<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
====================
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of report (date of earliest event reported): September 30, 1997
ARV ASSISTED LIVING, INC.
(Exact name of Registrant as specified in charter)
CALIFORNIA 33-0160968
(State or other jurisdiction of 000-26980 (I.R.S. Employer
incorporation) (Commission File Number) Identification Number)
245 FISCHER AVENUE 92626
SUITE D-1 (Zip Code)
COSTA MESA, CALIFORNIA
(Address of principal executive offices)
Registrant's telephone number, including area code: (714) 751-7400
None
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5: OTHER EVENTS
On September 30, 1997, the Board of Directors of ARV Assisted Living,
Inc. (the "Company") unanimously consented to the purchase by an affiliate of
Lazard Freres Real Estate Investors L.L.C. ("LFREI") of substantially all of the
stock of Kapson Senior Quarters Corp. ("Kapson"), the largest operator of
assisted living facilities in the Northeast United States (the "Kapson
Investment"). The Company expects that the Kapson Investment, if consummated,
will result in a strategic alliance between the Company and Kapson in which the
Company will, among other things, manage, lease and/or purchase certain of
Kapson's existing and future facilities.
LFREI had previously agreed that it would not own any equity interest
in an assisted living business (the "Covenant Not to Compete"), without the
consent of 75% of the directors of the Company. The Covenant Not to Compete was
made by LFREI in July 1997 in connection with the commitment by an affiliate of
LFREI, Prometheus Assisted Living LLC ("Prometheus"), to purchase up to 49.9% of
the common stock of the Company for an aggregate purchase price of $135.1
million (the "Company Investment"). Prometheus currently owns approximately
16.6% of the outstanding common stock of the Company.
Under the terms of a letter agreement dated September 30, 1997 (the
"Letter Agreement"), LFREI has agreed that if it consummates the Kapson
Investment and the Company obtains shareholder approval for the Company
Investment, then:
(i) Kapson will be prohibited from developing or acquiring any new
facilities other than those in its pipeline at the time of the closing of the
Kapson Investment without the written consent of a majority of the independent
non-LFREI affiliated or appointed members of the Company's Board of Directors,
which consent may be withheld at the sole discretion of those directors;
(ii) the Company will have the first right to negotiate management,
lease and/or purchase arrangements on any new developments or acquisitions by
Kapson;
(iii) LFREI will seek in good faith to negotiate with the Company for
leasing or management agreements of all existing or currently-planned facilities
of Kapson;
(iv) LFREI will not enter into or permit Kapson to enter into any
leasing or management arrangements on Kapson's existing facilities other than
with the Company or a Kapson affiliate;
(v) LFREI will grant to the Company or the Company's shareholders, at
the Company's option, 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 investment in
Kapson for a period of 30 days after the later of the completion of the Kapson
Investment and the first closing of the Company Investment following receipt of
shareholder approval thereof; and
(vi) LFREI will explore a joint venture arrangement between the
Company and Kapson which would combine the corporate management of the Company
and Kapson in a separate management company jointly owned by Kapson and the
Company to achieve economies of scale.
LFREI represented to the Company in the Letter Agreement that, upon
completion of the Kapson Investment, it will have the necessary authority to
cause Kapson to enter into all of the arrangements described above.
All transactions between the Company and Kapson after consummation of
the Kapson Investment will require approval from the directors of both
companies who are not affiliated with LFREI.
The Letter Agreement is attached hereto as Exhibit 99.1 and is
incorporated herein by reference.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
NUMBER EXHIBIT
- ------ -------
99.1 Letter from LFREI to the Board of Directors of the Company dated
September 30, 1997 relating to the Kapson Investment.
99.2 Joint Press Release, dated October 2, 1997, by LFREI, Kapson and the
Company announcing the Kapson Investment.
<PAGE> 3
Investment (which will occur as soon as practicable after receipt of shareholder
approval of the Company Investment); and
(vi) LFREI will explore a joint venture arrangement between the
Company and Kapson which would combine the corporate management of the Company
and Kapson in a separate management company jointly owned by Kapson and the
Company to achieve economies of scale.
LFREI represented to the Company in the Letter Agreement that, upon
completion of the Kapson Investment, it will have the necessary authority to
cause Kapson to enter into all of the arrangements described above. LFREI's
obligations under the Letter Agreement will terminate if and when (i) LFREI and
its affiliates own less than 5% of the outstanding Common Stock of the Company
or (ii) LFREI and its affiliates own less than 10% of the stock of Kapson.
All transactions between the Company and Kapson after consummation of
the Kapson Investment will require approval from the directors of both companies
who are not affiliated with LFREI.
The Letter Agreement is attached hereto as Exhibit 99.1 and is
incorporated herein by reference.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
NUMBER EXHIBIT
- ------ -------
99.1 Letter from LFREI to the Board of Directors of the Company
dated September 30, 1997 relating to the Kapson Investment.
99.2 Joint Press Release, dated October 2, 1997, by LFREI, Kapson
and the Company announcing the Kapson Investment.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATE: October 10, 1997 ARV ASSISTED LIVING, INC.
----------------
By: /s/ Sheila M. Muldoon
----------------------------------
Sheila M. Muldoon
Vice President and General Counsel
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EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBIT PAGE
- ------ ------- ----
<S> <C> <C>
99.1 Letter from LFREI to the Board of Directors of the Company E-1
dated September 30, 1997 relating to Kapson Investment.
99.2 Joint Press Release, dated October 2, 1997, by LFREI, E-5
Kapson and the Company announcing the Kapson Investment.
</TABLE>
<PAGE> 1
EXHIBIT 99.1
[LAZARD FRERES REAL ESTATE
INVESTORS, L.L.C.
LETTERHEAD]
September 30, 1997
The Board of Directors
ARV Assisted Living, Inc.
245 Fischer Avenue D-1
Costa Mesa, Ca 92626
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 Kapson 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 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 affiliated or
<PAGE> 2
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 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 Kapson's 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.
2
<PAGE> 3
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 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 voting requirements of the Board of Directors or other
similar rights.
LFREI believes strongly that a strong alignment of interests between
LFREI, Kapson, 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 Kapson, including LFREI as their largest shareholder.
Very truly yours,
LAZARD FRERES REAL ESTATE
INVESTORS, L.L.C.
By: /s/ Robert P. Freeman
----------------------------
Name: Robert P. Freeman
Title: President
3
<PAGE> 4
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.
/s/ /s/
- -------------------------------- --------------------------------
Gary Davidson David Collins
/s/ /s/
- -------------------------------- --------------------------------
Bruce Andrews John Rydzewski
/s/ /s/
- -------------------------------- --------------------------------
Maurice DeWald James Peters
/s/
- --------------------------------
John Booty
September 30, 1997
<PAGE> 1
EXHIBIT 99.2
FOR IMMEDIATE RELEASE CONTACT: OWEN BLICKSILVER
PRINCIPAL COMMUNICATIONS
212-303-7603
LAZARD FRERES AFFILIATE TO ACQUIRE MAJORITY STAKE
IN KAPSON SENIOR QUARTERS FOR $250 MILLION
-- Strategic Alliance with ARV Assisted Living, Inc. Proposed --
NEW YORK, October 2 -- Kapson Senior Quarters Corp. (NASDAQ:KPSQ), the
largest public operator of assisted living facilities in the Northeast, and
Prometheus Senior Quarters LLC, an affiliate of Lazard Freres Real Estate
Investors LLC (LFREI), today announced that Prometheus has entered into a
definitive agreement to acquire substantially all of the outstanding shares of
Kapson in a transaction valued at approximately $250 million, including the
assumption of debt.
Under terms of the agreement, Prometheus will offer $16 a share for
approximately 92% of Kapson's 7.8 million outstanding common shares, a 9.4%
premium over Wednesday's closing price of $14.625. In addition, Prometheus will
offer $30.82 a share for all of the company's 2.4 million outstanding
convertible preferred shares. The acquisition will be treated as a
recapitalization for accounting purposes and shares will be acquired on a pro
rata basis.
The transaction is contingent upon certain regulatory approvals and a
favorable vote by Kapson's stockholders.
In July, a separate LFREI affiliate announced a plan to invest $135
million, over time, in ARV Assisted Living, Inc. (NASDAQ: ARVI) of Costa Mesa,
Calif., one of the largest operators of assisted living facilities in the
nation. That affiliate, Prometheus Assisted Living, LLC, is already the largest
shareholder of ARV, owning approximately a 17% stake in the company. Subject to
shareholder approval, the LFREI affiliate will ultimately hold a 49.9% stake in
ARV. Assuming ARV shareholder approval, LFREI will offer ARV the option to
purchase up to a 19.9% interest (at LFREI's cost) in Kapson out of the
Prometheus stake, once the recapitalization has closed. If ARV chooses to invest
in Kapson, the decision will be made by those directors not affiliated with
LFREI.
Assuming that ARV's shareholders approve the Prometheus Assisted
Living, LLC investment, LFREI will propose that ARV establish a relationship
with Kapson structured as a strategic alliance, with the two companies remaining
independent. The companies will explore opportunities for creating economies of
scale, especially in the development of new facilities. ARV will have the right
to manage and/or lease existing Kapson facilities as well as manage, purchase
and/or lease new facilities developed by Kapson at fair market value.
<PAGE> 2
Transactions between ARV and Kapson will require approval from the
directors of both companies who are not affiliated with LFREI. The arrangement
should be immediately accretive to ARV earnings and will significantly
strengthen its presence in the Northeast. Together, the companies will own,
manage and operate more than 69 assisted living facilities with approximately
8,500 total units, in addition to 19 facilities under construction with
approximately 2,400 units, and 24 facilities under development with 3,200 total
units, for a total of 112 facilities with approximately 14,100 units, making
such an alliance the largest owner/operator of assisted living facilities
nationwide.
Lazard is expected to take a controlling position on Kapson's Board of
Directors. Management at Kapson is expected to remain essentially unchanged
under the direction of Glenn Kaplan, Chief Executive Officer; Evan Kaplan,
President and Chief Operating Officer; Wayne Kaplan, Senior Executive Vice
President and General Counsel; and Raymond DioGuardi, Chief Financial Officer.
Glenn and Evan Kaplan will also serve on the Board of Directors.
"Our investment in Kapson dramatically expands our presence in the
assisted living industry and demonstrates our commitment to one of the fastest
growing segments of the health care industry," said Arthur P. Solomon, Chairman
of LFREI and Senior Managing Director of Real Estate at Lazard Freres and Co.
LLC. "Assuming the alliance with ARV is established, the two companies will
become the largest owners and operators of assisted living facilities in the
country."
"We are pleased to offer our shareholders an investor that has
demonstrated a commitment to our business and is willing to offer our
shareholders a substantial premium over the market value in our stock," said
Glenn Kaplan. "The investment places Kapson at the leading edge of an industry
consolidation, while allowing us to continue to expand our business to the next
level."
"This announcement demonstrates Lazard's commitment to making ARV the
premier assisted living provider in the nation, and is another reason why our
shareholders should be excited about the Lazard investment in ARV," said ARV
Chairman and Chief Executive Officer Gary L. Davidson. "Assuming the strategic
alliance is established, the Kapson investment will also significantly improve
our position in the Northeast and will provide us with greater opportunities to
develop new facilities and expand into more markets."
Kapson Senior Quarters Corp., founded in 1972, owns, manages and/or
operates 20 assisted living facilities with 2,200 units in Connecticut, New
Jersey, New York, and Pennsylvania. The company, based in Woodbury, Long Island,
currently has another 13 facilities under construction with 1,740 units and 11
facilities under development with 1,400 units in its current markets as well as
in North Carolina and South Carolina. The company's initial public offering
occurred in September 1996 at $10.00 a share. Salomon Brothers Inc. was the lead
underwriter and is also advising the company on this transaction.
ARV Assisted Living, Inc., formerly American Retirement Villas, founded
in 1980, is one of the largest operators of assisted living facilities in the
nation operating 49 facilities with approximately 6,300 units in 11 states (with
heavy concentrations in California, Florida and the
<PAGE> 3
Midwest), in addition to six facilities under construction with approximately
650 units, and 13 facilities under development with approximately 1,825 units.
Lazard Freres Real Estate Investors, L.L.C. (LFREI) is the real estate
investment affiliate of Lazard Freres & Co. L.L.C., a leading global investment
bank. LFREI manages several real estate investment funds including the LF
Strategic Realty Investors' funds, a strategic investment program capitalized
with more than $1 billion in equity capital. Since its inception, LFREI has
acquired sizable investment stakes in a select group of leading real
estate-related operating companies, including Alexander Haagen Properties, Inc.;
American Apartment Communities; ARV Assisted Living, Inc.; Bell Atlantic
Properties (renamed Atlantic American Properties Trust); Dermody Properties; The
Fortress Group; and RF&P Corporation (renamed Commonwealth Atlantic Properties).
The forward-looking statements in this release concerning development
and future results are subject to certain risks and uncertainties that could
cause actual results to differ materially from expectations. These include,
without limitation, the negotiation and execution of definitive documentation
regarding the ARV-Kapson strategic alliance, the Kapson shareholder approval of
the acquisition by the LFREI affiliate, ARV shareholder approval of the
investment by the LFREI affiliate, as well as licensing, permitting,
constructions delays, cost increases, changes in business conditions, meeting
all completion requirements including licensure and the availability of
financing for developments. These and other risks are set forth in Kapson's Form
10-K as filed with the Securities and Exchange Commission for the year ended
December 31, 1996, and ARV's Form 10-K/A for the fiscal year ended March 31,
1997, and ARV's form 8-K relating to the LFREI investment in ARV, each as filed
with the SEC.
