LAZARD FRERES REAL ESTATE
INVESTORS, L.L.C.
00 Xxxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, X.X. 00000
------
Telephone (000) 000-0000
October 29, 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") 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 reasonable notice, before Kapson enteres into binding site
contracts.
The Board of Directors
ARV Assisted Living, Inc.
October 29, 1997
Page 2
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 affilites 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 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 arrangement 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 net 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.
The Board of Directors
ARV Assisted Living, Inc.
October 29, 1997
Page 3
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.
The Board of Directors
ARV Assisted Living, Inc.
October 29, 1997
Page 4
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
