Document:

exv10w1

Exhibit 10.1

CONSTRUCTION LOAN AGREEMENT

(Arizona — Income Property)

By and Between

SUMMIT HOTEL PROPERTIES, LLC,

as Borrower

and

COMPASS BANK,

as Bank

 

 

CONSTRUCTION LOAN AGREEMENT

(Arizona — Income Property)

     This Construction Loan Agreement (“Agreement”) is dated for reference purposes as of September
17, 2008, between SUMMIT HOTEL PROPERTIES, LLC, a South Dakota limited liability company (the
“Borrower”), and COMPASS BANK, an Alabama banking corporation (the “Bank”).

Factual Background

     A. Bank has agreed to make a construction loan to Borrower in the maximum principal amount
(the “Maximum Loan Amount”) of Nineteen Million Two Hundred Fifty Thousand and No/100 Dollars
($19,250,000.00) (the “Loan”). Borrower will use the Loan to construct a 164-room Courtyard
Marriott Hotel and related improvements (the “Improvements”) on real property (the “Land”) owned by
Borrower and located in Coconino County, Arizona, as described in Exhibit A. Borrower will also
use the Loan to pay other costs and expenses related to the acquisition and development of the
Land. Borrower intends to complete construction of the Improvements on or before November 17, 2009
(the “Completion Date”).

     B. The Improvements are described in plans and specifications (the “Plans and Specifications”)
which were prepared by Mind’s Eye Architecture, Inc.. The Improvements will be constructed by
Wespac Construction, Inc. (“Contractor”). Exhibit C more fully describes the Improvements and
Plans and Specifications.

     C. Borrower is executing a promissory note (the “Note”) payable to Bank evidencing the Loan.
The Note is to be secured by a Deed of Trust, Assignment of Rents and Leases, Security Agreement
and Fixture Filing (the “Deed of Trust”) covering the Land and Improvements and certain other
property. In this Agreement, the “Property” refers to all or any part of the property affected by
the Deed of Trust, or any interest in all or any part of it, as the context may require.

     D. Borrower is also executing an Environmental Indemnity Agreement (the “Borrower’s
Indemnity”) in connection with the Loan. In Borrower’s Indemnity, Borrower agrees to indemnify
Bank and certain other Indemnified Parties (as identified in that indemnity) against liability
arising from certain environmental, construction and other risks which may result from Bank making
the Loan to Borrower. Notwithstanding any provision of any Loan Document, Borrower’s obligations
under Borrower’s Indemnity are not secured by the Deed of Trust.

     E. This Agreement, the Note and the Deed of Trust, together with all of their exhibits, and
all other documents which evidence, guaranty, secure or otherwise pertain to the Loan, collectively
constitute the “Loan Documents.” The Loan Documents include the documents marked on the attached
Exhibit D.

 

 

     Therefore, Bank and Borrower agree as follows:

Agreement

1. Disbursement.

     1.1 Cost Breakdown.

          (a) Bank shall make disbursements of the Loan based on a detailed breakdown in the form
attached hereto as Exhibit B (“cost breakdown”) of construction, financing and other development
costs. The initial cost breakdown, prepared by Borrower and approved by Bank, is attached as
Exhibit B.

          (b) Borrower shall submit to Bank an updated cost breakdown on a monthly basis during the term
of the Loan. Bank shall have the right to review and approve any revised cost breakdown, which
approval shall not be unreasonably withheld or delayed. The most recently approved cost breakdown
supercedes all previously approved cost breakdowns, Bank shall make disbursements of the Loan based
on the most recently approved cost breakdown.

          (c) If Borrower shall request, except for line items in the cost breakdown relating to
interest reserve, Bank shall not unreasonably withhold its consent to the reallocation of
undisbursed sums in any line item to other line items in the budget provided all of the following
terms and conditions are satisfied:

          (i) Borrower notifies Bank of the amount of the requested reallocation;

          (ii) Such request shall be made no more frequently than once per month;

          (iii) No Event of Default shall have occurred and be continuing; and

          (iv) On an aggregate basis, all undisbursed funds in the cost breakdown category for
hard costs or soft costs must be sufficient to fully pay all amounts allocated to such
category, as determined by Bank in its reasonable discretion.

     1.2 Loan in Balance; Borrower’s Funds Account.

          (a) As a material condition of the Loan and as a condition precedent to Bank’s duty to
disburse proceeds of the Loan, Borrower shall pay all project costs in excess of the Maximum Loan
Amount. Bank shall be obligated to disburse proceeds of the Loan only when the Loan is “in
balance.” Bank shall be obligated to disburse proceeds of the Loan only at such times as Borrower
has invested sufficient funds into the payment of project costs so that, in Bank’s reasonable
judgment, the undisbursed portion of the Loan shall be sufficient to complete the Improvements and
pay all project costs (including interest reserve). The determination as to whether or not the
Loan is “in balance” may be made by Bank at any time, including with each request for a
disbursement of the Loan. Project cost categories listed as
contingencies on the cost breakdown shall be deemed to be a project cost for purposes of loan balancing, provided

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such contingency items may be reduced based on completion of construction, as determined by Bank.
Pursuant to the terms hereof, Borrower shall have the right to reallocate budget line items.
Borrower shall, within fifteen (15) days after written notice from Bank that the Loan is not “in
balance,” at Borrower’s option, either deposit with Bank in an interest bearing account being
maintained at Bank in the name of Borrower (the “Borrower’s Funds Account”), the amount necessary
to put the Loan “in balance,” or pay all project costs until such time as the Loan is “in balance.”

          (b) Borrower and Bank hereby acknowledge and agree that, in determining whether the Loan is
“in balance,” Bank shall look at project totals with respect to hard costs and soft costs and not
on an individual line item basis under any hard costs or soft costs category.

          (c) At any time, Bank may evaluate the sufficiency of undisbursed Loan funds allocated for
payment of interest (“Interest Reserve”), exercising its reasonable judgment in light of cost
overruns or change orders. Based on Bank’s evaluation of this data, the Loan may be “out of
balance.” If this happens, Bank may exercise its rights under clause (a) above, or if it so
chooses, Bank may make written demand on Borrower to pay all future interest out of Borrower’s own
funds until the Interest Reserve is sufficient in Bank’s reasonable judgment to cover any and all
such amounts which might become due during the remaining term of the Loan.

     1.3 Disbursement Conditions, Amounts and Procedures.

          The Disbursement Schedule attached as Exhibit E sets forth disbursement conditions, amounts
and procedures applicable to the Loan. Bank shall disburse the Loan as described in Exhibit E and
elsewhere in this Agreement.

     1.4 Loan Fee.

     Together with the execution hereof, Borrower shall pay to the Bank on behalf of the Bank a
loan fee in immediately available funds in the amount of One Hundred Thousand and 00/100 Dollars
($100,000.00).

     1.5 Loan Phases.

     The Loan shall consist of three phases, the “Construction Period”, the “Stabilization Period”
and the “Permanent Period”. The “Construction Period” shall consist of the construction period for
construction and completion of the Improvements, which shall commence on the date of the first
construction advance under this Agreement, not to exceed sixty (60) days after the closing date of
the Loan, and continue for a period of twelve (12) months. The “Stabilization Period” shall
commence on the end of the Construction Period and continue for a period of eighteen (18) months.
The “Permanent Period” shall commence on the end of the Stabilization Period and extend for seven
(7) years from that date.

2. Covenants of the Borrower.

     Borrower promises to keep each of the covenants set forth below, unless Bank has waived
compliance in writing.

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     2.1 Commencement and Completion of Improvements.

          (a) Borrower shall commence construction on or before November 17, 2008, and, thereafter,
diligently continue construction to completion.

          (b) By the Completion Date, Borrower shall have completed construction of all buildings and
common areas which are part of the Improvements, which shall consist of the structural components,
operating systems and all other elements of such buildings, subject to any Force Majeure Event
which shall extend the Completion Date for the same period of time as any Force Majeure Event
(subject to any time limitations in the definition of “Force Majeure Event”). The Improvements
shall be deemed complete for all purposes of this Agreement when they have been substantially
completed in accordance with the Plans and Specifications, as evidenced by the written
certification of the inspecting architect in a form reasonably satisfactory to Bank, and Bank has
received evidence reasonably satisfactory to it that:

          (i) The completed Improvements have been inspected and finally approved by the
appropriate governmental authorities;

          (ii) All costs and liens relating to the completed Improvements have been paid or
discharged.

     2.2 Requirements.

          Borrower shall construct the Improvements in a good and workmanlike manner in accordance with
sound building practices as well as the Plans and Specifications. Borrower shall comply with all
existing and future laws, regulations, orders, building codes, restrictions and requirements of,
and all agreements with and commitments to, all governmental, judicial or legal authorities having
jurisdiction over the Property, including those pertaining to the construction, sale or leasing of
the Improvements, and with all recorded covenants and restrictions affecting the Property (all
collectively, the “Requirements”).

     2.3 Changes.

          (a) Borrower agrees to provide Bank with copies of all change orders, together with all
additional documents that Bank may reasonably require. These documents may include the following:
(i) Plans and Specifications indicating the change; (ii) a written description of the change and
related working drawings; and (iii) a written estimate of the cost of the change.

          (b) Borrower shall obtain Bank’s prior written approval, which approval shall not be
unreasonably withheld or delayed, of any change in the Plans and Specifications which:

          (i) adversely affects the value of Bank’s security; or

          (ii) regardless of cost, is a material change in structure or design; or

          (iii) would delay completion of the Improvements beyond the Completion Date.

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          (c) Borrower shall also obtain Bank’s prior written approval, which approval shall not be
unreasonably withheld or delayed, of any change in the Plans and Specifications, the general
contract or any subcontract (whether positive or negative) which exceeds One Hundred Thousand and
No/100 Dollars ($100,000.00) in amount. Also, the prior written approval of Bank shall be obtained
for any change in any work or materials which, when added to all prior changes not previously
approved by Bank, exceeds Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in aggregate
amount (whether positive or negative).

          (d) In addition, Borrower shall obtain Bank’s prior written approval of all material changes
in the scope or general conditions of the Construction Contract (as such term is defined in
Exhibit C), or any other contracts for the construction of the Improvements. Finally, Borrower
shall obtain from the appropriate governmental entity all approvals of any material changes in
plans, specifications, work, materials or contracts that are required by any of the Requirements.

     2.4 Construction Information and Verification.

          (a) Bank shall have the right to request additional information from Borrower from time to
time during the term of the Loan. Bank may request the following information, if Bank, through any
inspecting architect or construction administrator, reasonably determines that there has been a
material and adverse change in the construction of the Improvements. In such case, and within
fifteen (15) days after receiving written notice from Bank, Borrower shall deliver to Bank all of
the following information and documents that Bank may reasonably request:

          (i) A current, complete and correct list showing the name, address and telephone number
of each contractor, subcontractor and material supplier engaged in connection with the
construction of the Improvements, and the total dollar amount of each contract and
subcontract (including any changes) together with the amounts paid through the date of the
list;

          (ii) True and correct copies of the most current versions of all executed contracts and
subcontracts identified in the list described in clause (i) above, including any changes;

          (iii) A current construction progress schedule showing the progress of construction and
the projected sequencing and completion times for uncompleted work, all as of the date of
the schedule; and

          (iv) Any update to any item described above, which Borrower may have previously
delivered to Bank.

          (b) Upon the occurrence and continuation of an Event of Default, or if Bank, through any
inspecting architect or construction administrator, reasonably determines that there has been a
material and adverse change in the construction of the Improvements and provides prior written
notice to Borrower, Borrower expressly authorizes Bank to contact the Architect, Contractor or any
contractor, subcontractor, material supplier, surety or any governmental authority or agency to
verify any information disclosed in accordance with this Section.

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          (c) If based on the reports of the inspecting architect and based on any construction progress
schedule or other materials submitted by Borrower, Bank, in its reasonable judgment, determines
that the Improvements will not be completed by the Completion Date, subject to a Force Majeure
Event (subject to any time limitations in the definition of “Force Majeure Event”), Bank may
request Borrower in writing to reschedule the work of construction to permit timely completion.
Within fifteen (15) days after receiving such a request from Bank, Borrower shall deliver to Bank a
revised construction progress schedule showing completion of the Improvements by the Completion
Date, subject to a Force Majeure Event (subject to any time limitations in the definition of “Force
Majeure Event”).

     2.5 Permits, Licenses and Approvals.

          Borrower shall properly obtain, comply with and keep in effect all permits, licenses and
approvals which are required to be obtained from governmental bodies in order to construct, occupy
and lease the Land and Improvements. At Bank’s request, Borrower shall promptly deliver copies of
all such permits, licenses and approvals to Bank.

     2.6 Purchase of Materials; Conditional Sales Contracts.

          Borrower shall not purchase or contract for any materials, equipment, furnishings, fixtures or
articles of personal property to be placed or installed on the Land or in any Improvements under
any security agreement or other agreement where the seller reserves or purports to reserve title or
the right of removal or repossession, or the right to consider them personal property after their
incorporation in the work of construction, unless Bank in each instance has authorized Borrower to
do so in writing.

     2.7 Site Visits; Right to Stop Work.

          (a) Bank shall have the right at any reasonable time to enter and visit the Property for the
purposes of performing an appraisal, observing the work of construction and examining all
materials, plans, specifications, working drawings and other matters relating to the construction.
For purposes of these site visits, Borrower shall at all times maintain a full set of working
drawings at the construction site or at Borrower’s office. Bank shall also have the right to
examine, copy and review the books, records, accounting data and other documents of Borrower and
its contractors in Borrower’s possession which relate to the Property or construction of the
Improvements, and in connection therewith, Bank may conduct lien waiver audits. In each instance,
Bank shall give Borrower at least one (1) business days’ prior written notice before entering the
Property. Bank shall make best faith efforts to avoid interfering with Borrower’s use of the
Property when exercising any of the rights granted in this Section.

          (b) If Bank, through any inspecting architect or construction administrator, in its reasonable
judgment, determines that any work or materials fail to conform to the Requirements, Bank may
withhold disbursements relating to any such non-conformity until the matter is corrected. If this
occurs, Borrower shall promptly correct the work to Bank’s reasonable satisfaction. No such action
by Bank shall affect Borrower’s obligation to complete the Improvements on or before the Completion
Date.

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          (c) Bank is under no duty to visit the construction site, or to observe construction or to
examine any books or records. Any site visit, observation or examination by Bank shall be solely
for the purpose of protecting Bank’s rights and interests. No site visit, observation or
examination by Bank shall impose any liability on Bank or result in a waiver of any default of
Borrower, provided, however, Bank shall be responsible and liable for its own actions during any
site visit. In no event shall any site visit, observation or examination by Bank be a
representation that there has been or shall be compliance with the Plans and Specifications, that
the construction is free from defective materials or workmanship, or that the construction complies
with the Requirements or any other applicable governmental law. Neither Borrower nor any other
party is entitled to rely on any site visit, observation or examination by Bank. Bank owes no duty
of care to protect Borrower or any other party against, or to inform Borrower or any other party
of, any negligent or defective design or construction of the Improvements, or any other adverse
condition affecting the Property.

     2.8 Protection Against Lien Claims.

          Borrower shall promptly pay or otherwise discharge all claims and liens for labor done and
materials and services furnished in connection with the construction of the Improvements. Borrower
shall have the right to contest in good faith any claim or lien, provided that it does so
diligently and without prejudice to Bank or delay in completing the Improvements. Upon Bank’s
request, Borrower shall promptly provide a bond, cash deposit or other security which Bank in the
exercise of its reasonable judgment determines to be satisfactory.

     2.9 Signs and Publicity.

          At Bank’s request, and at Bank’s cost and expense, and subject to Borrower’s review and
approval, Borrower shall post signs on the Property for the purpose of identifying Bank as the
construction lender, subject to compliance with all applicable laws and restrictions. Borrower
shall not post such signs that identify Bank as the construction lender, except with Bank’s prior
written consent in each instance.

     2.10 Insurance.

     (a) Policies of insurance evidencing bodily injury, death or property damage liability
coverages in amounts not less than $1,000,000.00 (combined single limit), and an
excess/umbrella liability coverage in an amount not less than $5,000,000.00 shall be in
effect with respect to Borrower. Such policies must be written on an occurrence basis so as
to provide blanket contractual liability, broad form property damage coverage, and coverage
for products and completed operations.

     (b) “Special Cause of Loss” insurance on the Improvements in an amount not less than
the full insurable value on a replacement cost basis of the insured Improvements. During
the construction period, such policy shall be written in the so-called “Builder’s Risk
Completed Value Non-Reporting Form” (or “Reporting Form” if the Improvements are a single
family residential development) with no coinsurance requirement and shall contain a
provision granting the insured permission to complete.

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     (c) If applicable, evidence of worker’s compensation insurance coverage reasonably
satisfactory to Bank.

     (d) If the Land, or any part thereof, lies within a “special flood hazard area” as
designated on maps prepared by the Department of Housing and Urban Development, a National
Flood Insurance Association standard flood insurance policy, plus insurance from a private
insurance carrier if necessary, for the duration of the Loan in the amount of the full
insurable value of the Improvements.

     (e) Such other insurance as Bank may reasonably require, which may include, without
limitation, rent abatement and/or business loss.

All insurance policies shall (i) be issued by an insurance company having a rating of “A”
VII or better by A.M. Best Co., in Best’s Rating Guide, (ii) name Bank as an additional
insured on all liability insurance and as mortgagee and loss payee on all casualty
insurance, (iii) provide that Bank is to receive thirty (30) days written notice prior to
non-renewal or cancellation, (iv) be evidenced by a certificate of insurance to be held by
Bank, and (v) be in form and amounts reasonably acceptable to Bank.

     2.11 Income from Property.

          Borrower shall first apply all income from leases, and all other income derived from the
Property, to pay costs and expenses associated with the ownership, maintenance, development,
operation and marketing of the Land and Improvements, including all amounts then required to be
paid under the Loan Documents, before using or applying such income for any other purpose or using
any interest reserve.

     2.12 Payment of Expenses.

          Borrower shall pay Bank’s reasonable costs and expenses incurred in connection with the
making, disbursement and administration of the Loan, as well as any revisions, extensions, renewals
or “workouts” of the Loan, and in the exercise of any of Bank’s rights or remedies under this
Agreement, except to the extent prohibited by law. Such costs and expenses for making the Loan
include charges for title insurance (including endorsements), filing, recording and escrow charges,
fees for appraisal, architectural and engineering review, construction services and environmental
services, legal fees and expenses of Bank’s counsel and any other reasonable fees and costs for
services, provided Bank may not charge Borrower for any in-house or internal reviews or functions.
Borrower acknowledges that amounts payable under this Section are not included in any loan or
commitment fees for the Loan. All such sums incurred by Bank and not immediately reimbursed by
Borrower shall be considered an additional loan to Borrower secured by the Deed of Trust and shall
bear interest at the Default Rate
provided in the Note from the date of Bank’s demand for payment. Notwithstanding anything
contained herein to the contrary, Borrower and Bank hereby acknowledge and agree that, prior to
closing the Loan, Bank shall have provided Borrower a detailed settlement statement or a list of
closing costs that will be paid by Borrower closing up the loan pursuant to the terms and
conditions of this Section 2.12. As a condition precedent to closing the Loan, the parties must

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mutually agree on the amount and items set forth on any such settlement statement or closing list.

     2.13 Financial and Other Information of Borrower.

          Borrower shall keep true and correct financial books and records, using generally accepted
accounting principles (“GAAP”), or such other accounting principles as Bank in its reasonable
judgment may find acceptable from time to time. Borrower shall provide to Bank the following:

          (a) Annual Borrower. Commencing December 31, 2008, as soon as available, and in any
event within one hundred (120) days of the end of each fiscal year of Borrower during the term of
the Loan, Borrower shall furnish to Bank Borrower’s consolidated audited annual financial
statements including balance sheet, income statement, cash flow and schedule of contingent
liabilities, in form and substance satisfactory to Bank respecting the condition of Borrower.

          (b) Quarterly Borrower. Commencing September 30, 2008, as soon as available, and, in
any event, within forty-five (45) days of the end of each fiscal quarter, during the term of the
Loan, Borrower shall cause to be furnished to Bank quarterly internally prepared on a tax basis
financial statements including balance sheet and income statement for such fiscal quarter, prepared
by Borrower in form and substance satisfactory to Bank respecting the condition of the Project.

          (c) Annual Project. Commencing December 31, 2009, as soon as available, and, in any
event, within one hundred (120) days of the end of each fiscal year, during the term of the Loan,
Borrower shall cause to be furnished to Bank internally prepared on a tax basis annual financial
statements including balance sheet and income statement, in form and substance satisfactory to Bank
respecting the condition of the Project.

          (d) Quarterly Project. Commencing March 31, 2010, as soon as available, and, in any
event, within forty-five (45) days of the end of each fiscal quarter, during the term of the Loan,
Borrower shall cause to be furnished to Bank quarterly internally prepared on a tax basis financial
statements including balance sheet and income statement for such fiscal quarter, prepared by
Borrower in form and substance satisfactory to Bank respecting the condition of the Project.

          (e) Compliance Certificate. With each such set of financial statements, a certificate
executed by the manager of Borrower (a) stating that such statements are true and correct in all
material respects, and (b) a statement that no Event of Default has occurred and is continuing or
if an Event of Default has occurred and is continuing, a statement specifying the
nature and period of existence thereof and the action that Borrower is taking or proposes to
take with respect thereto.

     2.15 Notices.

          Borrower shall promptly notify Bank in writing of:

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          (a) Any litigation affecting Borrower or any manager of Borrower where the amount claimed is
Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) or more;

          (b) Any written communication that Borrower may receive from any governmental, judicial or
legal authority, giving notice of any claim or assertion that the Land or any Improvements fail in
any respect to comply with any of the Requirements or any other applicable governmental law;

          (c) Any material and adverse change in the physical condition of the Property (including any
damage suffered as a result of earthquakes or floods) or Borrower’s financial condition or
operations;

          (d) Any material default by the Contractor or any subcontractor, material supplier or surety,
or any known material adverse change in the financial condition or operations of any of them; and

          (e) Any material default of Borrower under any other material agreement, contract or order.

     2.16 Intentionally Deleted.

     2.17 Performance of Acts.

          Upon request by Bank, Borrower shall perform all acts which may be reasonably necessary or
advisable to perfect any lien or security interest provided for in the Loan Documents or to carry
out the intent of the Loan Documents.

     2.18 Negative Covenants.

          Without Bank’s prior written consent, Borrower shall not:

          (a) engage in any business activities substantially different from Borrower’s present
business; or

          (b) liquidate or dissolve Borrower’s business.

     2.19 Transfer of Assets to a Trust.

          Borrower shall not transfer any of its properties or assets to a trust unless (a) the trust
agreement governing the trust to which the assets are to be transferred has been reviewed by the
Bank and the Bank determines in its sole discretion that such transfer will not be adverse to the
Bank’s interest and (b) the trustee of such trust issues a guaranty of payment in favor of Bank
for the Loan and all of Borrower’s obligations under the Loan Documents in such form as is
acceptable to Bank in its sole discretion.

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     2.20 Appraisals.

          (a) If required by law, or if an Event of Default occurs and is continuing, Bank shall have
the right to order appraisals of the project from time to time from an appraiser selected by Bank,
which appraisal shall comply with all federal and state standards for appraisals and otherwise
shall be satisfactory to Bank in all material respects. Borrower agrees to pay the reasonable cost
and expense for all appraisals ordered by Bank pursuant to this paragraph.

          (b) In addition to the rights under subparagraph (a) above, Bank shall have the right to order
appraisals of the project, but no more often than once per twelve (12) calendar months, commencing
after the first anniversary date of the Loan, from an appraiser selected by Bank, which appraisal
shall comply with all federal and state standards for appraisals and otherwise shall be
satisfactory to Bank in all material respects. Borrower agrees to pay the reasonable cost and
expense for all appraisals ordered by Bank pursuant to this paragraph.

     2.21 Hedge Agreement.

          All obligations of Borrower to Bank under the Loan Documents will include all obligations
incurred by the Borrower under any agreement between Borrower and Bank or any affiliate of Bank,
including, but not limited to, an ISDA Master Agreement, whether now existing or hereafter
executed, which provides for an interest rate, currency, equity, credit or commodity swap, cap,
floor or collar, spot or foreign currency exchange transaction, cross currency rate swap, currency
option, any combination or option with respect to any of the foregoing or similar transactions, for
the purpose of hedging the Borrower’s exposure to fluctuations in interest rates, exchange rates,
currency, stock, portfolio or loan valuations or commodity prices (each, a “Hedge
Agreement”).

3. Intentionally Deleted.

4. Representations and Warranties.

     Borrower promises that each representation and warranty set forth below is true, accurate and
correct as of the date of this Agreement. Each Draw Request, as defined in Section 3.1 of
Exhibit E, shall be deemed to be a reaffirmation of each and every representation and warranty made
by Borrower in this Agreement.

     4.1 Authority.

          Borrower has complied with any and all laws and regulations concerning its organization,
existence and the transaction of its business. Borrower has the right and power to own the
Property and to develop the Land and Improvements as contemplated in the Loan Documents.

     4.2 Compliance.

          Borrower is familiar and has substantially complied with all of the Requirements. Borrower
has properly obtained, or will obtain, all permits, licenses and approvals necessary to construct
or lease the Improvements in accordance with all Requirements, including those

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pertaining to zoning, and Borrower has delivered, or will deliver, true and correct copies of
them to Bank, upon Bank’s request.

     4.3 Enforceability.

          Borrower is authorized to execute, deliver and perform under the Loan Documents. The Loan
Documents are valid and binding obligations of Borrower.

     4.4 No Violation.

          Borrower is not in material violation of any law, regulation or ordinance, or any order of any
court or governmental entity. No provision or obligation of Borrower contained in any of the Loan
Documents materially violates any of the Requirements, any other applicable law, regulation or
ordinance, or any order or ruling of any court or governmental entity. No such provision or
obligation conflicts with, or constitutes a material breach or material default under, any
agreement binding or regulating the Property.

     4.5 No Claims.

          To Borrower’s actual knowledge, there are no claims, actions, proceedings or investigations
pending against Borrower or affecting the Property except for those previously disclosed by
Borrower to Bank in writing. To Borrower’s actual knowledge, there has been no threat of any such
claim, action, proceeding or investigation, except for those previously disclosed by Borrower to
Bank in writing.

     4.6 Financial Information.

          All financial information which has been and will be delivered to Bank, including all
information relating to the financial condition of Borrower or the manager of Borrower or the
Property, fairly and accurately represents the financial condition being reported on. All such
information was prepared in accordance with GAAP, unless otherwise noted. There has been no
material adverse change in any financial condition reported to Bank.

     4.7 Accuracy.

          To Borrower’s actual knowledge, all reports, documents, instruments, information and forms of
evidence which have been delivered to Bank concerning the Loan or required by the Loan Documents
are accurate, correct and sufficiently complete to give Bank true and accurate knowledge of their
subject matter. To Borrower’s actual knowledge, none of them contains any material
misrepresentation or material omission.

     4.8 Loan in Balance; Adequacy of Loan.

          The Loan is “in balance” and the undisbursed Loan funds, together with any sums provided or to
be provided by Borrower as shown in the cost breakdown, are sufficient to construct the
Improvements through completion and to accomplish the purposes contemplated by the Loan Documents.

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     4.9 Taxes.

          Borrower has filed all required state, federal and local income tax returns and has paid all
taxes which are due and payable. Borrower knows of no basis for any additional assessment of
taxes.

     4.10 Utilities.

          All utility services, including gas, water, sewage, electrical and telephone, which are
necessary to construct and occupy the Improvements are available at or within the boundaries of the
Land. In the alternative, Borrower has taken all steps necessary to assure that all utility
services will be available upon completion of the Improvements. Borrower will provide will serve
letters to Bank upon obtaining the necessary approvals for such utilities.

     4.11 Borrower Not a “Foreign Person”.

          Borrower is not a “foreign person” within the meaning of Section 1445(f)(3) of the Internal
Revenue Code of 1986, as amended from time to time.

     4.12 Intentionally Deleted.

     4.13 Maximum Loan-to-Value Ratio. Borrower agrees that (i) during the Construction
Period and the Stabilization Period, the maximum loan-to-value ratio shall not exceed 70% of the
prospective market value of the Property based on an MAI appraisal, and (ii) during the Permanent
Period, the maximum loan-to-value ratio shall not exceed 65% of the “as-stabilized” appraised value
of the Property. If Bank at any time determines that such ratios have been exceeded, Bank may make
written demand on Borrower to repay principal of the Loan in an amount sufficient, in Bank’s
reasonable judgment, to cause the maximum loan-to-value ratios to be met. Borrower shall make any
such payment of principal within thirty (30) days after Bank’s demand.

     4.14 Maximum Loan-to-Cost Ratio. Borrower agrees that (i) during the Construction
Period and the Stabilization Period, the maximum loan-to-cost ratio shall not exceed 70% of the
total Property costs, and (ii) during the Permanent Period, the maximum loan-to-cost ratio shall
not exceed 65% of the total Property costs. If Bank at any time determines that such ratios have
been exceeded, Bank may make written demand on Borrower to repay principal of the Loan in an amount
sufficient, in Bank’s reasonable judgment, to cause the maximum loan-to-cost ratios to be met.
Borrower shall make any such payment of principal within thirty (30) days after Bank’s demand.

     4.15 Debt Service Coverage Ratio. As tested on an annual basis, Borrower covenants to
comply and maintain at all times during the term of the Loan, a Debt Service Coverage Ratio of no
less than 1.50 to 1.0. As used herein, (a) “Debt Service Coverage Ratio” shall be calculated
consistent with the principles used in the preparation of the internally prepared tax-basis
financial statements, as earnings before interest, income taxes, depreciation, amortization and
non-recurring renovation/remodel expenses funded with the proceeds of a Loan or other

13

 

loans of the Borrower or other non-operating sources, divided by principal and interest payments on
the aggregate first mortgage term debt scheduled and paid during the trailing four (4) quarters.

5. Conditions Precedent to Closing.

     The following shall be conditions precedent to Bank’s obligations to close the Loan herein
contemplated. Upon closing of the Loan, the conditions set forth herein shall be deemed satisfied,
unless otherwise agreed to by Bank and Borrower.

     5.1 Financial Statements of Borrower and Other Financial Information.

          Borrower shall deliver to Bank all financial statements and other financial information
currently required under the Loan Documents, including but not limited to Section 2.13 (the
“Financial Information”), certified as being true, correct and complete in all material respects by
the Company Manager of Borrower.

     5.2 Organizational Documents.

          Borrower shall provide, at Borrower’s cost and expense, all organization documents requested
by Bank in its reasonable discretion.

     5.3 Title Insurance Commitment; Survey.

          Borrower has delivered to Bank a commitment to issue an ALTA extended coverage lender’s policy
of title insurance (the “Title Policy”) underwritten by an insurer approved by Bank, in its
reasonable discretion (the “Title Company”), in the amount of the Loan and insuring the lien of the
Deed of Trust to be a first priority lien on the Property, subject only to such exceptions and
conditions to title as Bank has approved in its reasonable discretion. Borrower has delivered to
Bank an ALTA Survey of the Land, certified to Bank, which survey shall be satisfactory to Bank in
all material respects.

     5.4 Insurance.

          Borrower shall provide evidence that there is in effect the insurance coverages set forth in
Section 2.10.

     5.5 Taxes.

          Borrower has provided to Bank evidence that all taxes and assessments levied against or
affecting the Property have been paid current; or in the event Borrower has commenced a legal or
administrative challenge to any such tax or assessment, evidence that such liability has been
bonded over, or that funds for the payment thereof (in the amount of the original assessment) have
been escrowed with an independent third party with provisions for the payment thereof reasonably
satisfactory to Bank. If requested by Bank, Borrower shall also provide a sales tax clearance
letter from the appropriate taxing authority.

14

 

     5.6 Appraisal.

          Bank shall have received, reviewed and approved, in Bank’s reasonable discretion, an appraisal
of the Property in form and content acceptable to Bank in its reasonable discretion showing that
the maximum loan-to-value ratio, using a prospective market value, does not exceed 70%, and the
maximum loan-to-cost ratio does not exceed 70%.

     5.7 Environmental Site Assessment.

          Bank shall have received, reviewed and approved, in Bank’s discretion, a Phase I Environmental
Site Assessment in form and content acceptable to Bank in its reasonable discretion. In addition,
Bank shall have received a reliance letter from the environmental engineer, which shall be
satisfactory to Bank.

     5.8 Construction Analysis.

          Bank shall have performed and approved, in its reasonable discretion, a construction analysis
as to the Property.

     5.9 General Information.

          If requested by Bank, Borrower shall provide Bank with legible copies of all ongoing
construction agreements to which Borrower is a party to for any and all construction on the
Property, (and all permits therefor, if any) for the Property.

     5.10 Loan Documents.

          Borrower shall have executed or obtained the execution of, and delivered to Bank, all
applicable documents and instruments in form and content required by Bank and its counsel,
including, without limitation, the Loan Documents listed on Exhibit D, and any and all other such
documentation reasonably required by Bank.

     5.11 Opinion Letters.

          If required by Bank, Borrower has delivered to Bank a favorable opinion from Borrower’s
independent counsel, opining to such matters as Bank may require, in form and substance reasonably
satisfactory to Bank in its reasonable discretion.

     5.12 Fees.

          Borrower has paid to Bank, in immediately available funds, all fees and costs called for under
this Agreement.

     5.13 Debt Service Coverage Ratio.

          Borrower shall provide evidence that the Property is in compliance with Section 4.15.

15

 

     5.14 Miscellaneous.

          Borrower has delivered to Bank any other item reasonably deemed necessary to Bank, and has
fulfilled any other condition reasonably required by Bank.

6. Default and Remedies.

     6.1 Events of Default.

          Borrower will be in default under this Agreement upon the occurrence of any one or more of the
following events (“Events of Default”):

          (a) Borrower fails to make any payment of principal or deposit of funds demanded by Bank under
this Agreement or any Loan Document within ten (10) days after written notice from Bank; or

          (b) Borrower fails to comply with any other covenant contained in this Agreement or any Loan
Document which calls for the payment of money, and does not cure that failure within ten (10) days
after written notice from Bank; or

          (c) Borrower becomes insolvent or the subject of any bankruptcy or other voluntary or
involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships;
provided, however, with respect to any involuntary proceeding, Borrower shall have sixty (60) days
to have such proceeding dismissed before constituting an Insolvency Proceeding or an Event of
Default hereunder (“Insolvency Proceeding”); or

          (d) Borrower dissolves, terminates or liquidates, or any of these events happens to any
managing member if Borrower is a limited liability company or to its Company Manager; or

          (e) Borrower’s Company Manager ceases for any reason to act in that capacity; or

          (f) An Accelerating Transfer (as defined in the Deed of Trust) occurs; or

          (g) Any representation or warranty made or given in any of the Loan Documents proves to be
false or misleading in any material respect; or

          (h) Construction of the Improvements is abandoned for a period of fifteen (15) consecutive
days, or construction of the Improvements is not completed within fifteen (15) days after the
Completion Date, subject to any Force Majeure Event subject to any time limitations in the
definition of “Force Majeure Event”; or

          (i) Any governmental, judicial or legal authority having jurisdiction over the Property orders
or requires that construction of the Improvements be stopped in whole or in part, or any required
approval, license or permit is withdrawn or suspended, and the order, requirement, withdrawal or
suspension remains in effect either (i) for a period of fifteen (15)

16

 

consecutive days (“Initial Cure Period”), or (ii) for a total period of thirty (30) days, so
long as Borrower begins within the Initial Cure Period and diligently continues to take steps to
remove the effect of the order, requirement, withdrawal or suspension, and Bank, exercising
reasonable judgment, determines that Borrower is reasonably likely to prevail; or

          (j) Borrower is in default under Construction Contract, any other contract for the
construction of the Improvements, either (i) for an Initial Cure Period of ten (10) consecutive
days, or (ii) for a total period of thirty (30) days, so long as Borrower begins within the Initial
Cure Period and diligently continues to cure the default, and Bank, exercising reasonable judgment,
determines that the cure cannot reasonably be completed at or before expiration of the Initial Cure
Period; or

          (k) Borrower fails to comply with any provision contained in this Agreement other than those
provisions elsewhere referred to in this Section, and does not cure that failure either (i) within
an Initial Cure Period of thirty (30) consecutive days after written notice from Bank, or
(ii) within sixty (60) days after such written notice, so long as Borrower begins within the
Initial Cure Period and diligently continues to cure the failure, and Bank, exercising reasonable
judgment, determines that the cure cannot reasonably be completed at or before expiration of the
Initial Cure Period; or

          (l) Under any of the Loan Documents, an Event of Default (as defined in that document) occurs;
or

          (m) The Bank fails to have an enforceable first lien on or security interest in any property
given as security for the Loan (except as otherwise agreed by the Bank in writing); or

          (n) A lawsuit or suits are filed against Borrower, or a judgment or judgments are entered
against Borrower, or any government authority takes action that materially adversely affects the
construction of the Improvements, Borrower’s intended use of the Property or Borrower’s ability to
repay the Loan; or

          (o) There is a material and adverse change in Borrower’s or Indemnitor’s financial condition,
or an event or condition that materially impairs the construction of the Improvements, Borrower’s
intended use of the Property or Borrower’s or Indemnitor’s ability to repay the Loan.

          (p) Borrower agrees that the occurrence of an Event of Default under the Hedge Agreement shall
constitute an Event of Default under the Note, and Bank shall thereafter have all rights and
remedies following the occurrence of an Event of Default under both the Note and the Hedge
Agreement.

          (q) Any failure, breach or default by Borrower under the Other Loans, it being the intention
and agreement of Bank and Borrower to cross-default the Loan and the Other Loans with one another.
As used in this paragraph, “Other Loans” shall mean any existing or future loans by Bank to
Borrower or related entities.

17

 

     6.2 Remedies.

          (a) If an Event of Default occurs under this Agreement, Bank may exercise any right or remedy
which they have under any of the Loan Documents, or which is otherwise available at law or in
equity or by statute, and all of Bank’s rights and remedies shall be cumulative. If any Event of
Default occurs, Bank’s obligation to lend under the Loan Documents shall automatically terminate,
and Bank in its sole discretion may withhold any one or more disbursements. No disbursement of
Loan funds by Bank shall cure any default of Borrower, unless Bank agrees otherwise in writing in
each instance.

          (b) If Borrower becomes the subject of any Insolvency Proceeding, all of Borrower’s
obligations under the Loan Documents shall automatically become immediately due and payable upon
the filing of the petition commencing such proceeding, all without notice of default, presentment
or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of
any kind or character. Upon the occurrence of any other Event of Default, all of Borrower’s
obligations under the Loan Documents may become immediately due and payable without notice of
default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other
notices or demands of any kind or character, all at Bank’s option, exercisable in its sole
discretion. If such acceleration occurs, Bank may apply the undisbursed Loan funds, and any sums
in the Account, the Borrower’s Funds Account to the obligations of Borrower under the Loan
Documents, in any order and proportions that Bank in its sole discretion may choose.

          (c) Also upon any Event of Default, Bank shall have the right in its sole discretion to enter
and take possession of the Property, whether in person, by Bank or by court-appointed receiver, and
to take any and all actions which Bank in its sole discretion may consider necessary to complete
construction of the Improvements, including making changes in plans, specifications, work or
materials and entering into, modifying or terminating any contractual arrangements, all subject to
Bank’s right at any time to discontinue any work without liability. If Bank chooses to complete
the Improvements, it shall not assume any liability to Borrower or any other person for completing
the Improvements, or for the manner or quality of construction of the Improvements, and Borrower
expressly waives any such liability. If Bank exercises any of the rights or remedies provided in
this clause (c), that exercise shall not make Bank, or cause Bank to be deemed to be, a partner or
joint venturer of Borrower. Bank in its sole discretion may choose to complete construction in its
own name. All sums which are expended by Bank in completing construction shall be considered to
have been disbursed to Borrower and shall be secured by the Deed of Trust and any other collateral
held by Bank in connection with the Loan; any sums of principal shall be considered to be an
additional loan to Borrower bearing interest at the Default Rate, as defined in the Note, and shall
be secured by the Deed of Trust and any other collateral held by Bank in connection with the Loan.
For these purposes Bank, in its sole discretion, may reallocate any line item or cost category of
the cost breakdown.

7. Jury Waiver.

     THE UNDERSIGNED AND BANK HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT,

18

 

TORT OR OTHERWISE) BETWEEN THE UNDERSIGNED AND BANK ARISING OUT OF OR IN ANY WAY RELATED TO
THIS DOCUMENT OR ANY OTHER RELATED DOCUMENT OR ANY RELATIONSHIP BETWEEN BANK AND BORROWER. THIS
PROVISION IS A MATERIAL INDUCEMENT TO BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE
OTHER LOAN DOCUMENTS.

8. Miscellaneous Provisions.

     8.1 No Waiver; Consents.

          Each waiver by Bank must be in writing, and no waiver shall be construed as a continuing
waiver. No waiver shall be implied from Bank’s delay in exercising or failure to exercise any
right or remedy against Borrower or any security. Consent by Bank to any act or omission by
Borrower shall not be construed as a consent to any other or subsequent act or omission or as a
waiver of the requirement for Bank’s consent to be obtained in any future or other instance. All
rights and remedies of Bank are cumulative.

     8.2 Purpose and Effect of Bank Approval.

          Bank’s approval of any matter in connection with the Loan shall be for the sole purpose of
protecting Bank’s security and rights. No such approval shall result in a waiver of any default of
Borrower. In no event shall Bank’s approval be a representation of any kind with regard to the
matter being approved.

     8.3 No Commitment to Increase Loan.

          From time to time, Bank may approve changes to the Plans and Specifications at Borrower’s
request, and may also require Borrower to make corrections to the work of construction (as may be
reasonably required to bring the construction into conformance with the Plans and Specifications),
all on and subject to the terms and conditions of this Agreement. Borrower acknowledges that no
such action or other action by Bank shall in any manner commit or obligate Bank to increase the
amount of the Loan.

     8.4 No Third Parties Benefited.

          This Agreement is made and entered into for the sole protection and benefit of Bank and
Borrower and their permitted successors and assigns. No trust fund is created by this Agreement
and no other persons or entities shall have any right of action under this Agreement or any right
to the Loan funds.

     8.5 Joint and Several Liability.

          If more than one person or entity is signing this Agreement as Borrower, their obligations
under this Agreement shall be joint and several.

19

 

     8.6 Notices.

          All notices given under this Agreement shall be in writing and shall be given by personal
delivery, overnight receipted courier (such as Federal Express), or by registered or certified
United States mail, postage prepaid, sent to the party at its address appearing below its
signature. Notices shall be effective upon receipt or when proper delivery is refused. Addresses
for notice may be changed by either party by notice to the other party in accordance with this
Section. Service of any notice on any one Borrower shall be effective service on Borrower for all
purposes.

     8.7 Authority to File Notices.

          Borrower irrevocably appoints Bank as its attorney-in-fact, with full power of substitution,
to file for record, at Borrower’s cost and expense and in Borrower’s name, any notices of
completion, notices of cessation of labor, or any other notices that Bank in its reasonable
discretion may consider necessary or desirable to protect its security, if Borrower fails to do so.
The appointment granted in this Section shall be deemed to be a power coupled with an interest.

     8.8 Actions.

          Bank shall have the right, but not the obligation, to commence, appear in, and defend any
action or proceeding which would affect its security or its rights, duties or liabilities relating
to the Loan, the Property, or any of the Loan Documents. Borrower shall pay promptly on demand all
of Bank’s reasonable out-of-pocket costs, expenses, and legal fees and expenses of Bank’s counsel
incurred in those actions or proceedings.

     8.9 Attorneys’ Fees.

          If any lawsuit or arbitration is commenced which arises out of or relates to this Agreement,
the Loan Documents or the Loan, including any alleged tort action, regardless of which party
commences the action, the prevailing party shall be entitled to recover from each other party such
sums as the court (but not the jury) or arbitrator may adjudge to be reasonable attorneys’ fees in
the action, arbitration, or proceeding, in addition to costs and expenses otherwise allowed by law.
Any such attorneys’ fees incurred by either party in enforcing a judgment in its favor under this
Agreement shall be recoverable separately from and in addition to any other amount included in such
judgment, and such attorneys fees obligation is intended to be severable from the other provisions
of this Agreement and to survive and not be merged into any such judgment. In all other
situations, including any matter arising out of or relating to any Insolvency Proceeding, Borrower
agrees to pay all of Bank’s costs and expenses, including reasonably attorneys’ fees, which may be
incurred in enforcing or protecting Bank’s rights or interests. From the time(s) incurred and
after thirty (30) days’ written notice by Bank until paid in full to Bank, all such sums shall bear
interest at the Default Rate.

     8.10 Governing Law and Jurisdiction.

          This Agreement and the Loan Documents shall be governed by, and construed in accordance with,
the laws of the State of Arizona. Borrower and Bank hereby submit to

20

 

jurisdiction and venue in Maricopa County, Arizona, and agrees that any and all litigation or
arbitration proceedings shall be maintained in Maricopa County, Arizona. Without limiting the
generality of the foregoing, Borrower hereby waives and agrees not to assert by way of motion,
defense, or otherwise in such suit, action, or proceeding, any claim that Borrower is not
personally subject to the jurisdiction of the courts of the State of Arizona, Maricopa County and
the United State District Court for the State of Arizona, that such suit, action, or proceeding is
brought in an inconvenient forum, or that the venue of such suit, action, or proceeding is
improper.

     8.11 Heirs, Successors and Assigns.

          The terms of this Agreement shall bind and benefit the heirs, personal representatives,
successors and assigns of the parties; provided, however, that Borrower may not assign this
Agreement or any Loan funds, or assign or delegate any of its rights or obligations, without the
prior written consent of Bank in each instance. Bank may not assign (unless Bank remains as the
agent for the Loan), but shall have the right, from time to time, to grant one or more
participations in the Loan without the Borrower’s consent or approval, so long as Bank is the sole
servicing and sole administrative agent for the Loan and Borrower shall have no obligation to deal
with any other third party.

     8.12 Relationships With Other Bank Customers.

          From time to time, Bank may have business relationships with Borrower’s customers, suppliers,
contractors, members, tenants, partners, shareholders, officers or directors, or with businesses
offering products or services similar to those of Borrower, or with persons seeking to invest in,
borrow from or lend to Borrower. Borrower agrees that Bank may extend credit to such parties and
may take any action it may deem necessary to collect the credit, regardless of the effect that such
extension or collection of credit may have on Borrower’s financial condition or operations.
Borrower further agrees that in no event shall Bank be obligated to disclose to Borrower any
information concerning any other Bank customer.

     8.13 Improvement District.

          Borrower shall not consent to, vote in favor of, or directly or indirectly advocate or assist
in the incorporation of any part of the Property into any improvement or community facilities
district, special assessment district or other district without Bank’s prior written consent in
each instance.

     8.14 Restriction on Personal Property.

          Borrower shall not sell, convey, or otherwise transfer or dispose of its interest in any
personal property in which Bank has a security interest, or contract to do any of the foregoing,
without the prior written consent of Bank in each instance, unless Borrower replaces such property
with like kind property.

21

 

     8.15 Force Majeure.

          If the work of construction is affected and delayed by matters beyond Borrower’s control,
including, without limitation, by fire, earthquake or other acts of God, strike, lockout, acts of
public enemy, riot, insurrection, or governmental regulation of the sale or transportation of
materials, supplies or labor (“Force Majeure Event”), Borrower must notify Bank in writing within
five (5) calendar days after the event occurs which causes the delay. So long as no Event of
Default has occurred and is continuing, Bank shall extend the Completion Date by a period of time
equal to the period of the delay, but not more than a total of thirty (30) days.

     8.16 Severability.

          The invalidity or unenforceability of any one or more provisions of this Agreement shall in no
way affect any other provision. If any court of competent jurisdiction determines any provision of
this Agreement or any of the other Loan Documents to be invalid, illegal or unenforceable, that
portion shall be deemed severed from the rest, which shall remain in full force and effect as
though the invalid, illegal or unenforceable portion had never been a part of the Loan Documents.

     8.17 Interpretation.

          Whenever the context requires, all words used in the singular will be construed to have been
used in the plural, and vice versa, and each gender will include any other gender. The captions of
the sections of this Agreement are for convenience only and do not define or limit any terms or
provisions. The word “include(s)” means “include(s), without limitation,” and the word “including”
means “including, but not limited to.” No listing of specific instances, items or matters in any
way limits the scope or generality of any language of this Agreement.

     8.18 Amendments.

          This Agreement may not be modified or amended except by a written agreement signed by the
parties.

     8.19 Counterparts.

          This Agreement and any attached consents or exhibits requiring signatures may be executed in
counterparts, and all counterparts shall constitute but one and the same document.

     8.20 Language of Agreement.

          The language of this Agreement shall be construed as a whole according to its fair meaning,
and not strictly for or against any party.

     8.21 Exchange of Information.

          The Borrower agrees that the Bank may exchange or disclose financial information about the
Borrower or the Property with or to any Compass Bank affiliates or other related entities.

22

 

     8.22 Survival.

          The representations, warranties, acknowledgments and agreements set forth herein shall survive
the date of this Agreement.

     8.23 Further Performance.

          Borrower, whenever and as often as they shall be requested by Bank, shall execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered such further instruments and
documents and to do any and all things as may be requested in order to carry out the intent and
purpose of this Agreement and the other Loan Documents.

     8.24 Time is of the Essence.

          Time is of the essence in the performance of this Agreement and the other Loan Documents, and
each and every term thereof.

     8.25 Recitals; Exhibits.

          The Recitals to this Agreement set forth above are true, complete, accurate and correct and
such recitals are hereby incorporated by reference. The exhibits to this Agreement are hereby
incorporated by reference.

     8.26 Integration and Relation to Loan Commitment.

          The Loan Documents (a) integrate all the terms and conditions mentioned in or incidental to
this Agreement, (b) supersede all oral negotiations and prior writings with respect to their
subject matter, including Bank’s loan commitment to Borrower, and (c) are intended by the parties
as the final expression of the agreement with respect to the terms and conditions set forth in
those documents and as the complete and exclusive statement of the terms agreed to by the parties.
No representation, understanding, promise or condition shall be enforceable against any party
unless it is contained in the Loan Documents. If there is any conflict between the terms,
conditions and provisions of this Agreement and those of any other agreement or instrument,
including any other Loan Document, the terms, conditions and provisions of this Agreement shall
prevail.

     8.27 USA PATRIOT ACT NOTIFICATION. The following notification is provided to Borrower
pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help
the government fight the funding of terrorism and money laundering
activities, Federal law requires all financial institutions to obtain,
verify, and record information that identifies each person or entity that
opens an account, including any deposit account, treasury management
account, loan, other extension of credit, or other financial services
product. What this means for Borrower: When Borrower opens an account, if
Borrower is an individual, Bank will ask for Borrower’s name, taxpayer identification number, residential

23

 

address, date of birth, and other information that will allow Bank to
identify Borrower and, if Borrower is not an individual, Bank will ask for
Borrower’s name, taxpayer identification number, business address, and other
information that will allow Bank to identify Borrower. Bank may also ask,
if Borrower is an individual, to see Borrower’s driver’s license or other
identifying documents and, if Borrower is not an individual, to see
Borrower’s legal organizational documents or other identifying documents.

     8.28 Government Regulation.

          Borrower shall not (a) be or become subject at any time to any law, regulation, or list of any
government agency (including, without limitation, the U.S. Office of Foreign Asset Control list)
that prohibits or limits Bank from making any advance or extension of credit to Borrower or from
otherwise conducting business with Borrower, or (b) fail to provide documentary and other evidence
of Borrower’s identity as may be requested by Bank at any time to enable Bank to verify Borrower’s
identity or to comply with any applicable law or regulation, including, without limitation, Section
326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.

Exhibits

Exhibit A — Legal Description

Exhibit B —  Cost Breakdown

Exhibit C — Description of Improvements, Contracts, and Plans and Specifications

Exhibit D — Loan Documents

Exhibit E — Disbursement Schedule

[SIGNATURE PAGES FOLLOW]

24

 

     IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	SUMMIT HOTEL PROPERTIES, LLC, a South

 Dakota limited
liability company	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Kerry W. Boekelheide	 	 
	 

	 	 	 	 	 	 
	 	 	Name: Kerry W. Boekelheide	 	 
	 	 	Title: Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 
	 	 	 	 	 	 
	 	 	2701 S. Minnesota Avenue, Suite #6	 	 
	 	 	Sioux Falls, South Dakota 57105	 	 
	 	 	Attn: Hulyn Farr	 	 
	 
	 	 	 	 	 	 
	 	 	With a copy to:	 	 
	 
	 	 	 	 	 	 
	 	 	Hagen, Wilka & Archer, LLP	 	 
	 	 	600 S. Main Street, Suite 102	 	 
	 	 	P.O. Box 964	 	 
	 	 	Sioux Falls, South Dakota 57104-0964	 	 
	 	 	Attn: Jennifer Larsen	 	 

 

 

	 	 	 	 	 	 	 
	 	 	COMPASS BANK, an Alabama banking corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Address:	 	 
	 
	 	 	 	 	 	 
	 	 	2850 East Camelback Road, Suite 140

Phoenix, Arizona 85016	 	 
	 
	 	 	 	 	 	 
	 	 	With a copy to:	 	 
	 
	 	 	 	 	 	 
	 	 	Snell & Wilmer l.l.p.	 	 
	 	 	One Arizona Center	 	 
	 	 	400 East Van Buren	 	 
	 	 	Phoenix, Arizona 85004-2202	 	 
	 	 	Attention: Craig K. Williams, Esq.	 	 

 

 

EXHIBIT A

 

 

EXHIBIT B — COST BREAKDOWN

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Total	 	 	Borrower	 	 	Compass	 
	Item	 	Budget	 	 	Funds	 	 	Loan	 
	Land
	 	$	3,500,000	 	 	$	3,500,000	 	 	$	0	 
	Construction Costs
	 	$	11,412,682	 	 	$	118,800	 	 	$	11,293,882	 
	Add-on
Site/Construction Costs
	 	$	2,980,000	 	 	$	2,454,585	 	 	$	525,415	 
	Architect & Engineering
	 	$	900,000	 	 	$	718,739	 	 	$	181,261	 
	Franchise Fee
	 	$	70,000	 	 	$	70,000	 	 	$	0	 
	Permits & Fees
	 	$	550,000	 	 	$	97,370	 	 	$	452,630	 
	Professional Dev./Loan Fees
	 	$	710,000	 	 	$	371,417	 	 	$	338,583	 
	Signage
	 	$	150,000	 	 	$	—	 	 	$	150,000	 
	Phone & Audio Equipment
	 	$	110,000	 	 	$	—	 	 	$	110,000	 
	PMS/POS
	 	$	91,000	 	 	$	—	 	 	$	91,000	 
	Internet High Speed
	 	$	40,000	 	 	$	—	 	 	$	40,000	 
	Interest Reserve
	 	$	1,900,000	 	 	$	849,479	 	 	$	1,050,521	 
	Fixtures,
Furniture & Equipment
	 	$	2,900,000	 	 	$	1,436	 	 	$	2,898,564	 
	Start-Up/Organization Costs
	 	$	900,000	 	 	$	38,594	 	 	$	861,406	 
	Contingency
	 	$	1,187,718	 	 	$	—	 	 	$	1,187,718	 
	 
	 	 	 	 	 	 	 	 	 	$	0	 
	TOTAL PROJECT COSTS
	 	$	27,401,400	 	 	$	8,220,420	 	 	$	19,180,980	 
	 
	 	 	 	 	 	 	 	 	 

 

 

EXHIBIT C

DESCRIPTION OF IMPROVEMENTS,

CONTRACTS, AND PLANS AND SPECIFICATIONS

(Arizona-Income Property)

     1. Improvements

          When completed, the Improvements will consist of a 164-room Courtyard Marriott Hotel located
at 2650-2800 S. Beulah Boulevard, Flagstaff, Arizona, together with all fixtures, common areas,
parking and appurtenances now or later to be located on the Land.

     2. Reserved

     3. Construction Contractor

          Borrower has engaged Wespac Construction, Inc., to act as the Contractor for the construction
of the Improvements. The Contractor’s license number is                                         . The contract between
Borrower and the Contractor governing this engagement (the “Construction Contract”) is entitled AIA
(TBD) and dated                                                             . Borrower shall require the Contractor to perform in
accordance with the terms and conditions of the Construction Contract.

     4. Plans and Specifications

          The Plans and Specifications described below were prepared by the Architect for the use of
Borrower and the Contractor in constructing the Improvements.

	 	 	 	 	 	 	 
	Job No.
 	 	Preparer
 

 

 

EXHIBIT D

LOAN DOCUMENTS

(Arizona-Income Property)

     For purposes of this Agreement, the “Loan Documents” are defined to include all documents
marked below, together with the exhibits to each of them, as one or more of them may be extended,
modified or renewed from time to time with the prior written consent of Bank in each instance. The
Loan Documents will also include any document to be executed in the future with Bank’s consent that
identifies itself in writing as a Loan Document in connection with the Loan.

     1. Credit and Security Documents

          þ This Agreement.

          þ The Note dated September 17, 2008.

          þ The Deed of Trust dated September 17, 2008.

          þ State of South Dakota Uniform Commercial Code Financing Statement Form UCC-1.

          þ Assignment of Contracts, Plans and Specifications executed by Borrower as of
September 17, 2008, and its Consents thereto.

          þ Environmental Indemnity Agreement dated September 17, 2008.

     2. Evidence of Authority

          þ Certificate authorizing Borrower to:

               þ Borrow;

executed by all of it members, authorizing the Sole Member to execute all Loan Documents on behalf
of Borrower.

          þ LLC Resolution to:

               þ Borrow on behalf of Borrower;

 

 

EXHIBIT E

DISBURSEMENT SCHEDULE

(Arizona-Income Property)

I. Conditions to Disbursement

     Before Bank becomes obligated to make any disbursement under this Agreement, all conditions to
the disbursement shall have been satisfied at Borrower’s sole cost and expense in a manner
acceptable to Bank in the exercise of its reasonable judgment.

     No waiver of any condition to disbursement shall be effective unless it is expressly made by
Bank in writing. If Bank makes a disbursement before fulfillment of one or more required
conditions, that disbursement alone shall not be a waiver of such conditions, and Bank reserves the
right to require their fulfillment before making any subsequent disbursements. If all conditions
are not satisfied, Bank, acting in its reasonable judgment, may disburse as to certain items or
categories of costs and not others.

     1.1 Loan Closing and First Disbursement

          The Bank is not required to make the first disbursement until all conditions to close the Loan
are satisfied, including, without limitation, Section 5 of this Agreement. In addition, those
conditions include the following:

          (a) Bank shall have received a Draw Request, as defined and described in Section 3.1 of this
Exhibit E.

          (b) The Deed of Trust shall have been duly recorded in a first priority lien position.

          (c) The initial cost breakdown attached to this Agreement as Exhibit B shall have been
approved by Bank, which item has been delivered to Bank and approved by Bank.

          (d) The Plans and Specifications shall have been approved by Bank.

          (e) Bank shall have received a soils report (“Soils Report”) that was prepared within three
(3) years prior to the Loan closing by a qualified registered soils engineer satisfactory to Bank
(the “Soils Engineer”) which item has been delivered to Bank and approved by Bank.

          (f) Bank shall have received, reviewed and approved, in Bank’s sole and absolute discretion,
an appraisal of the Property in form and content acceptable to Bank in its sole and absolute
discretion showing that the maximum loan-to-value and maximum loan-to-cost limitations set forth in
this Agreement will be met.

          (g) Bank shall have received, reviewed and approved, in Bank’s sole and absolute discretion, a
Phase I Environmental Site Assessment in form and content acceptable to Bank in its sole and
absolute discretion.

 

 

1.2 Subsequent Disbursements

          After having made the first disbursement, Bank shall not be required to make any further
disbursements if:

          (a) Bank fails to receive a Draw Request or Bank in its reasonable judgment considers any Draw
Request to be incomplete, based on Bank’s observations while visiting the construction site; or

          (b) The Improvements are materially damaged and not repaired, unless Bank receives funds from
Borrower or insurance proceeds sufficient to pay for all repairs in a timely manner; or

          (c) The Property or any interest in it is affected by eminent domain or condemnation
proceedings; or

          (d) For any reason the title insurer fails or refuses at Bank’s request to issue a
disbursement endorsement or its equivalent, that Bank in its reasonable judgment may require; or

          (e) A stop notice or notice of claim of lien is recorded against the Land the Improvements,
unless such lien is discharged either by the claimant upon payment by Borrower or by Borrower
recording a surety bond in accordance with applicable Arizona law, or providing other surety
reasonably acceptable to Bank; or

          (f) The Loan is “out of balance” according to Section 1.2 of this Agreement, and Borrower
fails to comply with any demand by Bank to deposit funds; or

          (g) Under any of the Loan Documents, an Event of Default (as defined in that document) has
occurred and is continuing.

II. Disbursement Amounts

     Set forth in the Loan Amount column of the cost breakdown is a “Loan Disbursement Budget”
broken down by line items. From each line item, Bank shall disburse Loan funds in a total amount
not to exceed the Loan Disbursement Budget for that line item, taking into account all prior
disbursements, any applicable retention requirements, and any reallocation of funds to which Bank
has consented. Any and all sums on deposit in the Borrower’s Funds Account (“Borrower’s Funds”)
shall be disbursed as described below.

     2.1 Disbursements of Soft Costs (Financing Related Costs)

               Bank shall make one or more disbursements from each of these line items, without retentions.

2

 

	 	2.2	 	Disbursements of Certain Hard Costs Requiring Retention (Development and
Construction Costs)

          (a) From each of these line items , Bank shall make periodic disbursements as construction
progresses. Each disbursement shall be equal to ninety percent (90%) of the amount applied for in
the applicable Draw Request. Until the conditions set forth in clause (b) below have been
satisfied, Bank shall retain the remaining undisbursed portions of all three line items, which
shall equal ten percent (10%) of the aggregate dollar amount to be disbursed by Bank from those
line items, whether consisting of Loan funds, Borrower’s Funds or a combination of both; provided,
however, upon Borrower’s request, Bank may release retention on a trade by trade basis, upon final
completion of such work, so long as (i) no Event of Default exists under the Loan Documents, (ii)
the Loan is “in balance” as determined by Bank, (iii) Bank has confirmed final completion of all
such work and received such invoices and lien waivers for such work as Bank may require, and (iv)
Borrower is otherwise in compliance with all of the terms and conditions of the Loan Documents,
including, without limitation, the disbursement terms and conditions set forth in this exhibit.

          (b) Bank shall disburse that aggregate retention upon satisfaction of the following
conditions:

          (i) The Improvements shall have been completed in accordance with Section 2.1 of this
Agreement.

          (ii) Bank shall have received evidence that a valid Notice of Completion has been
recorded.

          (iii) Bank shall have received a Draw Request for such retention, which shall include
written certification by the Contractor that the completed Improvements (excluding any
tenant improvements) conform to the Plans and Specifications.

          (iv) Borrower shall have provided endorsements to Bank’s title insurance policy
insuring lien-free completion of such Improvements as well as first-lien priority of the
disbursement.

          (v) No event may have occurred and be continuing if it is defined as an Event of
Default under any of the Loan Documents, or if the event with notice or the passage of time
would be such an Event of Default.

          (vi) If required by Bank, which requirement, if any, may be postponed until after
disbursement of retainage, Borrower has provided to Bank an “as-built” ALTA Survey of the
Property.

          (vii) If required by Bank, Borrower shall have provided to Bank executed AIA Form G706
(Contractor’s Affidavit of Payments of Debts), and AIA Form G706A (Contractor’s Affidavit of
Release of Liens).

3

 

          (viii) If required by Bank, Borrower shall have provided to Bank executed AIA Form G704
or other document satisfactory to Bank by the inspecting Contractor and Borrower.

     2.3 Disbursement of Interest Reserve

               Subject to Section 1.1(c) of the Agreement, any funds in the Interest Reserve shall be
disbursed from time to time to pay interest as and when it may become due on the Loan. All
disbursements from the Interest Reserve shall be made first from any Borrower’s Funds which may be
allocated to that line item.

III. Disbursement Procedures

          The disbursement procedures described below shall apply to the Loan funds and also to any
Borrower’s Funds which may be on deposit in the Borrower’s Funds Account.

     3.1 Draw Requests

          (a) For each disbursement, Borrower shall submit to Bank a written request signed by Borrower
and the Contractor, together with such documentation and information as Bank may reasonably require
(collectively, a “Draw Request”). For disbursements concerning line items other than Construction
Costs, Borrower shall submit a written request signed by the Borrower. Each Draw Request shall be
acceptable in form and substance to Bank in the exercise of its reasonable judgment, and shall
include such items of information and documentation, including invoices, canceled checks, lien
waivers and other evidence as Bank may require to show that Borrower is in compliance with the Loan
Documents. If Bank so requires, any given Draw Request shall also include written certification by
the Architect and the Contractor that the Improvements as constructed to date conform to the Plans
and Specifications.

          (b) In each Draw Request, Borrower shall request disbursement for one or more specified line
items of the cost breakdown. Borrower may submit a Draw Request projected to month end to Bank on
or about the twenty-fifth (25th) day of each month, unless Bank agrees to make disbursements more
frequently than once a month and agrees to complete its review of such Draw Request, and make
payment on approved Draw Requests, within seven (7) business days, subject to Force Majeure Events.
Borrower shall use all Loan funds strictly for the purposes for which they were disbursed by Bank.

          (c) Unless Borrower has notified Bank in writing to the contrary, each Draw Request shall
constitute Borrower’s representation and warranty to Bank that (i) the Loan is “in balance,” (ii)
all prior disbursements, as well as that currently being requested, were and will be used in strict
compliance with the costs breakdown, and (iii) no Event of Default has occurred.

     3.2 Debit of Loan at Closing

          As of the day the Loan closes, Bank is authorized to make payments on Borrower’s behalf by
debiting the Loan funds and disbursing such amounts to itself, as disclosed to Borrower at closing.

4

 

     3.3 Account

          Unless Bank and Borrower have otherwise agreed in writing, Bank if it so chooses may make
disbursements into Borrower’s checking account No.                                          (the “Account”),
maintained at Bank. The Account shall be non-interest-bearing.

     3.4 Disbursements to Other Parties

          Unless Bank and Borrower have otherwise agreed in writing, upon the occurrence and
continuation of an Event of Default, Bank, if it so chooses, may make disbursements directly to the
Contractor, subcontractors, laborers or material suppliers.

     3.5 Payments

          Acting in its reasonable judgment, Bank may use Loan funds to pay Loan funds owing to Bank,
interest on the Loan, reasonable legal fees and expenses of Bank’s attorneys which are payable by
Borrower, and such other sums as may be owing from time to time by Borrower to Bank with respect to
the Loan, in accordance with this Agreement, provided Bank may not charge Borrower for any in-house
or internal reviews or functions.

     3.6 Interest on Disbursements

          Interest on each disbursement, whether initiated by Borrower or Bank, shall be payable from
the time Bank debits the Loan funds in the amount of the disbursement.

     3.7 Authorized Signers

          Borrower authorizes either JoLynn Sorum or Hulyn Farr to sign all Draw Requests and other
documents in connection with the administration of the Loan.

5exv10w70

Exhibit 10.70

WARNING

Granting options to directors and officers under this plan may violate

NASD or stock exchange rules if the plan does not meet the broad based

plan exemption from shareholder approval

PC-TEL, INC.

2001 NONSTATUTORY STOCK OPTION PLAN

(NON-STOCKHOLDER APPROVED)

(as amended and restated November 7, 2008)

	 	1.	 	Purposes of the Plan. The purposes of this Nonstatutory Stock Option Plan are:

	 	•	 	to attract and retain the best available personnel for positions
of substantial responsibility,
	 
	 	•	 	to provide additional incentive to Employees, Directors and
Consultants, and
	 
	 	•	 	to promote the success of the Company’s business.
	 
	 	Options granted under the Plan will be Nonstatutory Stock Options.

	 	2.	 	Definitions. As used herein, the following definitions shall apply:

          (a) “Administrator” means the Board or any of its Committees as shall be administering
the Plan, in accordance with Section 4 of the Plan.

          (b) “Applicable Laws” means the requirements relating to the administration of stock
option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any
stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable
laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan.

          (c) “Board” means the Board of Directors of the Company.

          (d) “Code” means the Internal Revenue Code of 1986, as amended.

          (e) “Committee” means a committee of Directors appointed by the Board in accordance
with Section 4 of the Plan.

          (f) “Common Stock” means the Common Stock of the Company.

          (g) “Company” means PC-Tel, Inc., a Delaware corporation.

 

 

          (h) “Consultant” means any person, including an advisor, engaged by the Company or a
Parent or Subsidiary to render services to such entity.

          (i) “Director” means a member of the Board.

          (j) “Disability” means total and permanent disability as defined in Section 22(e)(3)
of the Code.

          (k) “Employee” means any person, including Officers, employed by the Company or any
Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the
case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. Neither service as a
Director nor payment of a director’s fee by the Company shall be sufficient to constitute
“employment” by the Company.

          (l) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (m) “Fair Market Value” means, as of any date, the value of Common Stock determined as
follows:

               (i) If the Common Stock is listed on any established stock exchange or a national market
system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of
The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or system on the day of
determination, as reported in The Wall Street Journal or such other source as the Administrator
deems reliable;

               (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between
the high bid and low asked prices for the Common Stock on the day of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems reliable;

               (iii) In the absence of an established market for the Common Stock, the Fair Market Value
shall be determined in good faith by the Administrator.

          (n) “Notice of Grant” means a written or electronic notice evidencing certain terms
and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement.

          (o) “Officer” means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

          (p) “Option” means a nonstatutory stock option granted pursuant to the Plan, that is
not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.

          (q) “Option Agreement” means an agreement between the Company and an Optionee
evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject
to the terms and conditions of the Plan.

-2-

 

          (r) “Option Exchange Program” means a program whereby outstanding options are
surrendered in exchange for options with a lower exercise price.

          (s) “Optioned Stock” means the Common Stock subject to an Option.

          (t) “Optionee” means the holder of an outstanding Option granted under the Plan.

          (u) “Parent” means a “parent corporation,” whether now or hereafter existing, as
defined in Section 424(e) of the Code.

          (v) “Plan” means this 2001 Nonstatutory Stock Option Plan.

          (w) “Service Provider” means an Employee including an Officer, Consultant or Director.

          (x) “Share” means a share of the Common Stock, as adjusted in accordance with Section
12 of the Plan.

          (y) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing,
as defined in Section 424(f) of the Code.

     3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan,
the maximum aggregate number of Shares which may be optioned and sold under the Plan is seven
hundred and fifty thousand (750,000) Shares. The Shares may be authorized, but unissued, or
reacquired Common Stock.

          If an Option expires or becomes unexercisable without having been exercised in full, or is
surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless the Plan has
terminated).

     4. Administration of the Plan.

          (a) Administration. The Plan shall be administered by (i) the Board or (ii) a
Committee, which committee shall be constituted to satisfy Applicable Laws.

          (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the
case of a Committee, subject to the specific duties delegated by the Board to such Committee, the
Administrator shall have the authority, in its discretion:

               (i) to determine the Fair Market Value of the Common Stock;

               (ii) to select the Service Providers to whom Options may be granted hereunder;

               (iii) to determine whether and to what extent Options are granted hereunder;

               (iv) to determine the number of shares of Common Stock to be covered by each Option granted
hereunder;

               (v) to approve forms of agreement for use under the Plan;

-3-

 

               (vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of
any award granted hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or the shares of Common Stock relating thereto, based in each case
on such factors as the Administrator, in its sole discretion, shall determine;

               (vii) to reduce the exercise price of any Option to the then current Fair Market Value if the
Fair Market Value of the Common Stock covered by such Option shall have declined since the date the
Option was granted;

               (viii) to institute an Option Exchange Program;

               (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan;

               (x) to prescribe, amend and rescind rules and regulations relating to the Plan, including
rules and regulations relating to sub-plans established for the purpose of qualifying for preferred
tax treatment under foreign tax laws;

               (xi) to modify or amend each Option (subject to Section 14(b) of the Plan), including the
discretionary authority to extend the post-termination exercisability period of Options longer than
is otherwise provided for in the Plan;

               (xii) to authorize any person to execute on behalf of the Company any instrument required to
effect the grant of an Option previously granted by the Administrator;

               (xiii) to determine the terms and restrictions applicable to Options;

               (xiv) to allow Optionees to satisfy withholding tax obligations by electing to have the
Company withhold from the Shares to be issued upon exercise of an Option that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of
the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is
to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be
made in such form and under such conditions as the Administrator may deem necessary or advisable;
and

               (xv) to make all other determinations deemed necessary or advisable for administering the
Plan.

          (c) Effect of Administrator’s Decision. The Administrator’s decisions, determinations
and interpretations shall be final and binding on all Optionees and any other holders of Options.

     5. Eligibility. Options may be granted to Service Providers; provided, however, that
notwithstanding anything to the contrary contained in the Plan, Options may not be granted to
Officers and Directors.

     6. Limitation. Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee’s relationship as a Service Provider with the
Company, nor

-4-

 

shall they interfere in any way with the Optionee’s right or the Company’s right to terminate
such relationship at any time, with or without cause.

     7. Term of Plan. The Plan shall become effective upon its adoption by the Board. It
shall continue in effect for ten (10) years, unless sooner terminated under Section 14 of the Plan.

     8. Term of Option. The term of each Option shall be stated in the Option Agreement.

     9. Option Exercise Price and Consideration.

          (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be determined by the Administrator, but shall be no less than one
hundred percent (100%) of the Fair Market Value per Share on the date of grant.

          (b) Waiting Period and Exercise Dates. At the time an Option is granted, the
Administrator shall fix the period within which the Option may be exercised and shall determine any
conditions which must be satisfied before the Option may be exercised.

          (c) Form of Consideration. The Administrator shall determine the acceptable form of
consideration for exercising an Option, including the method of payment. Such consideration may
consist entirely of:

               (i) cash;

               (ii) check;

               (iii) promissory note;

               (iv) surrender of other Shares (including as part of a pyramid exercise) which (A) shall be
valued at their Fair Market Value on the date of exercise, and (B) must be owned free and clear of
any liens, claims, encumbrances or security interests, if accepting such Shares, in the sole
discretion of the Administrator, shall not result in any adverse accounting consequences to the
Company;

               (v) consideration received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan;

               (vi) by a net exercise arrangement pursuant to which the Company will reduce the number of
Shares issued upon exercise by the minimum whole number of Shares with a Fair Market Value
sufficient to pay the aggregate exercise price of the exercised Shares; provided however, that if
the Fair Market Value of the withheld shares exceeds the aggregate exercise price of the exercised
Shares, the excess shall be paid to Optionee; provided, further, that Shares will no longer be
outstanding under an Option and will not be exercisable thereafter to the extent that they are (A)
used to pay the exercise price pursuant to the “net exercise,” (B) delivered to Optionee as a
result of such exercise, or (C) withheld to satisfy tax withholding obligations;

               (vii) a reduction in the amount of any Company liability to the Optionee, including any
liability attributable to the Optionee’s participation in any Company-sponsored deferred
compensation program or arrangement;

-5-

 

               (viii) such other consideration and method of payment for the issuance of Shares to the extent
permitted by Applicable Laws; or

               (ix) any combination of the foregoing methods of payment.

     10. Exercise of Option.

          (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder
shall be exercisable according to the terms of the Plan and at such times and under such conditions
as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator
provides otherwise, vesting of Options granted hereunder shall be suspended during any unpaid leave
of absence. An Option may not be exercised for a fraction of a Share.

               An Option shall be deemed exercised when the Company receives: (i) written or electronic
notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise
the Option, and (ii) full payment for the Shares with respect to which the Option is exercised.
Full payment may consist of any consideration and method of payment authorized by the Administrator
and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall
be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee
and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.

               Exercising an Option in any manner shall decrease the number of Shares thereafter available,
both for purposes of the Plan and for sale under the Option, by the number of Shares as to which
the Option is exercised.

          (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a
Service Provider, other than upon the Optionee’s death or Disability, the Optionee may exercise his
or her Option, but only within such period of time as is specified in the Option Agreement, and
only to the extent that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee’s termination. If, on the date of termination, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

          (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a
result of the Optionee’s Disability, the Optionee may exercise his or her Option within such period
of time as is specified in the Option Agreement, to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee’s termination. If, on the
date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered
by the

-6-

 

unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee
does not exercise his or her Option within the time specified herein, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.

          (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may
be exercised within such period of time as is specified in the Option Agreement (but in no event
later than the expiration of the term of such Option as set forth in the Notice of Grant), by the
Optionee’s estate or by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of death. In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12)
months following the Optionee’s termination. If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. The Option may be exercised by the executor or administrator of
the Optionee’s estate or, if none, by the person(s) entitled to exercise the Option under the
Optionee’s will or the laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

          (e) Buyout Provisions. The Administrator may at any time offer to buy out for a
payment in cash or Shares, an Option previously granted based on such terms and conditions as the
Administrator shall establish and communicate to the Optionee at the time that such offer is made.

     11. Non-Transferability of Options. Unless determined otherwise by the Administrator,
an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be exercised, during
the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as the Administrator
deems appropriate.

     12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

          (a) Changes in Capitalization. Subject to any required action by the shareholders of
the Company, the number of shares of Common Stock covered by each outstanding Option, and the
number of shares of Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered by each such
outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company shall not be deemed
to have been “effected without receipt of consideration.” Such adjustment shall be made by the
Board, whose determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common Stock subject to an
Option.

          (b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable
prior to the effective date of such proposed transaction. The Administrator in its discretion may
provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior
to

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such transaction as to all of the Optioned Stock covered thereby, including Shares as to which
the Option
would not otherwise be exercisable. In addition, the Administrator may provide that any
Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and
in the manner contemplated. To the extent it has not been previously exercised, an Option will
terminate immediately prior to the consummation of such proposed action.

          (c) Merger or Asset Sale. In the event of a merger of the Company with or into
another corporation, or the sale of substantially all of the assets of the Company, each
outstanding Option shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, the Optionee shall fully vest
in and have the right to exercise the Option as to all of the Optioned Stock, including Shares as
to which it would not otherwise be vested or exercisable. If an Option becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the Option shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such notice, and the
Option shall terminate upon the expiration of such period. For the purposes of this paragraph, the
Option shall be considered assumed if, following the merger or sale of assets, the option or right
confers the right to purchase or receive, for each Share of Optioned Stock, immediately prior to
the merger or sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock for each Share held
on the effective date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the exercise of the
Option, for each Share of Optioned Stock to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.

     13. Date of Grant. The date of grant of an Option shall be, for all purposes, the
date on which the Administrator makes the determination granting such Option, or such other later
date as is determined by the Administrator. Notice of the determination shall be provided to each
Optionee within a reasonable time after the date of such grant.

     14. Amendment and Termination of the Plan.

          (a) Amendment and Termination. The Board may at any time amend, alter, suspend or
terminate the Plan.

          (b) Effect of Amendment or Termination. No amendment, alteration, suspension or
termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise
between the Optionee and the Administrator, which agreement must be in writing and signed by the
Optionee and the Company. Termination of the Plan shall not affect the Administrator’s ability to
exercise the powers granted to it hereunder with respect to options granted under the Plan prior to
the date of such termination.

     15. Conditions Upon Issuance of Shares.

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          (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply
with Applicable Laws and shall be further subject to the approval of counsel for the Company
with respect to such compliance.

          (b) Investment Representations. As a condition to the exercise of an Option the
Company may require the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.

     16. Inability to Obtain Authority. The inability of the Company to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of
any liability in respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

     17. Reservation of Shares. The Company, during the term of this Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

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