CT Investment Management Co., LLC
c/o Capital Trust, Inc.
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
September 13, 2002
Atria, Inc.
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Kapson Senior Quarters Corp.
C/oAtria, Inc.
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RE: MEZZANINE LOAN OF UP TO $30,000,000
Ladies and Gentlemen:
Reference is hereby made to that certain term sheet attached
hereto as Exhibit A (the "TERM SHEET") with respect to the referenced loan
(the "LOAN"). All defined terms used in this commitment letter agreement,
to the extent not defined herein, shall have the meaning set forth in the
Term Sheet.
Please be advised that the investment committee of CT Mezzanine
Partners II LP (the "CT FUND") has approved the Loan under, and subject to,
the terms and provisions provided in the Term Sheet. The Loan shall be
closed and advanced by the CT Fund or a direct or indirect affiliate or
subsidiary of the CT Fund (the "LENDER"), subject to the terms and
conditions of the Term Sheet (including, without limitation, those terms
and conditions relating to the deliverables required in connection with the
Loan) and also subject to the following:
1. The payment to CT Investment Management Co., LLC ("CTIMCO") of
an amount at the rate of 1% per annum in respect of the maximum committed
amount of the Loan (i.e. $30,000,000) (the "UNFUNDED COMMITMENT FEE"). The
Unfunded Commitment Fee shall be payable monthly in arrears on the first
(1st) day of each calendar month, shall be calculated separately for each
calendar month or portion thereof between the date of Borrower's acceptance
of this commitment letter agreement and the earlier to occur of the funding
of the Loan or the termination of this commitment letter agreement (the
earlier to occur of such dates being the "COMMITMENT TERMINATION DATE").
The Unfunded Commitment Fee shall be calculated on the basis of the actual
number of days elapsed over a 360 day year. Notwithstanding anything to the
contrary hereinabove provided, the final installment of the Unfunded
Commitment Fee shall be payable on the Commitment Termination Date. Each
installment of the Unfunded Commitment Fee shall be made by wire transfer
of immediately available federal funds to the account of CTIMCO set forth
on Exhibit B attached hereto. If the first (1st) day of any calendar month
while this commitment letter agreement remains in effect shall not be a
business day, then any installment of the Unfunded Commitment Fee shall be
payable on the immediately preceding business day. The Unfunded Commitment
Fee shall be deemed earned by CTIMCO upon execution of this commitment
letter agreement by ▇▇▇▇▇▇▇▇.
2. Lender shall have received and approved (in its sole and
absolute discretion) the following: (x) the loan documents for the Senior
Financing, (y) the intercreditor agreement between Lender and the senior
mortgage lender and (z) all diligence items described in the Term Sheet or
otherwise reasonably required by Lender, including, without limitation,
appraisals, franchise agreements (if any), evidence of compliance with laws
and regulations applicable to assisted living facilities (including,
without, limitation, permits, approvals, licensing and zoning), title
commitments, surveys, lien searches, property and liability insurance,
environmental reports, physical condition reports, credit reports,
background check on borrower, organizational documentation, and diligence
relating to the Venture Capital Operating Company requirements applicable
to the Borrower. Lender and its counsel shall be provided with reasonable
periods of time to review all items contemplated above.
3. All instruments and documents required hereby or affecting the
Properties, securing the Loan or relating to the capacity and authority of
Borrower to take the Loan and the capacity and authority of Borrower,
guarantors, indemnitors and other required persons, parties and entities to
execute and deliver the Loan Documents and such other documents,
instruments, certificates, opinions, assurances, consents and approvals as
Lender or its counsel may request and all procedures connected therewith
shall be subject to the approval, as to form and substance, of Lender, its
New York counsel and local counsel, if any.
4. The absence of (i) any material changes in the capital markets
or financial markets, which, in the opinion of the CT Fund, would affect
the suitability of the Loan as an investment for the CT Fund and (ii) any
material adverse change with respect to the Borrower, the Properties,
Atria, Kapson or the Fund.
This commitment letter agreement may not be (i) assigned by
Borrower without the consent of CTIMCO, which consent may be withheld in
the sole and absolute discretion of CTIMCO or (ii) amended or modified
except by an agreement in writing signed by ▇▇▇▇▇▇▇▇ and CTIMCO.
If the foregoing is satisfactory, please indicate your acceptance
of this commitment letter agreement and your agreement to take the Loan
pursuant to the provisions of this commitment letter agreement by signing
and returning a copy of this commitment letter agreement to ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ at Capital Trust, Inc. on or before September 20, 2002,
otherwise this commitment letter agreement will, at the option of CTIMCO be
of no effect. Unless otherwise agreed to in writing by ▇▇▇▇▇▇, this
commitment letter agreement and the commitment contemplated herein shall
expire and
▇▇▇▇▇▇'s obligations hereunder shall terminate if the Borrower's
obligations are not satisfied and closing and funding do not occur on or
before February 1, 2003.
Very truly yours,
CT Investment Management Co., LLC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Vice President
Accepted and Agreed to
this day of , 2002
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Atria 98 Mezz, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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Atria Assisted Living, Villa Ventura, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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Atria Assisted Living, Town Center, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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Kapson 98 Mezz, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
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EXHIBIT A
(Term Sheet)
ATRIA PORTFOLIO
PROPOSED $30 MILLION LOAN
FOR DISCUSSION PURPOSES ONLY
PROPERTIES Collectively, a portfolio of 30 assisted living
facilities.
LENDER CT Mezzanine Partners II or an affiliate or
subsidiary thereof, which qualifies as a
"Qualified LFSRI Lender" (as such term is defined
in the hereinafter defined "Senior Loan
Agreement").
BORROWER Collectively, Atria 98 Mezz, LLC ("A98"), Kapson
98 Mezz, LLC ("K98"), Atria Assisted Living,
Villa Ventura, LLC ("Villa Ventura LLC") and
Atria Assisted Living, Town Center, LLC ("Town
Center LLC"). Each entity comprising Borrower and
its respective managing member / general partner
of Borrower shall be special - purpose bankruptcy
remote entities which collectively own 100% of
the equity interests in the owners of the
Properties. The Borrower ownership structure is
attached as Schedule A.
LOAN AMOUNT $30 million maximum.
COLLATERAL The Loan will be secured by: (i) a pledge of 100%
of the equity interests in the direct
subsidiaries of both A98 and K98, which
subsidiaries are the owners of the Properties
other than the Mortgaged Properties
(collectively, the "Non-Mortgaged Properties"),
(ii) first mortgage liens encumbering the fee
simple interests in Villa Ventura and Town Center
(collectively, the "Mortgaged Properties"), (iii)
a perfected lien in all cash management accounts,
escrows, letters of credit, as applicable, and
reserves, which lien shall, with respect to the
Mortgaged Properties, constitute a first priority
lien and which lien shall, with respect to the
Non-Mortgaged Properties constitute a second
priority lien, subject and subordinate only to
the lien of the Senior Lender pursuant to the
Senior Financing, (iv) the joint and several
Guarantees of payment from Atria, Inc. ("Atria"),
Kapson Senior Quarters Corp. ("Kapson") and LF
Strategic Realty Investors II L.P. ("LFSRI II"),
LFSRI II-CADIM Alternative Partnership L.P.
("CADIM") and LFSRI II Alternative Partnership
L.P. ("LFSRI II Alternative"; LFSRI II, CADIM and
LFSRI II Alternative are collectively, the
"Fund"), and (v) such other collateral
customarily found in comparable transactions as
may be specified in the Loan Documentation.
Borrower, ▇▇▇▇▇ and ▇▇▇▇▇▇ shall execute and
deliver to the Lender a joint and several
environmental indemnification agreement
containing Lender's customary terms and otherwise
in form and substance satisfactory in all
respects to Lender and its counsel.
GUARANTEES Atria, ▇▇▇▇▇▇ and the Fund shall fully guarantee
principal, interest and other payments due under
the Loan (the "Fund Guarantee"). Lender will
release the guarantee of the Fund when an equity
participation feature in the Fund's Assisted
Living Investments is mutually agreed upon by
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇. The Loan will be
cross-defaulted to other recourse debt of ▇▇▇▇▇
and Kapson other than debt (i) as set forth on
Schedule B attached hereto or (ii) having an
aggregate principal amount less than $1,000,000.
FUND COVENANTS Unless the Fund Guarantee is released by Lender,
the Net Cash Flow (as such term is defined in the
hereinafter defined "CTMP II Loan Agreement")
with respect to any Fiscal Quarter (as such term
is defined in the CTMP II Loan Agreement) shall
not be less than $5,000,000, subject to Section
2.6(b)(3) of the CTMP II Loan Agreement. The Net
Equity Value (as such term is defined in the CTMP
II Loan Agreement) shall at all times be equal to
or in excess of $200,000,000, subject to Section
2.6(b)(3) of the CTMP II Loan Agreement.
Notwithstanding the foregoing and notwithstanding
anything to the contrary contained in the CTMP II
Loan Agreement, (i) the Net Cash Flow calculation
under the Loan contemplated hereby shall be
exclusive of interest, principal payment and
dividends paid by ▇▇▇▇▇ and ▇▇▇▇▇▇ and (ii) the
Net Equity Value calculation under the Loan
contemplated hereby shall be exclusive of any
carry value attributable to the Fund's direct or
indirect interest in Atria and Kapson. The term
"CTMP II Loan Agreement" as used herein shall
mean that certain Loan Agreement dated as of July
11, 2002 by and among LFSRI II SPV REIT Corp.
("SPV Corp."), Senior Quarters Funding Corp.
("Senior Quarters") and CTMP II FC LF (MS) ("CTMP
II"). The foregoing Fund covenants shall be
explicitly set forth in the loan documentation
and, for the avoidance of doubt, shall survive
the repayment of the CTMP II Loan (as hereinafter
defined).
USE OF PROCEEDS To repay the $30 million Fund loan to Atria. The
Fund will in turn repay $30 million of the $65
million loan made by CTMP II to SPV Corp. and
Senior Quarters (the "CTMP II Loan").
ORIGINAL MATURITY July 2005.
EXTENSIONS Borrower shall have the option, upon written
notice not more than (90) ninety days prior to
the then-maturity date of the Loan, to extend the
term of the Loan for two one-year periods (which
extension must be exercised consecutively but not
concurrently) subject to the following
conditions: (i) payment of the Extension Fee of
0.5% per extension, (ii) no Material Adverse
Change, (iii) no default shall exist at the time
of extension, (iv) all representations and
warranties are made current as of the effective
date of each extension, except for any changes
thereto that constitute changed circumstances
that have occurred but have not resulted in a
breach by the Borrower of any covenant under the
Loan documents (and provided that the condition
described in clause (ii) continues to be
satisfied), (v) the Interest Rate Protection (as
defined herein) is extended to be co-terminous
with the extended maturity date, (vi) the debt
service coverage ratio for the first extension
term shall be at least 1.15:1 and the debt
service coverage ratio for the second extension
term shall be at least 1.2:1 and (vii) no default
beyond notice and applicable cure periods, if any
and no monetary or material non-monetary default
exists under the Senior Financing and
simultaneous extension of the Senior Financing.
For purposes of calculating the debt service
coverage ratio contemplated by clause (vi) of the
preceding sentence, (i) debt service under the
Senior Financing will be calculated in accordance
with the provision of the Senior Loan Agreement
and (ii) debt service under the Loan will be
calculated based upon an assumed LIBOR rate of 5%
per annum.
UNFUNDED COMMITMENT FEE 1% per annum paid monthly until commitment is
either funded or terminated.
INTEREST RATE FLOATING - 30-day LIBOR plus 900 basis points
subject to a LIBOR floor of 3%.
INTEREST PAYMENTS Interest is payable on the first day of each
month, in arrears, on an actual/360 day basis. A
late fee of 5% of the payment amount is payable
to lender on all past due amounts. The default
interest rate will be 500 basis points over the
applicable Interest Rate.
AMORTIZATION Principal amortization due based on a twenty-five
(25) year amortization period and an assumed
interest rate of 12.0% per annum.
TAX AND INSURANCE
RESERVES A real estate tax and insurance premium escrow
for the Mortgaged Properties will be maintained
by Borrower with Lender or its designee
throughout the term of the Loan and shall be
disbursed to cover the payment of real estate
taxes and insurance premiums payable with respect
to the Mortgaged Properties.
LOW DEBT
SERVICE RESERVE If the Adjusted Property Net Cash Flow (as such
term is defined in the Senior Loan Agreement)
divided by the sum of (i) the outstanding balance
of the Loan and (ii) the Senior Financing (the
"NOI Yield") is less than (1) 11.5% for the
period commencing on the closing date and
terminating the earlier to occur of (y) the 9
month anniversary of the closing date and (z) the
sale of both of the Mortgaged Properties or (2)
12% at any time thereafter, all cash flow after
debt service will be swept into a Low Debt
Service Reserve as cash collateral. If the sweep
continues for more than one quarter, all funds in
the Low Debt Service Reserve will be applied to
amortize the Loan. If the sweep is for one
quarter only, any balance in the Low Debt Service
Reserve will be distributed to the Borrower when
the NOI Yield exceeds 16% for 2 consecutive
quarters. The sweep will cease when the NOI Yield
exceeds 12% for 2 consecutive quarters. The sweep
will cease if the Senior Lender is sweeping cash
under the terms of the Senior Loan Agreement.
APPLICATION OF PROCEEDS
FROM SALE OF VILLA
VENTURA AND
TOWN CENTER All net proceeds from the sale of the Mortgaged
Properties will be used to amortize the Loan to
the extent necessary to establish an NOI Yield
calculated after the paydown of 16%.
CLOSING By February 1, 2003, at which time the Lender's
obligation to fund the Loan shall terminate.
ORIGINATION FEE None
APPLICATION FEE $100,000 non-refundable in any and all cases
unless approval of the Loan by ▇▇▇▇▇▇'s
Investment Committee is not obtained, in which
case the Application Fee shall be refunded less
Lender's due diligence costs.
CLOSING FEES AND
COSTS Borrower will pay all actual out-of-pocket due
diligence costs and closing fees incurred by
Lender in connection with the Loan including, but
not limited to, legal, accounting, Third Party
Reports, title insurance, insurance review costs,
and financing costs regardless of whether or not
the Loan closes.
INTEREST RATE PROTECTION Borrower shall be required at closing to purchase
an interest rate cap for the Loan that caps LIBOR
at a maximum of 5% for the initial term of the
Loan (through original maturity in July 2005).
Such facility shall be purchased from a counter
party acceptable to Lender in its sole discretion
and shall be assigned to Lender as collateral for
the Loan. Borrower shall extend or purchase a new
interest rate cap on the same terms for any
extended term beyond the original maturity of the
Loan.
SENIOR FINANCING $127.5 million provided by Salomon Brothers
Realty Corp. (the "Senior Lender"), which Senior
Financing has been advanced pursuant to the terms
of a certain Loan Agreement dated as of July 11,
2002 by and among the borrowers named therein,
the Senior Lender and LaSalle Bank National
Association, as Collateral Agent (the "Senior
Loan Agreement"). The Loan shall be
cross-defaulted with the Senior Financing (but
not vice-versa). Senior ▇▇▇▇▇▇ must enter into an
intercreditor agreement acceptable to Lender.
PROPERTY RELEASES/
SUBSTITUTIONS The Loan Agreement will contain allocated loan
amounts for each of the Properties. Subject to
the lockout requirement, the release of
individual properties may be permitted in
connection with a permitted Capital Event (as
such term is defined in the Senior Loan
Agreement) based on payment of the Minimum
Release Price (as hereinafter defined) therefor
provided that the NOI Yield as calculated
immediately after giving effect to such release
is not less than the NOI Yield as calculated
immediately prior to such release (and assuming
satisfaction of payment of the required release
price with respect to the Senior Financing). As
used herein, the term "Minimum Release Price"
shall mean an amount equal to 135% of the
allocated loan amount set forth in the Loan
documents; provided, however, that if the NOI
Yield is less than 16%, the Minimum Release Price
shall be equal to 100% of the net proceeds of the
Capital Event (but shall in no event be less than
135% of such allocated loan amount).
PREPAYMENT The Loan will not be prepayable until July 2004
except with net proceeds from the sale of the
Mortgaged Properties. Thereafter, upon delivery
to Lender of at least 30 days' written notice,
Borrower may prepay the Loan without penalty or
premium (except as set forth herein); provided,
however, if such payment is made on a date other
than a scheduled interest payment date, Borrower
shall be responsible for all costs and expenses
incurred by Lender in connection with such
prepayment.
CASH MANAGEMENT Customary lock box and cash management provisions
will be required, with banks acceptable to
Lender. Notwithstanding the foregoing, in
connection with the Non-Mortgaged Properties,
such provision shall be subject to the provisions
of the Senior Financing.
ADDITIONAL FINANCING None permitted (including negative pledges,
springing pledges, present/springing assignments
of excess cash flow and/or capital event
proceeds) except the Senior Financing.
TRANSFERS Subject to compliance with the release provisions
contained in the Loan documents, except for the
Senior Financing, no part of any of the
Properties nor any interest of any nature
whatsoever therein nor any interest of any nature
whatsoever in Borrower shall in any manner be
further encumbered, sold, transferred, assigned
or conveyed, or permitted to be further
encumbered, sold, transferred, assigned or
conveyed without the prior written consent of
Lender, which consent in any and all
circumstances may be withheld in the sole and
absolute discretion of ▇▇▇▇▇▇. The Loan may not
be assumed by another person, party or entity.
Notwithstanding the foregoing, such restrictions
on transfer shall not apply to pledges or
permitted transfers of the interests of Atria
and/or Kapson (or the ownership interests
therein) to the extent and only to the extent
that such pledges or transfers constitute a
Permitted LFSRI Pledge or a Permitted LFSRI
Transfer (as such terms are defined in the Senior
Loan Agreement), as the case may be.
THIRD PARTY REPORTS Lender will require certain Third Party Reports
to be completed for the Properties, at ▇▇▇▇▇▇▇▇'s
expense, prior to the funding of the Loan,
including, but not limited to, (i) appraisals,
(ii) environmental, (iii) engineering (including
ADA compliance), (iv) earthquake, (v) title and
(vi) surveys. Except as otherwise provided under
the heading "Title Insurance/Survey", ▇▇▇▇▇▇ will
accept Third Party Reports prepared for the
Non-Mortgaged Properties in connection with the
Senior Financing provided that such Third Party
Reports are reasonably satisfactory to Lender and
provided further that ▇▇▇▇▇▇ receives from the
providers of such Third Party Reports reliance
letters in form and substance satisfactory to
Lender.
PERMITS/APPROVALS
LICENSURE/COMPLIANCE Lender will contract for a review of all permits,
approvals, licenses and requirements (including
zoning requirements) for ongoing compliance. Such
review must be satisfactory to Lender in its sole
discretion.
TITLE INSURANCE / SURVEY Borrower shall purchase a UCC Eagle 9 Policy for
the Non-Mortgaged Properties from First American
Title Insurance Company (contact: ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, 800-437-1234). Borrower shall
purchase a policy of mortgage title insurance
insuring the lien of the mortgages on the
Mortgaged Properties. Abstract companies which
issue title insurance on behalf of title
companies are not acceptable to Lender unless
approved in writing. The policies described in
this Section shall be on a form approved by
Lender and shall be subject only to those
exceptions as are approved by Lender and its
counsel and shall contain affirmative insurance
on such matters as Lender or its counsel may
require.
For each of the Mortgaged Properties, Borrower
shall deliver a current ALTA survey prepared and
certified to Lender in conformance with Lender's
survey requirements.
FINANCIAL REPORTING Borrower will provide to Lender (including
Lender's servicer) in form and substance
reasonably acceptable to Lender on a monthly,
quarterly and annual basis:
1. Financial statements for the Properties, in
accordance with GAAP including a balance
sheet, statement of revenues and expenses and
statement of cash flow through the end of
such period. The monthly, quarterly and
annual reports shall be certified by Borrower
and shall be provided not later than 10, 45
and 120 days, respectively, following the end
of such periods. The annual statements must
be audited by a "Big Four" accounting firm.
Annual tax returns shall also be delivered to
Lender as soon as available.
2. Quarterly rent rolls, occupancy reports,
leasing reports, capital expenditure reports,
as well as any other information that Lender
may reasonably require.
3. Annual operating and capital budgets for the
Properties not less than 30 days prior to the
beginning of each calendar year.
VCOC COMPLIANCE The Loan must be Venture Capital Operating
Company compliant as determined by ▇▇▇▇▇▇ in its
sole and absolute discretion, which shall
include, among other things, an annual meeting
with management to review the Properties and
related matters.
ASSIGNMENT, PARTICIPATION
SALE AND SECURITIZATION Lender shall have the right, without the consent
of the Borrower, to assign, syndicate, sell,
pledge, securitize or participate all or any
portion of the Loan. ▇▇▇▇▇▇▇▇ agrees to cooperate
in such assignment, syndication, pledge, sale,
securitization or participation process.
BREAK-UP FEE Upon issuance of a commitment by ▇▇▇▇▇▇ and
▇▇▇▇▇▇▇▇'s acceptance of the same (and provided
that the commitment has not otherwise been
terminated by Lender (other than as a result of a
willful default by Borrower or any of its
affiliates)), (i) prior to February 1, 2003,
Atria and/or the Borrower will not, and will not
cause any affiliates (other than the Fund or any
parent entities of the Fund) to, obtain any other
debt financing secured, directly or indirectly,
by interests in any of the Properties, with any
party other than Lender and (ii) should the
Borrower or any affiliate of Borrower breach or
violate this section, Lender shall be entitled to
a break-up fee equal to $1 million.
NOT A COMMITMENT This Term Sheet does not constitute a commitment
or a promise to commit or lend.
Please treat this letter as confidential. Neither the contents of this
summary of terms nor its existence should be disclosed to any party other
than the Borrower, employees, directors, officers, attorneys, accountants
and financial advisors who shall also treat this information as
confidential.