Exhibit 10.1
LOAN AGREEMENT
THIS LOAN AGREEMENT (“Loan
Agreement”) is made and entered into as of this 25th day of
July, 2006, by and between M&I MARSHALL & ILSLEY BANK
(“Lender”) and SUMMIT HOTEL PROPERTIES, LLC, a South
Dakota limited liability company (the
“Borrower”).
W I T
N E S S E T H :
WHEREAS, Lender has agreed to make up
to a $14,080,000.00 loan to finance the construction of a 146 room
hotel and related improvements thereon (the
“Project”).
NOW, THEREFORE, in consideration of
the mutual premises and covenants herein contained and other good
and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Definitions . The
following definitions shall apply to this Loan Agreement:
1.1. Architect . The Architect
is Peter Villard.
1.2. Business Day . Business
Day shall mean any day except a Saturday, Sunday or a day on which
banks in Milwaukee, Wisconsin are authorized or required by law to
close.
1.3. Capital Lease . Capital
Lease shall mean a financing mechanism that meets any one of the
following criteria: (i) ownership (title) to the leased
asset passes to the lessee by the end of the lease term for a
relatively nominal amount as compared to the fair market of such
asset; (ii) pursuant to the lease, lessee has an option to
purchase the leased asset at the end (or near the end) of the lease
term for a relatively nominal amount as compared to the fair market
value of such asset; (iii) the lease term is equal to or
greater than 75% of the estimated economic life of the leased
asset; or (iv) the net present value of the lease payments
equals or exceeds 90% of the current market value of the leased
asset.
1.4. City . The City shall be
the City of Bloomington, Minnesota.
1.5. Collateral Security
Documents . The Collateral Security Documents shall include the
following documents, each of which has been executed by Borrower in
favor of Lender and dated as of an even date herewith unless
otherwise noted:
1.5.1.
Real Estate Mortgage, Security Agreement, Financing Statement and
Assignment of Leases and Rents (“Mortgage”).
1.5.2.
Collateral Assignment of Contract Rights.
1.5.3.
General Business Security Agreement.
1.5.4.
UCC Financing Statement.
1.5.5.
Collateral Assignment of Licenses, Approvals and Permits.
1.5.6.
Reserved.
1.5.7.
The Collateral Security Documents shall also include all other
documents and instruments, at any time, executed, which evidence or
secure the Loan.
1.5.8.
Subordination, Non-Disturbance and Attornment Agreement regarding
the Management Agreement.
1.5.9.
Estoppel Certificate regarding the Management Agreement.
1.5.10.
Franchise Letter.
1.5.11.
Borrower Organizational Perfection Certificate.
1.5.12.
Assignment of General Contractor’s Contract.
1.5.13.
Assignment of Architect’s Contract.
1.5.14.
Cross Collateralization Agreement executed by Borrower.
1.6. Construction Budget . The
Construction Budget is the budget attached hereto as EXHIBIT
B , as previously approved by Lender.
1.7. Debt Service Coverage
Ratio . Debt Service Coverage Ratio shall mean a ratio of the
Net Operating Income attributable to the Project for any twelve
(12) consecutive months to the sum of (i) the aggregate of all
principal and interest payments due Lender under the Note during
the same twelve (12) month period, and (ii) any and all
other payments of principal and interest that Borrower is obligated
to pay attributable to the Project (whether such obligation is
undertaken prior to or subsequent to the date hereof) during the
same twelve (12) month period (“Other Debt”).
Other Debt shall include, but is not limited to, debt financing
categorized as a Capital Lease.
1.8. Disbursing Agreement .
The Disbursing Agreement is the agreement executed by and between
Borrower, Lender and Title Insurance Company and pursuant to which
the Loan proceeds are to be disbursed.
1.9. Estoppel Certificate .
The Estoppel Certificate is the Certificate to be executed in favor
of Lender by the Manager of the Management Agreement and such
affidavit shall be in form and content acceptable to Lender.
1.10. Existing Indebtedness .
Borrower is indebted to First National Bank of Omaha pursuant to
the loan documents executed on June 24, 2005, as amended on
November 30, 2005. Such loan documents provide for a credit
line in the amount of Fifty Million Dollars ($50,000,000.00).
2
1.11. Franchise Agreement .
The Franchise Agreement is the Franchise Agreement dated
March 28, 2006, by and between Promus Hotels, Inc. and
Borrower relating to the operation of the 146-room hotel on the
Real Estate.
1.12. General Contractor . The
General Contractor is Stahl Construction Company.
1.13. Licenses, Approvals and
Permits . The Licenses, Approvals and Permits shall be those
licenses, approvals and permits issued by the appropriate federal,
state or local governments or quasi-governmental agencies required
for Borrower to construct and operate the Project on the Real
Estate.
1.14. Reserved .
1.15. Loan . The Loan amount
shall not exceed the lesser of 80% of total cost of the Project as
set forth in the Construction Budget or $14,080,000.00. The
proceeds of such Loan shall be used for the construction of a 146
room hotel and related improvements thereon in accordance with
Construction Budget and the Plans and Specifications.
1.16. Loan Documents . The
Loan Documents shall include, but not be limited to, the Collateral
Security Documents, the Note, the Disbursing Agreement and this
Loan Agreement.
1.17. Management Agreement .
The Management Agreement is the Management Agreement dated as of
February 11, 2004, which was amended by that certain First
Amendment to Management Agreement dated April 24,2006 by and
between Borrower and The Summit Group, a South Dakota corporation
(“Manager”) and Borrower, pursuant to which Manager
shall manage the 146 room hotel once completed on behalf of
Borrower.
1.18. Net Operating Income .
Net Operating Income shall mean the gross income received from
operation of the Project minus the Operating Expenses.
1.19. Note . The Note is the
$14,080,000.00 Mortgage Note executed by Borrower in favor of
Lender on a date even herewith, the proceeds of which shall be
disbursed under the Loan Agreement.
1.20. Operating Expenses .
Operating Expenses shall mean all expenses incurred by Borrower
with respect to the Project, whether or not now foreseen,
determined on an accrual basis (including reasonably foreseeable
expenses not occurring annually), including, but not limited to,
the following: real estate taxes and special assessments (or any
substitutes hereafter collected by any governmental authority in
lieu thereof or in addition thereto), payroll taxes, federal and
state unemployment taxes and social security taxes; insurance,
including but not limited to, fire (including, but not limited to,
endorsements for extended coverage, vandalism and malicious
mischief and theft and mysterious disappearance), public liability,
water damage, worker’s compensation and business and rental
interruption insurance; water and sewer charges; license, permit
and inspection fees; costs of wages and salaries of operating
personnel including other
3
compensation
and fringe benefits; management fees pursuant to the Management
Agreement; auditors’ fees and legal fees; materials and
supplies, including charges for telephone, telegraph, postage,
stationery supplies and other materials and expenses required for
operation of the Project; repairs to and maintenance of any portion
of the Project, including costs of materials, supplies, tools and
equipment used in connection therewith and including the repaving
of parking areas, replanting of landscaped areas and replacing any
building components; costs incurred in connection with the
operation, maintenance, repair, inspection and servicing (including
outside maintenance contracts) of electrical, plumbing, heating,
air-conditioning and mechanical equipment and the cost of
materials, supplies, tools and equipment used in connection
therewith; cost of services (including heat, air conditioning,
electricity, gas, water and other utilities for the operation and
maintenance of any portion of the Project); any costs allocable to
the Project under any easements benefiting the Real Estate for
parking and/or access; and all other expenses and costs necessary
or desirable to be incurred for the purpose of operating and
maintaining the Project in good and workmanlike condition, whether
or not similar to the foregoing. Should any governmental agency or
political subdivision impose any taxes and/or assessments, whether
or not now customary or within the contemplation of the parties
hereto, either by way of substitution for taxes and assessments
presently levied and assessed against the Project, or in addition
thereto, including, but not limited to, any tax or assessment
levied, assessed or imposed upon or measured by the rental payable
hereunder, such taxes and/or assessments shall be deemed to
constitute an Operating Expense hereunder. Notwithstanding the
above, Operating Expenses shall not include: principal or interest
payments on the Note, Capital Leases, or any other obligation of
Borrower; capital improvements to the 146-room hotel located on the
Real Estate other than routine maintenance expenses; or, other
non-recurring expenses funded with non-operating cash sources,
including but not limited to loan proceeds, investor equity, or
hotel sale proceeds.
1.21. Permitted Liens and
Encumbrances . Permitted Liens and Encumbrances shall be those
liens and encumbrances permitted by Exhibit B to the
Mortgage.
1.22. Plans and Specifications
. The Plans and Specifications are the plans and specifications for
the construction of Project, as prepared by the Architect.
1.23. Project . The Project is
the construction of 146 room hotel on the Real Estate, all of which
shall be constructed in accordance with the Construction Budget and
the Plans and Specifications.
1.24. Property . The Property
is the 146-room hotel to be located on the Real Estate.
1.25. Real Estate . The Real
Estate is the real property described on EXHIBIT A ,
attached hereto.
4
1.26. Secured Assets . The
Secured Assets shall mean all of the personal property of Borrower
related to the Property as described in the General Business
Security Agreement and the Collateral Assignment of Contract
Rights.
1.27. Statement of Accounts .
Statements of Accounts shall be defined as that documentation
provided periodically by the financial institutions where cash,
marketable securities and bonds related to the Property are held in
deposit or on account for Borrower.
1.28. Subordination Agreement
. The Subordination Agreement is the Subordination, Non-Disturbance
and Attornment Agreement to be executed by Lender and the Manager
under the Management Agreement and shall be in form and content
reasonably acceptable to Lender.
1.29. Title Commitment . The
Title Commitment shall be the commitment referenced in
Section 2.5.
1.30. Title Insurance Company
. The Title Insurance Company shall be Chicago Title as approved by
Lender.
1.31. Zoning Letters . The
Zoning Letters shall be the zoning letters issued by the City
relating to Borrower’s construction and operation of the
Project on the Real Estate.
2. Conditions Precedent
. This Loan Agreement shall become effective upon satisfaction of
the conditions set forth in this Section; provided, however,
construction disbursements for the Loan shall not be made until the
conditions set forth in Section 3.1.1 and 3.1.2 are
satisfied.
2.1. Loan Documents . The
Borrower shall have executed each of the Loan Documents it is
required to execute.
2.2. Borrower’s Limited
Liability Company Documents . Borrower shall have furnished
Lender copies, certified to Lender by a manager of Borrower to be
true and correct as of the date hereof, of the Articles of
Organization and the Third Amended and Restated Operating Agreement
of Borrower, plus any amendments thereto, of Borrower and a
Borrowing Resolution authorizing the execution and delivery of the
Loan Documents. Borrower shall also deliver a satisfactory
Certificate of Existence for Borrower issued by the Secretary of
State for the State of South Dakota and a Certificate of Authority
for Borrower issued by the Secretary of State for the State of
Minnesota authorizing the Borrower to conduct business in the State
of Minnesota. Lastly, the Borrower shall furnish copies of the
following documents for The Summit Group, Inc., Borrower’s
manager: Articles of Incorporation, Bylaws and Certificate of
Existence issued by the Secretary of State for the State of South
Dakota.
2.3. Appraisal . Lender shall
have received an appraisal by an appraiser acceptable to Lender, in
its reasonable discretion, showing that as of the date of
completion, the Project and the Real Estate shall have a value of
$17,600,000.00.
5
2.4. Insurance . Borrower
shall have furnished to Lender the policies, or certificates
evidencing such policies, of insurance required in
Section 5.3.
2.5. Title Insurance .
Borrower shall have furnished to Lender a commitment for an ALTA
form of mortgage title policy and attached endorsements, as
requested by Lender, issued by the Title Insurance Company, in form
and content reasonably satisfactory to Lender to the effect that
the Title Insurance Company will issue its mortgagee’s title
policy in the amount of the Loan, insuring that Borrower owns fee
simple title to the Real Estate subject only to the Permitted Liens
and Encumbrances and insuring that the Mortgage constitutes a first
and valid lien on the Real Estate, subject only to such Permitted
Liens and Encumbrances.
2.6. Compliance with Laws .
Borrower shall have provided Lender with satisfactory evidence of
compliance by the Real Estate and the Project, with respect to both
present and contemplated future uses, of all applicable laws,
regulations, ordinances and codes, including, but not limited to,
zoning and subdivision laws, regulations, ordinances and
codes.
2.7. Approvals and Permits .
Borrower shall have provided Lender with copies of all governmental
approvals and permits required to construct the Project in
Borrower’s possession or control as of the date hereof.
2.8. Plans and Specifications
. Borrower shall have delivered, and Lender shall have the right to
approve or disapprove in its reasonable discretion, a complete set
of the Plans and Specifications to Lender.
2.9. Phase I Environmental
Assessment Report . An environmental assessment report prepared
by a qualified environmental engineer approved by Lender confirming
that the Real Estate complies with all applicable environmental
laws, rules and regulations.
2.10. Construction Budget .
Borrower shall have delivered, and Lender shall have the right to
approve or disapprove in its reasonable discretion, the
Construction Budget to Lender.
2.11. Construction Contracts .
To the extent available, Borrower shall have delivered to Lender,
and Lender shall have the right to approve or disapprove in its
reasonable discretion, certified copies of all construction
contracts, including, but not limited to, all subcontractor
contracts, necessary to complete the Project.
2.12. Disbursing Agreement .
Borrower shall have complied with all other terms and conditions of
the Disbursing Agreement.
2.13. Utilities . Borrower
shall have delivered to Lender evidence that sanitary sewer, water,
electricity, natural gas, cable television and other necessary
utilities are available to the Real Estate and the Project in a
manner and at a time and cost reasonably acceptable to
Lender.
6
2.14. Loan Fee . The Loan Fee
shall equal one half (1/2) point or (0.005%) of the Loan.
2.15. Geotechnical Evaluation
. The Borrower shall provide the Lender with a Geotechnical
Evaluation prepared by an engineer which is acceptable to Lender,
at its reasonable discretion, which report states that the soil is
sufficient for the construction of the Project.
2.16. Legal Opinion . Lender
shall receive from an attorney acceptable to Lender, a legal
opinion in form, scope and content acceptable to Lender in its sole
discretion, which may, among other things reasonably requested by
Lender, confirm the legality, validity and enforceability of the
Loan Documents.
2.17. Survey . Borrower shall
have furnished Lender with an ALTA/ASCM Survey prepared by a
licensed surveyor reasonably satisfactory to Lender, which shows
(i) all foundations, improvements, driveways and fences, if
any, on the real estate, (ii) all easements and roads of
right-of-ways and setback lines, if any, affecting the real estate,
(ii) the dimensions, boundaries and square footage of the real
estate, (iv) no encroachments by improvements on the real
estate or by improvements located on the adjoining property exist,
and (iv) such additional information that may be required by
Lender, and its reasonable discretion.
2.18. Assignment of General
Contractor’s Contract . Borrower shall have furnished
Lender with a copy of the Assignment of General Contractor’s
Contract, in form and substance reasonably acceptable to Lender,
assigning the contract for the construction of the Project with the
General Contractor to the Borrower.
2.19. Assignment of
Architect’s Contract . Borrower shall have furnished
Lender with a copy of the Assignment of Architect’s Contract,
in form and substance reasonably acceptable to Lender, assigning
the contract for the architectural services necessary to construct
the Project with the Architect to the Borrower.
2.20. Architect’s
Contract . Borrower shall have furnished Lender with a copy of
the Architect’s Contract for architectural services necessary
to construct the Project, in form and substance reasonably
acceptable to Lender.
2.21. Architect’s
Certificate . Borrower shall have furnished Lender with an
original Architect’s Certificate, in form and substance
reasonably acceptable to Lender, from the Architect relating to the
Architect’s Contract for architectural services necessary to
construct the Project.
2.22. Management Agreement .
Borrower shall have furnished and Lender shall have reviewed and
approved a certified copy of the Management Agreement. Lender
acknowledges receipt and its approval of the Management
Agreement.
2.23. Searches . Lender shall
have conducted, reviewed and approved a UCC search, federal tax
lien search, bankruptcy search, pending civil suit search and
judgment lien search of Borrower and Borrower’s manager, The
Summit Group, Inc., in those jurisdictions that Lender reasonably
requires.
7
2.24. Franchise Agreement .
Borrower shall have furnished and Lender shall have reviewed and
approved a certified copy of the Franchise Agreement. Lender
acknowledges receipt and its approval of the Franchise
Agreement.
2.25. Manager Consent to
Transaction . Manager shall have executed and delivered to
Lender a Manager’s Estoppel Affidavit pursuant to which it
shall, among other things, represent that the Management Agreement
is in effect and that the Manager shall manage the Property
pursuant to the Management Agreement.
2.26. Franchisor Consent .
Promus Hotels, Inc. shall have executed and delivered to Lender a
Comfort Letter related to the Property in the standard form used by
Promus Hotels, Inc.
2.27. Borrower’s Initial
Equity Deposit . Borrower shall have provided Lender with
evidence, satisfactory to Lender, in its sole discretion, that
Borrower has contributed $3,520,000.00 to the construction of the
Project. If Borrower has not previously contributed the amount to
Borrower’s equity as set forth in the Construction Budget,
Borrower shall deposit no later than August 11, 2006 with
Lender $3,520,000.00 (“Initial Equity Deposit”). The
Initial Equity Deposit shall be held by Lender in an interest
bearing account and shall be used to fund the construction
disbursements described herein prior to Lender disbursing any Loan
proceeds set forth herein.
2.28. Plans and Specifications
. Prior to the commencement of vertical construction, Borrower
shall have delivered to Lender, and Lender shall have the right to
approve or disapprove, in its sole discretion, a complete set of
the Plans and Specifications.
3. Loan Disbursements .
Proceeds of the Loan shall be disbursed as follows:
3.1 Construction Loan
Disbursements .
3.1.1. Periodic Disbursements
. The Loan proceeds may be disbursed in several advances in
accordance with the Disbursing Agreement and the following
conditions (except for the final disbursement of proceeds pursuant
to the Loan which shall be disbursed in accordance with
Section 3.1.2); provided the following are submitted to
Lender:
3.1.1.1. A draw request, on a
satisfactory form to Lender, in its reasonable discretion,
certified by Borrower, Architect and General Contractor setting
forth, among other things (i) an itemized list of the type of
work completed for which payment is requested, (ii) the
original estimated cost to complete such work, (iii) the
amount requested, (iv) the amount previously disbursed for
such work, (v) the estimated cost of completing such work, and
(vi) that no Event of Default exists pursuant to this Loan
Agreement, no default exists pursuant to the construction contracts
and no condition exists, with respect to the Loan Documents or
construction contracts that with the passage of time or giving of
notice, or both, would constitute an Event of Default pursuant to
the Loan Agreement or a default pursuant to the construction
contracts.
8
3.1.1.2. All other items required by
the Disbursing Agreement.
3.1.2. Final Construction
Disbursement . Subject to the terms and conditions hereof,
Lender agrees to make the final disbursement under the Loan;
provided, Lender shall be satisfied that the construction has been
completed in a good and workmanlike manner in accordance with the
Plans and Specifications and Borrower shall submit to Lender the
following:
3.1.2.1. The items required in
Section 3.1.1.
3.1.2.2. A Certificate of Completion
of the Project, in form and content satisfactory to Lender executed
by Borrower, General Contractor and Architect.
3.1.2.3. A Certificate of Occupancy
for the Project as issued by the City.
3.1.2.4. Proper update endorsements
to the Title Commitment (or the policy if issued) in the face
amount of the total sum outstanding under the Loan insuring the
Mortgage as a first lien on the Real Estate, subject only to the
Permitted Liens and Encumbrances.
3.2. Additional Conditions as to
Construction Loan Disbursements .
3.2.1. Change Orders . The
Borrower shall deliver to Lender revised statements of estimated
costs of construction of the Project showing changes in or
variations from the Construction Budget, as soon as such changes
are known to the Borrower; provided that such revised statements
are only required to cover changes involving amounts of $30,000.00
or more for individual changes, or if the aggregate cost of all
such changes is more than $100,000.00.
3.2.2. Loan In Balance .
Borrower agrees that the Loan must at all times remain in balance.
The Borrower shall from time to time furnish Lender reasonably
satisfactory evidence of the Borrower’s ability to pay for
all costs of completing the Project, and if the estimated cost of
completing the Project exceeds the then remaining balance of
proceeds available under the Loan, Borrower shall pay out of
Borrower’s own funds the next sums coming due for such work
until the Loan is brought back into balance before the Lender shall
be required to disburse any further sums hereunder.
3.2.3. Completion of
Construction . Construction of the Project shall be completed
in an orderly manner, but in any event on or before the date that
is one year from the date of commencement of construction.
9
3.2.4. Liens . Upon demand by
Lender, if any intervening liens or other matters affecting title,
which in Lender’s reasonable opinion materially jeopardize
its security interest in the Project or the Real Estate, are
disclosed by any means, Lender may withhold payment of further
advances until such intervening liens or such other matters have
been waived by Lender in writing or satisfied. Borrower shall
immediately have any such liens or such other matters satisfied of
record and the existence of any such lien or encumbrance shall, if
not removed within thirty (30) days or if adequate steps
satisfactory to Lender are not taken within thirty (30) days
to insure removal, constitute an Event of Default. Notwithstanding
the foregoing, Borrower may, in good faith and with reasonable
diligence, contest the validity or amount of any lien; provided,
Borrower provides Lender reasonable security that such lien shall
not materially jeopardize Lender’s security interest in the
Project or the Real Estate.
3.2.5. Segregation of Loan
Proceeds . Lender shall, at its option, be entitled to
segregate and earmark sufficient proceeds of the Loan for the
purpose of paying all sums due or to become due Lender under this
Agreement, including but not limited to, reasonable fees, interest,
and all out-of-pocket expenses incurred relative to this Agreement
and the Loan. Lender shall also be entitled to advance such
proceeds to itself in payment of such sums as t
| 
