LAZARD FRERES REAL ESTATE
INVESTORS, L.L.C.
00 Xxxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, X.X. 00000
September 30, 1997
The Board of Directors
ARV Assisted Living, Inc.
000 Xxxxxxx Xxxxxx X-0
Xxxxx Xxxx, XX 00000
Gentlemen:
Lazard Freres Real Estate Investors, L.L.C. ("LFREI") is a party to a
Stockholders Agreement (the "Stockholders Agreement") with ARV
Assisted Living, Inc., (the "Company") dated as of July 14, 1997,
pursuant to which, among other matters, LFREI agreed not to own any
equity interest in any public or private company, the principal
business of which is the ownership, management, operation and
development of assisted living facilities (the "Non-Compete
Covenant"), unless 75% of the members of the Board of Directors of the
Company (other than the Investor Nominees (as such term is defined in
the Stockholders Agreement)) have consented to such ownership, (the
"Required Board Approval").
As you know, LFREI is considering making an investment in Kapson
Senior Quarters, Corp. (the "Kapson Investment"). The purpose of this
letter is to request a waiver from the Non-Compete Convenant specified
in Section 5.1 of the Stockholders Agreement with respect to the
potential Kapson transaction. It is our intention and we acknowledge
your reliance on this intention in granting the waiver contemplated
hereby, to cause Kapson to enter into the following arrangement.
As consideration for the agreement by the Board of Directors to waive
the Non-Compete Convenant with respect to the proposed Kapson
Investment, effective as of obtaining the Required Board approval, in
the form attached hereto as Exhibit A, and the receipt by the Company
of the required shareholder approval to increase LFREI's investment in
the Company up to 49.9%, in the event LFREI consummates the Kapson
transaction, LFREI agrees to the following (each of which shall
terminate at (i) the time of a Termination Event (as defined in the
Stockholders Agreement) or (ii) the time LFREI and its affiliates
collectively own less than 10% of the stock of Kapson):
1. CONSENT RIGHTS: After the closing of the Kapson Investment, LFREI
will not permit Kapson to and will cause Kapson to enter into an
agreement with ARV under which Kapson will agree not to, enter into
any new developments or acquisitions (other than those in its pipeline
at the closing of the Kapson Investment as disclosed in a schedule to
be delivered at the time) without the written consent of a majority of
the independent non-LFREI afflicted or appointed members of the ARV
Board of Directors, which consent may be withheld at the sold
discretion of those directors.
2. RIGHT OF FIRST OFFER: Without limiting the foregoing, ARV will have
a first right to negotiate management, lease and/or purchase
arrangements on terms commercially reasonable to both parties on any
new developments or acquisitions by Kapson, each right to be exercised
by ARV before Kapson enters into binding site contracts.
3. EXISTING FACILITIES AND DEVELOPMENTS: LFREI will seek in good faith
to negotiate with ARV for, leasing or management agreements, on
commercially reasonable and customary terms, of all existing or
planned facilities of Kapson including those in the above-described
"pipeline" (the "Existing Asset Option"). LFREI agrees it will not
enter into or permit Kapson or any of their respective affiliates to
enter into leasing or management arrangements on the existing
facilities (excluding sale leasebacks, so long as such sale leasebacks
would permit ARV to sublease or manage such facilities) other than
with ARV or controlled affiliates of Kapson.
ARV will have the option to sell development assets to Kapson at fair
market value with the right to leaseback the assets on terms as
described herein providing fair compensation to both parties.
4. OPTION: LFREI will grant to ARV (or to its shareholders, the
selection to be made at ARV's option provided mutual agreement of ARV
and LFREI that such purchase by ARV directly will not adversely affect
Xxxxxx'x tax and accounting status) the right to acquire from LFREI
shares representing up to 19.9% of the stock of Kapson at the pro rata
amount of LFREI's all-in cost (defined as LFREI's total equity
investment in Kapson at the close of the Kapson Investment including
reasonable capital carrying costs relating to the Kapson Investment)
for a period of 30 days after the later of the completion of the
Kapson Investment or second closing of the LFREI investment in ARV as
defined in the Stock Purchase Agreement dated July 14, 1997 between
LFREI and ARV (and, if ARV elects to have its shareholders exercise
this option, 30 days after a registration statement is declared
effective with respect to the option). The term of this option will
not extend beyond the timing described in this paragraph despite
LFREI's ongoing ownership of Kapson.
5. JOINT VENTURE: LFREI will explore a joint venture arrangement, on
commercially reasonable terms between the Company and Kapson which
would house top corporate management of both firms to achieve
economies of scale. The management company would be jointly owned by
the company and Kapson. Development personnel and activities would in
all likelihood remain at Kapson. Operating personnel and home health
care would in all likelihood remain at ARV. Savings resulting from
this alliance will be shared by the two companies. LFREI will also
explore having Kapson acquire ARV's development projects.
6. PRESS RELEASES: The company and LFREI will have the right to review
and comment on all press releases regarding the foregoing arrangements
for a period from the date hereof. No such press releases regarding
the foregoing arrangements shall be made without the written consent
of the Company and LFREI.
7. PUBLIC DISCLOSURES: The Company will have the right to review and
comment on all public disclosures (e.g. proxy material, 10-K)
regarding the foregoing arrangements for a period from the date hereof
through six months following the close of the Kapson investment. No
such statement in the public disclosures regarding the foregoing
arrangements, shall be made without the written consent of the
Company, such consent not to be unreasonably withheld or delayed.
8. SHAREHOLDER VOTE: Section 5.2 of the Stockholders Agreement and
Sections 2.8, 5.1(c), 9.1 and 9.3(b) of the Stock Purchase Agreement
to which LFREI and the Company are parties, dated as of July 14, 1997,
are hereby amended to substitute the date of February 15, 1998 for the
date of December 31, 1997 as the the day on or prior to which a
meeting at which the stockholders of the Company are asked to vote
upon the transactions contemplated therein shall have duly occurred.
Further, Section 9.3(b) of the Stock Purchase Agreement is amended to
substitute the date of March 15, 1998 for the Jate of January 31, 1998
as the date by which the Second Closing (as defined therein) shall
have occurred.
LFREI hereby represents that, upon completion of the Kapson
Investment, it shall have the authority to cause Kapson to enter into
all of the foregoing arrangements. With respect to the foregoing
arrangements, it is agreed that all negotiations, determinations,
consents and elections by ARV shall be made by a majority of the
Non-Investor Nominee (as defined in the Stockholder's Agreement)
directors of ARV. It is specifically agreed that any such
determination shall not be subject to the provisions of the
Stockholder's Agreement or any other agreement between LFREI and ARV
regarding the Executive Committee of the Company or the supermajority
viting requirements of the Board of Directors of other similar rights.
LFREI believes strongly that a strong alignment of interests between
LFREI, Kapson, and ARV and the synergies that could be created by a
strategic alliance between these two industry players, will
significantly benefit all shareholders of ARV and Kapson, including
LFREI as their largest shareholder.
Very truly yours,
LAZARD FRERES REAL ESTATE INVESTORS, L.L.C.
By: /s/ Xxxxxx X. Xxxxxxx
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Name: Xxxxxx X. Xxxxxxx
Title: President
Exhibit A
Form of Consent
The undersigned, constituting 75% of the Board of Directors of ARV
Assisted Living, Inc., hereby consent to the LFREI investment in
Kapson, as described in the attached letter and subject to the terms
and conditions set forth therein:
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