LOAN AGREEMENT
Exhibit 10.1
Between
DLORAH, INC.
And
CENTER FOR EXCELLENCE IN
HIGHER EDUCATION, INC.
Dated May 10, 2019
This
Loan Agreement (“Agreement”)
is dated May 10, 2019, and is by and between DLORAH, INC. d/b/a NATIONAL AMERICAN
UNIVERSITY, a South Dakota corporation (“Borrower”),
and CENTER FOR EXCELLENCE IN HIGHER
EDUCATION, INC., an Indiana non-profit corporation
(“Lender”).
WHEREAS, as of the date hereof, Borrower
has requested from Lender a term loan in an original principal
amount not to exceed Eight Million Five Hundred Thousand and No/100
Dollars ($8,500,000.00) (the “Loan”);
WHEREAS, Lender is willing to make the
Loan to Borrower upon the following terms and conditions;
and
NOW, THEREFORE, in consideration of the
mutual covenants and agreements contained herein, and other good
and valuable consideration, the receipt and sufficiency of which is
hereby expressly acknowledged by the parties, the parties hereto
hereby agree as follows:
ARTICLE I
The
terms defined in this Article I (except as otherwise expressly
provided elsewhere in this Agreement) shall have the following
meanings for purposes of this Agreement:
Account Control Agreement. The
term “Account Control
Agreement” shall mean the Account Control Agreement
between Borrower and Lender date May 10, 2019, executed to grant a
perfected security interest in the Letter of Credit Collateral
Account, to secure the repayment of the Indebtedness.
Bank. The term
“Bank” shall
mean Black Hills Community Bank, N.A., or such other bank that
issues the Letter of Credit.
Business Day. The term
“Business
Day” shall mean any day other than a Saturday, Sunday,
legal holiday or other day upon which banks in the State of South
Dakota are closed to business generally.
Change in Control. The term
“Change in
Control” shall mean any change (by way of transfers of
stock) in any shareholder that directly or indirectly controls the
day to day operations and management of Borrower or owns a
controlling interest in Borrower, provided, any transfers for
internal organizational or personal tax or estate purpose will be
permitted as long as Borrower gives Lender prior written notice of
same.
1
Closing Date. The term
“Closing
Date” means the effective date of this Agreement, the
Note, the Account Control Agreement, and other documents evidencing
the Loan and the real estate subject to the mortgage.
Collateral. The term
“Collateral”
shall mean collectively each and every item of security for the
payment of the Indebtedness to Lender whether now or at any time
granted or delivered, whether real or personal, as described in the
Account Control Agreement, the Aircraft and Engine Security
Agreement, and the Partnership Security Agreement. At no time will
the Collateral include any accounts containing federal student
financial aid funds of the U.S. Department of Education, or any
other student financial aid funds advanced to Borrower by any other
federal or state governmental entity, in each case where such funds
are possessed by Borrower solely in a fiduciary capacity pending
subsequent disbursement to Borrower or to eligible students in
accordance with applicable law.
Default. The term
“Default”
shall mean any event, which together with any lapse of time or
giving of any notice, or both, would constitute an Event of
Default.
Default Rate. The term
“Default
Rate” shall mean the rate of interest equal to ten
percent per annum (10%).
Xxxxxxxxx. The term
“Xxxxxxxxx”
means Xxxxxxxxx Mortgage LLC, a Delaware limited liability
company.
Event of Default. The term
“Event of
Default” shall mean the occurrence of any of the
events specified in Section 7.1 of this Agreement.
Financial Statements. The term
“Financial
Statements” shall mean such balance sheets, profit and
loss statements, reconciliations of capital and surplus, changes in
financial condition, schedules of sources and application of funds,
and other financial information of Borrower as shall be reasonably
required by Lender, from time to time, which statements, if
reasonably required by Lender, shall be certified to by an
independent certified public accountant.
Financing Statements. The term
“Financing
Statements” shall mean the Form UCC-1 or nonconforming
financial statements prepared to perfect security interests to
secure the Loan to be filed with the appropriate offices for the
perfection of a security interest in any personalty or fixtures
pledge to secure the Loan.
GAAP. The term
“GAAP”
shall mean generally accepted accounting principles applied on a
consistent basis as set forth in the opinions of the Accounting
Principles Board of American Institute of Certified Public
Accountants and/or statements of the Financial Accounting Standards
Board and/or in such other statements by such other entity as
Lender may approve.
Indebtedness. The term
“Indebtedness”
shall mean and include any and all: (i) indebtedness, obligations
and liabilities of Borrower to Lender now in existence and which
may be incurred or purportedly incurred hereafter under or pursuant
to the terms of this Agreement, including such amounts as may be
evidenced by the Note and all lawful interest and other charges and
all court costs, reasonable attorney’s fees and other
collection costs incurred with respect thereto; (ii) costs and
expenses paid or incurred by Lender in enforcing or attempting to
enforce collection of the foregoing and in enforcing or realizing
upon or attempting to enforce or realize upon any Collateral or
security therefor, including interest on all sums so expended by
Lender from the date of such expenditure at an annual rate equal to
the Default Rate; and (iii) sums expended by Lender in curing any
Event of Default under the terms of this Agreement or any security
agreement or other writing evidencing or securing the payment of
the Note or other debt secured hereby together with interest on the
amount of each such expenditure from the date thereof at an annual
rate equal to the Default Rate.
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Interest
Rate. The term
“Interest
Rate” shall
mean:
(1)
7%
per annum, until the scheduled Maturity Date.
(2)
on
and after Maturity Date, the Default Rate.
Intercreditor Agreement. The
term “Intercreditor
Agreement” shall mean that certain Intercreditor
Agreement entered into by and between Borrower, Lender, and Bank,
which agreement memorializes the agreements among the parties that
the Lender have a Lien on the Letter of Credit Collateral Account
but such Lien shall be subordinate in all respects to the Letter of
Credit Obligations and all other indebtedness of Borrower with
Bank.
Interest Expense. The term
“Interest
Expense” means, for any period and as to any Person,
the Person’s interest expense determined in conformity with
GAAP.
Laws. The term
“Laws”
shall mean all statutes, laws, ordinances, regulations, orders,
writs, injunctions, decrees of the United States, any state or
commonwealth, any municipality, any foreign country, any territory
or possession, or any Tribunal.
Letter of Credit. The term
“Letter of
Credit” shall mean a letter of credit issued for the
benefit of the United States Department of Education in the amount
of Seven Million Three Hundred Thirty Thousand Five Hundred
Fifty-Seven Dollars ($7,330,557.00).
Letter of Credit Obligations.
The term “Letter of Credit
Obligations” shall mean the obligation of the Borrower
to Bank pursuant to the business loan agreement and related
documents executed by the Borrower to obtain the Letter of
Credit.
Letter of Credit Collateral
Account. The term “Letter of Credit
Collateral Account” shall mean CD Account Number
210294 with Bank with an approximate balance of $7,375,000 or cash
equivalent proceeds deposited by Borrower, upon which Lender
maintains a valid security interest or control.
Loan. The term
“Loan”
is defined in the recitals of this Agreement.
Loan Documents. The term
“Loan
Documents” shall mean this Agreement, the Note, the
Account Control Agreement, the Mortgage, the Absolute Assignment of
Leases and Rents, Aircraft and Engine Security Agreement,
Partnership Security Agreement, the Financing Statement, the
Intercreditor Agreement, and all other documents, instruments and
certificates to be executed by Borrower evidencing or securing the
Indebtedness pursuant to the terms of this Agreement.
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Material Adverse Effect. The
term “Material Adverse
Effect” shall mean any set of circumstances or events
which (i) prevents or will prevent Borrower from materially
performing its obligations (including, without limitation, payment
obligations hereunder) under the Loan Documents; or (ii) will cause
an Event of Default.
Maturity Date. The term
“Maturity
Date” shall mean May 31, 2020.
Mortgage. The term
“Mortgage”
shall mean the Real Estate Mortgage – 180 Day Redemption of
even date herewith by Borrower, as mortgagor, to Lender, as
mortgagee, recorded or to be recorded in the official real estate
records of Xxxxxxxxxx County, South Dakota.
Mortgage Proceeds Account. The
term “Mortgage Proceeds
Account” shall mean the total net cash proceeds of a
loan made to Borrower or a wholly owned Subsidiary by Xxxxxxxxx
secured by certain real estate of Borrower, on which Mortgage
Proceeds Account Lender shall have a first priority Lien to secure
the repayment of the Indebtedness.
Note. The term
“Note”
shall mean the Promissory Note of even date herewith, by Borrower
to Lender, as further described in Section 2.2 of this Agreement,
together with each and every extension, renewal, modification,
substitution, replacement and change in form thereof which may be
made from time to time.
Obligations.
The term “Obligations”
shall mean the Loan and all other indebtedness, obligations and
other liabilities of the Borrower of any kind and description owing
to the Lender pursuant to the provisions of this Agreement, the
Note, or any of the other Loan Documents, howsoever evidenced or
acquired, whether now existing or hereafter arising, due or not
due, absolute or contingent, liquidated or unliquidated, direct or
indirect, express or implied, whether old individually or jointly
with others, together with all renewals, extensions, modifications
or refinancings thereof.
Partnership Security Agreement.
The term “Partnership
Security Agreement” shall mean the
Partnership Security Agreement between Borrower and Lender made May
10, 2019, executed to grant a perfected security interest in the
Partnership Interest, to secure the repayment of the
Indebtedness.
Partnership Interest. The term
“Partnership
Interest” shall have the meaning set for in Section
4.22.
Permitted
Distributions. The term “Permitted
Distributions” means for any period, all
distributions, dividends or other payments (including payments in
the nature of fees, commissions, salary, bonuses or other
compensation) actually paid to any shareholder of the Borrower to
provide funds to such shareholder to pay taxes that are incurred
because of such shareholder’s ownership interest in the
Borrower or to pay shareholder’s expenses that are incurred
related to shareholder’s status as a publicly traded
company.
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Person. The term
“Person”
shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization,
and a government or any department, agency or political subdivision
thereof.
Plan. The term
“Plan”
shall mean an employee pension benefit plan covered by Title IV of
ERISA, including any multiple employer plan as defined in Section
4001(a)(3) of ERISA.
Subsidiary. The term
“Subsidiary”
shall mean, as to any Person (1) a corporation, limited liability
company or other entity of which shares of stock or other ownership
interest having ordinary voting power (other than stock having such
power only by reason of the occurrence of a contingency) to elect a
majority of the Board of Directors or other managers thereof are at
the time owned, for the management of which is otherwise
controlled, directly or indirectly, through one or more
intermediaries, or both, by such person, or (2) a partnership in
which such person is a general partner or the management of which
is otherwise controlled, directly or indirectly, through one or
more intermediaries or both, by such Person.
Taxes. The term
“Taxes”
shall mean all taxes, assessments, fees, or other charges or
levies, including any penalties and interest, from time to time or
at any time imposed by any Laws.
Tribunal. The term
“Tribunal”
shall mean any municipal, state, commonwealth, federal, foreign,
territorial or other sovereign, governmental entity, governmental
department, court, commission, board, bureau, agency or
instrumentality.
ARTICLE II
5
(a)
Loan Origination Fee. Borrower
shall have made, and Lender shall have received payment in
immediately available funds: a) in the amount of Two Hundred Fifty
Thousand Dollars ($250,000.00) for the loan origination fee; and b)
an amount equal to Lender’s attorney’s fees reasonably
incurred in connection with the Loan as of the Closing
Date.
(b)
No Default. There shall exist
no Event of Default on the Closing Date.
(c)
Representations and Warranties.
The representations, warranties and covenants set forth in the Loan
Documents shall be true and correct on and as of the Closing
Date.
(d)
Loan Documents. Borrower shall
have delivered the Note and the other Loan Documents to Lender
dated as of the Closing Date, properly executed with all blanks
properly completed and, where appropriate, acknowledged by a Notary
Public.
(e)
UCC Search. Borrower shall have
provided to Lender, prior to the Closing Date the results of a
Uniform Commercial Code search request under Borrower’s
names.
(f)
Insurance. Borrower shall
provide or cause to be provided to Lender copies of all insurance
policies in effect for Borrower, and such insurance policies shall
be deemed acceptable by Lender. Should Lender request, Borrower
shall deliver to Lender such documentation as Lender may require
evidencing that such insurance policies are in full force and
effect. Such insurance policies shall not be canceled without
thirty (30) days written notice to Lender.
(g)
Financial Statements. Borrower
shall have delivered to Lender Financial Statements from Borrower
dated within thirty (30) days of the Closing Date which will be
true, correct, and complete in all material respects and will fully
and accurately present the financial condition of Borrower as of
the dates specified therein. Such financial condition, as reported
therein, will be substantially equal to the financial condition of
Borrower as evidenced by any and all Financial Statements submitted
to Lender on or about the time Borrower made application for the
Loan.
(h)
Other Documents and Assurances.
Borrower’s execution and delivery of the Aircraft and Engine
Security Agreement.
6
ARTICLE III
ARTICLE IV
Borrower covenants
and agrees with Lender that until payment in full of all
Indebtedness and the performance of all other obligations of
Borrower:
4.2. Maintenance
of Existence. Borrower will do all things necessary to
preserve and keep in full force and effect Borrower’s rights
and franchises, and to keep Borrower in good standing as a
corporation, with the South Dakota Secretary of State, and continue
to conduct and operate Borrower’s businesses substantially as
conducted and operated during the present and preceding fiscal
years subject only to changes in the ordinary course of business,
and no liquidating distributions shall be made until payment in
full of the Indebtedness.
7
(a) Borrower
will maintain, with financially sound and reputable insurance
companies, such policies of insurance (including property/casualty,
liability, professional liability and business interruption
coverages) with respect to its assets, properties and business,
against such risks, hazards and liabilities, of such types and in
such amounts, and with such deductibles or self-insured retentions,
as are customarily maintained by entities in the same or similar
businesses similarly situated.
(b) Borrower
shall furnish to Lender at any time upon Lender’s reasonable
written request, (1) full information as to such insurance carried,
including the amounts of all self-insurance reserves of the
Borrower, and (2) certificates of insurance from the insurance
companies and certified copies of such insurance
policies.
(a) Borrower
shall provide to Lender annually, within one hundred twenty (120)
days following the end of each fiscal year, audited Financial
Statements.
(b) Borrower
shall provide to Lender monthly, within sixty (60) days following
the end of each month, internally prepared interim Financial
Statements.
(c) Borrower
shall provide, within thirty (30) days of filing, true, correct,
and complete copies of all tax returns.
8
(a)
There shall exist
no Event of Default on the Subsequent Mortgage Loan closing
date.
(b)
The proceeds of the
Subsequent Mortgage Loan are deposited into the Mortgage Proceeds
Account upon which Lender has a valid perfected security interest
or control.
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(c)
Borrower has
executed and delivered any documents Lender reasonably deems
necessary for Lender to have a first priority security interest on
the Subsequent Mortgage Loan proceeds including, but not limited
to, an account control agreement.
(d)
Borrower has
delivered to Lender and obtained Lender’s approval of a plan,
which approval will not be unreasonably withheld, conditioned, or
delayed, for the sale of real estate owned by Borrower. The plan
must provide for the closing of real estate sale transactions of
not less than $7,500,000 on or before May 31, 2020.
(e)
For the avoidance
of doubt, nothing in this Section 4.17 prohibits or otherwise
restricts Borrower from using the proceeds of the Subsequent
Mortgage Loan to pay the Obligations.
10
ARTICLE V
To
induce Lender to enter into this Agreement and in consideration
thereof, Borrower represents and warrants as follows:
11
12
Borrower shall be
solely responsible for, and shall indemnify and hold harmless
Lender, its directors, officers, employees, agents, successors and
assigns from and against, any loss, damage, cost, expense or
liability arising out of or attributable to the use, generation,
storage, release, threatened release, discharge, disposal, or
presence (whether prior to or during the term of the Loan) of
Hazardous Materials on, under or about the any property owned or
leased by Borrower (whether by Borrower or a predecessor in title
or any employees, agents, contractors or subcontractors of Borrower
or any predecessor in title or any third persons at any time
occupying or present on such property), including, without
limitation: (a) all foreseeable consequential damages; (b) all
asbestos abatement costs; (c) the costs of any required or
necessary repair, cleanup or detoxification of property, including
the soil and ground water thereof, and the preparation and
implementation of any closure, remedial or other required plans;
(d) damage to any natural resources; and (e) all reasonable costs
and expenses incurred by Lender in connection with clauses (a),
(b), (c) and (d), including but not limited to reasonable
attorney’s and consultant’s fees.
Any
costs or expenses incurred by Lender for which Borrower is
responsible or for which Borrower has indemnified Lender shall be
paid to Lender within ten (10) days after demand, and failing
prompt reimbursement, shall be added to the Indebtedness secured by
the Collateral and earn interest at the Default Rate until paid in
full.
The
provisions of this paragraph shall survive (i) the repayment of the
Note and the termination of Lender’s security interests of
record; and (ii) any sale of the Collateral or Borrower’s
other properties.
13
ARTICLE VI
ARTICLE VII
(a) The
failure of Borrower to make any payment hereunder within three days
of when such payment is due;
(b) Breach,
default or failure of any term, condition, covenant or warranty
undertaken under this Agreement or any Loan Document;
or
(c) Filing
against Borrower of a judgment or federal or state tax lien in an
amount in excess of Five Hundred Thousand and No/100 Dollars
($500,000.00) with respect to: (i) U.S. ex rel. Xxxxx Xxxxxxx v.
National American University, et al., Case No. 5:17-cv-05032-JLV;
(ii) Xxxxxxxx Xxxxxx and Xxxxxxxxxxx Xxxxxxxxx x. Xxxxxx, Inc.,
d/b/a National American University, et al., Case No. 1816-cv30104;
or (iii) any litigation naming Borrower as a defendant and alleging
claims that Borrower violated the Federal False Claims Act (31
U.S.C. § 3729 et seq.).
(d) Material
injury or destruction, by fire or otherwise, of any Collateral not
adequately covered by insurance; or
14
(e) Any
conveyance, transfer or further encumbrance, whether voluntarily or
involuntarily, of the Collateral in any way without the prior
written consent of Lender or as otherwise permitted by this
Agreement; or
(f) Filing
or having filed against it a petition in bankruptcy, or having a
receiver or trustee appointed of its property, or filing a petition
for arrangement under provisions of the Bankruptcy Code or any
other Law, or making an assignment for the benefit of creditors, or
being adjudicated insolvent by a Tribunal (provided Borrower shall
have thirty (30) days in which to have any involuntary bankruptcy
proceeding dismissed, which dismissal will reinstate the Note and
Loan without further action if Borrower is not otherwise in
default); or
(g) Default
in the payment of principal or of interest on any material
obligation for money borrowed beyond any grace period provided with
respect thereto; or
(h) Failure
to make timely payment or deposit of any material amount of tax
required to be withheld by it and paid to the United States of
America pursuant to the provisions of the Internal Revenue Code of
1986, as amended; or
(i)
Occurrence of a
Material Adverse Effect; or
(j) Application
of any proceeds of the Loan other than exclusively as provided
herein or as otherwise expressly authorized by Lender in writing;
or
(k) The
occurrence of any default under any existing or future swap
agreement (as defined in 11 U.S.C. § 101, as in effect from
time to time) between Borrower and Lender (or any of their
affiliates).
15
ARTICLE VIII
If to
Borrower:
If to Lender:
Dlorah,
Inc.
Center for Excellence in Higher Education
Attn:
Dr. Xxxxxx Shape,
CEO
Attn: Xxxx Xxxxxx, CEO
0000
Xxxxx Xxxxxxxx
Xxxx
0000 Xxxxx 000 Xxxx
Xxxxx
Xxxx, XX
00000
Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000
With a
copy
to:
With a copy to:
Dlorah,
Inc.
C. Xxxxx Xxxx, Esq.
Attn:
General
Counsel
Xxxxxxx X. Xxxxx, Esq.
0000
Xxxxx Xxxxxxxx
Xxxx
Xxxxxx Xxxxxx, XX
Xxxxx
Xxxx, XX
00000
0000 Xxxxxx Xxxxx Xxxx
Xxxxx
000
Xxxxxxx, XX
00000
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8.6 Governing
Law. This Agreement shall be
governed by and construed in accordance with the internal laws of
the State of South Dakota. THE LOAN SECURED HEREBY HAS
BEEN APPROVED IN THE STATE OF SOUTH DAKOTA OR IN ACCORDANCE WITH
STANDARDS DEVELOPED IN THE STATE OF SOUTH DAKOTA.
Any
dispute arising out of or related to the Loan shall be determined
by binding arbitration in accordance with the Federal Arbitration
Act. Any such arbitration proceeding shall be conducted through the
American Arbitration Association in accordance with its Commercial
Arbitration rules.
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18
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO
EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER) AND US (LENDER) FROM MISUNDERSTANDING OR DISAPPOINTMENT,
ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS
WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE
AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN A WRITING
SIGNED BY US TO MODIFY IT.
(Signatures on Following Page)
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BORROWER:
DLORAH, INC., a South Dakota
corporation
By: /s/
Xxxxxx Shape
Dr.
Xxxxxx Shape, Chief Executive Officer
LENDER:
CENTER FOR EXCELLENCE IN HIGHER EDUCATION,
INC., an Indiana non-profit corporation
By: /s/
Xxxx Xxxxxx
Xxxx
Xxxxxx, Chief Executive Officer