Exhibit 10.35

PROMISSORY NOTE

 

$4,750,000.00   

Washington, D.C.

February 9, 2009

FOR VALUE RECEIVED MHI HOTEL INVESTMENTS HOLDINGS, LLC, a Delaware limited
liability company (“Borrower”), as maker, having its principal place of business
at c/o MHI Hospitality Corporation, 4801 Courthouse Street, Suite 201,
Williamsburg, Virginia 23188, hereby unconditionally promises to pay to the
order of CRP/MHI HOLDINGS, L.L.C., a Delaware limited liability company
(together with its successors and assigns, “Lender”), as payee, having an
address at c/o The Carlyle Group, 1001 Pennsylvania Avenue, NW, Suite 220 South,
Washington, D.C. 20004, or at such other place as the holder hereof may from
time to time designate in writing, the principal sum of Four Million Seven
Hundred Fifty Thousand and No/100 Dollars ($4,750,000.00), in lawful money of
the United States of America, with interest thereon to be computed from the date
of this Promissory Note at the Interest Rate (as defined below) with respect to
this Promissory Note (as the same may hereafter be amended, supplemented, or
otherwise modified from time to time, this “Note”), and to be paid in accordance
with the terms of this Note.

BACKGROUND:

Borrower and Lender are the sole members of MHI/Carlyle Hotel Investment Program
I, L.L.C., a Delaware limited liability company (the “JV Entity”). The JV Entity
is the sole member of each of MHI/Carlyle Sian Owner I, L.L.C., and MHI/Carlyle
Sian Lessee I, L.L.C., each a Delaware limited liability company (the “SocGen
Borrowers”). The SocGen Borrowers are parties to that certain Loan Agreement
between Société Générale New York Branch, the New York branch of a French
banking corporation, as lender (“SocGen”), and the SocGen Borrowers, jointly and
severally as borrowers, and dated as of August 8, 2007 (as amended from time to
time, the “Sian Loan Agreement”). The promissory note evidencing the loan from
SocGen to the SocGen Borrowers was split into two notes, Note A and Note B,
pursuant to that certain Note Splitter and Modification Agreement by and among
the SocGen Borrowers and SocGen, dated as of June 13, 2008. A portion of the
loan from SocGen to the SocGen Borrowers is evidenced by that certain Promissory
Note B, dated as of June 13, 2008, in the original principal amount of
$22,000,000.00, made by the SocGen Borrowers, as maker, for the benefit of
SocGen (the “B Note”). SocGen assigned the B Note to MHI/Carlyle B Note Holder
I, L.L.C., a Delaware limited liability company (“B Note Holder”) pursuant to
(i) that certain Assignment and Assumption Agreement between SocGen and B Note
Holder, dated as of June 13, 2008, and (ii) that certain Allonge Endorsement to
Promissory Note by SocGen, dated as of June 13, 2008, for the purchase price of
$19,000,000.00 (the “Purchase Price”), paid by B Note Holder to SocGen. The
Purchase Price was funded to B Note Holder by a capital contribution (the
“Capital Contribution”) to B Note Holder from the JV Entity. The Capital
Contribution was seventy-five percent (75%) funded by Lender and twenty-five
percent (25%) funded by Borrower (“Borrower’s Contribution”). Borrower has
elected to have Lender provide it with a loan in the amount of $4,750,000 (the
“Loan”), which is equal to Borrower’s Contribution in accordance with
Section 11.6 of that certain Limited Liability Company Agreement of MHI/Carlyle
Hotel Investment Program I, L.L.C., between Lender and Borrower, dated as of
April 26, 2007, as amended by that certain First Amendment to Limited Liability
Company

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Agreement of MHI/Carlyle Hotel Investment Program I, L.L.C., between Lender and
Borrower, dated as of June 13, 2008 (as amended, the “JV Agreement”). Lender is
making the Loan to Borrower subject to the terms and conditions set forth in
this Note and the other Loan Documents (as defined below) and this Note
represents and evidences the Loan made by Lender to Borrower.

ARTICLE 1: DEFINITIONS

For purposes of this Promissory Note to Borrower and except as otherwise
expressly provided:

“Business Day” shall mean any day other than a Saturday, a Sunday or a legal
holiday on which national banks are not open for general business in the
District of Columbia.

“Default Rate” shall mean, with respect to the Loan, a rate per annum equal to
the lesser of (i) the maximum rate permitted by applicable law, or (ii) five
percent (5%) above the Interest Rate.

“Distributions” has the meaning ascribed to it in the JV Agreement.

“Event of Default” has the meaning ascribed to it in Section 3.1.

“Guarantor” has the meaning ascribed to it in Article 4.

“Guaranty” has the meaning ascribed to it in Article 4.

“Interest Period” shall mean (a) for the first interest period hereunder, (i) if
the closing of the Loan occurs on or before the fourteenth (14th) day of a
calendar month, the period commencing on the date of such closing and ending on
(and including) the fourteenth (14th) day of the calendar month in which such
closing occurs and (ii) if the closing of the Loan occurs on or after the
fifteenth (15th) day of a calendar month, the period commencing on the date of
such closing and ending on (and including) the fourteenth (14th) day of the
following calendar month and (b) for each interest period thereafter commencing
February 15, 2009, the period commencing on the fifteenth (15th) day of each
calendar month and ending on (and including) the fourteenth (14th) day of the
following calendar month. Each Interest Period as set forth in clause (b) above
shall be a full month and shall not be shortened by reason of any payment of the
Loan prior to the expiration of such Interest Period.

“Interest Rate” shall mean the Applicable Interest Rate (as defined in, and
calculated by SocGen pursuant to, the Sian Loan Agreement) minus fifty
(50) basis points.

“Loan Documents” shall mean this Note and the Guaranty.

“Maturity Date” has the meaning ascribed to it in the Sian Loan Agreement.

“Monthly Payment Date” shall mean the first (1st) calendar day of each calendar
month during the term of the Loan, and if such day is not a Business Day, then
the Business Day immediately preceding such day, commencing on February 27, 2009
and continuing to and including the Maturity Date.

 

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All capitalized terms not defined herein shall have the respective meanings set
forth in the Sian Loan Agreement.

ARTICLE 2: THE LOAN AND PAYMENT TERMS

Section 2.1 The Loan.

2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions
set forth herein and in the other Loan Documents, Lender has made the Loan to
Borrower and Borrower has accepted the Loan from Lender on the date hereof.

2.1.2 Single Disbursement to Borrower. Borrower shall receive only one borrowing
hereunder in respect of the Loan and any amount borrowed and repaid hereunder in
respect of the Loan may not be reborrowed.

Section 2.2 Interest Rate.

Section 2.2.1 Interest Rate. Interest on the principal balance of the Loan from
time to time shall accrue from the date hereof up to and including the Maturity
Date at the Interest Rate.

Section 2.2.2 Interest Rate and Payment after Default. In the event that, and
for so long as, any Event of Default shall have occurred and be continuing, the
outstanding principal balance of the Loan and any other sums due and payable by
Borrower under the Loan Documents shall accrue interest at the Default Rate,
calculated from the date the Event of Default occurred.

Section 2.2.3 Late Payment Charges. If any principal, interest or any other sum
due under the Loan Documents, other than the payment of principal due on the
Maturity Date, is not paid by Borrower on or before the date on which it is due,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law in order to defray the expense incurred by Lender in handling and processing
such delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment. Any such amount shall be secured by the Guaranty.

Section 2.3 Loan Payments.

2.3.1. Payment Before Maturity Date.

(a) Borrower shall make a payment to Lender of interest only on the Monthly
Payment Date occurring on February 27, 2009 and on each Monthly Payment Date
thereafter to and including the Maturity Date in an amount equal to the Interest
Rate times the principal balance of the Loan then outstanding during the
Interest Period in which such Monthly Payment Date occurs.

(b) Until the Loan is fully repaid, including any and all amounts due under this
Note, fifty percent (50%) of all Distributions payable to Borrower from the JV
Entity (the

 

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“Distribution Share”) shall be paid directly to Lender, which Distribution
Share, if and when paid, shall be applied to pay down the then-outstanding
principal balance of the Loan and any other amounts then due and payable under
this Note.

2.3.2 Payment on Maturity Date. Borrower shall pay to Lender on the Maturity
Date the outstanding principal balance of the Loan, all accrued and unpaid
interest thereon and all other amounts due hereunder, including, without
limitation, all interest that would accrue on the outstanding principal balance
of the Loan through and including the end of the Interest Period in which the
Maturity Date occurs (even if such Interest Period extends beyond the Maturity
Date).

2.3.3 Method of Payment. All payments of interest, principal and fees shall be
made in lawful money of the United States in immediately available funds,
without counterclaim or setoff and free and clear of, and without any deduction
or withholding for, any taxes or other payments, by wire transfer to Lender or
to such other bank or address as the holder of the Loan may designate in a
written notice to Borrower. Payments shall be credited on the Business Day on
which immediately available funds are received prior to three o’clock P.M.
Eastern Time; payments received after three o’clock P.M. Eastern Time shall be
credited to the Loan on the next Business Day. Payments which are by check or
which are not in the form of immediately available funds shall not be credited
to the Loan until such funds become immediately available to Lender, and, with
respect to payments by check, such credit shall be provisional until the item is
finally paid by the payor bank.

ARTICLE 3: EVENTS OF DEFAULT; REMEDIES

Section 3.1 Events of Default

(a) Events of Default: Each of the following events shall constitute an event of
default hereunder (an “Event of Default”):

(i) if any regularly scheduled installment of principal and/or interest due
under this Note or other payment due under the Loan Documents (other than the
payment due on the Maturity Date) is not paid prior to the fifth (5th) day after
the same is due;

(ii) if any representation or warranty made by Borrower or Guarantor herein or
in any other Loan Document shall have been false or misleading in any material
respect as of the date the representation or warranty was made;

(iii) if Borrower or Guarantor shall make an assignment for the benefit of
creditors;

(iv) if a receiver, liquidator or trustee shall be appointed for Borrower or
Guarantor, or if Borrower or Guarantor shall be adjudicated bankrupt or
insolvent, or if any petition for bankruptcy, reorganization or arrangement
pursuant to federal bankruptcy law, or any similar federal or state law, shall
be filed by or against, consented to, or acquiesced in by, Borrower or
Guarantor, or if any proceeding for the dissolution or liquidation of Borrower
or Guarantor shall be instituted; provided, however, if such appointment,
adjudication, petition or proceeding was involuntary and not consented to by
Borrower or Guarantor, upon the same not being discharged, stayed or dismissed
within sixty (60) days;

 

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(v) if Borrower or Guarantor, as applicable, attempts to assign any of its
rights and obligations under this Note or any of the other Loan Documents or any
interest herein or therein in contravention of the Loan Documents;

(vi) if Borrower or Guarantor, as applicable, shall continue to be in default
under any of the other terms, covenants or conditions of any of the Loan
Documents not specified in subsections (i) through (v) above, for ten (10) days
after notice to Borrower or Guarantor, as applicable, from Lender, in the case
of any default which can be cured by the payment of a sum of money, or for
thirty (30) days after notice from Lender in the case of any other default;
provided, however, that if such non-monetary default is susceptible of cure but
cannot reasonably be cured within such 30-day period and provided further that
Borrower or Guarantor, as applicable, shall have commenced to cure such default
within such 30-day period and thereafter diligently and expeditiously proceeds
to cure the same, such 30-day period shall be extended for such time as is
reasonably necessary for Borrower or Guarantor, as applicable, in the exercise
of due diligence to cure such default, such additional period not to exceed
ninety (90) days;

(b) Upon the occurrence of an Event of Default (other than an Event of Default
described in clauses (iii), (iv) or (v) above) and at any time thereafter Lender
may, in addition to any other rights or remedies available to it pursuant to
this Note and the other Loan Documents, or at law or in equity, take such
action, without notice or demand, that Lender deems advisable to protect and
enforce its rights against Borrower and/or Guarantor, including, without
limitation, declaring the Loan to be immediately due and payable, and Lender may
enforce or avail itself of any or all rights or remedies provided in the Loan
Documents against Borrower and Guarantor, including, without limitation, all
rights or remedies available at law or in equity; and upon any Event of Default
described in clauses (iii), (iv) or (v) above, the Loan and all other
obligations of Borrower hereunder and under the other Loan Documents shall
immediately and automatically become due and payable, without notice or demand,
and Borrower hereby expressly waives any such notice or demand, anything
contained herein or in any other Loan Document to the contrary notwithstanding.

Notwithstanding anything to the contrary in the JV Agreement, the occurrence of
an Event of Default hereunder shall also constitute a Default Trigger Event (as
defined in the JV Agreement) under the JV Agreement.

Section 3.2 Remedies

(a) Upon the occurrence of an Event of Default, all or any one or more of the
rights, powers, privileges and other remedies available to Lender against
Borrower and/or Guarantor, as applicable, under this Note and the Guaranty
executed and delivered by, or applicable to, Borrower and/or Guarantor, as
applicable, or at law or in equity may be exercised by Lender at any time and
from time to time, whether or not all or any of the Loan shall be declared due
and payable, and whether or not Lender shall have commenced any proceeding or
other action for the enforcement of its rights and remedies under any of the
Loan Documents. Any such actions

 

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taken by Lender shall be cumulative and concurrent and may be pursued
independently, singly, successively, together or otherwise, at such time and in
such order as Lender may determine in its sole discretion, to the fullest extent
permitted by law, without impairing or otherwise affecting the other rights and
remedies of Lender permitted by law, equity or contract or as set forth herein
or in the other Loan Documents. No delay or omission to exercise any remedy,
right or power accruing upon an Event of Default shall impair any such remedy,
right or power or shall be construed as a waiver thereof, but any such remedy,
right or power may be exercised from time to time and as often as may be deemed
expedient. A waiver of one or more Events of Default with respect to Borrower
and/or Guarantor, as applicable, shall not be construed to be a waiver of any
subsequent Event of Default by Borrower and/or Guarantor, as applicable, or to
impair any remedy, right or power consequent thereon. Without limiting the
generality of the foregoing, if an Event of Default is continuing (i) Lender is
not subject to any “one action” or “election of remedies” law or rule, and
(ii) all rights, remedies or privileges provided to Lender shall remain in full
force and effect until the Loan has been paid in full.

(b) Any amounts recovered after an Event of Default may be applied by Lender
toward the payment of any interest and/or principal of the Loan and/or any other
amounts due under the Loan Documents in such order, priority and proportions as
Lender in its sole discretion shall determine.

ARTICLE 4: LOAN DOCUMENTS

The amounts due and payable under this Note are fully guaranteed by MHI
Hospitality Corporation, a Maryland corporation (the “Guarantor”), pursuant to
that certain Guaranty dated as of even date herewith by the MHI Guarantor for
the benefit of Lender (the “Guaranty”) (this Note and the Guaranty, together
with all amendments and modifications thereto, are collectively referred to
herein as the “Loan Documents”).

ARTICLE 5: SAVINGS CLAUSE

Notwithstanding anything to the contrary, (a) all agreements and communications
between Borrower and Lender are hereby and shall automatically be limited so
that, after taking into account all amounts deemed interest, the interest
contracted for, charged or received by Lender shall never exceed the maximum
lawful rate or amount, (b) in calculating whether any interest exceeds the
lawful maximum, all such interest shall be amortized, prorated, allocated and
spread over the full amount and term of all principal indebtedness of Borrower
to Lender, and (c) if through any contingency or event, Lender receives or is
deemed to receive interest in excess of the lawful maximum, any such excess
shall be deemed to have been applied toward payment of the principal of any and
all then outstanding indebtedness of Borrower to Lender, or if there is no such
indebtedness, shall immediately be returned to Borrower.

ARTICLE 6: NO ORAL CHANGE

This Note may not be modified, amended, waived, extended, changed, discharged or
terminated orally or by any act or failure to act on the part of Borrower or
Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.

 

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ARTICLE 7: WAIVERS

Borrower and all others who may become liable for the payment of all or any part
of the amounts owed to Lender under this Note do hereby severally waive
presentment and demand for payment, notice of dishonor, notice of intention to
accelerate, notice of acceleration, protest and notice of protest and nonpayment
and all other notices of any kind. No extension of time for payment of this Note
or any installment hereof, and no alteration, amendment or waiver of any
provision of this Note, the Loan Agreement, the Guaranty or the any other
agreement made by agreement between Lender or any other Person shall release,
modify, amend, waive, extend, change, discharge, terminate or affect the
liability of Borrower or any other Person who may become liable for the payment
of all or any part of the amounts owed to Lender under this Note or the
Guaranty. No notice to or demand on Borrower shall be deemed to be a waiver of
the obligation of Borrower or of the right of Lender to take further action
without further notice or demand as provided for in this Note. Borrower is a
limited liability company and, as such, the agreements herein contained shall
remain in force and be applicable, notwithstanding any changes in the
individuals comprising the limited liability company, and the term “Borrower,”
as used herein, shall include any alternate or successor limited liability
company, but any predecessor limited liability company and their members shall
not thereby be released from any liability.

ARTICLE 8: GOVERNING LAW

(A) THIS NOTE WAS NEGOTIATED IN THE DISTRICT OF COLUMBIA, AND MADE BY BORROWER
AND ACCEPTED BY LENDER IN THE DISTRICT OF COLUMBIA, AND THE PROCEEDS OF THIS
NOTE WERE DISBURSED FROM THE DISTRICT OF COLUMBIA, WHICH THE PARTIES AGREE HAS A
SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION
EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY
OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE
AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN THE DISTRICT OF COLUMBIA (WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE
FULLEST EXTENT PERMITTED BY LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY
WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS
NOTE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE DISTRICT OF COLUMBIA.

(B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT
OF OR RELATING TO THIS NOTE MAY AT LENDER’S OPTION BE INSTITUTED IN ANY FEDERAL
OR STATE COURT IN THE DISTRICT OF COLUMBIA, AND BORROWER WAIVES ANY OBJECTIONS
WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF
ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER

 

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HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT,
ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT:

MHI HOSPITALITY CORPORATION

4801 COURTHOUSE STREET

SUITE 201

WILLIAMSBURG, VA 23188

ATTENTION: ANDREW M. SIMS

FACSIMILE NO. (757) 564-8801

OR

MHI HOSPITALITY CORPORATION

6411 IVY LANE, SUITE 510

GREENBELT, MD 20770

ATTENTION: ANDREW M. SIMS

FACSIMILE NO. (301) 474-0807

AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY
AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN
ANY FEDERAL OR DISTRICT OF COLUMBIA COURT IN THE DISTRICT OF COLUMBIA, AND
AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN
NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED
HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON
BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE DISTRICT OF COLUMBIA.
BORROWER (I) SHALL NOTIFY LENDER WITHIN FIVE (5) BUSINESS DAYS OF ANY CHANGE IN
THE ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM
TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN THE
DISTRICT OF COLUMBIA (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS
THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY
DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN
THE DISTRICT OF COLUMBIA OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

ARTICLE 9: NOTICES

All notices given hereunder shall be in writing and shall be either hand
delivered or mailed, by registered U.S. mail, return receipt requested, first
class postage prepaid, or sent by reputable and traceable overnight delivery
service, to the parties at their respective addresses below or at such other
address for any party as such party may designate by notice to the other parties
hereto:

 

If to Lender:    c/o The Carlyle Group    1001 Pennsylvania Ave., NW    Suite
220 South    Washington, DC 20004    Attention: Hayden R. Jones    Facsimile No.
(202) 639-9389

 

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with a copy to:    Katten Muchin Rosenman LLP    2900 K Street, NW    Suite 200
   Washington, DC 20007    Attention: John D. Muir, Jr., Esq.    Facsimile No.
(202) 339-6054 If to Guarantor:    c/o MHI Hospitality Corporation    4801
Courthouse Street    Suite 201    Williamsburg, VA 23188    Attention: Andrew M.
Sims    Facsimile No. (757) 564-8801 with a copy to:    Baker & McKenzie, LLP   
815 Connecticut Avenue, NW    Washington, DC 20006    Attention: Thomas Egan,
Jr., Esq.    Facsimile No. (202) 452-7050

ARTICLE 10: MISCELLANEOUS

Section 10.1 No joint venture or partnership; no third party beneficiaries

(a) Borrower and Lender intend that the relationships created hereunder be
solely that of borrower and lender. Nothing herein is intended to create a joint
venture, partnership, tenancy-in-common, or joint tenancy relationship between
Borrower and Lender (it being understood that this Note is independent of, and
separate and apart from, the JV Agreement, and Lender’s right to enforce its
rights and remedies under this Note shall not be subject to any duties under the
JV Agreement and the arrangements created thereby, including, without
limitation, any fiduciary duty or duty of loyalty, if any, and Borrower hereby
waives and releases Lender from any claim that it may have under the JV
Agreement against Lender as a result of Lender’s exercising its rights and
remedies available to Lender under this Note or at law or in equity with regard
to any Event of Default under this Note).

(b) This Note is solely for the benefit of Lender and Borrower and nothing
contained in this Note shall be deemed to confer upon anyone other than Lender
and Borrower any right to insist upon or to enforce the performance or
observance of any of the obligations contained herein or therein. All conditions
to the obligations of Lender to make the Loan hereunder are imposed solely and
exclusively for the benefit of Lender and no other Person shall have standing to
require satisfaction of such conditions in accordance with their terms or be
entitled to assume that Lender will refuse to make the Loan in the absence of
strict compliance with any or all

 

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thereof and no other Person shall under any circumstances be deemed to be a
beneficiary of such conditions, any or all of which may be freely waived in
whole or in part by Lender if, in Lender’s sole discretion, Lender deems it
advisable or desirable to do so.

Section 10.2 Setoff; Counterclaim.

All amounts payable by Borrower under this Note shall be made without set-off or
counterclaim of any nature whatsoever and Borrower’s obligations hereunder are
hereby established unconditionally.

Section 10.3 Headings.

The headings in this Note are for convenience of reference only and shall not
limit or otherwise affect any of the terms hereof.

Section 10.4 Assignment.

The rights and obligations of Borrower hereunder may not be assigned, conveyed,
or transferred in whole or in part without the express written consent of Lender
which consent may be given or withheld in the sole and absolute discretion of
Lender. The rights and obligations of Lender hereunder may be assigned,
transferred, hypothecated, or conveyed in whole or in part by Lender.

Section 10.5 Jury Trial Waiver

BORROWER AND LENDER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE
ADVICE OF THEIR RESPECTIVE SEPARATE COUNSEL, UNCONDITIONALLY WAIVE TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY AS BORROWER AND LENDER
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE OR
ANY OF THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP ESTABLISHED HEREBY WOULD BE
BASED UPON DIFFICULT AND COMPLEX ISSUES, AND, THEREFORE, BORROWER AND LENDER
AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY WILL BE TRIED BY A
COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

Section 10.6 Effect of Partial Invalidity

The parties hereto intend and believe that each provision of this Note comports
with all applicable local, state and federal laws and judicial decisions;
however, if any provision or portion of any provision of this Note is found by a
court of competent jurisdiction to be in violation of any applicable local,
state or federal ordinance, statute, law, common law, rule, regulation, or
administrative or judicial decision, or public policy, and if such court would
declare or has declared such provision or provisions of this Note to be illegal,
invalid, unlawful, void or unenforceable as written, then it is the intent of
Borrower and Lender that such portion, provision or provisions shall be given
force and effect to the fullest possible extent that they are legal, valid and
enforceable, and that the remainder of this Note shall be construed as if such

 

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illegal, invalid, unlawful, void or unenforceable portion, provision or
provisions of this Note were severable and not contained herein, and that the
rights, obligations and interest of Borrower and Lender under the remainder of
this Note shall continue in full force and effect.

Section 10.7 Costs of Collection

Borrower agrees to pay all reasonable costs of collection, including, without
limitation, attorneys’ and paralegals’ fees and expenses, whether at the
pretrial, trial or appellate level, reasonably incurred by Lender in connection
with the enforcement or collection of this Note, whether suit is brought or not,
and including, without limitation, any such fees or costs reasonably incurred by
Lender with respect to any action or participation in, or in connection with,
any case or proceeding under the Bankruptcy Code, 11 U.S.C. Section 101 et seq.,
as the same may be amended.

Reasonable attorneys’ fees and costs incurred in enforcing any judgment or in
connection with any appeal shall be recoverable separately from and in addition
to any other amount included in such judgment. This Section 10.7 is intended to
be severable from the other provisions of this Note, and the prevailing party’s
rights under this Section 10.7 shall not merge into any judgment and any
judgment shall survive until all such fees and costs have been paid.

[Signatures appear on following page.]

 

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IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year
first above written.

 

MHI HOTEL INVESTMENTS HOLDINGS, LLC, a Delaware limited liability company By:  
MHI Hospitality Corporation, a Maryland corporation, its managing member   By:  

/s/ Andrew Sims

  Name:   Andrew Sims   Title:   President and Chief Executive Officer