Exhibit 10.2
TAX PROTECTION AGREEMENT
THIS TAX PROTECTION AGREEMENT (this “Agreement”) is made and entered into as of
February 10, 2011 by and among SUMMIT HOTEL OP, LP, a Delaware limited
partnership (the “Partnership”), and THE SUMMIT GROUP, INC., a South Dakota
corporation and Class B member (the “Member”) in Summit Hotel Properties, LLC, a
South Dakota limited liability company (the “Merging Entity”).
WHEREAS, pursuant to that certain Merger Agreement, dated as of August 5, 2010,
(the “Merger Agreement”), the Merging Entity will merge into the Partnership,
with the Partnership surviving, with the Member, along with the other members of
the Merging Entity, exchanging its interest in the Merging Entity for
partnership units of limited partnership interest in the Partnership (“Units”);
WHEREAS, it is intended for federal income tax purposes that the Partnership
will be treated as a continuation of the Merging Entity for federal income tax
purposes;
WHEREAS, in consideration for the agreement of the Merging Entity to consummate
the merger of the Merging Entity into the Partnership, the parties desire to
enter into this Agreement regarding certain tax matters as set forth herein; and
WHEREAS, the Partnership desires to evidence its agreement regarding amounts
that may be payable in the event of certain actions being taken by the
Partnership regarding certain debt obligations of the Partnership and its
subsidiaries.
NOW, THEREFORE, in consideration of the promises and the mutual representations,
warranties, covenants and agreements contained herein and in the Merger
Agreement, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
To the extent not otherwise defined herein, capitalized terms used in this
Agreement have the meanings ascribed to them in the Partnership Agreement (as
defined below).
          “Bottom Guarantee” has the meaning set forth in Section 2.1.
          “Closing Date” means the date on which the Merger will be effective.
          “Code” means the Internal Revenue Code of 1986, as amended.
          “Consent” means the prior written consent to do the act or thing for
which the consent is required or solicited, which consent may be executed by a
duly authorized officer or agent of the party granting such consent.
          “Deficit Restoration Obligation” means a written obligation by a
Protected Partner to restore part or all of its deficit capital account in the
Partnership upon the occurrence

 

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of certain events (which written obligation may provide for an indemnity in
favor of the general partner of the Partnership).
          “Guaranteed Amount” means the aggregate amount of each Guaranteed Debt
that is guaranteed at any time by Partner Guarantors.
          “Guaranteed Debt” means any loans incurred (or assumed) by the
Partnership or any of its subsidiaries that are guaranteed by Partner Guarantors
at any time after the Closing Date pursuant to Article 2 hereof.
          “Indirect Owner” means, in the case of a Protected Partner that is an
entity that is classified as a partnership, disregarded entity or subchapter S
corporation for federal income tax purposes, any person owning an equity
interest in such Protected Partner, and in the case of any Indirect Owner that
itself is an entity that is classified as a partnership, disregarded entity or
subchapter S corporation for federal income tax purposes, any person owning an
equity interest in such entity.
          “Liability Amount” means, for each Protected Partner, the amount set
forth next to such Protected Partner’s name on Schedule 2.1(b) hereto.
          “Nonrecourse Liability” has the meaning set forth in Treasury
Regulations Section 1.752-1(a)(2).
          “Partner Guarantors” means those Protected Partners who have
guaranteed any portion of the Guaranteed Debt.
          “Partnership” has the meaning set forth in the Preamble.
          “Partnership Agreement” means the First Amended and Restated Agreement
of Limited Partnership of the Partnership, dated as of February 14, 2011, as
amended, and as the same may be further amended in accordance with the terms
thereof.
          “Protected Partner” means those persons set forth as Protected
Partners on Schedule 2.1(a), and any person who (i) acquires Units from a
Protected Partner in a transaction in which gain or loss is not recognized in
whole or in part and in which such transferee’s adjusted basis for federal
income tax purposes is determined in whole or in part by reference to the
adjusted basis of the Protected Partner in such Units, (ii) has notified the
Partnership of its status as a Protected Partner and (iii) provides all
documentation reasonably requested by the Partnership to verify such status, but
excludes any person that ceases to be a Protected Partner pursuant to this
Agreement.
          “REIT” means Summit Hotel Properties, Inc., a Maryland corporation.
          “Tax Protection Period” means the period commencing on the Closing
Date and ending, with respect to a Protected Partner, at the earlier of such
time as (i) such Protected Partner (or one or more successor Protected Partners)
has disposed of 100% of the Units received, directly or indirectly, in the
Merger by such Protected Partner in one or more taxable

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transactions or (ii) the tenth anniversary of the closing of an underwritten
initial public offering of the common stock of the REIT.
          “Units” has the meaning set forth in the Recitals.
ARTICLE 2
ALLOCATION OF LIABILITIES; GUARANTEE AND DEFICIT RESTORATION
OBLIGATION OPPORTUNITY
     2.1 Minimum Liability Allocation. During the Tax Protection Period, the
Partnership will offer to each Protected Partner the opportunity, in the
Partnership’s discretion, either (i) to enter into a “bottom dollar guarantee”
of certain liabilities of the Partnership (substantially in the form set forth
in Schedule 2.1(c)) pursuant to which the lender for the guaranteed liability is
required to pursue all other collateral and security for the guaranteed
liability (other than any “bottom dollar guarantees”) prior to seeking to
collect on such a guarantee, and the lender shall have recourse against the
guarantee only if, and solely to the extent that, the total amount recovered by
the lender with respect to the guaranteed liability after the lender has
exhausted its remedies is less than the aggregate of the guaranteed amounts with
respect to such liability, and the maximum aggregate liability of each partner
for all guaranteed liabilities shall be limited to the amount actually
guaranteed by such partner (a “Bottom Guarantee”) or (ii) to enter into a
Deficit Restoration Obligation, in either case in such amount or amounts so as
to cause a special allocation of partnership liabilities to such Protected
Partner for purposes of Section 752 of the Code in an amount equal to such
Protected Partner’s Liability Amount (determined as of the Closing Date) and to
cause a special allocation of partnership liabilities for purposes of
Section 465 of the Code that increases the Protected Partner’s “at risk” amount
by an amount equal to such Protected Partner’s Liability Amount (determined as
of the Closing Date).
     2.2. Repayment or Refinancing of Guaranteed Debt. If the Partnership, at
any time during the Tax Protection Period applicable to a Partner Guarantor,
repays or refinances all or any portion of any Guaranteed Debt, the Partnership
will use commercially reasonable efforts to ensure that (i) after taking into
account such repayment, each Partner Guarantor would be entitled to include in
its basis for its Units an amount of Guaranteed Debt equal to its Liability
Amount, or (ii) alternatively, the Partnership, not less than thirty (30) days
prior to such repayment or refinancing, offers to the applicable Partner
Guarantor the opportunity, in the Partnership’s discretion, either (A) to enter
into a Bottom Guarantee with respect to other indebtedness of the Partnership,
or (B) to enter into a Deficit Restoration Obligation, in either case in an
amount sufficient so that, taking into account such Bottom Guarantee of such
other Partnership indebtedness or such Deficit Restoration Obligation, as
applicable, each Partner Guarantor who makes such Bottom Guarantee or enters
into a Deficit Restoration Obligation in the amount specified by the Partnership
would be entitled to include in its adjusted tax basis for its Units debt equal
to the Liability Amount (determined as of the Closing Date) for such Partner
Guarantor.
     2.3 Deficit Restoration Obligation. The Partnership will use commercially
reasonable efforts to maintain an amount of indebtedness of the Partnership that
would be

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considered “recourse” indebtedness (taking into account all of the facts and
circumstances related to the indebtedness, the Partnership and the general
partner) equal to or greater than the sum of the amounts subject to a Deficit
Restoration Obligation of all Protected Partners and other partners in the
Partnership. The Deficit Restoration Obligation shall be conclusively presumed
to cause the Protected Partner to be allocated an amount of liabilities equal to
the Deficit Restoration Obligation amount of such Protected Partner for purposes
of Sections 465 and 752 of the Code, provided that (1) the Partnership maintains
an amount of debt that is considered “recourse” indebtedness (determined for
purposes of Section 752 of the Code and taking into account all of the facts and
circumstances related to the indebtedness, the Partnership and the general
partner) equal to the aggregate Deficit Restoration Obligation amounts of all
partners of the Partnership and (2) all other terms and conditions of the
Partnership Agreement with respect to such Deficit Restoration Obligation are
met.
ARTICLE 3
REMEDIES FOR BREACH
     3.1 Monetary Damages. In the event that the Partnership breaches its
obligations set forth in Article 2 with respect to a Protected Partner the
Protected Partner’s sole right shall be to receive from the Partnership, and the
Partnership shall pay to such Protected Partner as damages, an amount equal to
the aggregate federal, state and local income taxes incurred by the Protected
Partner or an Indirect Owner as a result of the income or gain allocated to, or
otherwise recognized by, such Protected Partner with respect to its Units by
reason of such breach. For the avoidance of doubt, so long as the Partnership
provides the opportunity to a Protected Partner to enter into a Bottom Guarantee
or Deficit Restoration Obligation pursuant to the forms attached hereto or
otherwise agreed to by the parties and the Partnership uses commercially
reasonable efforts to maintain outstanding the relevant partnership liabilities
in accordance with Article 2, the Partnership shall have no liability pursuant
to this Section 3.1 in the event it is determined that a Protected Partner has
not been specially allocated for purposes of Section 752 of the Code an amount
of partnership liabilities equal to such Protected Partner’s Liability Amount or
is not treated as receiving a special allocation of partnership liabilities for
purposes of Section 465 of the Code that increases such Protected Partner’s “at
risk” amount by an amount equal to such Protected Partner’s Liability Amount.
Furthermore, the Partnership shall have no liability pursuant to this
Section 3.1 if the Partnership merges into another entity treated as a
partnership for federal income tax purposes or the Protected Partner accepts an
offer to exchange its OP Units for equity interests in another entity treated as
a partnership for federal income tax purposes so long as, in either case, such
successor entity assumes or agrees to assume the Partnership’s obligations
pursuant to this Agreement.
          For purposes of computing the amount of federal, state, and local
income taxes required to be paid by a Protected Partner (or Indirect Owner),
(i) any deduction for state income taxes payable as a result thereof actually
allowed in computing federal income taxes shall be taken into account, and
(ii) a Protected Partner’s (or Indirect Owner’s) tax liability shall be computed
using the highest federal, state and local marginal income tax rates that would
be applicable to such Protected Partner’s (or Indirect Owner’s) taxable income
(taking into account the character and type of such income or gain) for the year
with respect to which the taxes must be paid, without regard to any deductions,
losses or credits that may be available to such Protected Partner (or Indirect
Owner) that would reduce or offset its actual taxable income or

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actual tax liability if such deductions, losses or credits could be utilized by
the Protected Partner (or Indirect Owner) to offset other income, gain or taxes
of the Protected Partner (or Indirect Owner), either in the current year, in
earlier years, or in later years).
     3.2 Process for Determining Damages. If the Partnership has breached or
violated any of the covenants set forth in Article 2 (or a Protected Partner
asserts that the Partnership has breached or violated any of the covenants set
forth in Article 2), the Partnership and the Protected Partner (or Indirect
Owner) agree to negotiate in good faith to resolve any disagreements regarding
any such breach or violation and the amount of damages, if any, payable to such
Protected Partner (or Indirect Owner) under Section 3.1. If any such
disagreement cannot be resolved by the Partnership and such Protected Partner
(or Indirect Owner) within sixty (60) days after the receipt of notice from the
Partnership of such breach and the amount of income to be recognized by reason
thereof (or, if applicable, receipt by the Partnership of an assertion by a
Protected Partner that the Partnership has breached or violated any of the
covenants set forth in Article 2), the Partnership and the Protected Partner
shall jointly retain a nationally recognized independent public accounting firm
(“an Accounting Firm”) to act as an arbitrator to resolve as expeditiously as
possible all points of any such disagreement (including, without limitation,
whether a breach of any of the covenants set forth Article 2 has occurred and,
if so, the amount of damages to which the Protected Partner is entitled as a
result thereof, determined as set forth in Section 3.1). All determinations made
by the Accounting Firm with respect to the resolution of any breach or violation
of any of the covenants set forth in Article 2 and the amount of damages payable
to the Protected Partner under Section 3.1 shall be final, conclusive and
binding on the Partnership and the Protected Partner. The fees and expenses of
any Accounting Firm incurred in connection with any such determination shall be
shared equally by the Partnership and the Protected Partner, provided that if
the amount determined by the Accounting Firm to be owed by the Partnership to
the Protected Partner is more than five percent (5%) higher than the amount
proposed by the Partnership to be owed to such Protected Partner prior to the
submission of the matter to the Accounting Firm, then all of the fees and
expenses of any Accounting Firm incurred in connection with any such
determination shall be paid by the Partnership and if the amount determined by
the Accounting Firm to be owed by the Partnership to the Protected Partner is
more than five percent (5%) less than the amount proposed by the Partnership to
be owed to such Protected Partner prior to the submission of the matter to the
Accounting Firm, then all of the fees and expenses of any Accounting Firm
incurred in connection with any such determination shall be paid by the
Protected Partner.
     3.3 Required Notices; Time for Payment. In the event that there has been a
breach of Article 2, the Partnership shall provide to each affected Protected
Partner notice of the transaction or event giving rise to such breach not later
than at such time as the Partnership provides to the Protected Partners the IRS
Schedule K-1’s to the Partnership’s federal income tax return. All payments
required under this Article 3 to any Protected Partner shall be made to such
Protected Partner on or before April 15 of the year following the year in which
the gain recognition event giving rise to such payment took place; provided
that, if the Protected Partner is required to make estimated tax payments that
would include such gain (taking into account all available safe harbors), the
Partnership shall make a payment to the Protected Partner on or before the due
date for such estimated tax payment and such payment from the Partnership shall
be in an amount that corresponds to the amount of the estimated tax being paid
by such Protected

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Partner at such time. In the event of a payment required after the date required
pursuant to this Section 3.3, interest shall accrue on the aggregate amount
required to be paid from such date to the date of actual payment at a rate equal
to the “prime rate” of interest, as published in the Wall Street Journal (or if
no longer published there, as announced by Citibank, N.A.) effective as of the
date the payment is required to be made.
ARTICLE 4
AMENDMENT OF THIS AGREEMENT; WAIVER OF CERTAIN PROVISIONS;
APPROVAL OF CERTAIN TRANSACTIONS
     4.1 Amendment. This Agreement may not be amended, directly or indirectly
(including by reason of a merger between either the Partnership or the REIT and
another entity) except by a written instrument signed by the Partnership and
each of the Protected Partners to be subject to such amendment, except that the
Partnership may amend Schedules 2.1(a) and 2.1(b) upon a person becoming a
Protected Partner as a result of a transfer of Units.
     4.2 Waiver. Notwithstanding the foregoing, upon written request by the
Partnership, each Protected Partner, in its sole discretion, may waive the
payment of any damages that are otherwise payable to such Protected Partner
pursuant to Article 3 hereof. Such a waiver shall be effective only if obtained
in writing from the affected Protected Partner.
ARTICLE 5
MISCELLANEOUS
     5.1 Additional Actions and Documents. Each of the parties hereto hereby
agrees to take or cause to be taken such further actions, to execute, deliver,
and file or cause to be executed, delivered and filed such further documents,
and will obtain such consents, as may be necessary or as may be reasonably
requested in order to fully effectuate the purposes, terms and conditions of
this Agreement.
     5.2 Assignment. No party hereto shall assign its or his rights or
obligations under this Agreement, in whole or in part, except by operation of
law, without the prior written consent of the other parties hereto, and any such
assignment contrary to the terms hereof shall be null and void and of no force
and effect.
     5.3 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the Protected Partners and their respective successors
and permitted assigns, whether so expressed or not. This Agreement shall be
binding upon the Partnership and any entity that is a direct or indirect
successor, whether by merger, transfer, spin-off or otherwise, to all or
substantially all of the assets of the Partnership (or any prior successor
thereto as set forth in the preceding portion of this sentence), provided that
none of the foregoing shall result in the release of liability of the
Partnership hereunder. The Partnership covenants with and for the benefit of the
Protected Partners not to undertake any transfer of all or substantially all of
the assets of either entity (whether by merger, transfer, spin-off or otherwise)
unless the transferee has acknowledged in writing and agreed in writing to be
bound by this Agreement, provided that

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the foregoing shall not be deemed to permit any transaction otherwise prohibited
by this Agreement.
     5.4 Modification; Waiver. No failure or delay on the part of any party
hereto in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the parties hereunder are cumulative
and not exclusive of any rights or remedies which they would otherwise have. No
modification or waiver of any provision of this Agreement, nor consent to any
departure by any party therefrom, shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on any party in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances.
     5.5 Representations and Warranties Regarding Authority; Noncontravention.
The Partnership has the requisite power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement by the Partnership and the performance of each of its
obligations hereunder have been duly authorized by all necessary partnership
action on the part of the Partnership. This Agreement has been duly executed and
delivered by the Partnership and constitutes a valid and binding obligation of
the Partnership, enforceable against the Partnership in accordance with its
terms, except as such enforcement may be limited by (i) applicable bankruptcy or
insolvency laws (or other laws affecting creditors’ rights generally) or
(ii) general principles of equity. The execution and delivery of this Agreement
by the Partnership does not, and the performance of each of its respective
obligations hereunder will not, conflict with, or result in any violation of
(i) the Partnership Agreement or (ii) any other agreement applicable to the
Partnership, other than, in the case of clause (ii), any such conflicts or
violations that would not materially adversely affect the performance by the
Partnership of its obligations hereunder.
     5.6 Captions. The Article and Section headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a part
of this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
     5.7 Notices. All notices and other communications given or made pursuant
hereto shall be in writing, shall be deemed to have been duly given or made as
of the date delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:

  (i)   if to the Partnership, to:

Summit Hotel OP, LP
2701 South Minnesota Avenue, Suite 6
Sioux Falls, South Dakota 57105

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Attention: Chris Eng, Esq.
Telecopier No. (605) 362-9388

  (ii)   if to a Protected Partner, to the address on file with the Partnership.

Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Each notice, demand, request, or communication which shall be hand delivered,
sent, mailed, telecopied or telexed in the manner described above, or which
shall be delivered to a telegraph company, shall be deemed sufficiently given,
served, sent, received or delivered for all purposes at such time as it is
delivered to the addressee (with the return receipt, the delivery receipt, or
(with respect to a telecopy or telex) the answerback being deemed conclusive,
but not exclusive, evidence of such delivery) or at such time as delivery is
refused by the addressee upon presentation.
     5.8 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
     5.9 Governing Law. The interpretation and construction of this Agreement,
and all matters relating thereto, shall be governed by the laws of the State of
Delaware, without regard to the choice of law provisions thereof.
     5.10 Consent to Jurisdiction; Enforceability.
          5.10.1 This Agreement and the duties and obligations of the parties
hereunder shall be enforceable against any of the parties in the courts of the
State of South Dakota. For such purpose, each party hereto and the Protected
Partners hereby irrevocably submits to the nonexclusive jurisdiction of such
courts and agrees that all claims in respect of this Agreement may be heard and
determined in any of such courts.
          5.10.2 Each party hereto hereby irrevocably agrees that a final
judgment of any of the courts specified above in any action or proceeding
relating to this Agreement shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
     5.11 Severability. If any part of any provision of this Agreement shall be
invalid or unenforceable in any respect, such part shall be ineffective to the
extent of such invalidity or unenforceability only, without in any way affecting
the remaining parts of such provision or the remaining provisions of this
Agreement.
     5.12 Costs of Disputes. Except as otherwise expressly set forth in this
Agreement, the nonprevailing party in any dispute arising hereunder shall bear
and pay the costs and expenses (including, without limitation, reasonable
attorneys’ fees and expenses) incurred by the prevailing party or parties in
connection with resolving such dispute.
     5.13 Enforcement by Protected Partners. The Protected Partners are the
beneficiaries of this Agreement and shall be able to enforce this Agreement as
if they were parties to this Agreement.

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     IN WITNESS WHEREOF, the Partnership and the Member have caused this
Agreement to be signed by their respective officers, general partners, or
delegates thereunto duly authorized all as of the date first written above.

            SUMMIT HOTEL OP, LP,
a Delaware limited partnership
      By:   Summit Hotel GP, LLC,         a Delaware limited liability company, 
      its General Partner            By:   Summit Hotel Properties, Inc.,      
  a Maryland corporation,        its sole member            By:   /s/ Kerry W.
Boekelheide         Name:   Kerry W. Boekelheide        Title:   President     
  THE SUMMIT GROUP, INC.
a South Dakota corporation
      By:   /s/ Kerry W. Boekelheide         Name:   Kerry W. Boekelheide       
Title:   Chairman and CEO   

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SCHEDULES AND EXHIBITS TO THE TAX PROTECTION AGREEMENT

     
Schedule 2.1(a)
  List of Protected Partners
Schedule 2.1(b)
  Liability Amount
Schedule 2.1(c)
  Form of Guarantee Agreement

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Schedule 2.1(a)
List of Protected Partners
The Summit Group, Inc.

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Schedule 2.1(b)
Liability Amount

          Protected Partner   Liability Amount **/
The Summit Group, Inc.
  $ 13,763,798  

 

**/   The estimated “negative tax capital account” of a Partner in the
Partnership on the closing date of the IPO that would be recognized as a result
of the repayment of liabilities with IPO proceeds, as determined by the
Partnership in its sole discretion.

 

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Schedule 2.1(c)
Form of Guaranty 1/
GUARANTEE
     This Guarantee is made and entered into as of the __ day of _______ 20__,
by the persons listed on Exhibit A annexed hereto (the “Guarantors”) for the
benefit of the Lender set forth on Exhibit B annexed hereto and made a part
hereof (the “Lender,” which term shall include any person or entity who
hereafter holds the Note (as defined below) in accordance with the terms
thereof).
RECITALS
 

1/    This Form of the Guarantee Agreement is for Guaranteed Debt where the
following conditions all are applicable:

  (i)   there are no other guarantees in effect with respect to such Guaranteed
Debt;     (ii)   the collateral securing such Guaranteed Debt is not collateral
for any other indebtedness that is senior to or pari passu with such Guaranteed
Debt;     (iii)   no additional guarantees with respect to such Guaranteed Debt
will be entered into during the applicable Tax Protection Period;     (iv)   the
lender with respect to such Guaranteed Debt is not the Partnership or other
entity in which the Partnership owns a direct or indirect interest, the REIT,
any other partner in the Partnership, or any person related to any partner in
the Partnership as determined for purposes of Treasury Regulations
Section 1.752-2; and     (v)   none of the REIT, nor any other partner in the
Partnership, nor any person related to any partner in the Partnership as
determined for purposes of Treasury Regulations Section 1.752-2 shall have
provided, or shall thereafter provide, collateral for, or otherwise shall have
entered, or thereafter shall enter, into a relationship that would cause such
person or entity to be considered to bear risk of loss with respect to such
Guaranteed Debt, as determined for purposes of Treasury Regulations
Section 1.752-2.

          If, and to the extent that, one or more of these conditions is not
applicable, appropriate changes to the attached Form of Guaranty will be
required in order to cause the various conditions set forth in Article 2 of the
Tax Protection Agreement to be satisfied.

 

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     WHEREAS, the Lender has loaned to the borrower set forth on Exhibit B (the
“Borrower”) the amount set forth opposite such Lender’s name on Exhibit B, which
loan (i) is evidenced by the promissory note described on Exhibit C hereto (the
“Note”), (ii) has a current outstanding balance in the amount set forth on
Exhibit B annexed hereto, and (iii) is secured by a mortgage or deed of trust on
the collateral described on Exhibit D annexed hereto (the “Deed of Trust,” with
the property and other assets securing such Deed of Trust referred to as the
“Collateral”);
     WHEREAS, the Borrower is either Summit Hotel OP, LP, a Delaware limited
partnership (the “Partnership”), or a subsidiary of the Partnership in which the
Partnership owns a 98% or greater interest in the subsidiary;
     WHEREAS, the Guarantors are limited partners in the Partnership; and
     WHEREAS, the Guarantors are executing and delivering this Guarantee to
guarantee a portion of the Borrower’s payments with respect to the Note, subject
to and otherwise in accordance with the terms and conditions hereinafter set
forth.
     NOW THEREFORE, in consideration of the foregoing recitals and facts and
other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, each of the Guarantors hereby agree as follows:
     1. Guarantee and Performance of Payment.
     (a) The Guarantors hereby irrevocably and unconditionally guarantee the
collection by the Lender of, and hereby agree to pay to the Lender upon demand
(following (1) foreclosure of the Deed of Trust, exercise of the powers of sale
thereunder and/or acceptance by the Lender of a deed to the Collateral in lieu
of foreclosure, and (2) the exhaustion of the exercise of any and all remedies
available to the Lender against the Borrower, including, without limitation,
realizing upon the assets of the Borrower other than the Collateral against
which the Lender may have recourse), an amount equal to the excess, if any, of
the Guaranteed Amount set forth on Exhibit B over the Lender Proceeds (as
hereinafter defined) (which excess is referred to as the “Aggregate Guarantee
Liability”). The amounts payable by each Guarantor in respect of the guarantee
obligations hereunder shall be in the same proportion as the dollar amounts
listed next to such Guarantor’s name on Exhibit A attached hereto bears to the
total Guaranteed Amount set forth on Exhibit A, provided that, notwithstanding
anything to the contrary contained in this Guarantee, each Guarantor’s aggregate
obligation under this Guarantee shall be limited to the dollar amount set forth
on Exhibit A attached hereto next to such Guarantor’s name. The Guarantors’
obligations as set forth in this paragraph 1(a) are hereinafter referred to as
the “Guaranteed Obligations.”
     (b) For the purposes of this Guarantee, the term “Lender Proceeds” shall
mean the aggregate of (i) the Foreclosure Proceeds (as hereinafter defined) plus
(ii) all amounts collected by the Lender from the Borrower (other than payments
of principal, interest or other amounts required to be paid by the Borrower to
Lender under the terms of the Note that are paid by the Borrower to the Lender
at a time when no default has occurred under the Note and is continuing) or
realized by the Lender from the sale of assets of the Borrower other than the
Collateral.

 

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     (c) For the purposes of this Guarantee, the term “Foreclosure Proceeds”
shall have the applicable meaning set forth below with respect to the
Collateral:

  1.   If at least one bona fide third party unrelated to the Lender (and
including, without limitation, any of the Guarantors) bids for such Collateral
at a sale thereof, conducted upon foreclosure of the related Deed of Trust or
exercise of the power of sale thereunder, Foreclosure Proceeds shall mean the
highest amount bid for such Collateral by the party that acquires title thereto
(directly or through a nominee) at or pursuant to such sale. For the purposes of
determining such highest bid, amounts bid for the Collateral by the Lender shall
be taken into account notwithstanding the fact that such bids may constitute
credit bids which offset against the amount due to the Lender under the Note.  
  2.   If there is no such unrelated third-party at such sale of the Collateral
so that the only bidder at such sale is the Lender or its designee, the
Foreclosure Proceeds shall be deemed to be fair market value (the “Fair Market
Value”) of the Collateral as of the date of the foreclosure sale, as such Fair
Market Value shall be mutually agreed upon by the Lender and the Guarantor or
determined pursuant to subparagraph 1(d).     3.   If the Lender receives and
accepts a deed to the Collateral in lieu of foreclosure in partial satisfaction
of the Borrower’s obligations under the Note, the Foreclosure Proceeds shall be
deemed to be the Fair Market Value of such Collateral as of the date of delivery
of the deed-in-lieu of foreclosure, as such Fair Market Value shall be mutually
agreed upon by the Lender and the Guarantor or determined pursuant to
subparagraph 1(d).

     (d) Fair Market Value of the Collateral (or any item thereof) shall be the
price at which a willing seller not compelled to sell would sell such
Collateral, and a willing buyer not compelled to buy would purchase such
Collateral, free and clear of all mortgages but subject to all leases and
reciprocal easements and operating agreements. If the Lender and the Guarantor
are unable to agree upon the Fair Market Value of any Collateral in accordance
with subparagraphs (c)1., 2. or 3. above, as applicable, within twenty (20) days
after the date of the foreclosure sale or the delivery of the deed-in-lieu of
foreclosure, as applicable, relating to such Collateral, either party may have
the Fair Market Value of such Collateral determined by appraisal by appointing
an appraiser having the qualifications set forth below to determine the same and
by notifying the other party of such appointment within twenty (20) days after
the expiration of such twenty (20) day period. If the other party shall fail to
notify the first party, within twenty (20) days after its receipt of notice of
the appointment by the first party, of the appointment by the other party of an
appraiser having the qualifications set forth below, the appraiser appointed by
the first party shall alone make the determination of such Fair Market Value.
Appraisers appointed by the parties shall be members of the Appraisal Institute
(MAI) and shall have at least ten years’ experience in the valuation of
properties similar to the Collateral being valued in the greater metropolitan
area in which such Collateral is located. If each party shall appoint an
appraiser having the aforesaid qualifications and if such appraisers

 

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cannot, within thirty (30) days after the appointment of the second appraiser,
agree upon the determination hereinabove required, then they shall select a
third appraiser which third appraiser shall have the aforesaid qualifications,
and if they fail so to do within forty (40) days after the appointment of the
second appraiser they shall notify the parties hereto, and either party shall
thereafter have the right, on notice to the other, to apply for the appointment
of a third appraiser to the chapter of the American Arbitration Association or
its successor organization located in the metropolitan area in which the
Collateral is located or to which the Collateral is proximate or if no such
chapter is located in such metropolitan area, in the metropolitan area closest
to the Collateral in which such a chapter is located. Each appraiser shall
render its decision as to the Fair Market Value of the Collateral in question
within thirty (30) days after the appointment of the third appraiser and shall
furnish a copy thereof to the Lender and the Guarantor. The Fair Market Value of
the Collateral shall then be calculated as the average of (i) the Fair Market
Value determined by the third appraiser and (ii) whichever of the Fair Market
Values determined by the first two appraisers is closer to the Fair Market Value
determined by the third appraiser; provided, however, that if the Fair Market
Value determined by the third appraiser is higher or lower than both Fair Market
Values determined by the first two appraisers, such Fair Market Value determined
by the third appraiser shall be disregarded and the Fair Market Value of the
Collateral shall then be calculated as the average of the Fair Market Value
determined by the first two appraisers. The Fair Market Value of a Property, as
so determined, shall be binding and conclusive upon the Lender and the
Guarantors. A Guarantor shall bear the cost of its own appraiser and, subject to
subparagraph 1(e), shall bear all reasonable costs of appointing, and the
expenses of, any other appraiser appointed pursuant to this subparagraph (1)(d).
     (e) Notwithstanding anything in the preceding subparagraphs of this
paragraph 1, (i) in no event shall the aggregate amount required to be paid
pursuant to this Guarantee by the Guarantors as a group with respect to all
defaults under the Note and the Deed of Trust securing the obligations
thereunder exceed the Guaranteed Amount set forth on Exhibit B hereto, and (ii)
the aggregate obligation of each Guarantor hereunder with respect to the
Guaranteed Obligation shall be limited to the lesser of (I) the product of
(w) the Individual Guarantee Percentage for such Guarantor set forth on
Exhibit A hereto multiplied by (x) the Guaranteed Amount, or (II) the product of
(y) such Guarantor’s Individual Guarantee Percentage multiplied by (z) the
Aggregate Guarantee Liability.
     (f) In confirmation of the foregoing, and without limitation, the Lender
must first exhaust all of its rights and remedies against all property of the
Borrower as to which the Lender has (or may have) a right of recourse,
including, without limitation, the institution and prosecution to completion of
appropriate foreclosure proceedings under the Deed of Trust, before exercising
any right or remedy or making any claim, under this Guarantee.
     (g) The obligations under this Guarantee shall be personal to each
Guarantor and shall not be affected by any transfer of all or any part of a
Guarantor’s interests in the Partnership; provided, however, that if a Guarantor
has disposed of all of its equity interests in the Partnership, the obligations
of such Guarantor under this Guarantee shall terminate 12 months after the date
of such disposition (the “Termination Date”) provided (i) the Guarantor notifies
the Lender that it is terminating its obligations under this Guarantee as of the
Termination Date and (ii) the fair market value of the Collateral exceeds the
outstanding balance of the Note, including accrued and unpaid interest, as of
the Termination Date. Further, no

 

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Guarantor shall have the right to recover from the Borrower any amounts such
Guarantor pays pursuant to this Guarantee (except and only to the extent that
the amount paid to the Lender by such Guarantor exceeds the amount required to
be paid by such Guarantor under the terms of this Guarantee).
     (h) The obligations of any Guarantor who is an individual as a Guarantor
hereunder shall terminate with respect to such Guarantor one week after the
death of such Guarantor if, as a result of the death of such Guarantor, all
property held by the Guarantor on the date of death would have a basis for
federal income tax purposes equal to the fair market value of such property on
such date (unless a later date were to be elected by the executor of the
Guarantor’s estate in accordance with the applicable provisions of the Internal
Revenue Code).
     2. Intent to Benefit Lender. This Guarantee is expressly for the benefit of
the Lender. The Guarantors intend that the Lender shall have the right to
enforce the obligations of the Guarantors hereunder separately and independently
of the Borrower, subject to the provisions of paragraph 1 hereof, without any
requirement whatsoever of resort by the Lender to any other party. The Lender’s
rights to enforce the obligations of the Guarantors hereunder are material
elements of this Guarantee. This Guarantee shall not be modified, amended or
terminated (other than as specifically provided herein) without the written
consent of the Lender. The Borrower shall furnish a copy of this Guarantee to
the Lender contemporaneously with its execution.
     3. Waivers. Each Guarantor intends to bear the ultimate economic
responsibility for the payment hereof of the Guaranteed Obligations to the
extent set forth in Paragraph 1 above. Pursuant to such intent:
          (a) Except as expressly set forth in Paragraph 1 above, each Guarantor
expressly waives any right (pursuant to any law, rule, arrangement or
relationship) to compel the Lender, or any subsequent holder of the Note or any
beneficiary of the Deed of Trust to sue or enforce payment thereof or pursue any
other remedy in the power of the Borrower, the Lender or any subsequent holder
of the Note or any beneficiary of the Deed of Trust whatsoever, and failure of
the Borrower or the Lender or any subsequent holder of the Note or any
beneficiary of the Deed of Trust to do so shall not exonerate, release or
discharge a Guarantor from its absolute unconditional obligations under this
Guarantee. Each Guarantor hereby binds and obligates itself, and its permitted
successors and assignees, for performance of the Guaranteed Obligations
according to the terms hereof, whether or not the Guaranteed Obligations or any
portion thereof are valid now or hereafter enforceable against the Borrower or
shall have been incurred in compliance with any of the conditions applicable
thereto, subject, however, in all respects to the Guarantee Limit and the other
limitations set forth in paragraph 1.
          (b) Each Guarantor expressly waives any right (pursuant to any law,
rule, arrangement, or relationship) to compel any other person (including, but
not limited to, the Borrower, the Partnership, any subsidiary of the Partnership
or the Borrower, or any other partner or affiliate of the Partnership or the
Borrower) to reimburse or indemnify such Guarantor for all or any portion of
amounts paid by such Guarantor pursuant to this Guarantee to the extent such
amounts do not exceed the amounts required to be paid by such Guarantor pursuant
to paragraph 1 hereof (taking into account the limitations set forth therein).

 

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          (c) Except as expressly set forth in Paragraph 1 above, if and only to
the extent that the Borrower has made similar waivers under the Note or the Deed
of Trust, each Guarantor expressly waives: (i) the defense of the statute of
limitations in any action hereunder or for the collection or performance of the
Note or the Deed of Trust; (ii) any defense that may arise by reason of: the
incapacity, or lack of authority of the Borrower, the revocation or repudiation
hereof by such Guarantor, the revocation or repudiation of the Note or the Deed
of Trust by the Borrower, the failure of the Lender to file or enforce a claim
against the estate (either in administration, bankruptcy or any other
proceeding) of the Borrower; the unenforceability in whole or in part of the
Note, the Deed of Trust or any other document or instrument related thereto; the
Lender’s election, in any proceeding by or against the Borrower under the
federal Bankruptcy Code, of the application of Section 1111(b)(2) of the federal
Bankruptcy Code; or any borrowing or grant of a security interest under
Section 364 of the federal Bankruptcy Code; (iii) presentment, demand for
payment, protest, notice of discharge, notice of acceptance of this Guarantee or
occurrence of, or any default in connection with, the Note or the Deed of Trust,
and indulgences and notices of any other kind whatsoever, including, without
limitation, notice of the disposition of any collateral for the Note; (iv) any
defense based upon an election of remedies (including, if available, an election
to proceed by non-judicial foreclosure) or other action or omission by the
Lender or any other person or entity which destroys or otherwise impairs any
indemnification, contribution or subrogation rights of such Guarantor or the
right of such Guarantor, if any, to proceed against the Borrower for
reimbursement, or any combination thereof; (v) subject to Paragraph 4 below, any
defense based upon any taking, modification or release of any collateral or
guarantees for the Note, or any failure to create or perfect any security
interest in, or the taking of or failure to take any other action with respect
to any collateral securing payment or performance of the Note; (vi) any rights
or defenses based upon any right to offset or claimed offset by such Guarantor
against any indebtedness or obligation now or hereafter owed to such Guarantor
by the Borrower; or (vii) any rights or defenses based upon any rights or
defenses of the Borrower to the Note or the Deed of Trust (including, without
limitation, the failure or value of consideration, any statute of limitations,
accord and satisfaction, and the insolvency of the Borrower); it being intended,
except as expressly set forth in Paragraph 1 above, that such Guarantor shall
remain liable hereunder, to the extent set forth herein, notwithstanding any
act, omission or thing which might otherwise operate as a legal or equitable
discharge of any of such Guarantor or of the Borrower.
     4. Amendment of Note and Deed of Trust. Without in any manner limiting the
generality of the foregoing, the Lender or any subsequent holder of the Note or
beneficiary of the Deed of Trust may, from time to time, without notice to or
consent of the Guarantors, agree to any amendment, waiver, modification or
alteration of the Note or the Deed of Trust relating to the Borrower and its
rights and obligations thereunder (including, without limitation, renewal,
waiver or variation of the maturity of the indebtedness evidenced by the Note,
increase or reduction of the rate of interest payable under the Note, release,
substitution or addition of any Guarantor or endorser and acceptance or release
of any security for the Note), it being understood and agreed by the Lender,
however, that the Guarantor’s obligations hereunder are subject, in all events,
to the limitations set forth in Paragraph 1; provided that (i) in the event that
the Lender consents to the release of any Collateral securing the Note pursuant
to the Deed of Trust, the Guaranteed Amount shall be reduced by the Fair Market
Value of such Collateral on the date of such release (determined as set forth in
Section 1(d)); and (ii) upon any material change to the Note or the Deed of
Trust, including, without limitation, the maturity date or the

 

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interest rate of the Note, or upon any release or substitution of any Collateral
securing the Note, within thirty (30) days of any Guarantor’s receipt of actual
notice of such event, subject to the following sentence, such Guarantor may
elect to terminate such Guarantor’s obligations under this Guarantee by written
notice to the Lender. Such termination shall take effect on the 31st day
following such actual notice, provided that no default under the Guaranteed
Obligation has occurred and is then continuing.
     5. Termination of Guarantee. Subject to Paragraph 4, this Guarantee is
irrevocable as to any and all of the Guaranteed Obligations.
     6. Independent Obligations. Except as expressly set forth in Paragraph 1,
the obligations of each Guarantor hereunder are independent of the obligations
of the Borrower, and a separate action or actions may be brought by a Lender
against the Guarantors, whether or not actions are brought against the Borrower.
Each Guarantor expressly waives any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which
such Guarantor may now or hereafter have against the Borrower, or any other
person directly or contingently liable for the payment or performance of the
Note and the Deed of Trust arising from the existence or performance of this
Guarantee (including, but not limited to, the Partnership, Summit Hotel
Properties, Inc., or any other partner of the Partnership) (except and only to
the extent that a Guarantor makes a payment to the Lender in excess of the
amount required to be paid under Paragraph 1 and the limitations set forth
therein).
     7. Understanding With Respect to Waivers. Each Guarantor warrants and
represents that each of the waivers set forth above are made with full knowledge
of their significance and consequences, and that under the circumstances, the
waivers are reasonable and not contrary to public policy or law. If any of said
waivers are determined to be contrary to any applicable law or public policy,
such waiver shall be effective only to the maximum extent permitted by law.
     8. No Assignment. No Guarantor shall be entitled to assign his or her
rights or obligations under this Guarantee to any other person without the
written consent of the Lender.
     9. Entire Agreement. The parties agree that this Guarantee contains the
entire understanding and agreement between them with respect to the subject
matter hereof and cannot be amended, modified or superseded, except by an
agreement in writing signed by the parties.
     10. Notices. Any notice given pursuant to this Guarantee shall be in
writing and shall be deemed given when delivered personally, or sent by
registered or certified mail, postage prepaid, as follows:
     If to the Partnership:
Summit Hotel OP, LP
2701 South Minnesota Avenue, Suite 6
Sioux Falls, South Dakota 57105
Attention: Chris Eng, Esq.
Telecopier No. (605) 362-9388

 

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or to such other address with respect to which notice is subsequently provided
in the manner set forth above; and
     If to a Guarantor, to the address set forth on Exhibit A hereto, or to such
other address with respect to which notice is subsequently provided in the
manner set forth above.
     11. Applicable Law. This Guarantee shall be governed by, interpreted under
and construed in accordance with the laws of the State of Delaware without
reference to its choice of law provisions.
     12. Consent to Jurisdiction; Enforceability
          (a) This Guarantee and the duties and obligations of the parties
hereto shall be enforceable against each Guarantor in the courts of the State of
South Dakota. For such purpose, each Guarantor hereby irrevocably submits to the
nonexclusive jurisdiction of such courts and agrees that all claims in respect
of this Guarantee may be heard and determined in any of such courts.
          (b) Each Guarantor hereby irrevocably agrees that a final judgment of
any of the courts specified above in any action or proceeding relating to this
Guarantee shall be conclusive and may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by law.
     13. Condition of Borrower. Each Guarantor is fully aware of the financial
condition of the Borrower and is executing and delivering this Guarantee based
solely upon its own independent investigation of all matters pertinent hereto
and is not relying in any manner upon any representation or statement of the
Lender or the Borrower. Each Guarantor represents and warrants that it is in a
position to obtain, and hereby assumes full responsibility for obtaining, any
additional information concerning the Borrower’s financial conditions and any
other matter pertinent hereto as it may desire, and it is not relying upon or
expecting the Lender to furnish to it any information now or hereafter in the
Lender’s possession concerning the same. By executing this Guarantee, each
Guarantor knowingly accepts the full range of risks encompassed within a
contract of this type, which risks it acknowledges.
     14. Expenses. Each Guarantor agrees that, promptly after receiving Lender’s
notice therefor, such Guarantor shall reimburse Lender, subject to the
limitation set forth in subparagraph 1(e) and to the extent that such
reimbursement is not made by Borrower, for all reasonable expenses (including,
without limitation, reasonable attorneys’ fees and disbursements) incurred by
Lender in connection with the collection of the Guaranteed Obligations or any
portion thereof or with the enforcement of this Guarantee.

 

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     IN WITNESS WHEREOF, the undersigned Guarantors set forth on Exhibit A
hereto have executed this Guarantee as of the date first set forth above.

            GUARANTORS SET FORTH ON
EXHIBIT A HERETO:
      By:               By:               By:               By:              
By:                      

 

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Exhibit A to Guarantee

          Name and Address of Partner Guarantors   Guaranteed Amount
 
       
Guarantors, as a group
  $    

     
Individual Guarantors:
  Individual
Guarantee
Percentage

 

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Exhibit B to Guarantee

                          Date of and                 Principal Amount   Debt
Balance as of   Guaranteed Name of Lender   Name of Borrower   of Loan  
__/__/__   Amount
 
               

 

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Exhibit C to Guarantee
Copy of Note

 

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Exhibit D to Guarantee
Identification of Deed of Trust and
Brief Summary Description of Collateral

14