to explore corporate alternatives) of $8.01. This analysis indicated the following implied per share equity value reference range for the Company, as compared to the Class A per share merger consideration:

 

Implied Equity Value Per Share

    Reference Range for the Company    

  

            Class A Per Share Merger            

Consideration

$9.25 — $11.75

   $12.00

Selected Transaction Analysis. Using publicly available information, Wall Street research reports and information provided by the Company’s management, Citi reviewed financial data for the following selected transaction. This transaction was selected generally because it represents an acquisition of the Company in the past.

 

Announcement Date

    

Acquiror

  

Target

November 4, 2004

     Extendicare Health Services Inc.    Assisted Living Concepts, Inc.

As part of its selected transaction analysis, Citi calculated and analyzed the ratio of transaction value to the target company’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) as measured for the last twelve months prior to the announcement of the transaction. Citi calculated a multiple of 10.3x from the selected transaction and applied such multiple to the Company’s estimated 2012 fourth quarter annualized EBITDA of $34.2 million, which excludes certain one-time expenses of $2.3 million, including those related to the Company’s SEC investigation and other litigation matters, the Company’s public relations and quality initiatives, consulting fees and discontinued operations. This analysis implied the following per share equity value reference amount for the Company, as compared to the Class A per share merger consideration:

 

Implied Equity Value Per Share

    Reference Amount for the Company    

 

            Class A Per Share Merger            

Consideration

$8.00

  $12.00

Illustrative Sum-of-the-Parts Analysis. Citi performed an illustrative sum-of-the-parts analysis of the Company which was designed to calculate an adjusted equity value per share of the Company based on the sum of separate valuations (described below) for the Company’s real estate business and the Company’s operations and management business.

Citi calculated the firm value of the Company’s operations and management business and its real estate business separately and added them together to arrive at the valuation of the entire Company.

The firm value of the operations and management business was calculated by applying a selected valuation multiple of 10.3x to the 2012 fourth quarter estimated annualized EBITDA for the operations and management business of $12.3 million. The selected valuation multiple of 10.3x is based on the Selected Transaction Analysis described above. The 2012 fourth quarter estimated annualized EBITDA for the operations and management business was calculated by adjusting the Company’s estimated 2012 fourth quarter annualized EBITDAR of $45.0 million to exclude $10.7 million in rents payable to third party lessors and an additional $21.9 million representing the rental stream that the Company’s owned facilities (which we refer to as the “owned facility rental stream”) could support in the case of separation of the Company’s real estate business and the Company’s operations and management business.

The owned facility rental stream was determined based on the Company’s estimated 2012 fourth quarter annualized EBITDAR of $45.0 million, adjusted to exclude the contribution of the leased facilities, divided by a

 

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rent coverage ratio of 1.5x. Citi selected the rent coverage ratio based on its professional judgment, taking into account industry practices as well as the Company’s real estate business’s results, market size and product profile.

The range of potential firm values of the real estate business was calculated by dividing the owned facility rental stream by a selected range of cap rates (as defined below). Citi applied a 7.0% to 8.0% range of cap rates to the owned facility rental stream to calculate the firm value of the Company’s real estate business. Citi selected this range of cap rates utilizing its professional judgment and experience, taking into account its analysis of the Company’s real estate business and the companies that participated in the selected transactions described below. Using publicly available information, the range of cap rates was selected from the third and fourth quartiles of cap rates calculated from the following selected real estate transactions involving the sale of asset portfolios that may be considered similar to the assets of the Company’s real estate business. While none of the companies that participated in the selected transactions are directly comparable to Company, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of the Company’s real estate business’s results, market size and product profile.

 

Ann. Date

  

Acquiror

  

Target

   Cap Rate  
10/16/2012    HCP, Inc.    133 Facilities Owned by Emeritus/Blackstone JV      6.6 %(1) 
8/22/2012    Health Care REIT    Sunrise Senior Living, Inc.      6.0-6.5
6/7/2012    CNL, Lifestyle Properties, Inc.    7 Facilities Owned by Sunrise Senior Living, Inc.      6.1
4/16/2012    Ventas, Inc.    16 Facilities Owned by Sunrise Senior Living, Inc.      7.0
10/14/2011    CNL, Lifestyle Properties, Inc.    7 Facilities Owned by Sunrise Senior Living, Inc.      8.0
9/1/2011    Senior Housing Properties Trust    Vi      7.3
4/19/2011    Sunrise Senior Living, Inc.    15 Facilities Owned by Morgan Stanley      6.3
2/16/2011    Health Care REIT    Benchmark Senior Living      7.0
2/15/2011    Health Care REIT    Silverado Senior Living      7.5
2/15/2011    Health Care REIT    Senior Star      6.0
12/13/2010    HCP, Inc.    Horizon Bay      7.7
12/10/2010    Company/CNL Lifestyle Properties    Arcapita/Sunrise Senior Living, Inc. Portfolio      7.3
10/22/2010    Ventas, Inc.    Atria Senior Living Group      6.5 %(2) 
8/4/2010    Health Care REIT    Merrill Gardens      7.5
10/13/2009    Brookdale Senior Living    21 Facilities Owned by Sunrise Senior Living, Inc.      8.0

 

(1) EBITDAR cap rate.
(2) Cap rate for stabilized assets only.

For the selected transactions, Citi calculated and compared the implied capitalization rate as a ratio of the target company’s net operating income for the last 12 months prior to the announcement of the transaction to the price paid in the transaction (which we refer to as the “cap rate”). Citi then calculated the Company’s total equity value by summing the firm value of the Company’s real estate business and the firm value of Company’s operations and management business and subtracting the Company’s debt net of its cash. The analysis implied the following per share equity value reference range for the Company, as compared to the Class A per share merger consideration:

 

Implied Equity Value Per Share

    Reference Range for the Company    

  

            Class A Per Share Merger             

Consideration

$10.00 — $11.75

   $12.00

 

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Discounted Cash Flow Analysis. Citi performed a discounted cash flow analysis to calculate the estimated present value of the standalone, unlevered, after-tax free cash flow that the Company could generate for fiscal year 2013 through fiscal year 2016. Citi calculated the Company’s free cash flow for the fiscal years ending 2013, 2014, 2015 and 2016 to be $56 million, $28 million, $33 million and $38 million, respectively, calculated as the Company’s estimated EBITDA for the applicable fiscal year adjusted for the cash impact of, among other things, taxes, disposals of assets and capital expenditures. Citi calculated terminal values for the Company by applying to the Company’s fiscal year 2016 estimated free cash flow a range of perpetuity growth rates of 2.0% to 3.0%, which range was selected taking into consideration long-term growth expectations for the industry. The present value of the cash flows and terminal value were then calculated using discount rates ranging from 10.1% to 11.8%, based on a calculation of the Company’s weighted average cost of capital. Based on this analysis, Citi calculated the following implied equity value per share reference range for the Company, as compared to the Class A per share merger consideration:

 

Implied Equity Value Per Share

    Reference Range for the Company    

  

            Class A Per Share Merger             

Consideration

$9.25 — $14.50

   $12.00

Miscellaneous

Under the terms of Citi’s engagement, the Company has agreed to pay Citi for its financial advisory services in connection with the merger an aggregate fee of approximately $4.5 million, $1.0 million of which was payable upon delivery by Citi of the opinion and the remainder of which is payable upon consummation of the merger. If the Company receives any termination or similar fee pursuant to the termination or abandonment of the merger, the Company will pay Citi a fee equal to the lesser of (i) 20% of all such fees and (ii) the amount that would have been payable to Citi had the merger been consummated. Subject to certain limitations, the Company has also agreed to reimburse Citi for reasonable deal-related travel and other expenses reasonably incurred by Citi in performing its services, including reasonable fees and expenses of its legal counsel, and to indemnify Citi and related persons against liabilities, including liabilities under the federal securities laws, arising out of its engagement.

Citi and its affiliates in the past have provided, and in the future may provide, investment banking services, including financial advisory services and debt financing (including lending), equity financing and related services, to Parent and affiliates of Parent that are unrelated to the merger, for which services Citi and such affiliates have received and expect to receive customary compensation. During the past two years, the aggregate fees paid to Citi and its affiliates for such services have been approximately $140 million. In the ordinary course of its business, Citi and its affiliates may actively trade or hold the securities of the Company for its own account or for the account of its customers and, accordingly, may at any time hold a long or short position in such securities.

The Company selected Citi to provide certain financial advisory services in connection with the merger based on Citi’s reputation and experience. Citi is an internationally recognized investment banking firm which regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The issuance of Citi’s opinion was authorized by Citi’s fairness opinion committee.

Certain Effects of the Merger

If the merger is completed, all of our equity interests will be owned by Parent and none of our current stockholders will have any ownership interest in, or be a stockholder of, the Company after the completion of the merger. As a result, our current stockholders will no longer benefit from any increase in our value, nor will they bear the risk of any decrease in our value. Following the merger, Parent will benefit from any increase in our value and also will bear the risk of any decrease in our value.

 

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Upon completion of the merger, each share of Class A common stock issued and outstanding immediately prior to the effective time (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent) will convert into the right to receive the Class A per share merger consideration.

Upon completion of the merger, each share of Class B common stock issued and outstanding immediately prior to the effective time (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent or stockholders who have properly exercised and perfected dissenters’ rights under Nevada law) will convert into the right to receive the Class B per share merger consideration.

The merger agreement provides that each Tandem Option/SAR that is outstanding immediately prior to the effective time (whether or not then vested or exercisable) will be canceled at the effective time and converted into the right to receive the Tandem Option/SAR consideration.

Following and as a result of the merger:

 

   

Company stockholders will no longer have any interest in, and will no longer be stockholders of, the Company, and will not participate in any of the Company’s future earnings or growth;

 

   

shares of Class A common stock will no longer be listed on the NYSE, and price quotations with respect to shares of Class A common stock in the public market will no longer be available; and

 

   

the registration of shares of Class A common stock under the Exchange Act will be terminated.

Parent does not currently own any interest in the Company. Following consummation of the merger, Parent will own 100% of our outstanding common stock.

Effects on the Company if Merger Is Not Completed

If the Company stockholder approvals are not obtained or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares of Company common stock. Instead, we will remain an independent public company, our Class A common stock will continue to be listed and traded on the NYSE, and our stockholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of our Company common stock. If the merger is not completed, there is no assurance as to the effect of these risks and opportunities on the future value of your shares of Company common stock, including the risk that the market price of our Company common stock may decline to the extent that the current market price of our Company common stock reflects a market assumption that the merger will be completed. From time to time, the Board will evaluate and review the business operations, properties, dividend policy and capitalization of the Company and, among other things, make such changes as are deemed appropriate and continue to seek to maximize stockholder value. If the Company stockholder approvals are not obtained or if the merger is not completed for any other reason, there is no assurance that any other transaction acceptable to the Company will be offered or that the business, prospects or results of operations of the Company will not be adversely impacted.

Under certain circumstances, if the merger is not completed, the Company may be obligated to pay to Parent a termination fee of $7,250,000 and reimburse up to $2,750,000 of Parent’s expenses. See “The Merger Agreement—Termination Fees and Reimbursement of Expenses.”

 

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Prospective Financial Information

The Company provided Citi and TPG certain prospective financial information concerning the Company, including projected total revenues, income from operations, EBITDA and EBITDAR. Citi and TPG received the following prospective financial information:

Consolidated Management Projections ($ millions)

 

Fiscal Year Ending 12/31

   2013E      2014E      2015E      2016E  

Total revenue

   $ 234.4       $ 245.4       $ 223.0       $ 237.8   

Income from operations

     17.5         21.3         27.5         32.4   

EBITDA

     44.5         49.8         57.4         63.9   

EBITDAR

     55.5         60.7         57.5         64.0   

EBITDA and EBITDAR Reconciliation ($ millions)

 

Fiscal Year Ending 12/31

   2013E      2014E      2015E      2016E  

Income from operations

   $ 17.5       $ 21.3       $ 27.5       $ 32.4   

Add:

           

Depreciation and amortization

     26.0         27.4         28.9         30.5   

Non-cash equity

     1.0         1.1         1.1         1.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 44.5       $ 49.8       $ 57.4       $ 63.9   

Add: Facility lease expense

     11.0         10.9         0.1         0.1   
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDAR

   $ 55.5       $ 60.7       $ 57.5       $ 64.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

The summary of the prospective financial information set forth above is included solely to give stockholders access to the information that was made available to Citi and TPG and is not included in this proxy statement in order to influence any stockholder to make any investment decision with respect to the merger or any other purpose, including whether or not to seek dissenters’ rights with respect to shares of Class B common stock.

The Company does not as a matter of course make public projections as to future sales, earnings or other results. However, the management of the Company prepared the prospective financial information set forth above for Citi in connection with its preparation of its fairness opinion and TPG in connection with its evaluation of the merger and its due diligence review. The information was not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC regarding projections or generally accepted accounting principles (“GAAP”) or the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the Company’s management, was prepared on a reasonable basis, reflected the best estimates and judgments available to the Company’s management at the time and presented, to the best of the Company’s management’s knowledge, the expected course of action and the expected future financial performance of the Company as of the date such information was prepared. However, this information is not fact and should not be relied upon as being necessarily indicative of future results. Readers of this proxy statement are cautioned not to place undue reliance on the prospective financial information set forth above.

Neither the Company’s independent auditor, nor any other independent accountants have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and such parties assume no responsibility for, and disclaim any association with, the prospective financial information.

 

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The prospective financial information set forth above reflects numerous estimates and assumptions made by the Company with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to the Company’s business, all of which are difficult to predict and many of which are beyond the Company’s control. The prospective financial information set forth above reflects subjective judgment in many respects and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the prospective financial information set forth above constitutes forward-looking information and is subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted, including, but not limited to, the Company’s performance, industry performance, general business and economic conditions, customer requirements, competition, adverse changes in applicable laws, regulations or rules, and the various risks set forth in the Company’s reports filed with the SEC. There can be no assurance that the prospective financial information set forth above will be realized or that actual results will not be significantly higher or lower than those set forth above.

The prospective financial information set forth above covers multiple years and such information by its nature becomes less reliable with each successive year. In addition, such information reflects assumptions of the Company’s management as of the time such information was prepared as to certain business decisions that were and are subject to change, and such information will be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. Such information cannot, therefore, be considered a guarantee of future operating results, and such information should not be relied on as such. The inclusion of prospective financial information should not be regarded as an indication that the Company, TPG, the Special Committee, the Board, any of their advisors, any of their affiliates or anyone who received such information then considered, or now considers, it a reliable prediction of future events, and this information should not be relied upon as such. None of the Company, TPG, the Special Committee, the Board or any of their advisors or any of their affiliates assumes any responsibility for the validity, reasonableness, accuracy or completeness of the prospective financial information described above.

The prospective financial information set forth above does not take into account any circumstances or events occurring after the date such prospective financial information was prepared, including the transactions contemplated by the merger agreement or the announcement thereof. Furthermore, such prospective financial information does not take into account the effect of any failure of the merger to occur and should not be viewed as accurate or continuing in that context. None of the Company, TPG, the Special Committee, the Board or any of their advisors or any of their affiliates intends to, and each of them disclaims any obligation to, update, revise or correct the prospective financial information if any of it is or becomes inaccurate (even in the short term).

The inclusion in this proxy statement of the prospective financial information set forth above should not be deemed an admission or representation by the Company, TPG, the Special Committee, the Board, any of their advisors or any of their affiliates that such information is viewed by the Company, TPG, the Special Committee, the Board, any of their advisors or any of their affiliates as material information of the Company. Such information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding the Company contained in the Company’s public filings with the SEC. In light of the foregoing factors and the uncertainties inherent in the prospective financial information set forth above, stockholders are cautioned not to place undue, if any, reliance on such information or the fact that it is included in this proxy statement.

Certain of the prospective financial information set forth above, including EBITDA and EBITDAR, may be considered non-GAAP financial measures. The Company provided this information because the Company believed it could be useful in evaluating, on a prospective basis, the Company’s potential operating performance and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by the Company may not be comparable to similarly titled amounts used by other companies.

 

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Financing of the Merger

The Company and Parent estimate that total funds of approximately $485 million will be needed to complete the merger, to repay certain indebtedness of the Company, to pay fees and expenses related to the merger and to fund working capital. Parent expects this amount to be provided through a $485 million equity contribution from TPG VI to Parent (a portion of such equity contribution is expected to be funded through third party debt financing; however, TPG VI’s obligation to fund such equity contribution is not conditioned on the availability of such debt financing).

We believe the amounts committed under the equity financing commitment will be in the aggregate sufficient to pay the aggregate applicable per share merger consideration, the aggregate Tandem Option/SAR consideration, any repayment or refinancing required as a result of the consummation of the merger and all other amounts required to be paid pursuant to the merger agreement and all fees and expenses directly related to the merger, but we cannot assure you of that. Those amounts might be insufficient if, among other things, TPG VI fails to fund the committed amount in breach of its financing commitment and Parent is unable to obtain alternative financing from alternative sources in an amount sufficient to consummate the merger.

Equity Financing

In connection with the merger agreement, Parent entered into an equity commitment letter agreement with TPG VI, dated February 25, 2013, which we refer to as the “equity financing commitment,” pursuant to which TPG VI has committed to purchase, or cause to be purchased, equity securities of Parent, at or prior to the closing of the merger, with an aggregate purchase price of $485 million for the purpose of funding the aggregate applicable per share merger consideration, the aggregate Tandem Option/SAR consideration, any repayment or refinancing required as a result of the consummation of the merger and all other amounts required to be paid pursuant to the merger agreement, as well as related fees and expenses. The obligation of TPG VI to fund its equity commitment is subject to (i) the satisfaction or waiver of all the conditions to Parent’s and Merger Sub’s obligations to effect the closing of the merger (other than any conditions that by their nature are to be satisfied at the closing of the merger, but subject to the prior or substantially concurrent satisfaction or waiver of such conditions) and (ii) the substantially simultaneous consummation of the merger in accordance with the terms of the merger agreement. TPG VI may allocate all or a portion of its investment to other persons, and its equity commitment will be reduced by any amounts actually contributed to Parent by such persons (and not returned) on or before the closing date.

TPG VI’s obligations under the equity financing commitment will expire upon the earliest to occur of (i) the closing of the merger, (ii) the termination of the merger agreement pursuant to its terms (unless the Company has commenced litigation prior to termination to require Parent to enforce the equity financing commitment or TPG VI to fund its equity commitment, in which case the equity financing commitment will terminate when TPG VI has satisfied all obligations finally determined or agreed to be owed by it under the equity financing commitment), (iii) the Company or any of its controlled affiliates (or any other person with the Company’s authorization claiming by, through or for the benefit of the Company) accepting all or any portion of the reverse termination fee (as described below) or accepting any payment from TPG VI under the limited guarantee in respect of the reverse termination fee and (iv) the Company or any of its controlled affiliates (or any other person with the Company’s authorization claiming by, through or for the benefit of the Company) asserting a claim against TPG VI or any of its affiliates under or in connection with the merger agreement other than in accordance with the limited guarantee.

The Company is an express third-party beneficiary of the equity financing commitment to the extent provided in the equity financing commitment and has the right to seek specific performance of TPG VI’s equity commitment under the circumstances in which the Company would be permitted by the merger agreement to obtain specific performance requiring Parent to enforce TPG VI’s equity commitment.

 

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Limited Guarantee

In connection with the merger agreement, TPG VI entered into a limited guarantee with the Company, dated February 25, 2013, which we refer to as the “limited guarantee,” pursuant to which TPG VI has irrevocably and unconditionally guaranteed the due and punctual payment by Parent and/or Merger Sub to the Company of (i) the reverse termination fee of $40,000,000 and (ii) certain expense reimbursement and indemnification obligations. The limited guarantee will generally terminate on the earliest of: (i) the effective time, (ii) the termination of the merger agreement by mutual consent of the parties thereto or in circumstances where the reverse termination fee is not payable and (iii) February 25, 2014 (unless with respect to clause (ii) and (iii) of this sentence the Company has commenced litigation against TPG VI prior to such termination, in which case the limited guarantee will terminate when TPG VI has satisfied any obligations finally determined or agreed to be owed by it under the limited guarantee). However, if the Company or any of its controlled affiliates (or any other person with the Company’s authorization) asserts a claim other than as permitted under the limited guarantee, including a claim against certain of TPG VI’s related parties or a claim in excess of the guaranteed amounts, the obligations of TPG VI under the limited guarantee will immediately terminate and become null and void by its terms, all payments previously made pursuant to the limited guarantee must be returned and neither TPG VI nor certain of its related parties will have any liability under the limited guarantee, the merger agreement or any related documents.

Interests of the Company’s Directors and Executive Officers in the Merger

Details of the beneficial ownership of the Company’s directors and executive officers of the Company’s common stock are set out in the section titled “Common Stock Ownership of Management and Certain Beneficial Owners—Security Ownership of Directors and Management” beginning on page 82. In considering the recommendation of the Board with respect to the merger agreement, you should be aware that certain of the Company’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of the Company’s stockholders generally, as more fully described below. The members of the Special Committee and the Board were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending to the Company’s stockholders that they approve the merger proposal. See “The MergerRecommendation of the Special Committee and Board; Reasons for Recommending the Approval of the Merger Agreement” for a further discussion of these matters.

Special Compensation

In consideration of the time and effort required of members of the Special Committee, comprised of Mr. Mel Rhinelander (who serves as Chairman of the Special Committee), Mr. Michael J. Spector and Ms. Malen S. Ng, in overseeing the exploration of strategic alternatives for the Company, the Board determined that the Chairman of the Special Committee would receive a special fee of $200,000 and the remaining members of the Special Committee would receive a special fee of $75,000 each, in addition to their normal remuneration. Such fees are payable whether or not the merger is completed and were approved by the Board prior to the Company executing the merger agreement. No other meeting fees or other compensation (other than reimbursement for out-of-pocket expenses in connection with attending meetings) will be paid to the members of the Special Committee in connection with their service.

Treatment of Equity Awards

As of the date of this proxy statement, each of the Company’s directors and executive officers hold shares of Company common stock and Tandem Options/SARs.

For information regarding beneficial ownership of Company common stock, other than the equity awards described below, by each of the Company’s directors and certain executive officers and all of such directors and executive officers as a group, please see the section of this proxy statement captioned “Common Stock Ownership

 

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of Management and Certain Beneficial Owners—Security Ownership of Directors and Management” beginning on page 82. The Company’s directors and executive officers will be entitled to receive, for each share of Company common stock, the same applicable per share merger consideration in cash in the same manner as other stockholders.

The merger agreement provides that each Tandem Option/SAR that is outstanding immediately prior to the effective time (whether or not then vested or exercisable) will be canceled at the effective time and converted into the right to receive the Tandem Option/SAR consideration.

Summary of Equity Awards

The table below, entitled “Cash Payments to Directors and Executive Officers in Respect of Tandem Options/SARs,” shows the number of shares of Class A common stock subject to outstanding vested and unvested Tandem Options/SARs held by the Company’s non-employee directors and executive officers as of the date hereof, and the cash consideration each of them can expect to receive for such awards at or promptly following the effective time, assuming continued employment or service through the assumed merger closing date of April 30, 2013.

Cash Payments to Directors and Executive Officers in Respect of Outstanding Tandem Options/SARs

 

Name                                                 

   No. of Class A
Shares Subject to
Vested Tandem
Options/SARs
     Resulting
Consideration
from Vested
Tandem
Options/SARs
($)(1)
     No. of Class A
Shares Subject to
Unvested

Tandem
Options/SARs
     Resulting
Consideration
from Unvested
Tandem
Options/SARs

($)(1)
     Total
Consideration from
Outstanding
Tandem

Options/SARs ($)
 

Directors

              

Alan Bell

     26,002         29,800         9,998         —           29,800   

Derek H. L. Buntain

     26,002         29,800         9,998         —           29,800   

David J. Hennigar

     26,002         29,800         9,998         —           29,800   

Malen Ng

     26,002         29,800         9,998         —           29,800   

Melvin A. Rhinelander

     26,002         29,800         9,998         —           29,800   

Michael J. Spector

     26,002         29,800         9,998         —           29,800   

Executive Officers

              

Charles H. Roadman II, MD

     26,002         29,800         9,998         —           29,800   

John Buono

     40,135         69,200         10,265         —           69,200   

Walter Levonowich

     20,068         34,600         5,132         —           34,600   

Mary Zak-Kowalczyk

     12,734         11,530         5,132         —           11,530   

Laurie A. Bebo(2)

     —           —           —           —        

 

(1) The value of Tandem Options/SARs is based on the Class A per share merger consideration, or $12.00. Each outstanding unvested Tandem Option/SAR has an exercise price which is greater than the Class A per share merger consideration.
(2) Ms. Bebo, who served as the Company’s chief executive officer for a portion of the Company’s 2012 fiscal year, forfeited her Tandem Options/SARs in connection with her termination of employment on May 29, 2012.

Severance Entitlements

The Company is party to employment agreements with each of its executive officers (other than Dr. Roadman). The employment agreements for the Company’s executive officers provide for contractual severance payments in the event an executive officer’s employment is terminated by the Company without “cause” or by the executive for “good reason” (as such terms are defined in the employment agreements and as

 

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“good reason” is summarized below), irrespective of whether a change of control occurs. Specifically, the executive officers are entitled to receive a payment equal to the sum of (i) 12 months’ base salary, (ii) an amount equal to 150% of the target cash incentive award for the year in which the termination occurs, (iii) the cash equivalent of 12 months’ car allowance and (iv) the amount that the Company would have credited as company contributions based on the executive’s level of participation in any of the Company’s deferred compensation plans (including executive retirement plans) during the 12-month period following the date of termination. These amounts are payable in equal installments over the 12-month period following the date of termination. In addition, each executive officer would be entitled to receive up to one year of continued medical plan coverage. Payment of the severance benefits is contingent on the executive officer executing a release and complying with non-disclosure, non-competition and non-solicitation covenants for a period of one year following termination of employment. “Good reason” under the employment agreements generally means (i) a relocation greater than 50 miles from the executive officer’s current work location or (ii) a reduction in base salary.

Cash Incentive Awards

As of the date of this filing, the Board has not approved 2013 cash incentive awards for the Company’s executive officers. This disclosure will be updated to reflect any grant of 2013 cash incentive awards and the treatment of such awards in connection with the merger.

Quantification of Payments and Benefits to Named Executive Officers in Connection with the Merger

In accordance with Item 402(t) of Regulation S-K, the table below, entitled “Potential Change of Control Payments to Named Executive Officers,” along with its footnotes, shows the estimated amounts of compensation that could become payable to the Company’s chief executive officer, chief financial officer and two other most highly compensated executive officers, as well as its former chief executive officer, who served in such position for a portion of the Company’s 2012 fiscal year, as determined for purposes of its most recent annual proxy statement (the “named executive officers”), and that are based on or otherwise relate to the merger. The amounts set forth in the table below are subject to a non-binding advisory vote of the Company’s stockholders, as described under “Advisory Vote on Merger-Related Compensation Arrangements” below. The table assumes that the consummation of the merger occurs on April 30, 2013, and the employment of each named executive officer is terminated without cause on such date. The amounts indicated below are estimates of the amounts that would be payable to the named executive officers and the estimates are based on multiple assumptions that may or may not actually occur, including assumptions described in this proxy statement. Some of the assumptions are based on information not currently available and, as a result, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below. While Ms. Bebo is one of the Company’s named executive officers for the Company’s 2012 fiscal year, she will not be entitled to any compensation or benefits in connection with the merger other than as a stockholder of the Company. Accordingly, the values for her set forth in the tables below are blank.

Potential Change of Control Payments to Named Executive Officers

 

Name                                                 

   Cash ($)(1)      Equity  ($)(2)      Perquisites/
benefits ($)(3)
     Total ($)  

Charles H. Roadman II, MD

     —           —           —           —     

John Buono

     379,864         —           15,715         395,579   

Walter Levonowich

     221,852         —           16,100         237,952   

Mary Zak-Kowalczyk

     200,926         —           15,515         216,441   

Laurie A. Bebo

     —           —           —           —     

 

(1)

As described above, the cash payments for the Company’s named executive officers (other than Dr. Roadman) include contractual severance for each of the named executive officers pursuant to their respective employment agreements, which consists of a cash payment equal to the sum of (1) 12 months’

 

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  base salary, (2) an amount equal to 150% of the target cash incentive award for the year in which the termination occurs, (3) the cash equivalent of 12 months’ car allowance and (4) the amount that the Company would have credited as company contributions based on the executive’s level of participation in any of the Company’s deferred compensation plans (including executive retirement plans) during the 12-month period following the date of termination. These amounts are payable in equal installments over the 12-month period following the date of termination. These payments are “double-trigger,” as they will only be payable in the event of a termination of employment without “cause” or for “good reason” following the consummation of the merger. These payments are based on compensation and benefit levels in effect on March 6, 2013; therefore, if compensation and benefit levels are increased after March 6, 2013, actual payments may be greater than those provided for above. Payment of the severance benefits is contingent on the employee executing a release and complying with non-disclosure, non-competition and non-solicitation covenants for a period of one year following termination of employment.

The amounts of the contractual severance components described above are set forth in the following table:

 

Name                                                 

   Salary
Component
($)
     Cash
Incentive
Component
($)
     Executive
Retirement
Program
($)
     Deferred
Compensation
Plan ($)
     401(k)
Plan
($)
     Car
Allowance
($)
     Total ($)  

Charles H. Roadman II, MD

     —           —           —           —           —           —           —     

John Buono

     321,360         —           32,136         16,068         2,500         7,800         379,864   

Walter Levonowich

     184,124         —           18,413         9,206         2,309         7,800         221,852   

Mary Zak-Kowalczyk

     173,534         —           17,353         —           2,239         7,800         200,926   

Laurie A. Bebo

     —           —           —           —           —           —           —     

 

(2) As described above, the equity amounts consist of the accelerated vesting of unvested Tandem Options/SARs, which is “single-trigger” in that it will occur immediately upon consummation of the merger, whether or not employment is terminated. The following table shows the amounts in this column attributable to such Tandem Options/SARs:

 

Name                                                 

   No. of Shares
Underlying
Unvested
Tandem
Options/SARs
     Resulting
Consideration
from Unvested
Tandem
Options/SARs($)
 

Charles H. Roadman II, MD

     9,998         —     

John Buono

     10,265         —     

Walter Levonowich

     5,132         —     

Mary Zak-Kowalczyk

     5,132         —     

Laurie A. Bebo

     —           —     

 

     The value of Tandem Options/SARs is based on the Class A per share merger consideration, or $12.00. Each unvested Tandem Option/SAR has an exercise price which is greater than the Class A per share merger consideration.

 

(3) As described above, upon a qualifying termination, each named executive officer would be entitled to receive up to one year of continued medical plan coverage. These benefits are “double-trigger,” as they will only be payable in the event of a termination of employment without “cause” or for “good reason” following the consummation of the merger. The estimated value of these benefits is displayed above.

Advisory Vote on Merger-Related Compensation Arrangements

In accordance with Section 14A of the Exchange Act, the Company is providing its stockholders with the opportunity to cast a non-binding advisory vote on the compensation that may be payable to its named executive officers in connection with the merger. As required by those rules, the Company is asking its stockholders to vote on the approval of the following resolution:

 

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“RESOLVED, that the compensation that may be paid or become payable to the Company’s named executive officers in connection with the merger, as disclosed in the table entitled “Potential Change of Control Payments to Named Executive Officers” on page 52, including the associated narrative discussion, and the agreements or understandings pursuant to which such compensation may be paid or become payable, are hereby APPROVED.”

The Board unanimously recommends that you vote “FOR” the approval of this proposal.

The vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote to approve the merger. Accordingly, you may vote to approve the merger and vote not to approve the compensation proposal and vice versa. Because the vote is advisory in nature only, it will not be binding on the Company. Accordingly, the merger-related compensation will be paid or become payable, subject only to the conditions applicable thereto, if the merger is completed and regardless of the outcome of the non-binding advisory vote.

The approval of the non-binding compensation proposal requires the affirmative vote of the holders of a majority of the total number of votes cast with respect to the non-binding compensation proposal in respect of shares of the Class A common stock and Class B common stock, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes).

Indemnification of Directors and Officers

The Company is organized under the laws of the State of Nevada. The Company’s Amended and Restated Articles of Incorporation and the Company’s Amended and Restated Bylaws require the Company to indemnify its directors, officers, employees and agents to the fullest extent permitted by the NRS. In addition, the Company’s Amended and Restated Articles of Incorporation provide that the personal liability of the Company’s directors and officers is eliminated to the fullest extent permitted by the NRS. The Company’s Amended and Restated Bylaws further provide that the Company shall advance expenses incurred by a director, officer, employee or agent in advance of the final disposition of any action or proceeding and permit the Company to secure insurance on behalf of any officer, director, employee or agent for any liability incurred by him or her in that capacity regardless of whether the Company would otherwise be permitted to indemnify him or her under the provisions of the NRS.

The Company maintains directors’ and officers’ liability insurance that insures its directors and officers against certain losses and insures the Company with respect to its obligations to indemnify its directors and officers.

The merger agreement provides that the articles of incorporation and bylaws of the surviving corporation will contain for 6 years after the effective time the provisions with respect to indemnification, advancement of expenses and exculpation from liabilities set forth in the Company’s Amended and Restated Articles of Incorporation and the Company’s Amended and Restated Bylaws on February 25, 2013 and that the surviving corporation will honor such provisions. Furthermore, the Company will obtain, as of the effective time and for 6 years after the effective time, prepaid directors’ and officers’ liability insurance policies in respect of acts or omissions occurring prior to the effective time on the same terms as the Company’s policies in existence on February 25, 2013.

Dividends

Pursuant to the merger agreement and the credit agreement, we are prohibited from declaring, authorizing, setting aside, paying or making any dividend or other distribution with respect to any shares of capital stock, except under certain limited circumstances.

 

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Regulatory Matters

In connection with the merger, we are required to make certain filings with, and comply with certain laws of, various federal and state governmental agencies, including:

 

   

filing the articles of merger with the Secretary of State of the State of Nevada in accordance with the NRS at the closing of the merger;

 

   

filing the certificate of merger with the Secretary of State of the State of Delaware in accordance with the Delaware Limited Liability Company Act at the closing of the merger; and

 

   

complying with U.S. federal securities laws.

Based on prior informal interpretations of the staff of the Premerger Notification Office of the Federal Trade Commission, there is no filing pursuant to, waiting period under or other approval required by the HSR Act applicable to the merger agreement, the merger or any of the other transactions contemplated by the merger agreement.

However, at any time before or after consummation of the merger, the Antitrust Division of the Department of Justice, the Federal Trade Commission or state or foreign antitrust and competition authorities could take such action under antitrust laws as each deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the merger or seeking divestiture of substantial assets of the Company or Parent. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

In addition, the obligations of Parent and Merger Sub to consummate the merger are subject to the receipt by Parent of the state licenses to operate the Company’s assisted living facilities and all permits or licenses for which Parent would reasonably be expected to incur criminal liability as a result of Parent failing to obtain such permits or licenses at or prior to the closing of the merger.

None of the parties is aware of any other required regulatory approvals in connection with the merger.

Material U.S. Federal Income Tax Consequences

The following is a general summary of material U.S. federal income tax consequences to holders of shares of Company common stock upon the exchange of shares of Company common stock for cash pursuant to the merger. This summary does not purport to be a comprehensive description of all of the tax consequences that may be relevant to a decision to dispose of shares of Company common stock in the merger, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of investors or that are generally assumed to be known by investors. This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations, administrative rulings and court decisions, all as available and in effect as of the date hereof and all of which are subject to differing interpretations and/or change at any time (possibly with retroactive effect). In addition, this summary is not a complete description of all the tax consequences of the merger and, in particular, does not address U.S. federal income tax considerations for holders of shares of Company common stock received in connection with the exercise of Tandem Options/SARs or otherwise as compensation, holders that properly exercise and perfect dissenters’ rights under Nevada law, or holders subject to special treatment under U.S. federal income tax law (such as insurance companies, banks, tax-exempt entities, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, tax-deferred or other retirement accounts, holders subject to the alternative minimum tax, regulated investment companies, REITs, U.S. persons that have a functional currency other than the U.S. dollar, certain former citizens or residents of the United States or holders that hold shares of Company common stock as part of a hedge, straddle, integration, constructive sale or conversion transaction). In addition, this summary does not discuss any consequences to stockholders of the Company that will directly or indirectly hold an ownership interest in Parent or the Company after the merger (except as specifically described below), to holders of options or warrants to purchase shares of

 

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Company common stock, any aspect of state, local or foreign tax law that may be applicable to any holder of shares of Company common stock, or any U.S. federal tax considerations other than U.S. federal income tax considerations. This summary assumes that holders own shares of Company common stock as capital assets.

We have not sought and will not seek any opinion of counsel or any ruling from the U.S. Internal Revenue Service (the “IRS”) with respect to the matters discussed herein. We urge holders of shares of Company common stock to consult their own tax advisors with respect to the specific tax consequences to them in connection with the merger in light of their own particular circumstances, including the tax consequences under state, local, foreign and other tax laws.

Characterization of the Merger

For U.S. federal income tax purposes, Merger Sub should be disregarded as a transitory entity, and the merger of Merger Sub with and into the Company should be treated as a taxable transaction to holders of Company common stock and should not be treated as a taxable transaction to the Company. We intend to take the position that, as a result of the merger, holders of Company common stock should be treated for U.S. federal income tax purposes as if they sold their stock for cash.

U.S. Holders

Except as otherwise set forth below, the following discussion is limited to the U.S. federal income tax consequences relevant to a beneficial owner of shares of Company common stock that is a citizen or resident of the United States, a domestic corporation (or any other entity or arrangement treated as a corporation for U.S. federal income tax purposes), an estate (other than a foreign estate), or a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust (each of the foregoing, a “U.S. Holder”).

If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of Company common stock, the tax treatment of the partnership and any holder that is a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Such holders should consult their own tax advisors regarding the tax consequences of exchanging the shares of Company common stock pursuant to the merger.

Payments with Respect to Shares of Company Common Stock

The exchange of shares of Company common stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes, and, for U.S. federal income tax purposes, a U.S. Holder who receives cash for shares of Company common stock pursuant to the merger generally will recognize gain or loss, if any, equal to the difference between the amount of cash received and the holder’s adjusted U.S. federal income tax basis in the shares of Company common stock. For U.S. federal income tax purposes, gain or loss must be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). For U.S. federal income tax purposes, such gain or loss will be capital gain or loss, and will be long-term capital gain or loss if such U.S. Holder’s holding period for the shares of Company common stock is more than one year at the time of the exchange of such holder’s shares of Company common stock for cash. Long-term capital gains recognized by noncorporate holders generally are subject to U.S. federal income tax at a lower rate than short-term capital gains or ordinary income. There are limitations on the deductibility of capital losses. Holders of Company common stock should consult their tax advisors regarding the determination and allocation of their U.S. federal income tax basis in their stock surrendered in the merger.

Backup Withholding Tax and Information Reporting

Payments made with respect to shares of Company common stock exchanged for cash in the merger may be subject to information reporting, and such payments will be subject to U.S. federal backup withholding tax unless

 

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the U.S. Holder (i) furnishes an accurate tax identification number or otherwise complies with applicable U.S. information reporting or certification requirements (typically, by completing and signing an IRS Form W-9) or (ii) is a corporation (other than certain S corporations) or other exempt recipient and, when required, demonstrates such fact. U.S. federal backup withholding tax is not an additional tax and any amounts withheld under the U.S. federal backup withholding tax rules may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability, if any, provided that such U.S. Holder furnishes the required information to the IRS in a timely manner.

Non-U.S. Holders

The following is a summary of certain U.S. federal income tax consequences that will apply to a Non-U.S. Holder of shares of Company common stock. The term “Non-U.S. Holder” means a beneficial owner, other than a partnership, of shares of Company common stock that is not a U.S. Holder.

Non-U.S. Holders should consult their own tax advisors to determine the specific U.S. federal, state, local and foreign tax consequences that may be relevant to them.

Payments with Respect to Shares of Company Common Stock

Payments made to a Non-U.S. Holder with respect to shares of Company common stock exchanged for cash pursuant to the merger generally will not be subject to U.S. federal income tax, unless:

 

  (a) the gain on shares of Company common stock, if any, is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States (and, if certain income tax treaties apply, is attributable to the Non-U.S. Holder’s permanent establishment in the United States) in which event (i) the Non-U.S. Holder will be subject to U.S. federal income tax as described under “U.S. Holders,” but such Non-U.S. Holder should provide an IRS Form W-8ECI instead of an IRS Form W-9, and (ii) if the Non-U.S. Holder is a corporation, it may be subject to branch profits tax on such gain at a 30 percent rate (or such lower rate as may be specified under an applicable income tax treaty);

 

  (b) the Non-U.S. Holder is an individual who was present in the United States for 183 days or more in the taxable year and certain other conditions are met, in which event the Non-U.S. Holder will be subject to tax at a flat rate of 30 percent (or such lower rate as may be specified under an applicable income tax treaty) on the gain from the exchange of the shares of Company common stock net of applicable U.S. losses from sales or exchanges of other capital assets recognized during the year; or

 

  (c) we are or have been a “U.S. real property holding corporation” (“USRPHC”) during the applicable statutory period and the Non-U.S. Holder’s shares in us represent a “U.S. real property interest” (“USRPI”) under the Foreign Investment in Real Property Tax Act (“FIRPTA”).

Under FIRPTA, dispositions of a USRPI by a foreign person are generally subject to U.S. federal income taxation. Shares in a USRPHC with at least one class of stock that is regularly traded on an established securities market generally will be considered a USRPI with respect to a foreign person if such foreign person holds (i) more than 5% of the value of the regularly traded class of stock or (ii) shares in a class of stock that is not regularly traded, if such shares are convertible into a class of stock that is regularly traded and such shares, as of the date they were acquired, would, if converted, have had a fair market value greater than 5% of the value of the class of stock that is regularly traded.

A person acquiring stock in a USRPHC from a foreign person generally is required to deduct and withhold a tax equal to 10% of the amount realized by that foreign person on the sale or exchange of that stock (“FIRPTA Withholding”). However, a foreign person is exempt from FIRPTA Withholding on its stock in a USRPHC if any class of stock of such USRPHC is regularly traded on an established securities market, unless such foreign person is disposing of shares described in (ii) above.

 

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We believe that we are a USRPHC and that our Class A common stock, but not our Class B common stock, is regularly traded on an established securities market under the applicable sections of the Code. Therefore, any Company common stock held by a Non-U.S. Holder will be deemed to be a USRPI if such Non-U.S. Holder held, directly or indirectly, at any time during the five-year period ending on the date of the merger: (i) more than 5% of our Class A common stock or (ii) Class B common stock that could be converted into more than 5% of the value of all of our Class A common stock as of the date it acquired such shares. In addition, upon the disposition of stock described in (ii) of the immediately preceding sentence, a Non-U.S. Holder may be subject to FIRPTA Withholding. Any tax withheld may be credited against the U.S. federal income tax owed by the Non-U.S. Holder for the year in which the sale or exchange occurs.

Backup Withholding Tax and Information Reporting

In general, a Non-U.S. Holder will not be subject to U.S. federal backup withholding and information reporting with respect to a payment made with respect to shares of Company common stock exchanged for cash in the merger if the Non-U.S. Holder has provided an IRS Form W-8BEN (or an IRS Form W-8ECI if the Non-U.S. Holder’s gain is effectively connected with the conduct of a U.S. trade or business). If shares are held through a foreign partnership or other flow-through entity, certain documentation requirements also apply to the partnership or other flow-through entity. U.S. federal backup withholding tax is not an additional tax and any amounts withheld under the U.S. federal backup withholding tax rules may be refunded or credited against a Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that such Non-U.S. Holder furnishes the required information to the IRS in a timely manner.

Delisting and Deregistration of the Shares of Class A Common Stock

If the merger is completed, the shares of Class A common stock will be delisted from the NYSE and deregistered under the Exchange Act, and shares of Company common stock will no longer be publicly traded.

Litigation Relating to the Merger

Since the announcement of the merger, the Company and its directors have been named as defendants in five purported class action complaints brought by an alleged Company stockholder.

On February 28, 2013, an amended complaint was filed in a pre-existing shareholder derivative action in the Eighth Judicial District Court of the State of Nevada in and for Clark County, the Somers Complaint, adding purported class action claims for breach of fiduciary duties in connection with the merger against certain of the Company’s directors and aiding and abetting breaches of fiduciary duty claims against TPG, Parent and Merger Sub.

On March 4, 5, and 6, 2013, three additional complaints were filed in the Eighth Judicial District Court of the State of Nevada in and for Clark County, the Simpson Complaint, the Raul Complaint and the Black Complaint, respectively. The Simpson Complaint, Raul Complaint and Black Complaint, each of which purportedly was brought on behalf of a class of Company stockholders, assert claims that the Company’s directors breached their fiduciary duties to Company stockholders in connection with the merger. These complaints further claim that TPG, Parent and Merger Sub aided and abetted those alleged breaches of fiduciary duties.

Also on March 6, 2013, an additional complaint was filed in the Eighth Judicial District Court of the State of Nevada in and for Clark County, the Rosenfeld IRA Complaint. The Rosenfeld IRA Complaint purportedly was brought on behalf of a class of Company stockholders against the Company and certain of the Company’s directors and asserts that the Company’s directors breached their fiduciary duties in connection with the merger.

The plaintiffs in all five actions seek equitable relief, including an injunction preventing the consummation of the merger, rescission in the event the merger is consummated and an award of attorneys’ and other fees and costs. We believe that the claims are without merit.

 

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THE MERGER AGREEMENT

The following is a summary of the material terms and conditions of the merger agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A, and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety because it is the legal document that governs the merger.

Explanatory Note Regarding the Merger Agreement

The merger agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement. The representations and warranties of the Company contained in the merger agreement have been made solely for the benefit of Parent and Merger Sub. In addition, such representations and warranties (a) have been made only for purposes of the merger agreement, (b) have been qualified by documents filed with, or furnished to, the SEC, (c) have been qualified by confidential disclosures made to Parent and Merger Sub in connection with the merger agreement, (d) are subject to materiality qualifications contained in the merger agreement which may differ from what may be viewed as material by investors, (e) were made only as of the date of the merger agreement or such other date as is specified in the merger agreement and (f) have been included in the merger agreement for the purpose of allocating risk between the contracting parties rather than establishing matters as facts. Accordingly, the merger agreement is included with this filing only to provide investors with information regarding the terms of the merger agreement, and not to provide investors with any other factual information regarding the Company or its business. Investors should not rely on the representations and warranties or any descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. The merger agreement should not be read alone, but should instead be read in conjunction with the other information regarding the Company that has been, is or will be contained in, or incorporated by reference into, the Forms 10-K, Forms 10-Q, Forms 8-K, proxy statements and other documents that the Company files with the SEC. See “Where You Can Find More Information,” beginning on page 85 of this proxy statement.

Effects of the Merger; Directors and Officers; Articles of Incorporation; Bylaws

The merger agreement provides for the merger of Merger Sub with and into the Company upon the terms, and subject to the conditions, set forth in the merger agreement, with the Company continuing as the surviving corporation.

Under the merger agreement, each of the parties agrees, subject to applicable law, to take all necessary action to ensure that the board of directors of the surviving corporation effective as of, and immediately following, the effective time shall consist of such persons designated in writing by Parent prior to the effective time to be the board of directors of the surviving corporation, to serve in such capacity until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. The officers of the Company immediately prior to the effective time shall at the effective time be the officers of the surviving corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

Subject to applicable law, at the effective time, the Amended and Restated Articles of Incorporation of the Company shall be amended and restated as set forth in Annex B to this proxy statement and, as so amended and restated, shall be the articles of incorporation of the surviving corporation, until thereafter amended in accordance with the provisions thereof and applicable law. At the effective time, the Amended and Restated Bylaws of the Company shall be amended and restated as set forth in Annex C to this proxy statement and, as so

 

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amended and restated, shall be the bylaws of the surviving corporation, until thereafter amended in accordance with the provisions thereof, the provisions of the articles of incorporation of the surviving corporation and applicable law.

Closing and Effective Time of the Merger

The closing of the merger (which we refer to as the “closing”) will occur at 10:00 a.m., local time, on the first business day after the satisfaction or waiver of the conditions described under “The Merger Agreement—Conditions to the Merger” (other than those conditions that by their nature are intended to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions), or such other time and date as Parent and the Company shall agree in writing, unless the merger agreement is terminated prior to the closing pursuant to its terms.

Treatment of Common Stock and Equity Awards

Company Common Stock

At the effective time, by virtue of the merger and without any action on the part of the holder of any shares of Company common stock or any shares of capital stock of Merger Sub, (a) each share of Class A common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent) shall be converted into the right to receive cash in the amount of $12.00, without interest, and (b) each share of Class B common stock issued and outstanding immediately prior to the effective time of the merger (other than shares held in the treasury of the Company or owned by Parent or any direct or indirect subsidiary of the Company or Parent and dissenting shares (as defined below)) shall be converted into the right to receive cash in the amount of $12.90, without interest (as required under the Company’s Amended and Restated Articles of Incorporation based on the Class A per share merger consideration). The Class B per share merger consideration was determined as required by the Amended and Restated Articles of Incorporation of the Company based on the Class A per share merger consideration.

Any shares of Company common stock held in the treasury of the Company or owned by Parent or any direct or indirect wholly-owned subsidiary of Parent or the Company immediately prior to the effective time shall be automatically canceled and shall cease to exist and no consideration shall be delivered in exchange therefor.

To the extent required by the NRS, shares of Class B common stock issued and outstanding immediately prior to the effective time and held by a holder who did not vote any of such shares of Class B common stock in favor of approval of the merger agreement and who has otherwise properly exercised his, her or its dissenters’ rights in accordance with the NRS (which we refer to as the “dissenting shares”) shall not be converted into the right to receive the Class B per share merger consideration, but instead shall be converted into the right to receive such cash consideration as determined to be due to such holder as provided in the NRS. If, however, such holder waives or withdraws his, her or its exercise of dissenters’ rights or fails to perfect or otherwise loses his, her or its dissenters’ rights, in any case, pursuant to the NRS, then such holder’s shares of Class B common stock shall be treated as having been converted as of the effective time into the right to receive the Class B per share merger consideration.

You should read “Dissenters’ Rights” beginning on page 83 for a more complete discussion of the dissenters’ rights in relation to the merger as well as Annex E, which contains a full text of the applicable Nevada statute.

Equity Awards

Pursuant to the merger agreement, each Tandem Option/SAR outstanding immediately prior to the effective time and granted under the Company’s 2006 Omnibus Incentive Compensation Plan (which we refer to

 

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as the “Company stock plan”), whether or not then exercisable or vested, will be automatically canceled and cease to represent, as of the effective time, a right to acquire shares of Class A common stock or a right to receive a cash payment measured by the value of Class A common stock in accordance with the terms of the Company stock plan and the applicable award agreements thereunder (or a combination of shares and cash) and will be converted, in full settlement and cancellation thereof, into the right to receive, at the effective time, a lump sum cash payment by the surviving corporation of an amount equal to (i) the excess, if any, of the Class A per share merger consideration over the exercise price per share of the Class A common stock subject to such Tandem Option/SAR, multiplied by (ii) the number of shares of Class A common stock subject to such Tandem Option/SAR immediately prior to the effective time.

Exchange and Payment Procedures

The merger agreement provides that, at or prior to the effective time, Parent will designate a bank or trust company reasonably acceptable to the Company to act as paying agent in the merger (which we refer to as the “paying agent”) and that, at the effective time, Parent will deposit or cause to be deposited with the paying agent in trust for the benefit of the holders of record of Company common stock cash in an amount sufficient to effect payment of the aggregate applicable per share merger consideration in accordance with the merger agreement.

In addition, the merger agreement provides that, promptly (but in no event later than 3 business days) after the effective time, Parent will cause the paying agent to mail to each holder of record of a certificate or uncertificated shares (i.e. book-entry shares) that immediately prior to the effective time represented shares of Company common stock that were converted into the right to receive the applicable per share merger consideration as described in “Treatment of Common Stock and Equity Awards—Company Common Stock” a letter of transmittal containing instructions for exchanging the certificates or uncertificated shares for the applicable per share merger consideration.

You will not be entitled to receive the applicable per share merger consideration until you surrender your certificate(s) or uncertificated share(s) (evidenced by receipt of an “agent’s message” by the paying agent) together with a duly executed and completed letter of transmittal, and any other documents required by the paying agent, to the paying agent. If any portion of the applicable per share merger consideration is to be made to a person other than the person in whose name the applicable surrendered certificate is registered, payment of the applicable per share merger consideration will only be made if the certificate is properly endorsed or otherwise in proper form for transfer and the applicable letter of transmittal is accompanied by any documents necessary to establish to the reasonable satisfaction of Parent that any applicable transfer and other taxes either have been paid or are not payable.

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

If you have lost a certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the applicable per share merger consideration, you will have to make an affidavit of the loss, theft or destruction and, if required by the surviving corporation, post a bond in a reasonable amount as the surviving corporation may direct as indemnity against any claim that may be made against the surviving corporation with respect to such certificate. These procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.

Any portion of the funds made available to the paying agent as described above that remains undistributed to holders of certificates or uncertificated shares on the date that is 12 months after the effective time will be delivered to Parent or any successor thereof, and any holders of certificates or uncertificated shares who have not theretofore complied with the instructions for payment of the applicable per share merger consideration must thereafter look only to Parent or any successor thereof (subject to applicable abandoned property, escheat or similar laws) for the applicable per share merger consideration to which such holders are entitled as described

 

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under this section and under “Treatment of Common Stock and Equity Awards—Company Common Stock.” None of Parent, Merger Sub, the Company, the surviving corporation, the paying agent or their respective representatives will be liable to any person in respect of any applicable per share merger consideration duly delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

The Tandem Option/SAR consideration will be paid no later than 4 days after the effective time.

Representations and Warranties

The representations and warranties made by the Company to Parent and Merger Sub under the merger agreement include representations and warranties relating to, among other things:

 

   

the due organization, valid existence and good standing of the Company and its subsidiaries and their authority to own, operate and lease the properties and assets owned or used by them and to carry on their respective businesses;

 

   

the Company’s corporate power and authority to execute and deliver and to consummate the transactions contemplated by the merger agreement, and the enforceability of the merger agreement against the Company;

 

   

the absence of violations of, or conflicts with, the governing documents of the Company and its subsidiaries, applicable law and certain contracts and permits as a result of the Company entering into the merger agreement and consummating the transactions contemplated by the merger agreement;

 

   

governmental consents and approvals;

 

   

the Company’s capitalization, the absence of preemptive or other similar rights, the absence of voting, registration rights or similar agreements, the absence of dividend or repurchase rights or similar agreements, and the ownership of the subsidiaries (including the absence of encumbrances on the equity interests of subsidiaries);

 

   

the Company’s SEC filings since December 31, 2010 and the exhibits included and information incorporated by reference therein, the absence of material misstatements or omissions from such filings as of their respective dates and compliance with the Sarbanes-Oxley Act;

 

   

compliance of certain financial statements with GAAP and that such financial statements fairly present, in all material respects, the consolidated financial position and consolidated results of operations and cash flows of the Company and its consolidated subsidiaries as of the respective dates or for the respective periods set forth therein;

 

   

the absence of certain undisclosed liabilities;

 

   

the accuracy of the information provided by the Company for inclusion in this proxy statement;

 

   

the absence of a material adverse effect (as described below) from December 31, 2011 through the date of the merger agreement;

 

   

the absence of certain litigation matters;

 

   

compliance with applicable laws and orders;

 

   

licenses and permits;

 

   

regulatory matters;

 

   

real property and personal property matters;

 

   

tax matters;

 

   

environmental matters;

 

   

intellectual property matters;

 

   

employee benefits plans and related matters;

 

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certain matters related to certain contracts of the Company;

 

   

labor relations;

 

   

insurance matters;

 

   

the determination by the Special Committee and the Board that the merger agreement and the merger are in the best interests of the Company and its stockholders, the adoption and approval of the merger agreement and the merger by the Special Committee and the Board, and the recommendation that the Company’s stockholders approve the merger agreement;

 

   

the Special Committee’s receipt of the opinion of Citi;

 

   

the absence of undisclosed broker’s or finder’s fees; and

 

   

the inapplicability of certain anti-takeover laws and the absence of any stockholder rights plan, poison pill or similar agreement.

Many of the Company’s representations and warranties are qualified by, among other things, “materiality” or “material adverse effect.” For purposes of the merger agreement, “material adverse effect” means any change, effect, event, development, fact, occurrence or circumstance (other than any change, effect, event, development, fact, occurrence or circumstance with respect to Parent or Merger Sub) that (i) is materially adverse to the business, assets, results of operations or financial condition of the Company and its subsidiaries, taken as a whole, or (ii) would prevent, materially impair or materially delay the Company from consummating the transactions contemplated by the merger agreement; provided, however, that, with respect to clause (i), “material adverse effect” shall not be deemed to mean or include any such change, effect, event, development, fact, occurrence or circumstance to the extent arising as a result of any of the following:

 

   

the announcement or pendency of the transactions contemplated by the merger agreement (with an exception for certain representations and warranties);

 

   

conditions affecting the industry in which the Company and its subsidiaries participate, the U.S. economy as a whole or the capital markets in general or the markets in which the Company and its subsidiaries operate (other than to the extent that such conditions have a disproportionate effect on the Company or its subsidiaries relative to other participants in the industry in which the Company and its subsidiaries participate);

 

   

the taking of any action expressly required by the merger agreement (other than the Company’s compliance with its obligations as described under the first paragraph of “The Merger Agreement—Conduct of Our Business Pending the Merger”);

 

   

any change in applicable laws or the interpretation thereof (other than to the extent such change has a disproportionate effect on the Company or its subsidiaries relative to other participants in the industry in which the Company and its subsidiaries participate);

 

   

any change in GAAP or other accounting requirements or principles or the interpretation thereof (other than to the extent such change has a disproportionate effect on the Company or its subsidiaries relative to other participants in the industry in which the Company and its subsidiaries participate);

 

   

the failure of the Company or any of its subsidiaries to meet or achieve the results set forth in any estimate, projection or other forecast or plan or a decline in the price of shares of Class A common stock on the NYSE or the credit rating of the Company (provided that any change, effect, event, development, fact, occurrence or circumstance underlying such failure or decline may mean or be included in the meaning of “material adverse effect” to the extent not otherwise excluded); or

 

   

the commencement, continuation or escalation of a war, material armed hostilities or other material international or national calamity, an act of terrorism or a natural or man-made disaster (other than to the extent having a disproportionate effect on the Company or its subsidiaries relative to other participants in the industry in which the Company and its subsidiaries participate).

 

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The representations and warranties made by Parent to the Company under the merger agreement include representations and warranties relating to, among other things:

 

   

the due organization, valid existence and good standing of Parent and Merger Sub and their authority to own, operate and lease the properties and assets owned or used by them and carry on their respective businesses;

 

   

the corporate power and authority of Parent and Merger Sub to execute and deliver and to consummate the transactions contemplated by the merger agreement, and the enforceability of the merger agreement against Parent and Merger Sub;

 

   

the absence of violations of, or conflicts with, the governing documents of Parent and its subsidiaries, applicable law and certain contracts as a result of Parent and Merger Sub entering into the merger agreement and consummating the transactions contemplated by the merger agreement;

 

   

governmental consents and approvals;

 

   

the sufficiency of funds in the equity financing contemplated by the equity financing commitment;

 

   

certain matters related to the equity commitment letter, including the absence of any default thereunder;

 

   

the accuracy of the information provided by Parent or Merger Sub for inclusion in this proxy statement;

 

   

the absence of certain litigation matters;

 

   

Parent ownership of Merger Sub and the absence of prior operations of Parent and Merger Sub;

 

   

the solvency of Parent and the surviving corporation as of the effective time;

 

   

certain matters related to the limited guarantee, including the absence of any default thereunder;

 

   

the absence of undisclosed broker’s or finder’s fees;

 

   

the lack of ownership by Parent, Merger Sub or any of their affiliates of any Company common stock or right to acquire Company common stock except pursuant to the merger agreement; and

 

   

other than the voting agreement, the absence of contracts between Parent, Merger Sub, TPG VI or any of their affiliates and (a) any director, officer or management employee of the Company that relate in any way to the merger agreement, the equity financing commitment or the limited guarantee or the transactions contemplated thereby or (b) any stockholder of the Company pursuant to which such stockholder would be entitled to receive consideration of a different amount or nature than the applicable per share merger consideration or pursuant to which such stockholder agrees to vote against any superior proposal or agrees to vote in favor of the Company stockholder approvals.

Many of the Parent’s representations and warranties are qualified by, among other things “materiality” or “Parent material adverse effect.” For purposes of the merger agreement, “Parent material adverse effect” means any change, effect, event, development, fact, occurrence or circumstance (other than any change, effect, event, development, fact, occurrence or circumstance with respect to the Company or its subsidiaries) that would prevent, materially impair or materially delay Parent or Merger Sub from consummating the transactions contemplated by the merger agreement.

Conduct of Our Business Pending the Merger

Under the merger agreement, the Company has agreed that, subject to certain exceptions in the merger agreement and the disclosure letter delivered by the Company in connection with the merger agreement or as required by applicable law, between the date of the merger agreement and the effective time, unless Parent gives its prior written approval (which cannot be unreasonably withheld, conditioned or delayed), each of the Company and its subsidiaries will (i) conduct its respective businesses in all material respects in the ordinary course of

 

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business consistent with past practice and in all material respects in compliance with all laws and orders applicable to it, (ii) use commercially reasonable efforts to (A) continuously operate and maintain all of its real property, improvements and other material tangible personal assets consistent with past practice, (B) maintain existing insurance policies or comparable replacement insurance policies, as applicable, and (C) maintain all permits in full force and effect and (iii) use commercially reasonable efforts to preserve intact its business organization, retain the services of its present key employees and preserve the existing relationships of those with which it has business relationships (including governmental entities). As used in the description in this section, “consistent with past practice” means the practice of the Company and its subsidiaries since July 1, 2012.

In addition, under the merger agreement, subject to certain exceptions set forth in the merger agreement and the disclosure letter delivered by the Company in connection with the merger agreement or as required by applicable law, between the date of the merger agreement and the effective time, unless Parent gives its prior written approval (which cannot be unreasonably withheld, conditioned or delayed, except in certain circumstances), each of the Company and its subsidiaries has agreed not to take certain actions with respect to, among other things:

 

   

their respective articles of incorporation, bylaws or comparable organizational documents;

 

   

dividends or other distributions;

 

   

purchases or redemptions of capital stock, and adjustments, splits, combinations or reclassifications of capital stock or other equity interests or any rights, warrants or options to acquire the foregoing;

 

   

amendments or the adoption of, or the entry into, employee benefit plans or collective bargaining agreements, increases in compensation or benefits, and hiring employees with base salary and incentive compensation that is reasonably anticipated to exceed $100,000;

 

   

issuances, sales or pledges of capital stock or voting securities, or securities convertible into or exchangeable for, or options, warrants or other rights to purchase, the foregoing;

 

   

acquisitions or dispositions of divisions, businesses, facilities, real property or material amounts of assets or mergers, consolidations or other similar transactions;

 

   

the incurrence or guarantees of indebtedness for borrowed money (except in the ordinary course of business consistent with past practice for working capital purposes not to exceed $2,500,000 under facilities existing on February 25, 2013);

 

   

tax elections, waivers of restrictions on any assessment period, settlement or compromise of tax liabilities or refunds, or amendments to tax returns;

 

   

accounting principles, practices or methods;

 

   

certain contracts of the Company;

 

   

the discharge or satisfaction of liabilities and obligations or the settlement, release, waiver or compromise of pending or threatened claims, actions, suits, arbitrations, litigations, proceedings, investigations, charges, complaints, mediations or grievances (in excess of $2,500,000 in the aggregate);

 

   

capital expenditures in excess of $100,000 per facility or $3,000,000 in the aggregate in any fiscal quarter;

 

   

consenting to liens on real property;

 

   

(i) material changes in the licensed capacity of any facility, (ii) transfers of authorized units or beds of any facility, (iii) material changes in the number of beds certified for participation in the Medicare and Medicaid programs or (iv) the provision of additional regulated services at any facility, including skilled nursing or medical services;

 

   

the entry into any new line of business;

 

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contracts with any affiliate or other related party; and

 

   

authorizing or entering into any legally binding contract to take certain actions with respect to any of the foregoing.

Acquisition Proposals; Change in Recommendation

Under the merger agreement, the Company has agreed to, and has agreed to cause its subsidiaries and its and their respective directors, officers, employees and other representatives to, immediately cease any discussions or negotiations with respect to an acquisition proposal (as described below) with any person other than Parent and its representatives and promptly request the prompt return or destruction of any previously provided confidential information of the Company and its subsidiaries. The Company has also agreed to (i) as promptly as possible and in any event within 24 hours after the receipt thereof, advise Parent of any acquisition proposal and the identity of the person or group of persons making such acquisition proposal and the material terms and conditions thereof (and, if applicable, provide Parent with copies of any material written requests, proposals or offers with respect to such acquisition proposal, including proposed agreements or other documentation) and (ii) keep Parent reasonably apprised on a prompt basis of any related material developments, amendments (including any change to the financial terms, conditions or other material terms), discussions (including the status and terms thereof) and negotiations related to any such acquisition proposal.

The merger agreement provides that until the effective time or, if earlier, the termination of the merger agreement, the Company, its subsidiaries and its representatives may not, directly or indirectly:

 

   

solicit, request, initiate, encourage (including by way of furnishing or disclosing nonpublic information) or knowingly take any other action to facilitate or initiate the making of any acquisition proposal or any inquiry, proposal or offer that could reasonably be expected to lead to an acquisition proposal;

 

   

continue or otherwise participate in discussions or negotiations with, or furnish or disclose any nonpublic information to, any person (other than Parent and its subsidiaries) in connection with any acquisition proposal or any inquiry, proposal or offer that could reasonably be expected to lead to an acquisition proposal;

 

   

approve, endorse, recommend, execute, enter into or agree to enter into any letter of intent, memorandum of understanding, agreement in principle or merger, acquisition, confidentiality or similar agreement contemplating or otherwise relating to any acquisition proposal or any proposal or offer that could reasonably be expected to lead to an acquisition proposal (other than a confidentiality agreement in compliance with the provisions described below (each of which we refer to as a “Company acquisition agreement”);

 

   

grant any waiver, amendment or release under any confidentiality agreement (other than in response to an unsolicited request for such a grant if the Company is otherwise in compliance with its obligations described in this section) or any “fair price,” “moratorium,” “control share acquisition” or other takeover, antitakeover or other similar law; or

 

   

resolve to propose, agree or publicly announce an intention to do any of the foregoing.

Notwithstanding the foregoing, pursuant to the merger agreement, the Company and its representatives may, prior to obtaining the Company stockholder approvals, participate in discussions or negotiations with, or furnish or disclose nonpublic information to, any person in response to an unsolicited, bona fide written acquisition proposal that is submitted to the Company after February 25, 2013 if, and only if:

 

   

the Special Committee determines in good faith, based on the information then available and after consultation with a nationally recognized financial advisor and outside legal counsel, that such acquisition proposal constitutes or is reasonably likely to result in a superior proposal;

 

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the Special Committee determines in good faith, based on the information then available and after consultation with its outside legal counsel, that failing to take such action would be inconsistent with the directors’ fiduciary duties under applicable law;

 

   

prior to participating in discussions or negotiations with, or furnishing or disclosing any nonpublic information to, such person, the Company receives from such person, an executed confidentiality agreement containing terms no less restrictive upon such person, in any material respect, than the terms applicable to Parent under the confidentiality agreement between the Company and TPG (provided that such confidentiality agreement (1) may contain a less restrictive or no standstill provision and (2) shall not contain any provisions that prohibit the Company from taking the actions expressly required by the merger agreement); and

 

   

prior to or concurrently with furnishing or disclosing any nonpublic information to such person, the Company furnishes or discloses such information to Parent.

The merger agreement provides that neither the Board nor any committee thereof (including the Special Committee) will (a) withhold, withdraw, modify or qualify (or publicly propose or resolve to do any of the foregoing), in any manner adverse to Parent, its recommendation that (i) the holders of Company common stock, voting as a single class, vote in favor of approval of the merger agreement and (ii) the holders of Class A common stock (other than the excluded Class A holders), voting as a single, separate class, vote in favor of approval of the merger agreement (which we refer to as the “recommendation”), (b) approve, authorize or recommend or otherwise declare advisable, or propose publicly to approve, authorize or recommend or otherwise declare advisable, any acquisition proposal or any Company acquisition agreement, (c) fail to include the recommendation in this proxy statement or (d) fail to publicly affirm the recommendation in writing within 4 business days after receipt of a written request by Parent to provide such affirmation following a publicly known acquisition proposal (any action described in this paragraph is referred to herein as a “change in recommendation”).

The merger agreement further provides that, notwithstanding anything to the contrary set forth in the merger agreement, prior to the time the Company stockholder approvals are obtained, (1) if any change, event, development, fact, occurrence or circumstance that affects the business, assets, results of operations or financial condition of the Company or its subsidiaries (other than any acquisition proposal) that was not known or reasonably foreseeable to the Company as of February 25, 2013 becomes known by the Company after February 25, 2013 and prior to the time that the Company stockholder approvals are obtained, then the Board or the Special Committee may effect a change in recommendation or (2) if the Company receives an acquisition proposal that the Special Committee concludes in good faith prior to the time that the Company stockholder approvals are obtained, after consultation with a nationally recognized financial advisor and outside legal counsel, constitutes a superior proposal, then the Board or the Special Committee may approve or recommend the superior proposal and the Company may terminate the merger agreement, and, in the case of either of (1) or (2), if, and only if:

 

   

the Company has provided prior written notice to Parent and Merger Sub, at least 4 business days in advance, that the Board or the Special Committee will effect a change in recommendation or the Company will terminate the merger agreement, specifying the basis for the change in recommendation or termination and, in the case of a superior proposal, the identity of the party making such superior proposal, the material terms thereof and copies of all material documents relating thereto;

 

   

the Board or the Special Committee determines in good faith, after consultation with a nationally recognized financial advisor and outside legal counsel, that failure to do so would be inconsistent with the directors’ fiduciary duties under applicable law, and the Company shall have complied with all of its obligations as described in this section;

 

   

after providing such notice and prior to the Board or the Special Committee effecting such change in recommendation or the Company terminating the merger agreement, the Company has, and has caused its representatives to, negotiate with Parent and Merger Sub in good faith (to the extent Parent and

 

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Merger Sub desire to negotiate) during such 4 business day period to make such adjustments in the terms and conditions of the merger agreement, the equity financing commitment and the limited guarantee as would permit the Board or the Special Committee not to effect a change in recommendation and the Company not to terminate the merger agreement; and

 

   

the Special Committee has (1) considered in good faith any changes to the merger agreement, the equity financing commitment and the limited guarantee that may be offered in writing by Parent no later than 5:00 PM Eastern time on the fourth business day of such 4 business day period in a manner that would form a binding contract if accepted by the Company and (2) determined, after consultation with a nationally recognized financial advisor and outside legal counsel, in the case of an acquisition proposal, that the acquisition proposal would continue to constitute a superior proposal and, in any case, that failure of the Board or the Special Committee to effect a change in recommendation or the Company to terminate the merger agreement would continue to be inconsistent with the directors’ fiduciary duties under applicable law, if such changes were to be given effect; provided, however, that in the event of any material revisions to the acquisition proposal that the Special Committee has determined to be a superior proposal or any material change in the circumstances giving rise to the change in recommendation, as applicable, the Company shall be required to deliver a new written notice to Parent and to comply with the requirements described in this section with respect to such new written notice.

Under the merger agreement, an “acquisition proposal” means any proposal or offer by any person or “group” (within the meaning of Section 13(d) of the Exchange Act), other than Parent or any of its direct or indirect subsidiaries, (i) to purchase or otherwise acquire shares of Company common stock (or securities convertible or exchangeable for Company common stock) representing more than 15% of the combined voting power of Company common stock outstanding after giving effect to the consummation of such purchase or other acquisition, including pursuant to any issuance by the Company or tender offer or exchange offer by any person or “group” (other than Parent or any of its direct or indirect subsidiaries) that, if consummated in accordance with its terms, would result in such Person or “group” beneficially owning more than 15% of the combined voting power of the Company common stock outstanding after giving effect to the consummation of such transaction, (ii) to purchase, lease or otherwise acquire (including by joint venture) more than 15% of the consolidated tangible assets of the Company and its subsidiaries taken as a whole (measured by the fair market value thereof, the related revenues applicable to such assets or the related net income applicable to such assets, in each case as of the date of such purchase, lease or acquisition), (iii) to effect any merger, consolidation, recapitalization, business combination or other similar transaction involving the Company or any of its subsidiaries pursuant to which any person or “group” (other than Parent or any of its direct or indirect subsidiaries) would hold more than 15% of the combined voting power of the shares of the outstanding Company common stock or of any surviving or resulting entity of such transaction or (iv) to effect any combination of the foregoing.

Under the merger agreement, a “superior proposal” means any bona fide, written acquisition proposal that the Special Committee determines in good faith, after consultation with a nationally recognized financial advisor and outside legal counsel, and (i) after taking into account all legal, financial, regulatory and other aspects of such acquisition proposal and (ii) if (and only if) such acquisition proposal relates to a sale of tangible assets in an amount less than 100% of the consolidated tangible assets of the Company, after considering the value of the Company (as determined by the Special Committee in good faith after consultation with a nationally recognized financial advisor) after giving effect to such acquisition proposal and, if applicable, any proposed or contemplated future sale or sales of the remaining consolidated assets of the Company, is (A) more favorable to the Company’s stockholders than the transactions contemplated by the merger agreement (including, to the extent applicable, any adjustments to the terms of the merger agreement that Parent offered as provided for and described in this section) and (B) reasonably likely to be consummated in accordance with its terms (provided that, for purposes of the definition of “superior proposal,” all references to 15% in the definition of “acquisition proposal” shall be deemed to be references to 50%).

 

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Stockholders Meeting

The Company has agreed, acting through the Board, in accordance with applicable law and the Amended and Restated Bylaws of the Company, to duly call, give notice of, convene and hold a special meeting of its stockholders as soon as reasonably practicable for the sole purpose of obtaining the Company stockholder approvals.

Cooperation; Best Efforts; Transaction Litigation

The merger agreement provides that each of the Company and Parent will cooperate with and assist the other party, and will, and will cause each of their respective subsidiaries to, use its reasonable best efforts, to promptly (i) take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law to ensure that the conditions described in “The Merger Agreement—Conditions to the Merger” are satisfied and to consummate the transactions contemplated by the merger agreement as soon as reasonably practicable, including preparing and filing as promptly as reasonably practicable all documentation to effect all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents, and (ii) obtain and maintain all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any other person, including any governmental entity, that are necessary, proper or advisable to consummate the merger and the transactions contemplated under the merger agreement in the most expeditious manner practicable, but in any event before the termination date (as defined in “The Merger Agreement—Termination”).

Under the merger agreement, the Company and Parent have agreed to promptly notify the other of any action commenced or, to any party’s knowledge, threatened against such party or any of its subsidiaries or affiliates or otherwise relating to, involving or affecting such party or any of its subsidiaries or affiliates, in each case in connection with, arising from or otherwise relating to the merger and any other transaction contemplated by the merger agreement, to give each other the opportunity to participate in the defense, settlement and prosecution of any such action and to keep the other informed on a prompt basis with respect thereto. In addition, the Company has agreed that notwithstanding any other provision of the merger agreement, it will not settle or agree to settle any such action without the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned or delayed).

The Company has also agreed to promptly notify Parent if the Company, its subsidiaries or their respective representatives receive any material written communication from, or provide any material written communication to, any governmental entity, and to consult with Parent, and keep Parent reasonably apprised on a prompt basis of any material developments, with respect to any such written communication and the matters contemplated thereby.

Healthcare Permits

Parent and Merger Sub have agreed to use their reasonable best efforts to obtain all licenses and permits of governmental entities necessary for Parent to lawfully own, lease or operate, as applicable, the Company’s facilities. The Company and its subsidiaries have agreed to cooperate with Parent and Merger Sub as reasonably requested by Parent in the preparation by Parent and Merger Sub of all necessary or desirable licensure and permit documentation with respect to such licenses and permits and use their reasonable best efforts to promptly provide any information reasonably requested by Parent with respect to Company, its subsidiaries, the business of Company or its subsidiaries or their facilities that is necessary in order to obtain such licenses and permits.

Financing Covenant; Company Cooperation

Pursuant to the merger agreement, Parent and Merger Sub are required to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to obtain the equity financing on the terms and conditions described in the equity financing commitment (including

 

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seeking to enforce the terms of the equity financing commitment) and may not permit any amendment or modification to be made to, or consent to any waiver of any provision or remedy under, the equity financing commitment. Parent and Merger Sub have also agreed to (i) use reasonable best efforts to maintain in effect the equity financing commitment in accordance with the terms and subject to the conditions thereof, (ii) satisfy all conditions therein that are applicable to Parent and Merger Sub that are within their control in order to consummate the equity financing at or prior to the closing and (iii) comply with their obligations thereunder.

The merger agreement provides that the Company will, prior to the closing, and will cause each of its subsidiaries to, and will use its reasonable best efforts to cause the representatives of the Company and each of its subsidiaries to, provide to Parent all cooperation that is customary in connection with the arrangement of debt financing reasonably proposed by Parent as may be reasonably requested by Parent, including cooperation as specified in more detail in the merger agreement.

The merger agreement also provides that Parent will, and, as of the effective time, will cause the surviving corporation to, comply with certain contracts relating to certain specified indebtedness of the Company, including any obligations to repay such specified indebtedness (in each case, to the extent such contracts provide for obligations of Parent or, as of the effective time, the surviving corporation). Prior to the effective time, Parent and the Company have agreed to jointly cooperate to mutually agree on actions to be taken or omitted in respect of any obligations to repay such specified indebtedness under such contracts that become due prior to the effective time.

Employee Benefit Matters

Parent has agreed, among other things, that:

 

   

for a period of not less than 12 months following the effective time (or such longer period as may be provided in certain specified employment contracts), it will, and will cause the surviving corporation to, either (i) maintain in effect on behalf of employees of the surviving corporation and its subsidiaries all employee benefit plans (other than any equity-based plans) as in effect on February 25, 2013 (which we refer to as the “existing plans”) or (ii) provide all employees of the surviving corporation and its subsidiaries with such compensation and benefit plans, programs, arrangements, agreements and policies (other than any equity-based plans) that provide a level of benefits that in the aggregate is substantially comparable to the aggregate level of benefits provided under the existing plans as of the effective time; and

 

   

if the employment of any employee of the surviving corporation or any of its subsidiaries is terminated within 12 months following the effective time, Parent will pay (or cause the surviving corporation to pay) such employee a severance benefit that shall in no event be less than, or paid later than, the severance benefit, if any, to which such employee would have been entitled if the Company’s severance plan, as in effect immediately prior to the effective time, applied to such termination of employment.

Indemnification; Directors’ and Officers’ Insurance

The merger agreement provides that Parent will cause the articles of incorporation and bylaws of the surviving corporation and the comparable organizational documents of its subsidiaries to contain provisions with respect to indemnification, advancement of expenses and exculpation from liabilities set forth in the Amended and Restated Articles of Incorporation and Amended and Restated Bylaws of the Company and the comparable organizational documents of its subsidiaries as of February 25, 2013, which provisions shall not be amended, repealed or otherwise modified for a period of 6 years after the effective time in any manner that would adversely affect the rights thereunder of any person who was, who is now or who at any time prior to the effective time becomes, a director, officer or employee of the Company or any of its subsidiaries (each of which we refer to as an “indemnified party”) and cause the surviving corporation to honor such provisions, in each case, with respect to acts or omissions occurring at or prior to the effective time.

 

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The merger agreement also provides that the Company will obtain, as of the effective time and for 6 years after the effective time, prepaid directors’ and officers’ liability insurance policies, in respect of acts or omissions occurring prior to the effective time, including the transactions contemplated by the merger agreement, covering each person covered by the Company’s directors’ and officers’ insurance policies as in effect on February 25, 2013 (which we refer to as “existing D&O policies”) and each person who becomes covered thereunder prior to the effective time, on the same terms as the existing D&O policies or, if such insurance coverage is unavailable, on terms no less favorable to such persons (provided, however, that the Company will not pay more than 400% of the aggregate annual premium of the existing D&O policies for the policy period including February 25, 2013). Parent agrees to cause such prepaid policies to be maintained in full force and effect for their full term, be honored by the surviving corporation and not be amended, modified, canceled or revoked by the surviving corporation in any manner adverse to any indemnified party.

Access

Subject to certain exceptions, from February 25, 2013 until the effective time, the Company has agreed to cause its and its subsidiaries’ representatives to provide Parent and its representatives, upon reasonable advance written notice, with reasonable access during normal business hours to the books, contracts, personnel, records and other information or data with respect to the business, properties, facilities and personnel of the Company and its subsidiaries, in each case, as Parent may reasonably request, and to the Company’s properties and facilities to conduct such inspection or observation as Parent may reasonably request.

Other Covenants

The merger agreement contains certain other customary covenants, including, but not limited to, covenants relating to contact with customers and suppliers, public announcements, confidentiality, stock exchange delisting, Section 16 matters, resignations of directors and anti-takeover laws.

Conditions to the Merger

The respective obligations of Parent, Merger Sub and the Company under the merger agreement to effect the merger are subject to the satisfaction or (except with respect to the unaffiliated approval described in clause (ii) of the first bullet below, and otherwise only if permissible under applicable law) waiver on or prior to the closing date of the following conditions:

 

   

the approval by (i) the holders of a majority of the voting power of shares of Class A common stock and Class B common stock outstanding at the close of business on the record date, voting together as a single class (with each share of Class A common stock entitled to one vote and each share of Class B common stock entitled to ten votes) and (ii) the holders of a majority of the voting power of shares of Class A common stock outstanding at the close of business on the record date, excluding shares owned, directly or indirectly, by excluded Class A holders, voting as a single separate class, shall have been obtained in accordance with the NRS and the Company’s Amended and Restated Articles of Incorporation and Amended and Restated Bylaws;

 

   

no law or order shall have been enacted, entered, promulgated, adopted, issued or enforced by any governmental entity that is then in effect and has the effect of making the merger illegal or otherwise prohibiting or restraining the consummation of the merger; and

 

   

any waiting period applicable to the merger under the HSR Act shall have been expired or been terminated.

The respective obligations of Parent and Merger Sub to effect the merger are further subject to the satisfaction or waiver on or prior to the closing date of the following conditions:

 

   

the representations and warranties of the Company related to organization and qualification, authorization, capitalization, its subsidiaries, the approval and recommendation of the Special

 

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Committee and the Board, the absence of undisclosed broker’s or finder’s fees and the inapplicability of certain anti-takeover laws and the absence of any stockholder rights plan, poison pill or similar agreement shall be correct and complete in all respects as of February 25, 2013 and as of the closing date (except to the extent that any such representation or warranty expressly addresses matters only as of a specified date, which need only be correct and complete as of such specified date) except for any failures of any such representations and warranties to be so correct and complete that, individually or in the aggregate, are de minimis or immaterial, as applicable, in nature and amount;

 

   

each of the other representations and warranties of the Company under the merger agreement shall be correct and complete as of February 25, 2013 and as of the closing date (except to the extent any such representation or warranty expressly addresses matters only as of a specified date, which need only be correct and complete as of such specified date), in each case without giving effect to any material adverse effect or other materiality qualifications contained therein, except for any failures of any such representations and warranties to be so correct and complete that, individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect;

 

   

the Company shall have complied in all material respects with each of its covenants required to be performed by it under the merger agreement at or prior to the closing date;

 

   

since February 25, 2013, there shall have not have occurred any change, effect, event, development, fact, occurrence or circumstance that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect;

 

   

Parent shall have received, as of the closing date, a certificate signed on behalf of the Company by the chief executive officer or chief financial officer of the Company stating that the foregoing conditions have been satisfied; and

 

   

the state licenses to operate the Company’s assisted living facilities and all permits or licenses for which Parent would reasonably be expected to incur criminal liability as a result of Parent failing to obtain such permits or licenses at or prior to the closing of the merger shall have been obtained and not been revoked.

The obligation of the Company to effect the merger is further subject to the satisfaction or waiver on or prior to the closing date of the following conditions:

 

   

the representations and warranties of Parent related to authorization, capitalization, solvency and the absence of certain contracts with any director, officer, management employee or stockholder of the Company shall be correct and complete in all respects as of February 25, 2013 and as of the closing date (except to the extent any such representation or warranty expressly addresses matters only as of a specified date, which need only be correct and complete as of such specified date), except for any failures of any such representations and warranties to be so correct and complete that, individually or in the aggregate, are immaterial in nature and amount;

 

   

each of the other representations and warranties of Parent under the merger agreement shall be correct and complete as of February 25, 2013 and as of the closing date (except to the extent any such representation or warranty expressly addresses matters only as of a specified date, which need only be correct and complete as of such specified date), in each case without giving effect to any Parent material adverse effect or other materiality qualifications contained therein, except for any failures of any such representations and warranties to be so correct and complete that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent material adverse effect;

 

   

each of Parent and Merger Sub shall have complied in all material respects with each of its covenants required to be performed by it under the merger agreement at or prior to the closing date; and

 

   

the Company shall have received, as of the closing date, a certificate signed on behalf of Parent by the president or vice president of Parent stating that the foregoing conditions have been satisfied.

 

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Termination

The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time, whether before or after receipt of the Company stockholder approvals by mutual written agreement of Parent and the Company.

The merger agreement may also be terminated and the merger abandoned at any time prior to the effective time, whether before or after receipt of the Company stockholder approvals (except as indicated), as follows:

by either Parent or the Company (in each case subject to certain limitations), if:

 

   

the merger has not been consummated on or prior to September 16, 2013 or such other date as Parent and the Company shall agree in writing (we refer to such date in this proxy statement as the “termination date”);

 

   

a law has been enacted, entered or promulgated prohibiting the consummation of the merger substantially on the terms contemplated by the merger agreement, if such law has caused the failure of any condition described in “The Merger Agreement—Conditions to the Merger” to be satisfied and the party entitled to rely on such condition does not elect to waive such condition;

 

   

an order has been enacted, entered, promulgated or issued by a governmental entity of competent jurisdiction permanently restraining, enjoining or otherwise prohibiting the consummation of the merger substantially on the terms contemplated by the merger agreement and such order has become final and non-appealable, if such order has caused the failure of any condition described in “The Merger Agreement—Conditions to the Merger” to be satisfied and the party entitled to rely on such condition does not elect to waive such condition;

 

   

a governmental entity has denied a request to issue an order or to take any other action that is necessary to fulfill certain conditions to the merger related to the HSR Act waiting period and the receipt by Parent of specified licenses and permits and such denial of a request to issue such order or to take such other action has become final and non-appealable, if such denial has caused the failure of any condition described in “The Merger Agreement—Conditions to the Merger” to be satisfied and the party entitled to rely on such condition does not elect to waive such condition; or

 

   

the Company stockholder approvals have not been obtained by reason of the failure to obtain the required votes at a duly held meeting of stockholders or at any adjournment thereof at which votes on such approvals were taken;

by the Company (in each case subject to certain limitations), if:

 

   

all of the following shall have occurred: (i) Parent breaches or fails to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, (ii) such breach or failure to perform would entitle the Company not to consummate the merger as described in “The Merger Agreement-Conditions to the Merger,” (iii) such breach or failure to perform is incapable of being cured by Parent prior to the termination date or, if such breach or failure to perform is capable of being cured by Parent prior to such date, Parent has not cured such breach or failure to perform within 30 days after receipt of written notice thereof (but no later than the termination date) and (iv) the Company is not then in breach of the merger agreement in any material respect;

 

   

prior to the time the Company stockholder approvals are obtained, (i) the Board or the Special Committee effects a change in recommendation in compliance with the provisions described in “The Merger Agreement—Acquisition Proposals; Change in Recommendation” or (ii) the Board or the Special Committee approves and recommends, and the Company executes, a Company acquisition agreement to consummate a superior proposal in compliance with provisions as described in “The Merger Agreement—Acquisition Proposals; Change in Recommendation” and, prior to or concurrently

 

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with such termination, the Company pays the Company termination fee described under “The Merger Agreement—Termination Fees and Reimbursement Expenses”; or

 

   

all of the conditions to Parent’s and Merger Sub’s obligations to effect the merger as described in “The Merger Agreement—Conditions to the Merger” have been satisfied (other than those conditions that by their terms are to be satisfied at the closing), the Company has irrevocably given notice to Parent in writing that it is prepared to consummate the closing and Parent and Merger Sub fail to consummate the transactions contemplated by the merger agreement on the date the closing should have occurred pursuant to the terms of the merger agreement; or

by Parent (in each case subject to certain limitations):

 

   

if all of the following shall have occurred: (i) the Company breaches or fails to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, (ii) such breach or failure to perform would entitle Parent not to consummate the merger as described in “The Merger Agreement—Conditions to the Merger,” (iii) such breach or failure to perform is incapable of being cured by the Company prior to the termination date or, if such breach or failure to perform is capable of being cured by the Company prior to the termination date, the Company has not cured such breach or failure to perform within 30 days after receipt of written notice thereof (but no later than the termination date) and (iv) Parent is not then in breach of the merger agreement in any material respect;

 

   

if the Board or the Special Committee effects a change in recommendation;

 

   

if the Company violates in a material respect any of the provisions described in “The Merger Agreement—Acquisition Proposals; Change in Recommendation”;

 

   

if the Company approves, endorses, recommends, executes, enters into or agrees to enter into any Company acquisition agreement to consummate any acquisition proposal or superior proposal;

 

   

if the Company violates in a material respect any of the provisions described in “The Merger Agreement—Stockholders Meeting”;

 

   

between May 1, 2013 and May 14, 2013, if the Company has not filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (which we refer to as the “2012 Company 10-K”) by April 30, 2013;

 

   

within 10 business days after the date that the Company files the 2012 Company 10-K, if the report and opinion of Grant Thornton LLP auditing the Company’s consolidated financial statements included in the 2012 Company 10-K does not include the unqualified opinion of Grant Thornton LLP that the consolidated financial statements present fairly, in all material respects, the financial position, the results of operations and the cash flows of the Company and its subsidiaries in conformity with GAAP; or

 

   

within 14 business days after the date that the Company becomes obligated to file a Current Report on Form 8-K pursuant to Item 4.02 of Form 8-K.

Termination Fees and Reimbursement of Expenses

The Company is required to pay Parent a fee of $7,250,000 (which we refer to as the “termination fee”) and, to the extent not previously paid, the expense reimbursement (as described below), if:

 

   

Parent terminates the merger agreement because any of the following has occurred: (i) the Board or the Special Committee effected a change in recommendation, (ii) the Company has violated in any material respect any of the provisions described in “The Merger Agreement—Acquisition Proposals; Change in Recommendation,” (iii) the Company approves, endorses, recommends, executes, enters into or agrees to enter into any Company acquisition agreement to consummate any acquisition proposal or

 

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superior proposal, or (iv) the Company has violated in a material respect any of the provisions described in “The Merger Agreement—Stockholders Meeting”;

 

   

the Company terminates the merger agreement because prior to the time the Company stockholder approvals are obtained, (i) the Board or the Special Committee effects a change in recommendation or (ii) the Board or the Special Committee approves and recommends, and the Company executes, a Company acquisition agreement to consummate a superior proposal, in each case in compliance with the provisions described in “The Merger Agreement—Acquisition Proposals; Change in Recommendation”; or

 

   

(a) Parent terminates the merger agreement because all of the following have occurred: (i) the Company breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, (ii) such breach or failure to perform would entitle Parent not to consummate the merger as described in “The Merger Agreement—Conditions to the Merger,” (iii) such breach or failure to perform is incapable of being cured by the Company prior to the termination date or, if such breach or failure to perform is capable of being cured by the Company prior to the termination date, the Company has not cured such breach or failure to perform within 30 days after receipt of written notice thereof (but no later than the termination date) and (iv) Parent is not then in breach of the merger agreement in any material respect; (b) Parent or the Company terminates the merger agreement because the merger has not been consummated on or prior to the termination date or (c) Parent or the Company terminates the merger agreement because the Company stockholder approvals have not been obtained by reason of the failure to obtain the required votes at a duly held meeting of stockholders or at any adjournment thereof at which votes on such approvals were taken, and, in each case (A) at any time after February 25, 2013 and prior to such termination an acquisition proposal (or an intention to make an acquisition proposal) shall have been publicly announced or publicly communicated (or, in certain circumstances, otherwise communicated) to the Board, the Special Committee, senior management of the Company or stockholders of the Company and (B) prior to the date that is 18 months after the effective date of such termination, the Company enters into a definitive agreement to consummate an acquisition proposal (and such acquisition proposal is subsequently consummated) (provided that for purposes of such provisions, references to 15% in the definition of “acquisition proposal” shall be deemed to be references to 50%).

In addition, the Company is required under the merger agreement to pay all of the reasonable documented out-of-pocket expenses incurred by Parent, Merger Sub and their respective affiliates in connection with the merger agreement and the transactions contemplated by the merger agreement (subject to a cap of $2,750,000) (which we refer to as the “expense reimbursement”) if Parent or the Company terminates the merger agreement because the Company stockholder approvals have not been obtained by reason of the failure to obtain the required votes at a duly held meeting of stockholders or at any adjournment thereof at which votes on such approvals were taken.

Parent is required under the merger agreement to pay the Company a fee of $40,000,000 (which we refer to as the “reverse termination fee”) if:

 

   

the Company terminates the merger agreement because all of the following have occurred: (i) Parent has breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in the merger agreement, (ii) such breach or failure to perform would entitle the Company not to consummate the Merger as described in “The Merger Agreement—Conditions to the Merger,” (iii) such breach or failure to perform is incapable of being cured by Parent prior to the termination date or, if such breach or failure to perform is capable of being cured by Parent prior to the termination date, Parent has not cured such breach or failure to perform within 30 days after receipt of written notice thereof (but no later than the termination date) and (iv) the Company is not then in breach of the merger agreement in any material respect; or

 

   

all of the conditions to Parent’s and Merger Sub’s obligations to effect the merger as described in “The Merger Agreement—Conditions to the Merger” have been satisfied (other than those conditions that by

 

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their terms are to be satisfied at the closing), the Company has irrevocably given notice to Parent in writing that it is prepared to consummate the closing and Parent and Merger Sub fail to consummate the transactions contemplated by the merger agreement on the date the closing should have occurred pursuant to the terms of the merger agreement.

Remedies

If the Company terminates the merger agreement in the circumstances in which the reverse termination fee is payable, the Company’s receipt of the reverse termination fee (including interest thereon as provided in the merger agreement) from Parent (or TPG VI pursuant to the limited guarantee) and certain reimbursement and indemnification payments from Parent (or TPG VI pursuant to the limited guarantee) will be the sole and exclusive remedy of the Company and its subsidiaries against (w) Parent, Merger Sub or TPG VI, (x) any lender or prospective lender, lead arranger, arranger, agent or representative of or to Parent, Merger Sub or TPG VI, (y) the former, current and future holders of any equity, partnership or limited liability company interest, controlling persons, directors, officers, employees, agents, attorneys, affiliates, members, managers, general or limited partners, stockholders or assignees of any person named in clause (w) or (x) and (z) any future holders of any equity, partnership or limited liability company interest, controlling persons, management companies, directors, officers, employees, agents, attorneys, representatives, affiliates, members, managers, general or limited partners, stockholders or assignees of any of the foregoing (we refer to the persons described in clauses (w)-(z), collectively, as the “Parent group”) for any loss suffered as a result of any breach of any representation, warranty, covenant or agreement, the failure of the merger to be consummated or otherwise related to the merger agreement. Notwithstanding any other provision of the merger agreement, the maximum aggregate monetary liability of Parent, Merger Sub and any other member of the Parent group is limited to an amount equal to the sum of the reverse termination fee, including interest thereon as provided in the merger agreement, and any other amounts owing from Parent related to certain reimbursement and indemnification obligations under the merger agreement.

If the merger agreement is terminated in the circumstances in which the termination fee and/or expense reimbursement, as applicable, is payable, Parent’s receipt of the termination fee and/or expense reimbursement, as applicable (including interest thereon as provided in the merger agreement), if accepted by Parent, shall be the sole and exclusive remedy of Parent, Merger Sub, TPG VI and their respective affiliates against the Company, its subsidiaries and any of their respective former, current and future holders of any equity, partnership or limited liability company interest, controlling persons, directors, officers, employees, agents, attorneys, representatives, affiliates, members, managers, general or limited partners, stockholders or assignees for any loss suffered as a result of any breach of any representation, warranty, covenant or agreement, the failure of the merger to be consummated or otherwise related to the merger agreement, except that the Company’s liability for fraud, willful misconduct, willful and material breach or failure to perform any covenants or agreement in the merger agreement is not limited.

In addition to the rights to monetary damages described above, the parties are entitled, to the fullest extent permitted by law, to an injunction restraining any actual or threatened breach, violation or default of the merger agreement and to any other equitable relief, including specific performance. However, the Company is not entitled to (i) an injunction or injunctions to prevent breaches of the merger agreement by Parent or Merger Sub, (ii) enforce specifically the terms and provisions of the merger agreement against Parent or Merger Sub or (iii) otherwise to obtain any equitable relief or remedy against Parent or Merger Sub, except specific performance of Parent’s and Merger Sub’s obligations pursuant to the terms of the merger agreement to (i) prevent breaches of the merger agreement by Parent and Merger Sub other than as it relates to the right to cause the equity financing to be funded and to consummate the merger and (ii) cause the equity financing to be funded and to consummate the merger only in the event that the following conditions have been satisfied:

 

   

all of the conditions to Parent’s and Merger Sub’s obligations to effect the merger as described in “The Merger Agreement—Conditions to the Merger” have been satisfied and remain satisfied (other than those conditions that by their terms are to be satisfied at the closing, but subject to their satisfaction at the closing);

 

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Parent and Merger Sub fail to complete the closing in accordance with the merger agreement; and

 

   

the Company has confirmed that (1) all of the conditions to the Company’s obligations to effect the merger as described in “The Merger Agreement—Conditions to the Merger” have been satisfied or waived and remain satisfied or waived (other than those conditions that by their terms are to be satisfied at the closing, but subject to their satisfaction or waiver at the closing) and (2) if specific performance is granted and the equity financing is funded, then the closing will occur.

While the Company may pursue both a grant of specific performance as described above and the payment of the reverse termination fee as described under “The Merger Agreement—Termination Fees and Reimbursement of Expenses,” under no circumstances will the Company be permitted or entitled to receive both a grant of specific performance and monetary damages, including all or any portion of the reverse termination fee.

Amendments

The merger agreement may be amended by Parent and the Company, by action taken or authorized by (a) in the case of Parent, the sole member of Parent and (b) in the case of the Company, the Special Committee and, to the extent required by law, the Board, at any time before or after the Company stockholder approvals are obtained; provided that, after the Company stockholder approvals are obtained, no amendment shall be made that, by law, requires further approval by the stockholders of any party to the merger agreement without such further approval. The merger agreement may not be amended except by a written instrument signed on behalf of each of the parties to the merger agreement.

 

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COMMON STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN

BENEFICIAL OWNERS

Security Ownership of Certain Beneficial Owners

The following table sets forth certain information regarding the persons who are known by us to own beneficially more than 5% of our Class A common stock or Class B common stock, based solely upon filings made by such persons with the SEC as of February 28, 2013, on Schedule 13D or Schedule 13G (and any amendment(s) thereto) pursuant to Section 13(d) or (g) of the Exchange Act, and, where believed by us to foster the accuracy of such information, upon filings made by such persons as of February 28, 2013, on Schedule 13F pursuant to Section 13(f) of the Exchange Act. Pursuant to rules promulgated under the Exchange Act, a person is deemed to be a beneficial owner of an equity security if such person has or shares the power to vote or to direct the voting of such security or to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. In general, a person is deemed to be a beneficial owner of any equity security that such person has the right to acquire within 60 days of a determination date. The fully diluted ownership of the Company after the effective time is described under the section captioned “The Merger—Certain Effects of the Merger.”

 

Name and Address of
Beneficial Owner(1)    

  Number of Shares
Owned
    Assuming  Full
Conversion(2)
    Percentage of
Outstanding Shares
    Percentage of Total Votes  

5% Beneficial Owners

  Class A
Common
Stock
    Class B
Common
Stock
    Class A
Common
Stock
    Class A
Common
Stock
    Class B
Common
Stock
    No
Conversion
    If Fully
Converted
 

Morgan Stanley Investment
Management Inc., 522
Fifth Avenue,
New York, NY 10036
(3)

    3,532,963        —          3,532,963        17.6     —          7.2     15.2

Thornridge Holdings Limited,
380 Bedford Highway, Halifax,
Nova Scotia, Canada
B3M2L4
(4)

    345,316        2,722,000        3,271,466        1.7     93.9     56.2     14.1

Bandera Partners LLC,
Gregory Bylinsky, Jefferson
Gramm & Andrew Shpiz,
50 Broad Street, Suite 1820,
New York,
NY 10004
(5)

    2,220,307        —          2,220,307        11.1     —          4.5     9.6

BlackRock, Inc.
40 East 52nd Street,
New York, NY 10022
(6)

    1,185,377        —          1,185,377        5.9     —          2.4     5.1

683 Capital Mgt LLC,
683 Capital Mgt LP, &
Ari Zweiman
595 Madison Avenue,
17th Floor, New York,
NY 10022
(7)

    1,321,288        —          1,321,288        6.6     —          2.7     5.7

Newtyn Management LLC
599 Lexington Ave.,
41st Floor, New York,
NY 10022
(8)

    1,742,900        —          1,742,900        8.7     —          3.6     7.5

 

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Name and Address of
Beneficial Owner(1)    

  Number of Shares
Owned
    Assuming  Full
Conversion(2)
    Percentage of
Outstanding Shares
    Percentage of Total Votes  

5% Beneficial Owners

  Class A
Common
Stock
    Class B
Common
Stock
    Class A
Common
Stock
    Class A
Common
Stock
    Class B
Common
Stock
    No
Conversion
    If Fully
Converted
 

Kingstown Partners
Master Ltd.,
Kingstown Partners II L.P.,
Ktown LP, Kingstown Capital
Partners, LLC, Kingstown
Capital Management L.P.,
Kingstown Management
GP LLC,
Michael Blitzer & Guy
Shanon
(9)

    1,600,000        —          1,600,000        8.0     —          3.3     6.9

The Vanguard Group
100 Vanguard Blvd.
Malvern, PA 19355
(10)

    1,071,590        —          1,071,590        5.3     —          2.2     4.6

Dimensional Fund Advisors LP
Palisades West Building One
6300 Bee Cave Road, Austin,
TX 78746
(11)

    1,191,916        —          1,191,916        5.9     —          2.4     5.1

 

(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act for purposes of this proxy statement. It is not necessarily to be construed as beneficial ownership for other purposes.
(2) Each share of Class B common stock may be converted into 1.075 shares of Class A common stock at the option of the holder. This column assumes that all of the outstanding shares of Class B common stock were converted into shares of Class A common stock such that a single class of common stock remained outstanding.
(3) Based on a Schedule 13G filed with the SEC by Morgan Stanley Investment Management, Inc. and Morgan Stanley (whose mailing address is 1585 Broadway, New York NY 10036). The Schedule 13G states that Morgan Stanley Investment Management, Inc. has sole voting power with respect to 2,807,245 shares of Class A common stock and sole dispositive power with respect to 3,532,963 shares of Class A common stock. The Schedule 13G further states that Morgan Stanley has sole voting power with respect to 2,807,245 shares of Class A common stock and sole dispositive power with respect to 3,532,963 shares of Class A common stock.
(4) Based on a Schedule 13D filed with the SEC by Thornridge. The Schedule 13D states that Thornridge has sole voting and dispositive power with respect to the shares of Class A common stock and shares of Class B common stock listed above. Thornridge has the right to acquire 2,926,150 shares of Class A common stock upon conversion of the 2,722,000 shares of Class B common stock. As of December 6, 2010, all of the outstanding voting shares of Thornridge were held by fourteen private holding companies owned by members of the extended family of Mrs. Jean Hennigar, a daughter of the late R.A. Jodrey, including her son David J. Hennigar, Chairman of the Board, Chairman and President of Thornridge and one of Thornridge’s ten directors. Matters relating to the voting and disposition of shares held by Thornridge are determined exclusively by its board of directors. Mr. Hennigar disclaims beneficial ownership of the shares of Company common stock held by Thornridge. See below for additional information relating to the acquisition of shares and the voting agreement by Thornridge.
(5) Based on a Schedule 13G filed with the SEC by Bandera Partners LLC, Gregory Bylinsky, Jefferson Gramm and Andrew Shpiz. The Schedule 13G states that Bandera Partners LLC has sole voting and dispositive power on 2,220,307 shares of Class A common stock and that Jefferson Gramm has sole voting and dispositive power on 82,572 shares of Class A common stock. Gregory Bylinsky, Jefferson Gramm and Andrew Shpiz have shared voting and dispositive power over 2,220,307 shares of Class A common stock.
(6) Based on a Schedule 13G filed with the SEC by BlackRock, Inc.

 

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(7) Based on a Schedule 13G filed with the SEC by 683 Capital Management, LLC, 683 Capital Management, LP and Ari Zweiman. The Schedule 13G states that 683 Capital Management, LLC, 683 Capital Management, LP and Ari Zweiman have shared voting and dispositive power on 1,321,288 shares of Class A common stock.
(8) Based on a Schedule 13G filed with the SEC by Newtyn Management, LLC.
(9) Based on a Schedule 13G filed with the SEC by Kingstown Partners Master Ltd., Kingstown Partners II L.P., Ktown LP, Kingstown Capital Partners, LLC, Kingstown Capital Management L.P., Kingstown Management GP LLC, Michael Blitzer and Guy Shanon. The principal business address of each of Kingstown Partners II L.P., Ktown LP, Kingstown Capital Partners, LLC, Kingstown Capital Management L.P., Kingstown Management GP LLC, Michael Blitzer and Guy Shanon is 100 Park Ave, 21st Floor New York, NY 10017. The principal business address of Kingstown Partners Master Ltd. is c/o Intertrust Corporate Services, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands. The Schedule 13G states that Kingstown Capital Management L.P., Kingstown Management GP LLC, Michael Blitzer and Guy Shanon have shared voting and dispositive power on 1,600,000 shares of Class A common stock, Kingstown Capital Partners, LLC has shared voting and dispositive power on 1,416,642 shares of Class A common stock, Kingstown Partners Master Ltd. has shared voting and dispositive power on 1,138,057 shares of Class A common stock, Kingstown Partners II L.P. has shared voting and dispositive power on 142,466 shares of Class A common stock and Ktown LP has shared voting and dispositive power on 136,119 shares of Class A common stock.
(10) Based on a Schedule 13G filed with the SEC by The Vanguard Group. The Schedule 13G states that The Vanguard Group has sole voting power with respect to 30,262 shares of Class A common stock, sole dispositive power with respect to 1,041,328 shares of Class A common stock and shared dispositive power with respect to 30,262 shares of Class A common stock.
(11) Based on a Schedule 13G filed with the SEC by Dimensional Fund Advisors LP. The Schedule 13G states that Dimensional Fund Advisors LP has sole voting power with respect to 1,141,627 shares of Class A common stock and sole dispositive power with respect to 1,191,616 shares of Class A common stock.

On December 6, 2010, Thornridge filed a statement on Schedule 13D with the SEC reporting that on November 5, 2010, it had acquired 172,658 shares of the Class A common stock and 1,361,000 shares of the Class B common stock formerly owned by Scotia Investments Limited (“Scotia Investments”) and its subsidiaries. According to the Schedule 13D, Blomidon Investments Limited (“Blomidon”), the ultimate parent corporation of Scotia Investments, and three holding companies of Blomidon that owned all of the common shares of Blomidon, including Thornridge, completed a reorganization pursuant to which, among other things, Thornridge acquired all of the Company common stock formerly held by Scotia Investments and its subsidiaries. The aggregate purchase price for the Company common stock acquired by Thornridge in the reorganization, as reported in the Schedule 13D, was Cdn$53,241,407, representing Cdn$32.55 per share of Class A common stock and Cdn$34.99 per share of Class B common stock. Thornridge reported that the purchase price for the assets it acquired in the reorganization, including but not limited to the Company common stock, was paid for by Thornridge by a combination of the proceeds of the sale of its shares of Blomidon to Blomidon and the payment of a cash amount. In connection with the reorganization, Thornridge further reported that it and certain of the private companies acquired in the reorganization entered into credit facilities with The Canadian Imperial Bank of Commerce (“CIBC”) for loans that were used or will be used for working capital, capital expenditures, possible expansions and acquisitions and the payment of approximately twenty-five percent of the aggregate purchase price of all assets acquired in the reorganization.

The Schedule 13D indicates that as of December 6, 2010: (i) all of the outstanding voting shares of Thornridge are held by fourteen private holding companies owned by members of the extended family of Mrs. Jean Hennigar, a daughter of the late R.A. Jodrey, including her son David J. Hennigar, who is chairman of the Board, Chairman and President of Thornridge and one of Thornridges’ ten directors; (ii) none of the ten directors of Thornridge individually has the power to vote or dispose of the Company common stock held by Thornridge; (iii) matters relating to the voting and disposition of Company common stock held by Thornridge are determined exclusively by its board of directors; and (iv) Mr. Hennigar and each of the other directors of Thornridge disclaims beneficial ownership of the Company common stock held by Thornridge.

 

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Following completion of the reorganization, Thornridge held 172,658 shares of Class A common stock and 1,361,000 shares of Class B common stock. In its Schedule 13D, as amended on February 27, 2013, Thornridge references the Company’s Certificate of Change Pursuant to NRS 78.209 For Nevada Profit Corporations, which effectuated a two-for-one stock split of the Company common stock (the “stock split”). Following the stock split, Thornridge held 345,316 shares of Class A common stock and 2,722,000 shares of Class B common stock. Thornridge has the right to acquire 2,926,150 shares of Class A common stock upon conversion of the 2,722,000 shares of Class B common stock which it holds, pursuant to the conversion feature which allows each share of Class B common stock to be converted into 1.075 shares of Class A common stock at the option of the holder. Furthermore, because each share of Class B common stock entitles the holder to ten votes with respect to all matters upon which stockholders are entitled to vote, while each share of Class A common stock entitles the holder to one vote on such matters, with the holders of Class A common stock and Class B common stock voting together on such matters without regard to class, Thornridge holds approximately 56.2% of the total voting power of the Company based on shares outstanding as of February 28, 2013.

In its Schedule 13D, as amended on February 27, 2013, Thornridge reported that the shares held by Thornridge are subject to a voting agreement with Parent and Merger Sub, pursuant to which Thornridge has agreed to, among other things, vote all of its shares of Company common stock in favor of the transactions contemplated under the merger agreement and vote against any alternative acquisition proposals. The voting agreement terminates upon the termination of the merger agreement. For more information on the voting agreement, see “The Special Meeting—Voting Agreement.”

 

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Security Ownership of Directors and Management

The following table sets forth, as of the date of this proxy statement, the beneficial ownership of our Class A common stock and Class B common stock by: (i) our current directors, (ii) each of our named executive officers (as listed in our definitive proxy statement filed on March 23, 2012 and amended June 22, 2012), and (iii) all of our current directors and current executive officers as a group. The following table has been compiled based solely upon the information furnished to us by the foregoing persons. Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. In general, a person is deemed to be a beneficial owner of any equity security that such person has the right to acquire within 60 days of a determination date.

 

Name of Beneficial Owner

   Number of Shares
Owned
     Assuming  Full
Conversion(1)
    Percentage of
Outstanding Shares
     Percentage of Total Votes  

Directors and Named
Executive Officers:    

   Class A
Common
Stock
     Class B
Common
Stock
     Class A
Common
Stock
    Class A
Common
Stock
    Class B
Common
Stock
     No
Conversion
     If Fully
Converted
 

Laurie A. Bebo

     —           —           —          *        *         *         *   

Alan Bell(2)

     34,668         —           34,668        *        *         *         *   

Derek H.L. Buntain(2)

     79,028         80         79,114        *        *         *         *   

David J. Hennigar (2) (3) (4)

     39,290         —           39,290        *        *         *         *   

Malen S. Ng(2)

     34,064         —           34,064        *        *         *         *   

Melvin A. Rhinelander(2)(5)

     37,528         —           37,528        *        *         *         *   

Michael J. Spector(2)

     33,868         —           33,868        *        *         *         *   

Charles H. Roadman II, MD(2)

     33,868         —           33,868        *        *         *         *   

John Buono(6)

     48,135         —           48,135        *        *         *         *   

Walter A. Levonowich(7)

     20,868         —           20,868        *        *         *         *   

Mary T. Zak-Kowalczyk(8)

     14,068         —           14,069        *        *         *         *   

All directors & executive officers as a group (11 persons)

     375,385         80         375,471 (9)      1.8     *         *         1.6

 

 * Less than 1%.
(1) See footnote 2 in the table under “Common Stock Ownership of Management and Certain Beneficial Owners—Security Ownership of Certain Beneficial Owners.”
(2) Includes 32,668 shares of Class A common stock the director has the right to acquire through the exercise of options, 6,666 of which become exercisable within 60 days.
(3) See footnote 4 in the table under “Common Stock Ownership of Management and Certain Beneficial Owners—Security Ownership of Certain Beneficial Owners.”
(4) Includes 6,622 shares of Class A common stock pledged as partial security for a line of credit at the Bank of Montreal, Halifax, Nova Scotia, Canada.
(5) Includes 2,000 shares of Class A common stock held jointly with his spouse, and 2,860 shares of Class A common stock held as custodian for Mr. Rhinelander’s minor children.
(6) Includes 40,135 shares of Class A common stock Mr. Buono has the right to acquire through the exercise of stock options and 8,000 shares of Class A common stock held jointly with his spouse, who is a partner in the law firm of Quarles & Brady LLP.
(7) Includes 20,068 shares of Class A common stock Mr. Levonowich has the right to acquire through the exercise of stock options.
(8) Includes 12,734 shares of Class A common stock Ms. Zak-Kowalczyk has the right to acquire through the exercise of stock options.
(9) Includes 301,613 shares of Class A common stock directors and executive officers have the right to acquire through the exercise of options, 46,662 of which become exercisable within 60 days.

 

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DISSENTERS’ RIGHTS

Under NRS Chapter 92A, holders of Class A common stock are not entitled to any dissenters’ rights with respect to the merger.

Shares of Class B common stock held by a stockholder who did not vote in favor of the merger and who has properly demanded and perfected dissenters’ rights pursuant to the applicable provisions of NRS Chapter 92A, will not be converted into or be exchangeable for the right to receive the Class B per share merger consideration, but instead such holder will be entitled to payment of the fair value of such shares in accordance with the provisions of NRS Chapter 92A, unless and until such holder will have failed to perfect or will have effectively withdrawn or lost rights to receive the fair value of such shares of Class B common stock under NRS Chapter 92A. If any dissenting stockholder will have failed to perfect or will have effectively withdrawn or lost such right, such holder’s shares of Class B common stock will thereupon be treated as if they had been converted into and become exchangeable for the right to receive, as of the effective time, the Class B per share merger consideration, without any interest thereon.

The relevant provisions of NRS Chapter 92A (NRS Sections 92A.300 to 92A.500) are included as Annex E to this document. You are encouraged to read the provisions carefully and in their entirety.

NRS Chapter 92A requires that before the vote on the merger agreement is taken at the special meeting, any dissenting stockholder must deliver to the Company written notice of his/her intent to demand payment if the stockholders vote to approve the merger agreement. Any dissenting stockholder who submits a notice of intent to dissent cannot vote any of his/her shares in favor of approval of the merger agreement.

If the merger agreement is approved at the special meeting, within 10 days following the effective date of the merger, the Company will send written dissenters’ notice (“Notice”) containing the information required by NRS Chapter 92A, including information about where demand for payment must be sent and when and where share certificates must be deposited, if applicable, to all stockholders entitled to the rights of dissenting stockholders.

After receipt of Notice, if a stockholder chooses to proceed with the dissent, the stockholder must demand payment, certify that he, she or the beneficial owner on whose behalf he or she is dissenting, was a beneficial owner before the date required in the Notice, and deposit the certificates, if any, as provided in the Notice. If a stockholder chooses not to proceed with the dissent, the stockholder must provide written notice by the date specified in the Notice. Any stockholder who fails to provide such notice may not thereafter choose not to proceed without the written consent of the Company.

If the procedure set forth in NRS Chapter 92A, and highlighted above, is followed, the Company must provide fair value for the dissenting stockholder’s shares of Class B common stock. Within 30 days of receiving payment, a dissenting stockholder can object to the Company’s determination of the fair value of the dissenting stockholder’s shares of Class B common stock and demand in writing an amount based on his/her estimate of the fair value of the dissenting stockholder’s shares of Class B common stock and the amount of interest due. If the correct amount remains unsettled, the Company must initiate judicial proceeding within 60 days of receipt of the dissenting stockholder’s demand letter.

If you desire to exercise your dissenters’ rights, you must not vote for approval of the merger agreement and must strictly comply with the procedures set forth in NRS Chapter 92A. Failure to take any required step in connection with the exercise of dissenters’ rights will result in the termination or waiver of such rights.

Moreover, due to the complexity of the procedures for exercising dissenters’ rights, stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel.

 

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MARKET PRICE AND DIVIDEND INFORMATION

The Class A common stock is currently publicly traded on the NYSE under the symbol “ALC.” The following table sets forth the high and low sales prices per common share on the NYSE for the periods indicated.

 

Fiscal Year

   High     Low  

2011:

    

First Quarter

   $ 19.60      $ 15.36   

Second Quarter

   $ 19.61      $ 15.94   

Third Quarter

   $ 17.21      $ 11.16   

Fourth Quarter

   $ 15.22      $ 12.00   

2012:

    

First Quarter

   $ 17.54      $ 14.69   

Second Quarter

   $ 17.25      $ 12.64   

Third Quarter

   $ 14.06      $ 7.01   

Fourth Quarter

   $ 9.75      $ 7.52   

2013:

    

First Quarter (as of [            ])

   $ [           $ [        

The Company paid the following dividends per share on the Class A common stock and Class B common stock:

 

     2012      2011  

First Quarter

   $ 0.10           

Second Quarter

   $ 0.10       $ 0.10   

Third Quarter

           $ 0.10   

Fourth Quarter

           $ 0.10   
  

 

 

    

 

 

 
   $ 0.20       $ 0.30   

The Company has not declared or paid a dividend in 2013. We do not expect to declare or pay any further dividends prior to the merger and, under the terms of the merger agreement and the credit agreement, are generally prohibited from so doing.

On February 25, 2013, the last full trading day prior to the public announcement of the terms of the merger, the reported closing sales price per share of Class A common stock on the NYSE was $9.70. The $12.00 to be paid for each share of Class A common stock in the merger represents a premium of approximately 24% to the closing price on February 25, 2013. On [            ], 2013, the closing price per share was $[    ]. You are encouraged to obtain current market quotations for shares of Company common stock in connection with voting your shares of Company common stock.

As of [            ], 2013, there were approximately [            ] record holders of shares of Class A common stock and approximately [            ] record holders of shares of Class B common stock.

 

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STOCKHOLDER PROPOSALS AND NOMINATIONS

Inclusion of Proposals in Our Proxy Statement and Proxy Card Under the SEC’s Rules

A stockholder of the Company who satisfied the requirements of the SEC and wished to submit a proposal to be considered for inclusion in the Company’s proxy materials for the Company’s 2013 annual meeting of stockholders was required to send such proposal to the Company Secretary at W140 N8981 Lilly Road, Menomonee Falls, WI 53051. Under the SEC’s rules, such proposal must have been received by the Company no later than February 22, 2013 (unless the date of our 2013 annual meeting of stockholders is more than 30 days before or after July 2, 2013, in which case the proposal must be received a reasonable time before we begin to print and send our proxy materials).

Bylaw Requirements for Stockholder Submission of Nominations and Proposals

Pursuant to the Company’s Amended and Restated Bylaws, in order for any matter not included in the Company’s proxy materials for the 2013 annual meeting of stockholders to be brought before the meeting by a stockholder of the Company entitled to vote at the meeting, including, but not limited to, the nomination of a person for election as a director, the stockholder must give timely written notice of that matter to the Company Secretary. To be timely, the notice must be delivered to or mailed and received no earlier than April 18, 2013 and no later than May 13, 2013, unless the date of our 2013 annual meeting of stockholders is not within 30 days before or 30 days after July 2, 2013, in which case for notice by the stockholder to be timely notice must be so delivered or mailed and received not later than 15 days following the earlier of the date on which notice of the annual meeting was mailed to stockholders or the date on which public disclosure of the annual meeting is first made. The Chairman of the annual meeting may exclude matters that are not properly presented in accordance with these requirements.

If the merger is completed, the Company does not expect to hold its 2013 annual meeting of stockholders.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Exchange Act. We file reports, proxy statements and other information with the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s Public Reference Section at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website, located at www.sec.gov, that contains reports, proxy statements and other information regarding companies and individuals that file electronically with the SEC.

You also may obtain free copies of the documents the Company files with the SEC by going to the “Investor Relations” section of our website at www.alcco.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and therefore is not incorporated by reference.

The information contained in this proxy statement speaks only as of the date indicated on the cover of this proxy statement unless the information specifically indicates that another date applies.

Statements contained in this proxy statement, or in any document incorporated in this proxy statement by reference, regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” information into this proxy statement. This means that we can disclose important information by referring to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this proxy statement. This proxy statement and

 

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the information that we later file with the SEC may update and supersede the information incorporated by reference. Similarly, the information that we later file with the SEC may update and supersede the information in this proxy statement. We also incorporate by reference into this proxy statement the following documents filed by us with the SEC under the Exchange Act and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the special meeting:

 

   

our Annual Report on Form 10-K for the fiscal year ended December 31, 2011;

 

   

our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012;

 

   

our proxy statement filed on March 23, 2012 and amended on June 22, 2012; and

 

   

our Current Reports on Form 8-K filed on October 19, 2012, January 7, 2013 and February 26, 2013.

Notwithstanding the foregoing, information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K, including the related exhibits, is not incorporated by reference in this proxy statement.

We undertake to provide without charge to each person to whom a copy of this proxy statement has been delivered, upon request, by first class mail or other equally prompt means, within 1 business day of receipt of the request, a copy of any or all of the documents incorporated by reference into this proxy statement, other than the exhibits to these documents, unless the exhibits are specifically incorporated by reference into the information that this proxy statement incorporates.

Requests for copies of our filings should be directed to Assisted Living Concepts, Inc., W140 N8981 Lilly Road, Menomonee Falls, WI 53051, Attention: Corporate Secretary, and should be made at least 5 business days before the date of the special meeting in order to receive them before the special meeting.

The proxy statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is not lawful to make any offer or solicitation in that jurisdiction. The delivery of this proxy statement should not create an implication that there has been no change in our affairs since the date of this proxy statement or that the information herein is correct as of any later date.

You should rely only on the information contained in this proxy statement. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement does not extend to you. You should not assume that the information contained in this proxy statement is accurate as of any date other than the date of this proxy statement, unless the information specifically indicates that another date applies. The mailing of this proxy statement to our stockholders does not create any implication to the contrary.

Presentation of Comprehensive Income

The Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This amendment of the Accounting Standards Codification (“ASC”) allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the

 

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statement of changes in stockholders’ equity. The amendments to the ASC in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. This ASU must be applied retrospectively. The amendments to the ASC in this ASU were effective for us for fiscal years and interim periods within those years, beginning after December 15, 2011. We adopted this standard as of January 1, 2012 and presented net income and other comprehensive income in two separate statements in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2012 and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012. The table below reflects the retrospective application of this guidance for each of the three years ended December 31, 2011. The retrospective adoption of this accounting standard update did not have an impact on ALC’s consolidated financial position, results of operations, or cash flows, as it only required a change in the format of its current presentation of comprehensive income.

By including the table below to reflect the impact of the adoption of ASU 2011-05 on previously issued financial statements, we may incorporate these financial statements by reference into this proxy statement. The information in the table below was previously included on the Consolidated Statements of Stockholders’ Equity and in the Notes to Consolidated Financial Statements that were part of the financial statements included in our 2011 Annual Report on Form 10-K filed on March 12, 2012. The table below is intended to reflect the separate presentation of the Consolidated Statements of Comprehensive Income that would have followed our Consolidated Statements of Operations in our 2011 Annual Report on Form 10-K had ASU 2011-05 been effective as of that period. The table below does not change or update any disclosures contained in our 2011 Annual Report on Form 10-K. The table below should be read in conjunction with our 2011 Annual Report on Form 10-K and our subsequent filings with the SEC, including our Quarterly Report on Form 10-Q for the quarterly period ended May 15, 2012, our Quarterly Report on Form 10-Q for the quarterly period ended August 8, 2012 and our Quarterly Report on Form 10-Q for the quarterly period ended November 8, 2012.

ASSISTED LIVING CONCEPTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 

     Year Ended December 31,  
     2011     2010      2009  

Net income/(loss)

   $ 24,360        $16,484       $ (155

Other comprehensive income/(loss):

       

Unrealized gains on investments, net of tax expense of $125, $305 and $44 in 2011, 2010 and 2009, respectively

     182        500         63   

Reclassification of realized gains on sales of investments to earnings, net of tax expense of $309 in 2011

     (502     —           —     

Unrealized gains/(losses) on swap derivatives to earnings, net of tax expense/(benefit) of $105 and $(53) in 2010 and 2009, respectively

     —          170         (86

Reclassification of net loss on swap derivatives to earnings, net of tax benefit of $349 in 2011

     571        —           —     

Other-than-temporary loss on investments, net of tax benefit of $765 in 2010

     —          1,247         —     
  

 

 

   

 

 

    

 

 

 

Total comprehensive income/(loss)

   $ 24,611      $ 18,401      $ (178
  

 

 

   

 

 

    

 

 

 

 

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ANNEX A

EXECUTION VERSION

 

 

 

AGREEMENT AND PLAN OF MERGER

among

AID HOLDINGS, LLC,

AID MERGER SUB, LLC

and

ASSISTED LIVING CONCEPTS, INC.

dated as of

February 25, 2013

 

 

 

 


Table of Contents

TABLE OF CONTENTS

 

         Page  
ARTICLE 1 THE MERGER      A-1   
      Section 1.1.  

The Merger

     A-1   
      Section 1.2.  

Closing

     A-1   
      Section 1.3.  

Effective Time

     A-2   
      Section 1.4.  

Effects of the Merger

     A-2   
      Section 1.5.  

Articles of Incorporation

     A-2   
      Section 1.6.  

Bylaws

     A-2   
      Section 1.7.  

Officers and Directors

     A-2   
      Section 1.8.  

Effect on Capital Stock

     A-2   
      Section 1.9.  

Company Tandem Stock Options/Stock Appreciation Rights

     A-3   
      Section 1.10.  

Certain Adjustments

     A-4   
ARTICLE 2 CONVERSION OF SHARES      A-4   
      Section 2.1.  

Paying Agent

     A-4   
      Section 2.2.  

Payment Procedures

     A-4   
      Section 2.3.  

Undistributed Merger Consideration

     A-5   
      Section 2.4.  

No Liability

     A-5   
      Section 2.5.  

Investment of Merger Consideration

     A-5   
      Section 2.6.  

Lost Certificates

     A-5   
      Section 2.7.  

Withholding Rights

     A-5   
      Section 2.8.  

Stock Transfer Books

     A-5   
      Section 2.9.  

Dissenting Shares

     A-6   
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF COMPANY      A-6   
      Section 3.1.  

Organization and Qualification

     A-6   
      Section 3.2.  

Authorization; Board Approval

     A-7   
      Section 3.3.  

No Violation

     A-7   
      Section 3.4.  

Capitalization

     A-8   
      Section 3.5.  

Subsidiaries

     A-8   
      Section 3.6.  

Filings with the SEC; Financial Statements; No Undisclosed Liabilities; Sarbanes-Oxley Act

     A-9   
      Section 3.7.  

Proxy Statement

     A-10   
      Section 3.8.  

Absence of Certain Changes

     A-10   
      Section 3.9.  

Litigation

     A-10   
      Section 3.10.  

Laws and Orders

     A-11   
      Section 3.11.  

Licenses and Permits

     A-11   
      Section 3.12.  

Regulatory Matters

     A-11   
      Section 3.13.  

Property; Title; Liens

     A-11   
      Section 3.14.  

Tax Matters

     A-13   
      Section 3.15.  

Environmental Matters

     A-14   
      Section 3.16.  

Intellectual Property

     A-14   
      Section 3.17.  

Employee Benefits

     A-15   
      Section 3.18.  

Certain Contracts

     A-17   
      Section 3.19.  

Labor Relations

     A-18   
      Section 3.20.  

Insurance

     A-19   
      Section 3.21.  

Board Approval and Recommendation

     A-19   
      Section 3.22.  

Opinion of Financial Advisor

     A-19   
      Section 3.23.  

No Brokers or Finders

     A-20   
      Section 3.24.  

Anti-Takeover Provisions

     A-20   

 

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Table of Contents
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT      A-20   
      Section 4.1.  

Organization and Qualification

     A-20   
      Section 4.2.  

Authorization

     A-20   
      Section 4.3.  

No Violation

     A-20   
      Section 4.4.  

Financing

     A-21   
      Section 4.5.  

Proxy Statement

     A-22   
      Section 4.6.  

Litigation

     A-22   
      Section 4.7.  

Capitalization of Merger Sub

     A-22   
      Section 4.8.  

Solvency

     A-22   
      Section 4.9.  

Guaranty

     A-23   
      Section 4.10.  

No Brokers or Finders

     A-23   
      Section 4.11.  

Ownership of Company Common Stock

     A-23   
      Section 4.12.  

Certain Arrangements

     A-23   
ARTICLE 5 COVENANTS RELATING TO CONDUCT OF BUSINESS      A-23   
      Section 5.1.  

Covenants of Company

     A-23   
      Section 5.2.  

Proxy Statement; Company Stockholders Meeting

     A-26   
      Section 5.3.  

Access to Information

     A-27   
      Section 5.4.  

Cooperation; Best Efforts; Transaction Litigation

     A-27   
      Section 5.5.  

Acquisition Proposals; Change in Recommendation

     A-29   
      Section 5.6.  

Financing

     A-31   
      Section 5.7.  

Financing Cooperation

     A-32   
      Section 5.8.  

Indemnification; Exculpation; Insurance

     A-34   
      Section 5.9.  

Employee Benefits

     A-36   
      Section 5.10.  

Contact with Customers and Suppliers

     A-37   
      Section 5.11.  

Healthcare Permits

     A-37   
      Section 5.12.  

Public Announcements

     A-37   
      Section 5.13.  

Confidentiality

     A-37   
      Section 5.14.  

Stock Exchange Listing

     A-37   
      Section 5.15.  

Section 16 Matters

     A-37   
      Section 5.16.  

Resignations

     A-38   
      Section 5.17.  

Takeover Statutes

     A-38   
ARTICLE 6 CONDITIONS TO THE MERGER      A-38   
      Section 6.1.  

Conditions to Each Party’s Obligation to Effect the Merger

     A-38   
      Section 6.2.  

Additional Conditions to the Obligations of Parent and Merger Sub

     A-38   
      Section 6.3.  

Additional Conditions to the Obligations of Company

     A-39   
ARTICLE 7 TERMINATION      A-39   
      Section 7.1.  

Termination

     A-39   
      Section 7.2.  

Notice of Termination; Effect of Termination

     A-41   
      Section 7.3.  

Termination Fees

     A-41   
ARTICLE 8 MISCELLANEOUS      A-44   
      Section 8.1.  

No Other Representations and Warranties

     A-44   
      Section 8.2.  

Non-Survival of Representations, Warranties and Agreements

     A-44   
      Section 8.3.  

Notification

     A-44   
      Section 8.4.  

Expenses

     A-45   
      Section 8.5.  

Notices

     A-45   
      Section 8.6.  

Amendment

     A-46   
      Section 8.7.  

Waiver

     A-46   
      Section 8.8.  

Entire Agreement; No Third Party Beneficiaries

     A-46   
      Section 8.9.  

Assignment; Binding Effect

     A-46   
      Section 8.10.  

Governing Law; Consent to Jurisdiction; Waiver of Jury Trial

     A-47   

 

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Table of Contents
      Section 8.11.  

Severability

     A-47   
      Section 8.12.  

Enforcement of Agreement

     A-47   
      Section 8.13.  

Counterparts

     A-48   
      Section 8.14.  

Headings

     A-48   
      Section 8.15.  

Interpretation

     A-48   
      Section 8.16.  

Definitions

     A-49   

 

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Table of Contents

INDEX OF DEFINED TERMS

 

Defined Term

   Section  

2012 Company 10-K

     7.1(j)   

Acquisition Proposal

     8.16(a)   

Affiliates

     8.16(b)   

Agreement

     Preamble   

Articles of Merger

     1.3   

Book-Entry Shares

     8.16(c)   

Business Day

     8.16(d)   

Capitalization Date

     3.4   

Certificate of Merger

     1.3   

Certificates

     8.16(e)   

Change in Recommendation

     5.5(c)   

Class A Common Stock

     1.8(a)   

Class A Merger Consideration

     1.8(a)   

Class B Common Stock

     1.8(b)   

Class B Merger Consideration

     1.8(b)   

Closing

     1.2   

Closing Date

     1.2   

Code

     1.9(c)   

Company

     Preamble   

Company Acquisition Agreement

     5.5(a)   

Company Board

     Recitals   

Company Common Stock

     1.8(b)   

Company Contract

     3.18(a)   

Company Disclosure Letter

     Article 3   

Company Group

     7.3(g)   

Company Permits

     3.11   

Company SEC Reports

     3.6(a)   

Company Stockholder Approvals

     3.2   

Company Stockholders Meeting

     5.2(b)   

Company Stock Plan

     1.9(a)   

Company Tandem Options/SARs

     1.9(a)   

Company Tandem Options/SARs Consideration

     1.9(a)   

Company Termination Fee

     7.3(b)   

Confidentiality Agreement

     5.13   

Contract

     3.3(a)   

DLLCA

     1.3   

Dissenting Shares

     2.9   

DOJ

     5.4(c)   

Effective Time

     1.3   

Employee Benefit Plan Company SEC Reports

     3.17(j)   

Employee Benefit Plans

     3.17(a)   

Environmental Laws

     8.16(f)   

ERISA

     3.17(b)   

ERISA Affiliate

     3.17(e)   

Exchange Act

     3.3(b)   

Excluded Class A Holder

     8.16(g)   

Existing D&O Policies

     5.8(b)   

Existing Plans

     5.9(a)   

 

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Table of Contents

Expense Reimbursement

     7.3(a)   

Facility

     8.16(h)   

Financing

     4.4(b)   

Financing Letter

     4.4(b)   

Financing Sources

     5.7(a)(i)   

FTC

     5.4(c)   

GAAP

     3.6(b)   

Governmental Entity

     3.3(b)   

GT Report

     7.1(j)   

Guarantor

     Recitals   

Guaranty

     Recitals   

Hazardous Substance

     8.16(i)   

Holdco

     4.7   

HSR Act

     3.3(b)   

Improvements

     3.13(d)   

Indemnified Parties

     5.8(a)   

Intellectual Property Rights

     8.16(j)   

IRS

     3.17(c)   

Law

     3.3(a)   

Leased Real Property

     3.13(a)   

Lien

     8.16(k)   

Management Agreement

     8.16(l)   

Material Adverse Effect

     8.16(m)   

Material Parent Healthcare Permits

     8.16(n)   

Merger

     Recitals   

Merger Consideration

     8.16(o)   

Merger Sub

     Preamble   

NRS

     8.16(p)   

Occupancy Agreements

     8.16(q)   

Order

     3.3(a)   

Owned Real Property

     3.13(a)   

Parent

     Preamble   

Parent Group

     7.3(g)   

Parent Healthcare Permits

     8.16(r)   

Parent Material Adverse Effect

     8.16(s)   

Parent Termination Fee

     7.3(c)   

Paying Agent

     2.1   

Permitted Liens

     3.13(h)   

Person

     8.16(t)   

Preferred Stock

     3.4   

Proposed Debt Financing

     5.7(a)   

Proxy Statement

     5.2(a)   

Real Estate Lease Documents

     3.13(a)   

Real Property

     3.13(a)   

Recommendation

     3.21   

Regulatory Law

     8.16(u)   

Representatives

     5.5(a)   

Required Opinion

     8.16(v)   

Requisite Stockholder Approval

     3.2   

SEC

     3.6(a)   

Securities Act

     3.6(a)   

 

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Table of Contents

Solvent

     4.8   

Special Committee

     Recitals   

Specified Indebtedness

     8.16(w)   

Subsidiary

     8.16(x)   

Superior Proposal

     8.16(y)   

Surviving Corporation

     1.1   

Takeover Statutes

     5.5(a)   

Taxes

     8.16(z)   

Tax Return

     8.16(aa)   

Termination Date

     7.1(b)   

Third Party Occupancy Agreement

     3.13(b)(ii)(B)   

Transaction Litigation

     5.4(e)   

Unaffiliated Stockholder Approval

     3.2   

Voting Agreement

     Recitals   

WARN Act

     3.19(c)   

 

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of February 25, 2013 by and among Aid Holdings, LLC, a Delaware limited liability company (“Parent”), Aid Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of Parent (“Merger Sub”), and Assisted Living Concepts, Inc., a Nevada corporation (“Company”). Capitalized terms used but not defined in the context in which they are used shall have the respective meanings assigned to such terms in Section 8.16.

WHEREAS, the parties hereto desire to enter into a transaction whereby Merger Sub will merge with and into Company, with Company surviving that merger on the terms and subject to the conditions set forth in this Agreement (the “Merger”);

WHEREAS, the Special Committee (the “Special Committee”) of the Board of Directors of Company (the “Company Board”) and the Company Board (acting upon the affirmative recommendation of the Special Committee) have adopted and approved this Agreement, the Merger and the other transactions contemplated hereby;

WHEREAS, the sole member of Parent and the sole member of Merger Sub have adopted and approved this Agreement, the Merger and the other transactions contemplated hereby;

WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition to the willingness of Company to enter into this Agreement, the Guarantor (as defined in the Guaranty) (the “Guarantor”) is entering into a guaranty in favor of Company (the “Guaranty”), pursuant to which, subject to the terms and conditions contained therein, the Guarantor is guaranteeing the payment obligations of Parent and Merger Sub in connection with this Agreement;

WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition to the willingness of Parent and Merger Sub to enter into this Agreement, Thornridge Holdings Limited is entering into a voting agreement with Parent (the “Voting Agreement”), pursuant to which, Thornridge Holdings Limited is agreeing to vote all of the shares of Company Common Stock owned by it in favor of the Requisite Stockholder Approval at the Company Stockholders Meeting; and

WHEREAS, Parent, Merger Sub and Company desire to make certain representations, warranties, covenants and agreements in connection with, and to prescribe certain conditions to, the transactions contemplated hereby, including the Merger.

NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements set forth in this Agreement, and intending to be legally bound hereby, the parties hereto agree as follows:

ARTICLE 1

THE MERGER

Section 1.1.    The Merger. Subject to the terms and conditions hereof, at the Effective Time, Merger Sub shall merge with and into Company in accordance with the NRS, whereupon the separate existence of Merger Sub shall cease, and Company shall be the surviving corporation (the “Surviving Corporation”).

Section 1.2.    Closing. The closing of the Merger (the “Closing”) shall occur at 10:00 a.m., local time, on the first Business Day after the satisfaction or waiver of the conditions set forth in Article 6, other than those conditions that by their nature are intended to be satisfied at the Closing (but subject to the satisfaction or waiver of such conditions), or such other time and date as Parent and Company shall agree in writing, unless this

 

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Table of Contents

Agreement has theretofore been terminated pursuant to its terms (the actual time and date of the Closing is referred to as the “Closing Date”). The Closing shall be held at the offices of Cravath, Swaine & Moore LLP, Worldwide Plaza, 825 Eighth Avenue, New York, New York 10019 or such other place as Parent and Company shall agree.

Section 1.3.    Effective Time. At the Closing, Company and Merger Sub shall (i) cause the articles of merger (the “Articles of Merger”), in such form as is required by the NRS, to be executed, acknowledged and filed with the Secretary of State of the State of Nevada and make all other filings or recordings required by the NRS in connection with the Merger and (ii) cause the certificate of merger (the “Certificate of Merger”), in such form as is required by the Delaware Limited Liability Company Act (the “DLLCA”), to be executed, acknowledged and filed with the Secretary of State of the State of Delaware and make all other filings or recordings required by the DLLCA in connection with the Merger. The Merger shall become effective at such time as the Articles of Merger are duly filed with the Secretary of State of the State of Nevada and the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware, or at such other time as Merger Sub and Company shall agree and specify in the Articles of Merger and the Certificate of Merger (the “Effective Time”).

Section 1.4.    Effects of the Merger. The Merger shall have the effects set forth herein and in the applicable provisions of the NRS and the DLLCA. Without limiting the generality of the foregoing and subject thereto, at the Effective Time, all the real estate, other property, rights, privileges, immunities, powers and franchises of Company and Merger Sub shall vest in the Surviving Corporation without reversion or impairment and all debts, liabilities and duties of Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

Section 1.5.    Articles of Incorporation. Subject to Section 92A.250 of the NRS or any other provision of applicable Law, the Amended and Restated Articles of Incorporation of Company, as in effect immediately prior to the Effective Time, shall be amended and restated as set forth in a form to be reasonably agreed by Parent and Company, and the Amended and Restated Articles of Incorporation of Company, as so amended, shall at the Effective Time be the articles of incorporation of the Surviving Corporation, until thereafter amended in accordance with the provisions thereof and applicable Law.

Section 1.6.    Bylaws. The Amended and Restated Bylaws of Company, as in effect immediately prior to the Effective Time, shall be amended and restated as set forth in a form to be reasonably agreed by Parent and Company, and the Amended and Restated Bylaws of Company, as so amended, shall at the Effective Time be the bylaws of the Surviving Corporation, until thereafter amended in accordance with the provisions thereof, the provisions of the articles of incorporation of the Surviving Corporation and applicable Law.

Section 1.7.    Officers and Directors. The officers of Company immediately prior to the Effective Time shall at the Effective Time be the officers of the Surviving Corporation, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Subject to applicable Law, each of the parties hereto shall take all necessary action to ensure that the board of directors of the Surviving Corporation effective as of, and immediately following, the Effective Time shall consist of such persons designated in writing by Parent prior to the Effective Time to be the board of directors of the Surviving Corporation, to serve in such capacity until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

Section 1.8.    Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Company Common Stock or any shares of capital stock of Merger Sub:

(a) Each share of Class A common stock, $0.01 par value per share, of Company (“Class A Common Stock”) issued and outstanding immediately prior to the Effective Time (other than shares canceled pursuant to

 

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Section 1.8(d)) shall be converted into the right to receive cash in the amount of $12.00, without interest (the “Class A Merger Consideration”).

(b) Each share of Class B common stock, $0.01 par value per share, of Company (“Class B Common Stock” and, collectively with the Class A Common Stock, “Company Common Stock”) issued and outstanding immediately prior to the Effective Time (other than shares canceled pursuant to Section 1.8(d) and Dissenting Shares as provided in Section 2.9) shall be converted into the right to rece