EXHIBIT 13
THE AMENDED AND RESTATED ESCROW AGREEMENT
This Amended and Restated Escrow Agreement (this "Agreement") is dated
as of February 23, 1998, by and among Prometheus Senior Quarters, LLC (the
"Parent"), Prometheus Acquisition Corp. (the "Merging Corporation"), Kapson
Senior Quarters Corp. (the "Company"), Xxxxx Xxxxxx, Xxxxx X. Xxxxxx and Xxxx X.
Xxxxxx, d/b/a G.W.E. Partnership, (each, a "Partner", and collectively, the
"Partners") and Xxxxxx Trust and Savings Bank, an Illinois banking corporation
(the "Escrow Agent").
RECITALS
WHEREAS, Parent, Merging Corporation, Company, Partners and Escrow
Agent (collectively, the "Parties") entered into that certain Escrow Agreement,
dated as of September 30, 1997 (the "Prior Escrow Agreement") relating to an
Agreement and Plan of Merger, dated as of September 30, 1997 among Parent,
Merging Corporation and Company (the "Merger Agreement"), pursuant to which the
Merging Corporation was to merge with and into Company (the "Merger");
WHEREAS, Parent, Merging Corporation and Company amended and restated
the Merger Agreement as of February 23, 1998 (the "Restated Merger Agreement")
to provide for a tender offer by Merging Corporation for all of the outstanding
shares of Common Stock, par value $.0l per share and $2.00 convertible
exchangeable preferred stock of the Company;
WHEREAS, the Parties contemplate establishing an escrow to give Company
recourse in the event that the Partners or any Partner licensed to operate any
facility (each a "Facility" and collectively, the "Facilities") listed on
Exhibit A hereto, incorporated herein by this reference (but including only the
licensed portion of each facility if the entire facility is not licensed), were
to lose their or his operating certificate or cause any Facility to be without a
licensed operator (to the extent, for Facilities that have not yet received such
certificates, that such operating certificates were obtained) due to a breach by
any of the Partners of his respective obligations (a "License Loss Breach")
under (i) an employment agreement with the Company, (ii) any Management
Agreement relating to a Facility, (iii) the Operating Agreement relating to a
Facility, or (iv) the Letter Agreement, dated as of September 30, 1997, as
amended and restated as of February 23, 1998, from Kapson Senior Quarters Corp.
to Prometheus Senior Quarters, LLC and Prometheus Acquisition Corp. (the "Escrow
Side Letter" and collectively, the "Ancillary Agreements");
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained herein, the Parties hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Restated Merger
Agreement.
2. APPOINTMENT OF ESCROW AGENT. Parent, Merging Corporation, Company
and Partners hereby appoint the Escrow Agent as the escrow agent under this
Agreement, and the Escrow Agent hereby accepts such appointment.
3. COMPENSATION. Parent shall compensate the Escrow Agent for its
services hereunder in an amount as is reasonable and customary for such
services.
4. ESTABLISHMENT OF ESCROW. The Parties agree that $6,000,000 of funds
(the "Consideration") relating to the acquisition by Parent of shares of Common
Stock of the Company from or controlled by the Partners (the "Shares") shall be
deposited into escrow so that the Escrow Agent may carry out the terms and
conditions of this Agreement. Simultaneously with the execution hereof the
Partners shall give the irrevocable instructions in the form set forth as
Exhibit B hereto, incorporated herein by this reference (the "Instructions") to
the Paying Agent (as defined in the Restated Merger Agreement) that the Paying
Agent shall transfer $6,000,000 in consideration for the Shares to the Escrow
Agent in the event that the Partners tender the Shares to Parent pursuant to the
Second Amended and Restated Stockholders Agreement dated as of February 23, 1998
between Parent and the Partners (the "Stockholders Agreement"). In the event
that (a) the Paying Agent does not obtain Shares sufficient to provide at least
$6,000,000 to the Escrow Agent and (b) Parent purchases Shares by exercising the
Stock Option (as defined in the Stockholders Agreement), then (1) Paying Agent
shall transfer to the Escrow Agent all proceeds from the tendered Shares and (2)
Parent shall transfer to the Escrow Agent from the proceeds of the Shares it
purchased under the Stock option the difference between $6,000,000 and the sum
transferred by the Paying Agent.
Subject to and in accordance with the terms and conditions hereof, the
Escrow Agent shall hold the Consideration in escrow and release amounts
therefrom to the Partners and/or Company in accordance with Section 5 hereof
(the "Transferees") without further action by the Partners.
The Escrow Agent agrees to hold the Consideration for the benefit of
the Transferees and to invest such Consideration, according to the instructions
that follow. Upon the receipt of written instructions from at least two of the
Partners, the Escrow Agent shall invest the Consideration in any Xxxxxxx Xxxxx
money fund investing in securities with an average maturity of less than two
years. Upon the written instructions of at least two of the Partners and the
Parent, the Escrow Agent shall otherwise invest the Consideration as such
instructions may direct. Any interest and other income resulting from such
investments shall be paid out to the Partners each quarter. As and when any
amounts invested as above are needed for disbursement as herein provided, the
Escrow Agent shall cause a sufficient amount of such investments to be sold or
otherwise converted into cash to make such disbursement. The Escrow Agent shall
not be held liable for any loss of income due to the liquidation of any
investment which the Escrow Agent, in its sole discretion and acting in good
faith, believes necessary to make payments or disbursements in accordance with
this Agreement.
5. ESCROW RELEASE INSTRUCTIONS. The Escrow Agent shall make payments of
Consideration to the Partners or the Company, as applicable, upon receipt of a
letter executed by each of the Partners and the Company (or by an Arbitrator
they selected under Section 14(c) below)
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specifying an amount of Consideration that it shall pay in the name of the
Partners and/or the Company.
6. SCOPE OF UNDERTAKING. The Escrow Agent's duties and responsibilities
in connection with this Agreement shall be limited to those set forth in this
Agreement. The Escrow Agent is not a principal, participant or beneficiary in
any transaction underlying this Agreement. The Escrow Agent shall not be liable
for any error in judgment, any act or omission, any mistake of law or fact, or
for anything it may do or refrain from doing in accordance with this Agreement,
except for its own willful misconduct or negligence. The Escrow Agent may rely
on, and shall not be liable for following the Escrow Release Instructions set
forth in Section 5 or any other instructions contained in any written notice,
instruction or request furnished to it hereunder or pursuant hereto and
reasonably believed by it to have been signed or presented by the proper Party
or Parties. The Escrow Agent shall be responsible for holding and releasing the
Consideration pursuant to this Agreement. Escrow Agent is not responsible or
liable in any manner whatsoever for the transaction or transactions requiring or
underlying the execution of this Agreement.
7. INDEMNIFICATION. Each of Parent, Merging Corporation, Company and
Partners, jointly and severally, hereby indemnifies the Escrow Agent against,
and holds the Escrow Agent harmless from, any and all expenses reasonably
suffered or incurred by the Escrow Agent in connection with or arising from or
out of this Agreement, except such acts or omissions as may result from any
breach of this Agreement by the Escrow Agent or its willful misconduct or
negligence.
8. NOTICES. Any notice or other communication required or permitted to
be given under this Agreement by any Party hereto shall be given to all other
Parties hereto and shall be considered as properly given if in writing and (a)
delivered by hand, (b) mailed by registered or certified mail, return receipt
requested and postage prepaid, or (c) sent by telecopier, in each case addressed
as follows:
If to Parent, to:
Prometheus Senior Quarters, LLC
x/x Xxxxxx Xxxxxx Xxxx Xxxxxx Xxxxxxxxx, X.X.X.
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx
and Xxxxx X. Xxxxx
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
3
Copy to:
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxxx X. Mechanic, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to Merging Corporation, to:
Prometheus Acquisition Corp.
x/x Xxxxxx Xxxxxx Xxxx Xxxxxx Xxxxxxxxx, X.X.X.
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxx
and Xxxxx X. Xxxxx
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Copy to:
Xxxxxxxx X. Mechanic, Esq.
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to any Partner, to:
G.W.E. Partnership
000 Xxxxxxxxx Xxxx Xxxxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: Xx. Xxxxx Xxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
4
Copy to:
Xxxxxx X. Xxxxxx, Esq.
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
If to Escrow Agent:
Xxxxxx Trust and Savings Bank
000 Xxxx Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxx Xxxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Delivery of any communication given in accordance herewith shall be effective
only upon actual receipt thereof by the Party or Parties to whom such
communication is directed. Any Party to this Agreement may change the address to
which communications hereunder are to be directed by giving written notice to
the other Party or Parties hereto in the manner provided in this Section 8.
9. RESIGNATION OR CHANGE IN ESCROW AGENTS. The Escrow Agent may resign
at any time by delivering written notice at least 30 days prior to the date upon
which such resignation is to become effective to the Parties, who hereby agree
to designate, by a written instrument delivered to the Escrow Agent, a successor
Escrow Agent. After the effective date of such resignation, the Escrow Agent
shall be under no further obligation to perform any of the duties of the Escrow
Agent under the terms of this Agreement other than to deliver the entire amount
of Consideration it then holds to a properly designated successor Escrow Agent.
Any successor Escrow Agent shall have all of the duties, powers, rights and
immunities conferred upon the Escrow Agent hereby. In addition, Parent may elect
at any time to transfer the responsibilities of Escrow Agent to the Paying
Agent, and Escrow Agent shall cooperate in such transfer of responsibilities.
10. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
choice of law principles.
11. ASSIGNMENT. This Agreement shall inure to the benefit of, and be
binding upon, the Parties and their respective heirs, devisees, executors,
administrators, personal representatives, successors, assigns, trustees and
receivers.
12. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, such term or provision shall be
5
ineffective to the extent of such invalidity or unenforceability without
rendering the remaining terms of this Agreement invalid or unenforceable. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
13. TERMINATION. This Agreement shall terminate upon (a) release of all
of the Consideration in accordance with Section 5 hereof and (b) unless the
Escrow Agent shall otherwise elect, full and final payment of all amounts
required to be paid to the Escrow Agent hereunder (whether fees, expenses, costs
or otherwise); provided, however, that in the event all such amounts required to
be paid to the Escrow Agent hereunder are not fully and finally paid prior to
termination, the provisions of Section 7 hereof shall survive the termination
hereof. This Agreement solely creates partial security for the obligations of
Partners pursuant to the Ancillary Agreements and does not limit the
availability of any remedy available to a Party by law or in equity pursuant to
any Ancillary Agreement of the Restated Merger Agreement.
14. PROPOSED INSTRUCTIONS AND DISPUTE RESOLUTION.
--------------------------------------------
(a) The Company and each of the Partners agree that they shall
execute a letter or letters to be delivered to the Escrow Agent under Section 5
on the earlier of the date that (i) a Replacement Operator (as defined in the
Escrow Side Letter) for each Facility has been installed and approved by the
necessary regulatory authorities in accordance with the Escrow Side Letter (in
which case all Consideration then in escrow shall be paid to the Partners); (ii)
the One Year No Fault Condition of the Escrow Side Letter (as defined in the
Escrow Side Letter) has been satisfied; (iii) there is a determination by an
Arbitrator that there has been a License Loss Breach (in which case an amount of
Consideration determined under Section 14(b), if any, shall be paid to the
Company); (iv) is the second (2nd) anniversary of the earlier to occur of the
Effective Time or December 31, 1998 if no claim related to a License Loss Breach
has been submitted to the Arbitrator prior thereto (in which case all
Consideration then in escrow shall be paid to the Partners) or (v) all claims
submitted to the Arbitrator by the second (2nd) anniversary of the earlier of
the Effective Time or December 31, 1998 have been resolved (in which case an
amount of Consideration determined under Section 14(b), if any, shall be paid to
the Company and any remaining Consideration shall be paid to the Partners).
(b) Any Party (other than the Escrow Agent) may submit escrow
release instructions to the other Parties for signature by the Company and all
of the Partners, and submission to the Escrow Agent for implementation. If any
Party fails to sign escrow release instructions presented to such Party, then
the presenting Party may submit such matter to arbitration within fifteen days
after such failure. The Arbitrator shall sign the escrow release instructions on
behalf of any Party, if he or she determines the escrow release instructions
appropriately should have been signed under Section 14(a). If any Party alleges
that there has been a License Loss Breach, the Arbitrator shall determine
whether there has been such a License Loss Breach and the financial damages
caused to Company by the License Loss Breach, based upon calculations of a
nationally recognized independent certified public accountant or valuation firm
jointly selected by Partners and Parent, or if no such independent valuation
firm can be agreed to by the Parties, selected by the
6
Arbitrator pursuant to Section 14(c) hereof (the "Accountant"), made on the
assumption that any Facility affected by a License Loss Breach would have
otherwise continued to be as profitable absent such change in status as it
previously had been. The Arbitrator shall determine the amount of Consideration
to be transferred to Company to pay for damages from a License Loss Breach, if
any, and shall give the Escrow Agent appropriate instructions as to such
transfer under Section 5. All claims of a License Loss Breach shall be submitted
to the Arbitrator by the second (2nd) anniversary of the Effective Time. After
the final claim of License Loss Breach has been resolved, the Arbitrator shall
give notice to the Escrow Agent under Section 14(a)(iv).
(c) The Arbitrator is authorized to award reasonable fees in
whole or in part, to any Party, if the Arbitrator determines that another Party
has acted unreasonably in the conduct of the arbitration or in rejecting any
settlement proposed by the Arbitrator, and the Parties shall be bound by any
such award.
(d) Any dispute in connection with or relating to this
Agreement shall be submitted to binding arbitration under the auspices and rules
of the American Arbitration Association. A neutral arbitrator (the "Arbitrator")
shall be jointly chosen by the Parties hereto. If a single, neutral arbitrator
cannot be agreed upon by the Parties within ten (10) business days, the
Commercial Panel of the American Arbitration Association (the "CPAAA") shall
select a single neutral arbitrator as the Arbitrator.
15. GENERAL. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement and any affidavit, certificate,
instrument, agreement or other document required to be provided hereunder (other
than the Certificate) may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same instrument. Unless the context shall otherwise require, the
singular shall include the plural and each pronoun in any gender shall include
all other genders. This Agreement, or any provision hereof, may be amended,
modified, waived or terminated only by written instrument duly signed by the
Parties.
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IN WITNESS WHEREOF, the Parties have executed this Agreement to be
effective as of the date first above written.
PROMETHEUS SENIOR QUARTERS, LLC
By: LF STRATEGIC REALTY
INVESTORS II L.P., its Sole Member
By: LAZARD FRERES REAL ESTATE INVESTORS,
L.L.C., its General Partner
By: /s/Xxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxx
Principal
PROMETHEUS ACQUISITION CORP.
By: /s/Xxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxxx
President
KAPSON SENIOR QUARTERS CORP.
By: /s/ Xxxxx Xxxxxx
-----------------------------------------
Name: Xxxxx Xxxxxx
Title: Chairman and Chief Executive Officer
G.W.E. PARTNERSHIP
/s/ Xxxxx Xxxxxx
--------------------------------------
Xxxxx Xxxxxx
/s/ Xxxxx X. Xxxxxx
--------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxx X. Xxxxxx
--------------------------------------
Xxxx X. Xxxxxx
XXXXXX TRUST AND SAVINGS BANK
By: /s/ Xxxxxx Xxxxxxx
______________________________________
Name: Xxxxxx Xxxxxxx
Title:
8
EXHIBIT A TO
ESCROW AGREEMENT
The Facilities:
1. An adult care facility with approximately 149 units, all or most of
which will be enriched housing units under construction at the site known as
Plainview Plaza Hotel, located at 000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxxx, Xxx Xxxx.
2. An approximately 200 bed adult care facility known as Senior
Quarters, located at 0000 Xxxxxxxxxxxxx Xxxx, Xxxxxxxxxx Xxxxx, Xxx Xxxx 00000.
3. An approximately 125 unit, 200 bed adult care facility known as
Senior Quarters, located at 000 Xxxxxxxx Xxxxxxxxx, Xxxxxx, Xxx Xxxx.
4. An approximately 79 bed adult care facility known as Town Gate
Manor, located at 000 Xxxxxxxx Xxxx, Xxxxxxxxx, Xxx Xxxx 00000.
5. An approximately 120 bed adult care facility known as Town Gate
East, located at 0000 Xxxx Xxxx Xxxx Xxxx, Xxxxxxxx, XxxXxxx 00000.
6. An approximately 144 unit, 166 bed adult care facility, all or most
of which will be enriched housing program units currently under construction to
be known as Senior Quarters, located at 00 Xxxxx Xxxx Xxxx, Xxxxx Xxxx Xxxxx,
Xxx Xxxx 00000.
7. An approximately 198 bed, 99 unit adult care facility known as
Senior Quarters located at 000 Xxxxxxx Xxxx, Xxxxxxxxxx Xxxxxxx, Xxx Xxxx 00000.
8. An approximately 200 bed adult care facility known as Senior
Quarters at East Northport, located at 00 Xxxxxxxx Xxxxx, Xxxx Xxxxxxxxx, Xxx
Xxxx 00000.
9. An approximately 200 bed adult care facility known a Senior
Quarters, located at 000 Xxx Xxxxxxxxxxx Xxxx, Xxxxxxxx Xxxxx, Xxx Xxxx 00000.
10. An approximately 200 bed adult care facility known as North Shore
Lodge (Senior Quarters) (Centereach I), located at 0000 Xxxxxxxxx Xxxxxxx,
Xxxxxxxxxx, Xxx Xxxx 00000.
11. An approximately 238 bed facility (with a license for 46 enriched
housing program beds) known as Greenpoint Senior Living, located at 000 Xxx
Xxxxxxxxx Xxxx, Xxxxxxxxx, Xxx Xxxx 00000.
12. An approximately 111 bed facility with approximately 105 enriched
housing program beds known as Castle Gardens, located at 0000 Xxxxxx Xxxxxxx
Xxxx, Xxxxxx, Xxx Xxxx 00000 (license pending).
A-1
13. An approximately 90-bed facility known as Senior Quarters
Wellspring, located at 000 Xxxxxxxxxx Xxxxxx Xxxxxxxxx, Xxxxxx, Xxx Xxxx 00000,
with a license application pending for 80 enriched housing beds.
14. Any adult care facility for which any Partner receives an operating
certificate prior to the Effective Time or for which a license application is
pending at the Effective Time which the Company (or an entity wholly-owned by
it) manages.
A-2
EXHIBIT B TO
ESCROW AGREEMENT
Xxxxx Xxxxxx
Xxxxx X. Xxxxxx
Xxxx X. Xxxxxx
G.W.E. Partnership
000 Xxxxxxxxx Xxxx Xxxxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
February 23, 1998
IBJ Xxxxxxxx Bank & Trust Company
Xxx Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
ATTN: Securities Processing Window Subcellar One
Dear Sir or Madam:
By this letter we hereby notify IBJ Xxxxxxxx Bank & Trust Company (the
"Paying Agent") that in the event that we tender to Prometheus Senior Quarters,
LLC, a Delaware limited liability company ("Investor") Common Stock of Kapson
Senior Quarters Corp. (the "Shares") pursuant to the terms and conditions of a
Second Amended and Restated Stockholders Agreement, dated as of February 23,
1998, between Investor and Xxxxx Xxxxxx, Xxxxx X. Xxxxxx and Xxxx X. Xxxxxx, you
are instructed to issue $6,000,000 (or such lesser amount of proceeds as are
derived from such tender) to Xxxxxx Trust and Savings Bank (the "Escrow Agent")
at the following address:
Xxxxxx Trust and Savings Bank
000 Xxxx Xxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxx Xxxxxxx
Re: Escrow for Kapson Senior Quarters Corp., Xxxxx Xxxxxx,
Xxxxx X. Xxxxxx and Xxxx X. Xxxxxx, d/b/a G.W.E. Partnership
The above instructions regarding the payment of consideration from the
Shares are irrevocable. Any remaining proceeds from the Shares may be paid as
specified by us herewith or in the future.
The undersigned will, upon request, execute and deliver any additional
documents deemed appropriate or necessary by the Paying Agent in connection
herewith.
B-1
The instructions contained herein shall be binding upon the successors,
assigns, heirs, executors, administrators and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned.
------------- --------------------------
Date Xxxxx Xxxxxx
------------- --------------------------
Date Xxxxx X. Xxxxxx
------------- --------------------------
Date Xxxx X. Xxxxxx
B-2
KAPSON SENIOR QUARTERS CORP.
February 23, 1998
PROMETHEUS SENIOR QUARTERS LLC
PROMETHEUS ACQUISITION CORP.
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Agreement and Plan of
Merger (the "Amended and Restated Merger Agreement") of even date herewith,
among Prometheus Senior Quarters LLC (the "Parent"), Prometheus Acquisition
Corp. (the "Merging Corporation"), and Kapson Senior Quarters Corp. (the
"Company"), pursuant to which Investor shall acquire Company pursuant to a
tender offer of all of the outstanding shares of the Company and the Merging
Corporation shall merge with and into the Company. Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed thereto in
the Amended and Restated Merger Agreement.
As an accommodation to the Parent and Merging Corporation, Xxxxx Xxxxxx, Xxxxx
X. Xxxxxx and Xxxx X. Xxxxxx (collectively, the "Partners") have agreed to
continue to operate certain of the Facilities (as defined in the Amended and
Restated Escrow Agreement) for a period of two (2) years, or upon
qualification of a person or entity to replace them as operators in accordance
with the following paragraph, whichever is earlier.
The Parent and Merging Corporation had agreed to endeavor to arrange for
Xxxxxx X. Xxxxxxx or some other entity, person or persons to replace all the
Partners except Xxxxx Xxxxxx as operators of the Facilities (the "Replacement
Operator") as soon as reasonably practicable following the execution of the
Prior Merger Agreement. The parties have formed Senior Quarters Operating
Corporation ("SQOC"), a New York corporation, and have agreed that Xxxxx
Xxxxxx and Xxxxxx X. Xxxxxxx will serve as the sole shareholders and officers
of SQOC (the "New Operating Entity"). The parties are in the process of
seeking regulatory approval of the New Operating Entity as the Replacement
Operator. If for any reason Xxxxxx X. Xxxxxxx cannot or will not serve as a
shareholder and officer of the New Operating Entity to operate the Facilities
along with Xxxxx Xxxxxx, the Parent and Merging Corporation will promptly
identify some other person who will serve as shareholder and officer of SQOC.
The Parent, Merging Corporation and Partners will use reasonable best efforts
to cause SQOC to be approved by the appropriate regulatory authorities as the
Replacement Operator. Once the Replacement Operator is installed and approved
by all necessary regulatory authorities to operate the Facilities (the
"Approval"), all Consideration (as defined in the Amended and Restated Escrow
Agreement) will be released from escrow in accordance with the Amended and
Restated Escrow Agreement entered into simultaneously herewith. If the New
Operating Entity fails to receive Approval as the Replacement Operator on or
before the first anniversary of the date that is the later of (i) the date the
Partners have taken in good faith all actions required of them to obtain such
Approval, or (ii) the Effective Time (but in no event later than December 31,
1998) and such failure is primarily
as a result of (i) the relationship or association of Lazard Freres Real
Estate Investors LLC ("LFREI") or any entity which it owns or controls with
any entity in the assisted living or adult care business, (ii) LFREI's failure
to take in good faith, or to cause any entity it owns or controls to take, in
good faith, any action reasonably required of it to effect such Approval, or
(iii) other improper acts or omissions of LFREI or any entity owned or
controlled by LFREI, the Consideration will also be released from such escrow
(the "One Year No Fault Condition"). If at the time the Consideration is
released from escrow the New Operating Entity has not received Approval as the
Replacement Operator, the Partners will use reasonable best efforts to obtain
such Approval.
This letter is sometimes referred to as the Escrow Side Letter. Please confirm
that this Escrow Side Letter correctly sets forth our agreement by signing a
counterpart copy where designated below.
Very truly yours,
KAPSON SENIOR QUARTERS CORP.
By: /s/ Xxxxx Xxxxxx
----------------------------
Title: Chairman and Chief Executive Officer
XXXXX XXXXXX
/s/ Xxxxx Xxxxxx
--------------------------------
XXXXX X. XXXXXX
/s/ Xxxxx X. Xxxxxx
---------------------------------
XXXX X. XXXXXX
/s/ Xxxx X. Xxxxxx
---------------------------------
AGREED:
PROMETHEUS SENIOR QUARTERS LLC
By: LF STRATEGIC REALTY
INVESTORS II L.P.,
its Sole Member
By: LAZARD FRERES REAL ESTATE PROMETHEUS ACQUISITION CORP.
INVESTORS L.L.C.,
its General Partner
By: /s/ Xxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxxxxx
-------------------------- --------------------------
Xxxxxx X. Xxxxxxx Xxxxxx X. Xxxxxxx
Principal President
