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EXHIBIT 99.1
[LAZARD FRERES REAL ESTATE
INVESTORS, L.L.C.
LETTERHEAD]
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 Stockholder 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 Covenant 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 Xxxxxx to enter into the following
arrangement.
As consideration for the agreement by the Board of Directors to waive
the Non-Compete Covenant 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
Stockholder's 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 Xxxxxx to and will cause Xxxxxx to enter into an agreement with
ARV under which Xxxxxx 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 affiliated or
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appointed members of the ARV Board of Directors, which consent may be withheld
at the sole 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 Xxxxxx, each right to be exercised by ARV before Xxxxxx 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 Xxxxxx 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 Xxxxxx.
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 Xxxxxx 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.
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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 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 date 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 Xxxxxx 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 voting requirements of the Board of Directors or other
similar rights.
LFREI believes strongly that a strong alignment of interests between
LFREI, Xxxxxx, and ARV and the synergics that could be created by a strategic
alliance between these two industry players, will significantly benefit all
shareholders of ARV and Xxxxxx, 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
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EXHIBIT A
FORM OF CONSENT
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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.
/s/ /s/
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Xxxx Xxxxxxxx Xxxxx Xxxxxxx
/s/ /s/
-------------------------------- --------------------------------
Xxxxx Xxxxxxx Xxxx Xxxxxxxxx
/s/ /s/
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Xxxxxxx XxXxxx Xxxxx Xxxxxx
/s/
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Xxxx Xxxxx
September 30, 1997
