LAZARD FRERES REAL ESTATE
INVESTORS, L.L.C.
00 Xxxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, X.X. 00000
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Telephone (000) 000-0000
October 29, 1997
The Board of Directors
ARV Assisted Living, Inc.
000 Xxxxxx Xxxxxx X-0
Xxxxx Xxxx, XX 00000
Gentlemen:
Lazard Freres Real Estate Investors, L.L.C. ("LFREI") and Prometheus
Assisted Living LLC ("Prometheus") are parties 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 Stockholder Agreement)) have
consented to such ownership (the "Required Board Approval").
Based on a letter agreement dated September 30, 1997 (the "Original
Letter Agreement"), the Company consented (with the Required Board
Approval) to a one-time waiver to the Non-Compete Covenant to permit
an investment by an affiliate of LFREI (the "Kapson Investment") in
Kapson Senior Quarters, Corp. ("Kapson"). Subsequent to that date and
the announcement of the proposed Kapson Investment, the parties have
agreed, among other things, to amend the Original Letter Agreement as
set forth herein.
The substantive terms of the Original Letter Agreement are hereby
amended and restated as follows:
Subject to the consummation of the Kapson Investment, LFREI and
Prometheus agree to the following (each of which shall terminate at
(i) the time of a Termination Event (as defined in the Stockholders
Agreement as amended and restated on October 29, 1997 (the "Amended
Stockholders Agreement")) or (ii) the time, after the consummation of
the Kapson Investment, LFREI or its affiliates owns 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 that time) without the written consent of a majority of
the independent non-LFREI affiliated or appointed members of the ARV
Board of Directors, which consent may be withheld at the sole
discretion of those directors; provided that upon the funding of that
certain $60,000,000 6 3/4% Convertible Subordinated Note due 2007 by
LFREI or an affiliate this paragraph shall terminate and be of no
further effect.
2) Right of First Offer. After the closing of the Kapson Investment,
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, upon commercially reasonably notice, before Kapson
enters into binding site contracts.
3) Existing Facilities and Developments. LFREI and Prometheus will
seek in good faith to negotiate with ARV for the 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." LFREI and Prometheus will agree not to
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 commercially
reasonable and customary terms.
4) Option. LFREI hereby grants to ARV (or 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 at 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 completion of the Kapson Investment
(or, 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.
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 through October 29, 1998. 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) of
Kapson 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.
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 Amended Stockholders
Agreement) directors of ARV.
The parties hereby agree that if mutually agreeable arrangements
regarding the matters set forth in paragraph 3 above are not entered
into by the later of three months following the closing of the Kapson
Investment or May 1, 1998, then this letter agreement shall terminate
without further obligation of any party.
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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Xxxxxx X. Xxxxxxx
President
PROMETHEUS ASSISTED LIVING L.L.C.
By: LAZARD FRERES REAL ESTATE INVESTORS, L.L.C.
By: /s/ Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx
President
ACKNOWLEDGED AND AGREED:
ARV ASSISTED LIVING, INC.
By: /s/ Xxxxxx Xxxxxxx
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Xxxxxx Xxxxxxx
Authorized Signatory
