EX-99 4 exh99_2.txt EXHIBIT 99.2 CT Investment Management Co., LLC c/o Capital Trust, Inc. 410 Park Avenue 14th Floor New York, New York 10022 September 13, 2002 Atria, Inc. 501 South Fourth Avenue Suite 140 Louisville, Kentucky 40202 Kapson Senior Quarters Corp. C/oAtria, Inc. 501 South Fourth Avenue Suite 140 Louisville, Kentucky 40202 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 Borrower. 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 Borrower 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 Jeremy FitzGerald 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 Lender, this commitment letter agreement and the commitment contemplated herein shall expire and Lender'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/ Jeremy FitzGerald ----------------------------- Jeremy FitzGerald Vice President Accepted and Agreed to this day of , 2002 --- ------------ Atria 98 Mezz, LLC By: /s/ Mark D. Jessee ------------------------- Atria Assisted Living, Villa Ventura, LLC By: /s/ Mark D. Jessee ------------------------- Atria Assisted Living, Town Center, LLC By: /s/ Mark D. Jessee ------------------------- Kapson 98 Mezz, LLC By: /s/ Mark D. Jessee ------------------------- 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, Atria and Kapson 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, Kapson 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 Borrower and Lender. The Loan will be cross-defaulted to other recourse debt of Atria 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 Atria and Kapson 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 Lender'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 Lender 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 Lender. 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 Borrower'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", Lender 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 Lender 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: Steve Napolitano, 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 Lender 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. Borrower agrees to cooperate in such assignment, syndication, pledge, sale, securitization or participation process. BREAK-UP FEE Upon issuance of a commitment by Lender and Borrower'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.