Construction Loan Agreement

EXHIBIT #10.15


CONSTRUCTION LOAN AGREEMENT


THIS AGREEMENT, made and entered into this 23rd day of October, 2003, by and between NAVARRE CORPORATION, a Minnesota corporation ("Borrower"), whose address is 7400 49th Avenue North, New Hope, MN 55428 and THE BUSINESS BANK ("Lender"), whose address is 11100 Wayzata Boulevard, Suite 150, Minnetonka, MN 55305.


W I T N E S S E T H, THAT:


WHEREAS, Borrower is contemplating building on the Premises described in Schedule "A" attached hereto the following Improvements: An approximately 115,286 square foot office/warehouse facility to be located on approximately 5.69 acres of land;


WHEREAS, Borrower has made application to Lender for a Construction Loan to defray the costs of constructing such Improvements;


WHEREAS, Lender has issued to Borrower its Commitment to make a construction loan in the amount hereinafter specified, subject to compliance with the terms and conditions of this Construction Loan Agreement;


NOW, THEREFORE, in consideration of the making of the Loan and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


ARTICLE I
DEFINITIONS


For purposes of this Agreement, the following terms shall have the following meanings:


1. "Application" shall mean Borrower's application to the Lender for the Loan the terms and conditions of which are incorporated herein by reference.


2. "Architect's Contract" shall mean Borrower's contract with the Project Architect.


3. "Bonds" - INTENTIONALLY DELETED.


4. "Commitment" shall mean Lender's commitment to Borrower agreeing to make this Construction Loan.


5. "Completion Date" shall mean midnight, June 1, 2004.


6. "Contractor(s)" shall mean those firms directly engaged by Borrower to construct the Improvements, whether one or more.


7. "Contract Documents" shall mean the Project Architect's Contract, Plans and


Specifications and the Construction Contracts.


8. "Construction Costs" shall mean land costs, all costs paid to construct and complete the Improvements including, but not limited to, demolition costs, site preparation costs, architectural fees, contractor's fees, engineering fees, survey and environmental costs, all loan fees and carrying charges, and all costs of labor and material paid or necessarily incurred by Borrower.


9. "Construction Contracts" shall mean the contracts between Borrower and Contractor(s) for the furnishing of labor, services or materials to the Premises in connection with the construction of the Improvements.


10. "Financing Statements" shall mean one or more financing statements between Borrower and Lender covering the personal property and fixtures included in the Premises.


11. "Force Majeure" shall mean a delay in the progress of construction due to any strike, boycott, or similar obstructive action by employees or labor organizations beyond the control of the Borrower; or by fire, unusual delay in transportation, acts of God, adverse weather conditions not reasonably anticipatable, unavoidable casualties or shortages of materials which are beyond the control of the Borrower.


12. "Improvements" shall mean the structures and other improvements to be constructed on the Premises in accordance with the Plans and Specifications.


13. "Inspecting Architect" shall mean Steiner Consulting LLC, the architect hired by Lender to perform inspections of the Premises.


14. "Loan" shall mean the loan to be made pursuant to the Commitment and not to exceed the lesser of the total Construction Costs or the maximum loan amount as specified in the Commitment.


15. "Loan and Carrying Charges" shall mean all fees, taxes and charges incurred under the Loan and in the construction of the Improvements including, but not limited to non-refundable commitment fees, loan or brokerage fees paid to the Lender; interest charges, service and inspection fees, attorney's fees, title insurance fees and charges, recording fees and insurance premiums.


16. "Loan Documents" shall mean the Note, Mortgage, Financing Statement, Assignment of Rents, Assignment of Leases and such other documents as Lender may reasonably require to be given to the Lender as security for the Loan.


17. "Mortgage" shall mean a Mortgage and Security Agreement to be executed and delivered by Borrower to Lender and mortgaging the Premises to the Lender as security for the Loan.


18. "Note" shall mean a Promissory Note to be made by Borrower payable to the order of Lender to evidence the Loan and being in the principal amount of the Loan.


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19. "Owner Equity" shall mean the total Construction Costs less the amount of the Loan.


20. "Plans and Specifications" shall mean the plans and specifications prepared by the Project Architect, copies of which have been initialed by the parties hereto and are incorporated by reference into this Agreement.


21. "Premises" shall mean the real property legally described as Lot 1, Block 1, Paulsons Prairie, Hennepin County, Minnesota, together with all improvements and fixtures thereon.


22. "Project" shall mean the construction of the Improvements on the Premises.


23. "Project Architect" shall mean KKE Architects, Inc., the architect retained by Borrower to design and supervise construction of the Improvements.


24. "Sub-Contracts" shall mean the contracts between the Contractor(s) and its materialmen and mechanics in the furnishing of labor or materials for the Project.


25. "Sub-Contractors" shall mean those persons furnishing labor or materials for the Project pursuant to the Sub-Contracts.


26. "Title" shall mean Commonwealth Land Title Insurance Company, the title insurer issuing the mortgagee's title insurance policy.


ARTICLE II
THE LOAN


Subject to compliance with the provisions of this Agreement Lender agrees to loan to Borrower. The Loan shall be advanced in stages by Lender to Title and disbursed by Title pursuant to the provisions of Article VIII hereof. The Loan, or so much thereof as has been advanced hereunder, shall bear interest at the rate and shall be repaid in accordance with the terms of the Loan Documents. The proceeds of the Loan shall be used for the purposes of defraying total Construction Costs.


ARTICLE III
EXECUTION OF LOAN DOCUMENTS


Prior to any request for funds, Borrower agrees to authorize, execute and deliver to Lender and record the Loan Documents and other items required by this Agreement. Borrower agrees the Loan Documents and all other matters required under this Agreement shall be subject to the approval of Lender's Counsel.


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ARTICLE IV
CONSTRUCTION OF IMPROVEMENTS


Borrower has commenced construction of the Improvements, and Borrower agrees to diligently pursue said construction to completion and to supply such moneys and to perform such duties as may be necessary to complete the construction of said Improvements pursuant to the Plans and Specifications and in full compliance with all terms and conditions of the Commitment, this Agreement and the Loan Documents, all of which shall be accomplished on or before the Completion Date, and without liens, claims or assessments (actual or contingent) asserted against the Premises for any material, labor or other items furnished in connection therewith, and all in full compliance with all construction, use, building, zoning and other similar requirements of any pertinent governmental jurisdiction, evidence of satisfactory compliance with all of which Borrower will provide to Lender upon request therefor by Lender.


ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BORROWER


Borrower hereby represents and warrants to the Lender that:


1. VALIDITY OF LOAN DOCUMENTS - The Loan Documents are in all respects legal, valid and binding according to their terms and grant to Lender a direct, valid and enforceable first lien upon and security interest in the Premises and the personal property and fixtures to be located thereon, as well as the rents and leases of the Premises, but excluding the removable trade fixtures, inventory and personal property of any tenant of the Premises.


2. PRIORITY OF LIEN ON PERSONALTY - No chattel mortgage, bill of sale, security agreement, financing statement, or other title retention agreement (except those executed in favor of Lender) has or will be executed with respect to any personal property, chattel or fixture used in conjunction with the construction, operation or maintenance of the improvements, except with respect to the removable trade fixtures, inventory and personal property of the Borrower and of any tenant of the Premises.


3. CONFLICTING TRANSACTION OF BORROWER - The consummation of the transactions hereby contemplated and the performance of the obligations of Borrower under and by virtue of the Loan Documents will not result in any breach of, or constitute a default under, any mortgage, lease, bank loan or credit agreement, corporate charter, by-laws, partnership agreement, or other instrument to which Borrower is a party or by which it may be bound or affected.


4. PENDING LITIGATION - There are no actions, suits or proceedings pending, or to the knowledge of Borrower threatened, against or affecting it or the Premises, or involving the validity or enforceability of any of the Loan Documents or the priority of the lien thereof, at law or in equity, or before or by any governmental authority, except actions, suits and proceedings which are fully covered by insurance or which, if adversely determined would not substantially impair the ability of Borrower to perform each and every one of its obligations under and by virtue of the Loan Documents; and to the Borrower's knowledge it is not in default with respect to any order, writ, injunction, decree or demand of any court or any governmental authority.


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5. VIOLATIONS OF GOVERNMENTAL LAW, ORDINANCES OR REGULATIONS - Borrower has no knowledge of any violations or notices of violations of any federal or state law or municipal ordinance or order or requirement of the State in which the Premises are located or any municipal department or other governmental authority having jurisdiction affecting the Premises, which violations in any way relate to or affect the Premises.


6. COMPLIANCE WITH ZONING ORDINANCES AND SIMILAR LAWS - The Plans and Specifications and construction pursuant thereto and the use of the Premises contemplated thereby comply and will comply with all governmental laws and regulations and requirements, zoning ordinances, standards, and regulations of all governmental bodies exercising jurisdiction over the Premises, including environmental protection and equal employment regulations, and appropriate supervising boards of fire underwriters and similar agencies. Borrower agrees to provide the Project Architect's certification to such effect.


7. BORROWER'S STATUS AND AUTHORITY - If the Borrower be a corporation, trust or a partnership, Borrower warrants and represents that (i) it is a duly organized, existing and in good standing under the laws of the state in which it is incorporated or created; (ii) it is duly qualified to do business and is in good standing in the state in which the Premises are located; (iii) it has the corporate or other power, authority and legal right to carry on the business now being conducted by it and to engage in the transactions contemplated by this Agreement and the Loan Documents; and (iv) the execution and delivery of this Agreement and the Loan Documents and the performance and observance of the provisions hereof and thereof have been duly authorized by all necessary trust, partnership, or corporate actions of Borrower. Borrower will furnish such resolutions, affidavits and opinions of counsel to such effect as Lender may reasonably require.


8. AVAILABILITY OF UTILITIES - All utility services necessary for the proper operation of the Improvements for their intended purposes are available at the Premises or will be available at the Premises prior to commencement of Construction, at standard utility rates and hook-up charges, including water supply, storm and sanitary sewer facilities, gas, electricity and telephone facilities. Borrower shall furnish evidence of such availability of utilities from time to time at Lender's request.


9. BUILDING PERMITS - All building permits required for the construction of the Improvements have been, or will be obtained prior to the commencement of the construction of the Improvements and copies of same will be delivered to Lender.


10. CONDITION OF PREMISES - Except as disclosed to the Lender prior to the date hereof, the Premises are not now damaged or injured as a result of any fire, explosion, accident, flood or other casualty, nor subject to any action in eminent domain.


11. APPROVAL OF PLANS AND SPECIFICATIONS - The Plans and Specifications conform to the requirements and conditions set out by applicable law or any effective restrictive covenant, to all governmental authorities which exercise jurisdiction over the Premises or the construction thereon, no funds shall be advanced until said Plans and Specifications shall have been approved by Lender. Except for tenant finishes that do not exceed the budgeted amount as shown on the Sworn


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Construction Statement. No changes are to be made in the Plans and Specifications as approved without Lender's prior consent.


12. CONSTRUCTION CONTRACTS - Borrower has entered into contracts with the Contractor(s) or separate contracts with materialmen and laborers providing for the construction of the Improvements. Borrower will cause the Contractor(s) to promptly furnish Lender with the complete list of all Sub-contractors or entities which Contractor(s) propose to engage to furnish labor and/or materials in constructing the Improvements and will from time to time furnish Lender with true copies of all Contracts and Sub-contracts therefor and with the terms of all verbal agreements therefor.


13. BROKERAGE COMMISSIONS - No brokerage commissions are due in connection with the transaction contemplated hereby or if there are commissions due or payable the same will be paid by Borrower. Borrower agrees to and shall indemnify Lender from any liability, claims or losses arising by reason of any such brokerage commissions. This provision shall survive the repayment of the Loan and shall continue in full force and effect so long as the possibility of such liability, claims or losses exists.


14. NO PRIOR WORK - Except as may have been permitted by Lender and Title pursuant to its early start coverage, no work or construction has been commenced or will be commenced by or on behalf of Borrower on the Premises, nor has Borrower entered into any contracts or agreements for such work or construction which could result in the imposition of a mechanic's or materialmen's lien on the Premises or the Improvements prior to or on parity with the lien of the security interest evidenced by the Mortgage.


15. ENVIRONMENTAL IMPACT STATEMENT - All required environmental impact statements as required by any governmental authority having jurisdiction over the Premises or the construction of the Improvements have been duly filed and approved.


16. ACCESS - The Premises front on a publicly maintained road or street or have access to such a road or street under easement which is not subject to a reversion in favor of any party.


17. FINANCIAL INFORMATION - Any financial statements heretofore delivered to Lender are true and correct in all respects, have been prepared in accordance with generally accepted accounting practice, and fairly present the respective financial conditions of the subject thereof as of the respective dates thereof and no materially adverse change has occurred in the financial conditions reflected therein since the respective dates thereof.


ARTICLE VI
COVENANTS OF BORROWER


Borrower hereby covenants and agrees with Lender as follows:


1. SURVEYS - Prior to execution of any Loan Documents and prior to any request for a Disbursement, Borrower shall furnish to Lender three copies of a current perimeter land survey, in form and substance satisfactory to Lender, certified to Lender, giving a description of the Premises


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and showing all encroachments onto or from the Premises, currently certified by a registered surveyor and bearing his registry number and showing access rights, easements, or utilities, rights of way, all setback requirements upon the Premises, improvements, matters affecting title and such other items as Lender may reasonably request. After the foundation walls for the Improvements are completed, the Borrower shall, upon Lender's request, promptly furnish the Lender with three copies of the survey revised to show the location of the Improvements and certifying that the Improvements are within the boundary lines of the Premises and the building restriction lines, if any, and that the Improvements do not encroach upon any easement, utility or right of way.


2. TITLE INSURANCE - Prior to any request for Disbursement, Borrower shall furnish Lender with an ALTA policy of title insurance in form and substance satisfactory to Lender issued at the Borrower's expense and written by Title insuring the Premises to be marketable, free from exceptions for mechanic's and materialmen's liens and free from other exceptions not previously approved by the Lender, naming Lender as an insured and insuring that the Mortgage is a valid first lien to the extent of advances made or to be made hereunder subject only to such exceptions as may be approved by Lender.


3. OTHER DOCUMENTS - To furnish the Lender with copies of such other documents, instruments or materials as may be required by the Commitment.


4. RESTRICTIONS ON CONVEYANCE OR SECONDARY FINANCING - Borrower will not transfer, sell, convey or encumber the Premises or subject the Premises to any secondary financing in any way without the written consent of the Lender save and except that Borrower may enter into an agreement to sell the Premises provided that the Loan shall be due and payable in full upon the closing of such sale.


5. INSURANCE - To obtain or cause Contractor(s) to obtain and maintain such insurance or evidence of insurance as Lender may reasonably require, including but not limited to the following:


(a) BUILDER'S RISK INSURANCE - Builder's Risk Insurance written on the so-called "Builder's Risk-Completed Value Basis" in an amount equal to the full replacement cost of the Improvements at the date of completion with coverage available on the so-called multiple peril form of policy, including coverage against collapse and water damage, with standard non-contributing mortgagee clauses, such insurance to be in such amounts and form and written by such companies as shall be approved by Lender, and the originals of such policies (together with appropriate endorsement thereto, evidence of payment of premiums thereon and written agreements by the insurer or insurers therein to give Lender ten (10) days' prior written notice of any intention to cancel) shall be promptly delivered to Lender, said insurance coverage to be kept in full force and effect at all times until the completion of construction of the Improvements.


(b) HAZARD INSURANCE - Fire and Extended Coverage Insurance, and such other hazard insurance as Lender may require in an amount equal to the full replacement cost of the Improvements with standard non-contributing mortgagee clauses, such insurance to be in such amounts and form and written by such companies as shall be approved by Lender, and the originals of such policies (together with appropriate endorsements thereto, evidence of payment of premiums thereon and written agreement by the insurer or insurers therein to give Lender ten (10) days' prior


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written notice of any intention to cancel) shall be promptly obtained and delivered to Lender immediately upon completion of the construction of the Improvements and befor ...