Moody National REIT II, Inc. 10-K


 


EXHIBIT
4.1


 


DESCRIPTION
OF REGISTRANT’S SECURITIES 


REGISTERED
PURSUANT TO SECTION 12 OF 


THE
SECURITIES EXCHANGE ACT OF 1934


 


The
following is a summary of the securities of Moody National REIT II, Inc. (the “Company” or “we,” “us”
or “our”) registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). This description of the terms of our stock does not purport to be complete and is subject to and qualified in its
entirety by reference to the applicable provisions of Maryland General Corporation Law (“MGCL”), and the full text
of our charter and bylaws.


 


General


 


Under
our charter, we have authority to issue a total of 1,100,000,000 shares of capital stock, $ 0.01 par value per share. On June
12, 2017, we renamed our outstanding shares of common stock as Class A common stock and reclassified our authorized and unissued
Class A shares into three new share classes: Class D, Class I, and Class T common stock. Of the 1,100,000,000 shares of capital
stock authorized, 250,000,000 shares are classified as Class A common stock, 250,000,000 shares are classified as Class D common
stock, 250,000,000 shares are classified as Class I common stock, 250,000,000 shares are classified as Class T common stock and
100,000,000 shares of capital stock are classified as preferred stock. We have no Class D stockholders. Our board of directors,
with the approval of a majority of the entire board of directors and without any action by our stockholders, may amend our charter
from time to time to increase or decrease the aggregate number of shares of capital stock or the number of shares of capital stock
of any class or series that we have authority to issue.


 


Common
Stock


 


Except
for certain charter amendments that would alter only the contract rights of a particular class of common stock, in which case
the holders of shares of that class have exclusive voting rights on the amendment and no holders of any other class or series
of shares will be entitled to vote thereon, the holders of each class of shares of our common stock are entitled to one vote per
share on all matters voted on by stockholders, including the election of our directors. Our charter does not provide for cumulative
voting in the election of directors. Therefore, the holders of a majority of the outstanding shares of our common stock can elect
our entire board of directors. Subject to any preferential rights of any outstanding class or series of preferred stock, the holders
of shares of our common stock are entitled to such distributions as may be authorized from time to time by our board of directors
out of legally available funds and declared by us and, upon liquidation, are entitled to receive all assets available for distribution
to stockholders. Holders of shares of our common stock will not have preemptive rights, which means that stockholders will not
have an automatic option to purchase any new shares of common stock that we issue, or have appraisal rights, unless our board
of directors determines that appraisal rights apply, with respect to all or any classes or series of our stock, to one or more
transactions occurring after the date of such determination in connection with which stockholders would otherwise be entitled
to exercise such rights. Stockholders are not liable for our acts or obligations due to their status as stockholders.


 


Our
board of directors has authorized the issuance of shares of our capital stock without certificates. Shares of our common stock
are held in “uncertificated” form which will eliminate the physical handling and safekeeping responsibilities inherent
in owning transferable share certificates and eliminate the need to return a duly executed share certificate to effect a transfer.
DST Systems, Inc. acts as our registrar and as the transfer agent for shares of our common stock.


 



     


     


    

 





Fees
on Shares of our Common Stock


 


Each
Class A share issued in the primary offering was subject to an upfront selling commission of up to 6.0% of the purchase price
per share and an upfront dealer manager fee of up to 2.5% of the purchase price per share. There is no stockholder servicing fees
charged with respect to the Class A shares.


 


Each
Class I share issued in the primary offering was subject to an up-front dealer manager fee of up to 1.0% of the purchase price
per share. All of such dealer manager fee was waived for shares purchased through non-affiliated registered investment advisors.
There was no selling commissions or stockholder servicing fees charged with respect to the Class I shares.


 


Each
Class T share issued in the primary offering was subject to an upfront selling commission of up to 3.0% of the purchase price
per share and an upfront dealer manager fee of up to 2.5% of the purchase price per share.


 


In
addition, each outstanding Class T share sold in our primary offering is subject to an annual stockholder servicing fee that accrues
daily in an amount equal to 1/365th of up to 1.0% of the NAV per Class T share sold in the primary offering.


 


The
stockholder servicing fee paid on the Class T Shares will terminate on the earlier of: (i) a listing of the Class A shares on
a national securities exchange; (ii) our merger or consolidation with or into another entity, any voluntary or involuntary liquidation,
dissolution or winding up of our company or other disposition of all or substantially all of our assets, in each case in a transaction
in which our stockholders receive cash and/or shares listed on a national securities exchange; (iii) the end of the month in which
our dealer manager determines that total underwriting compensation paid in the primary offering is equal to 10.0% of the gross
proceeds of the primary offering from the sale of Class A shares, Class I shares and Class T shares; and (iv) with respect to
Class T shares held in a particular stockholder account, the end of the month in which total underwriting compensation from whatever
source (including dealer manager fees, selling commissions and any other underwriting compensation paid to participating broker-dealers
with respect such Class T shares in the stockholder account) would be in excess of 8.5% of the total gross investment amount in
Class T shares determined at the time of the most recent purchase of the Class T shares held in such account (or a lower limit,
provided that, in the case of a lower limit, the agreement between our dealer manager and the participating broker dealer in effect
at the time Class T shares were first issued to such account sets forth the lower limit and our dealer manager advises our transfer
agent of the lower limit in writing). Although we cannot predict the length of time over which the stockholder servicing fee will
be paid due to potential changes in the NAV of our shares, this fee would be paid with respect to a Class T share (in the case
of a limit of 8.5% of gross proceeds) for approximately three years from the date of purchase, assuming payment of the full upfront
selling commissions and dealer manager fees.


 


Upon
the termination of the payment of trailing stockholder servicing fees as described in the preceding paragraph, the applicable
Class T shares will convert into Class A shares. The number of Class A shares into which a Class T share will convert will be
based upon a conversion ratio equal to the NAV per share of the Class T shares on the date of conversion divided by the NAV per
share of the Class A shares on the date of conversion. We cannot predict if or when any of these events will occur.


 


The
Class I shares will convert into Class A shares upon (i) a listing of the Class A shares on a national securities exchange; or
(ii) our merger or consolidation with or into another entity, any voluntary or involuntary liquidation, dissolution or winding
up of our company or other disposition of all or substantially all of our assets, in each case in a transaction in which our stockholders
receive cash and/or shares listed on a national securities exchange. The number of Class A shares into which a Class I share will
convert will be based upon a conversion ratio equal to the NAV per share of the Class I shares on the date of conversion divided
by the NAV per share of the Class A shares on the date of conversion.


 



     


     


    

 





Our
advisor will pay all selling commissions, dealer manager fees and stockholder servicing fees with respect to our Class A shares,
Class I shares and Class T shares and may pay other fees paid on behalf of clients of nonaffiliated registered investment advisors
with respect to our Class I shares. Our advisor intends to recoup such amounts through the receipt of the Contingent Advisor Payment.


 


We
will not pay selling commissions, dealer manager fees or stockholder servicing fees on shares sold pursuant to our distribution
reinvestment plan.


 


Our
board of directors also previously classified Class D shares of common stock. We have no Class D stockholders.


 


Rights
Upon Liquidation


 


In
the event of any voluntary or involuntary liquidation, dissolution or winding up of us, or any liquidating distribution of our
assets, then such assets, or the proceeds therefrom, will be distributed to the holders of Class A, Class I and Class T shares
ratably in proportion to the respective NAV for each class after payment of or adequate provision for all our known debts and
other liabilities and subject to any preferential rights of holders of preferred stock, if any preferred stock is outstanding
at such time. To calculate the NAV for each class, we will first determine our NAV and then apply any class-specific fees in order
to determine the respective NAV for each respective class of shares.


 


Preferred
Stock


 


Our
charter authorizes our board of directors to classify and reclassify any unissued shares of our common stock and preferred stock
into other classes or series of stock. Prior to issuance of shares of each class or series, our board of directors is required
by the MGCL and by our charter to set, subject to our charter restrictions on ownership and transfer of our stock, the terms,
the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of repurchase for each class or series. Thus, our board of directors could authorize the
issuance of shares of common stock or preferred stock with terms or conditions which could have the effect of delaying, deferring
or preventing a transaction or change in control that might involve a premium price for holders of our common stock or otherwise
be in their best interest. Our board of directors has no present plans to issue preferred stock, but may do so at any time in
the future without stockholder approval. The issuance of preferred stock must be approved by a majority of our independent directors
not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal
counsel.


 


Meetings,
Special Voting Requirements and Access to Records


 


An
annual meeting of the stockholders will be held each year on a specific date and time set by our board of directors, upon reasonable
notice to our stockholders, but no sooner than 30 days after delivery of our annual report to stockholders. Special meetings of
stockholders may be called only upon the request of a majority of the directors, a majority of the independent directors, the
chairman, the chief executive officer, or the president and will be called by our secretary to act upon any matter that may properly
be considered at a meeting of stockholders upon the written request of stockholders entitled to cast at least 10% of the votes
entitled to be cast on such matter at the meeting. Upon receipt of a written request of eligible stockholders, either in person
or by mail, stating the purpose of the meeting, we will provide all stockholders, within ten days after receipt of such request,
written notice either in person or by mail, of such meeting and the purpose thereof. Such meeting will be held on a date not less
than 15 nor more than 60 days after the distribution of such notice, at a time and place specified in the request, or if none
is specified, at a time and place convenient to stockholders. The presence either in person or by proxy of stockholders entitled
to cast at least 50% of all the votes entitled to be cast at the meeting on any matter will constitute a quorum. Generally, the
affirmative vote of a majority of all votes cast is necessary to take stockholder action, except as provided in the following
paragraph and except that the affirmative vote of a majority of the shares represented in person or by proxy at a meeting at which
a quorum is present is required to elect a director.


 



     


     


    

 





Under
the MGCL and our charter, stockholders are generally entitled to vote at a duly held meeting at which a quorum is present on (1)
the amendment of our charter, (2) our dissolution, (3) our merger, consolidation or conversion or the sale or other disposition
of all or substantially all of our assets. These matters require the affirmative vote of stockholders entitled to cast at least
a majority of the votes entitled to be cast on the matter. With respect to stock owned by our advisor, directors, or any of their
affiliates, neither the advisor nor such directors, nor any of their affiliates may vote or consent on matters submitted to stockholders
regarding the removal of the advisor, such directors or any of their affiliates or any transaction between us and any of them.
In determining the requisite percentage in interest of shares necessary to approve a matter on which our advisor, our directors
or their affiliates may not vote or consent, any shares owned by any of them shall not be included.


 


The
advisory agreement, including the selection of our advisor, is approved annually by our directors, including a majority of the
independent directors. While the stockholders do not have the ability to vote to replace our advisor or to select a new advisor,
stockholders do have the ability, by the affirmative vote of a majority of all the votes entitled to be cast generally in the
election of directors, to remove a director from our board of directors. Any stockholder will be permitted access to all of our
corporate records at all reasonable times and may inspect and copy any of them for a reasonable copying charge. Inspection of
our records by the office or agency administering the securities laws of a jurisdiction will be provided upon reasonable notice
and during normal business hours. An alphabetical list of the names, addresses and telephone numbers of our stockholders, along
with the number of shares of our common stock held by each of them, will be maintained as part of our books and records and will
be available for inspection by any stockholder or the stockholder’s designated agent at our office. The stockholder list
will be updated at least quarterly to reflect changes in the information contained therein. A copy of the list will be mailed
to any stockholder who requests the list within 10 days of the request. A stockholder may request a copy of the stockholder list
in connection with matters relating to voting rights and the exercise of stockholder rights under federal proxy laws. A stockholder
requesting a list will be required to pay the reasonable costs of postage and duplication. We have the right to request that a
requesting stockholder represent to us that the list will not be used to pursue commercial interests. In connection with the mailing
of a stockholder list to a requesting stockholder, the copy of the stockholder list will be printed in alphabetical order, on
white paper, and in a readily readable type size (in no event smaller than ten-point type). We may impose a reasonable charge
for expenses incurred in reproduction pursuant to a stockholder request. In addition to the foregoing, stockholders have rights
under Rule 14a-7 under the Exchange Act, which provides that, upon the request of investors and the payment of the expenses of
the distribution, we are required to distribute specific materials to stockholders in the context of the solicitation of proxies
for voting on matters presented to stockholders or, at our option, provide requesting stockholders with a copy of the list of
stockholders so that the requesting stockholders may make the distribution of proxies themselves. If a proper request for the
stockholder list is not honored, then the requesting stockholder will be entitled to recover certain costs incurred in compelling
the production of the list as well as actual damages suffered by reason of the refusal or failure to produce the list. However,
a stockholder will not have the right to, and we may require a requesting stockholder to represent that it will not, secure the
stockholder list or other information for the purpose of selling or using the list for a commercial purpose not related to the
requesting stockholder’s interest in our affairs.


 



     


     


    

 





Tender
Offers


 


Our
charter provides that any tender offer made by any person, including any “mini-tender” offer, must comply with most
of the provisions of Regulation14D of the Exchange Act, including the notice and disclosure requirements. Among other things,
the offeror must provide us notice of such tender offer at least ten business days before initiating the tender offer. If the
offeror does not comply with the provisions set forth above, the non-complying offeror will be responsible for all of our expenses
in connection with that offeror’s noncompliance. Our charter also prohibits any stockholder from transferring shares of
stock to a person who makes a tender offer which does not comply with such provisions unless such stockholder has first offered
such shares of stock to us at the tender offer price in the non-compliant tender offer.


 


Restriction
on Ownership of Shares of Capital Stock


 


For
us to qualify as a REIT, no more than 50% in value of the outstanding shares of our stock may be owned, directly or indirectly
through the application of certain attribution rules under the Internal Revenue Code, by any five or fewer individuals, as defined
in the Internal Revenue Code to include specified entities, during the last half of any taxable year. In addition, the outstanding
shares of our stock must be owned by 100 or more persons independent of us and each other during at least 335 days of a 12-month
taxable year or during a proportionate part of a shorter taxable year, excluding our first taxable year for which we elect to
be taxed as a REIT. In addition, we must meet requirements regarding the nature of our gross income to qualify as a REIT. One
of these requirements is that at least 75% of our gross income for each calendar year must consist of rents from real property
and income from other real property investments. Subject to special rules for leases to our TRS-lessees, the aggregate of the
rents received by our operating partnership from any tenant will not qualify as rents from real property, which could result in
our loss of REIT status, if we own, actually or constructively within the meaning of certain provisions of the Internal Revenue
Code, 10% or more of the ownership interests in that tenant. To assist us in preserving our status as a REIT, among other purposes,
our charter contains limitations on the ownership and transfer of shares of our stock which prohibit: (1) any person or entity
from owning or acquiring, directly or indirectly, more than 9.8% of the value of the aggregate of our then outstanding capital
stock or more than 9.8% of the value or number of shares, whichever is more restrictive, of the aggregate of our then outstanding
Class A, Class I or Class T shares of common stock and (2) any transfer of or other event or transaction with respect to shares
of capital stock that would result in the beneficial ownership of our outstanding shares of capital stock by fewer than 100 persons.
In addition, our charter prohibits any transfer of, or other event with respect to, shares of our capital stock that (1) would
result in us being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code, (2) would cause
us to own, actually or constructively, 9.8% or more of the ownership interests in a tenant of our real property or the real property
of our operating partnership or any direct or indirect subsidiary of our operating partnership or (3) would otherwise cause us
to fail to qualify as a REIT.


 


Our
charter provides that the shares of our capital stock that, if transferred, would: (1) result in a violation of the 9.8% ownership
limits; (2) result in us being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code; (3)
cause us to own 9.8% or more of the ownership interests in a tenant of our real property or the real property of our operating
partnership or any direct or indirect subsidiary of our operating partnership; or (4) otherwise cause us to fail to qualify as
a REIT, will be transferred automatically to a trust effective on the day before the purported transfer of such shares of our
capital stock. We will designate a trustee of the trust that will not be affiliated with us or the purported transferee or record
holder. We will also name a charitable organization as beneficiary of the trust. The trustee will receive all distributions on
the shares of our capital stock in the trust and will hold such distributions in trust for the benefit of the beneficiary. The
trustee also will vote the shares of capital stock in the trust and, subject to Maryland law, will have the authority to rescind
as void any vote cast by the intended transferee prior to our discovery that the shares have been transferred to the trust and
to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However,
if we have already taken irreversible corporate action, then the trustee will not have the authority to rescind and recast the
vote. The intended transferee will acquire no rights in such shares of capital stock, unless, in the case of a transfer that would
cause a violation of the 9.8% ownership limits the transfer is exempted (prospectively or retroactively) by our board of directors
from the ownership limits based upon receipt of information (including certain representations and undertakings from the intended
transferee) that such transfer would not violate the provisions of the Internal Revenue Code for our qualification as a REIT.
If the transfer to the trust would not be effective for any reason to prevent a violation of the foregoing limitations on ownership
and transfer, then the transfer of that number of shares that otherwise would cause the violation will be null and void, with
the intended transferee acquiring no rights in such shares. In addition, our charter provides that any transfer of shares of our
capital stock that would result in shares of our capital stock being beneficially owned by fewer than 100 persons will be null
and void and the intended transferee will acquire no rights in such shares of our capital stock.


 



     


     


    

 





Within
20 days of receiving notice from us that shares of our stock have been transferred to the trust, the trustee will sell the shares
to a person designated by the trustee, whose ownership of the shares will not violate the above ownership limitations. Upon the
sale, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds
of the sale to the intended transferee and to the charitable beneficiary as follows. The intended transferee will receive an amount
equal to the lesser of (1) the price paid by the intended transferee for the shares or, if the intended transferee did not give
value for the shares in connection with the event causing the shares to be held in the trust (e.g., a gift, devise or other similar
transaction), the “market price” (as defined in our charter) of the shares on the day of the event causing the shares
to be held in the trust and (2) the price received by the trustee from the sale or other disposition of the shares. The trustee
may reduce the amount payable to the intended transferee by the amount of dividends and other distributions which have been paid
to the intended transferee and are owed by the intended transferee to the trustee. Any net sale proceeds in excess of the amount
payable to the intended transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that shares
have been transferred to the trust, the shares are sold by the intended transferee, then (1) the shares will be deemed to have
been sold on behalf of the trust and (2) to the extent that the intended transferee received an amount for the shares that exceeds
the amount described above that such intended transferee was entitled to receive, such excess will be paid to the trustee upon
demand.


 


In
addition, shares of our stock held in the trust will be deemed to have been offered for sale to us, or our designee, at a price
per share equal to the lesser of (1) the price per share in the transaction that resulted in the transfer to the trust (or, in
the case of a devise or gift, the market price at the time of the devise or gift) and (2) the market price on the date we, or
our designee, accept the offer. We will have the right to accept the offer until the trustee has sold the shares. Upon a sale
to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds
of the sale to the intended transferee. We may reduce the amount payable to the intended transferee by the amount of dividends
and other distributions which have been paid to the intended transferee and are owed by the intended transferee to the trustee.
We may pay the amount of such reduction to the trustee for the benefit of the charitable beneficiary.


 


Any
person who acquires or attempts or intends to acquire shares of our capital stock in violation of the foregoing restrictions or
who owns shares of our capital stock that were transferred to any such trust is required to give immediate written notice to us
or, in the case of a proposed or attempted transaction, at least 15 days’ prior written notice. In both cases, such persons
must provide to us such other information as we may request to determine the effect, if any, of such event on our status as a
REIT. The foregoing restrictions will continue to apply until our board of directors determines it is no longer in our best interest
to attempt to, or to continue to qualify as a REIT or that compliance is no longer required in order for REIT qualification.


 



     


     


    

 





The
ownership limits do not apply to a person or persons that our board of directors exempts (prospectively or retroactively) from
the ownership limits upon appropriate assurances that our qualification as a REIT is not jeopardized. Any person who owns more
than 5.0% (or such lower percentage applicable under Treasury Regulations) of the outstanding shares of our capital stock during
any taxable year will be asked to deliver a statement or affidavit setting forth the number of shares of our capital stock beneficially
owned.


 


Distributions


 


Our
board of directors first authorized a distribution in July 2015, and we paid our first distribution in August 2015. We expect
to continue paying monthly distributions unless our results of operations, our general financial condition, the general economic
condition or other factors prohibit us from doing so. The timing and amount of distributions will be determined by our board of
directors in its discretion and may vary from time to time. In connection with a distribution to our stockholders, our board of
directors intends to authorize a monthly distribution for a certain dollar amount per share of our common stock. We will then
calculate each stockholder’s specific distribution amount for the month using daily record and declaration dates. Each stockholder’s
distributions will begin to accrue on the date we accept such stockholder’s subscription for shares of our common stock.


 


Distributions
will be made on all classes of our common stock at the same time. As of January 16, 2018, our advisor assumed the obligation to
pay all ongoing stockholder servicing fees with respect to our Class T shares. Accordingly, going forward, we anticipate that
holders of our Class A shares, Class I shares and Class T shares will receive the same amount of distributions per share regardless
of share class. Prior to January 16, 2018, holders of our Class T shares received lower per share distributions because of the
ongoing stockholder servicing fees associated with such share classes, which were paid by us and deducted from the distribution
amounts payable to our stockholders on such shares.


 


We
are required to make distributions sufficient to satisfy the requirements for qualification as a REIT for federal income tax purposes.
Generally, income distributed will not be taxable to us under the Internal Revenue Code if we distribute at least 90% of our taxable
income each year (computed without regard to the distributions paid deduction and our net capital gain). Distributions will be
authorized at the discretion of our board of directors and declared by us, in accordance with our earnings, cash flow and general
financial condition. Our board of directors’ discretion will be directed, in substantial part, by its obligation to cause
us to comply with the REIT requirements. Because we may receive income from interest or rents at various times during our fiscal
year, distributions may not reflect our income earned in that particular distribution period and may be made in advance of actual
receipt of funds in an attempt to make distributions relatively uniform. We are authorized to borrow money, issue new securities
or sell assets to make distributions. There are no restrictions on the ability of our operating partnership to transfer funds
to us.


 


Distributions
in kind shall not be permitted, except for (1) distributions of readily marketable securities, (2) distributions of beneficial
interests in a liquidating trust established for our dissolution and the liquidation of our assets in accordance with the terms
of our charter or (3) distributions for which our board of directors advises each stockholder of the risks associated with direct
ownership of the property, our board of directors offers each stockholder the election of receiving such in-kind distributions
and in-kind distributions are made only to those stockholders that accept such offer. The receipt of marketable securities in
lieu of cash distributions may cause stockholders to incur transaction expenses in liquidating the securities. We do not have
any current intention to list our shares of our common stock on a national securities exchange, nor is it expected that a public
market for our shares of common stock will develop.


 



     


     


    

 





We
can give no assurance that we will pay distributions solely from our cash flow from operations in the future, especially during
the period when we are raising capital and have not yet acquired a substantial portfolio of income-producing investments. Our
long-term policy will be to pay distributions from cash flow from operations. However, distributions paid during the early stages
of our offering and before we have acquired a substantial portfolio of real estate assets have been, and may continue to be, funded
primarily from offering proceeds. Our organizational documents permit us to pay distributions from any source, including loans,
our advisor’s deferral of fees and expense reimbursements and offering proceeds. We have not established a limit on the
amount of proceeds we may use from the sale of our stock to fund distributions. If we pay distributions from sources other than
cash flow from operations, we will have fewer funds available for investments and a stockholder’s overall return on its
investment in us will be reduced.


 


On
March 24, 2020, in response to the COVID-19 pandemic, our board of directors approved the suspension of the payment of distributions
to our stockholders, effective immediately.


 


Distribution
Reinvestment Plan


 


Pursuant
to our distribution reinvestment plan stockholders may elect to have the cash distributions they receive reinvested in shares
of our common stock at a price equal to the most recently determined estimated NAV per share for such class of common stock.


 


Stockholders
may elect to participate in the distribution reinvestment plan by completing the subscription agreement, the enrollment form or
by other written notice to the plan administrator. Participation in the plan will begin with the next distribution made after
acceptance of a participant’s written notice. Participation in the plan may be terminated with respect to any person to
the extent that a reinvestment of distributions in shares of our common stock would cause the share ownership limitations contained
in our charter to be violated. Following any termination of our distribution reinvestment plan, all subsequent distributions to
stockholders would be made in cash. No selling commissions or dealer manager fees are payable on shares sold through our distribution
reinvestment plan.


 


Stockholders
who elect to participate in the distribution reinvestment plan, and who are subject to United States federal income taxation laws,
will incur a tax liability on an amount equal to the fair value on the relevant distribution date of the shares of our common
stock purchased with reinvested distributions, even though such stockholders have elected not to receive the distributions used
to purchase those shares of common stock in cash. The tax consequences of participating in our distribution reinvestment plan
will vary depending upon each participant’s particular circumstances, and stockholders are urged to consult their own tax
advisor regarding the specific tax consequences of participation in the distribution reinvestment plan.


 


All
material information regarding the distributions to stockholders and the effect of reinvesting the distributions, including tax
consequences, will be provided to our stockholders at least annually. Each stockholder participating in the distribution reinvestment
plan will have an opportunity to withdraw from the plan at least annually after receiving this information.


 


Our
board of directors may amend, suspend or terminate the distribution reinvestment plan at its discretion at any time upon ten days’
notice to our stockholders. On March 24, 2020, in response to the COVID-19 pandemic, our board of directors approved the termination
of our distribution reinvestment plan, effective as of April 6, 2020.


 



     


     


    

 





Share
Repurchase Program


 


Our
share repurchase program may provide an opportunity for our stockholders to have shares of our common stock repurchased, subject
to certain restrictions and limitations, at a price equal to or at a discount from the current offering price per share for the
particular class of shares being repurchased. No shares can be repurchased under our share repurchase program until after the
first anniversary of the date of purchase of such shares; provided, however, that this holding period will not apply to
repurchases requested within two years after the death or qualifying disability of a stockholder. Other than with respect to shares
being repurchased in connection with a stockholder’s death or qualifying disability (as described below), we will repurchase
shares under our share repurchase program for the lesser of the price paid for the shares by the stockholders whose shares are
being repurchased or 95% of the then-current estimated NAV per share for the applicable share class, as determined by our board
of directors.


 


Repurchase
requests made within two years of death or “qualifying disability” of a stockholder will be repurchased at a price
equal to the purchase price paid by such deceased or disabled stockholder for such shares or, in the case of repurchases following
the conclusion of our public offering, at a price based upon our current estimated NAV per share and other factors that our board
of directors deems relevant. Our board of directors, in its sole discretion, shall make the determination of whether a stockholder
has a qualifying disability after receiving written notice from the stockholder. Generally, our board of directors will consider
a stockholder to have a qualifying disability if the stockholder is (1) unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected
to last for a continuous period of not less than 12 months, or (2) is, by reason of any medically determinable physical or mental
impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months,
receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees
of the stockholder’s employees. We must receive written notice within 180 days after such stockholder’s qualifying
disability.


 


We
are not obligated to repurchase shares of our common stock under the share repurchase program. Notwithstanding the procedures
discussed below, our board of directors may, in its sole discretion, accept or reject any share repurchase request made by any
stockholder at any time.


 


To
the extent we determine to accept share repurchase requests from our stockholders, repurchase of shares of our common stock will
be made quarterly upon written request to us at least 15 days prior to the end of the applicable quarter. Repurchase requests
will be honored approximately 30 days following the end of the applicable quarter. We refer to the last day of the applicable
quarter as the “repurchase date.” Stockholders may withdraw their repurchase request at any time up to three business
days prior to the repurchase date.


 


We
cannot guarantee that the funds set aside for the share repurchase program will be sufficient to accommodate all requests made
in any quarter. In the event that we do not have sufficient funds available to repurchase all of the shares of our common stock
for which repurchase requests have been submitted in any quarter, we plan to repurchase the shares of our common stock on a pro
rata basis on the repurchase date. In addition, if we repurchase less than all of the shares subject to a repurchase request in
any quarter, with respect to any unrepurchased shares, a stockholder can (1) withdraw its request for repurchase or (2) ask that
we honor the request in a future quarter, if any, when such repurchases can be made pursuant to the limitations of the share repurchase
when sufficient funds are available. Such pending requests will be honored on a pro rata basis.


 


To
the extent our board of directors determines to accept share repurchase requests from our stockholders, we presently intend to
limit the number of shares to be repurchased during any calendar year to the lesser of (1) 5.0% of the weighted average number
of shares of our common stock outstanding during the prior calendar year and (2) the number of shares of our common stock that
could be repurchased with the net proceeds from the sale of shares under the distribution reinvestment plan in the prior calendar
year plus such additional funds as may be reserved for share repurchase by our board of directors. Shares subject to a repurchase
request upon the death of a stockholder will be included in calculating the maximum number of shares that may be repurchased;
however, the volume limitation will not apply to repurchases upon the death of a stockholder. There is no fee in connection with
a repurchase of shares of our common stock.


 



     


     


    

 





The
aggregate amount of repurchases under our share repurchase program is not expected to exceed the aggregate proceeds received from
the sale of shares pursuant to our distribution reinvestment plan. However, to the extent that the aggregate proceeds received
from the sale of shares pursuant to our distribution reinvestment plan are not sufficient to fund repurchase requests pursuant
to the limitations outlined above, our board of directors may, in its sole discretion, choose to use other sources of funds to
repurchase shares of our common stock. Such sources of funds could include cash on hand, cash available from borrowings and cash
from liquidations of securities investments as of the end of the applicable month, to the extent that such funds are not otherwise
dedicated to a particular use, such as working capital, cash distributions to stockholders or purchases of real estate assets.
If funds available for our share repurchase program are not sufficient to accommodate all requests, shares will be repurchased
as follows: first, pro rata as to repurchases upon the death or disability of a stockholder; next pro rata as to repurchases to
stockholders subject to a mandatory distribution requirement under such stockholder’s IRA; and, finally, pro rata as to
all other repurchase requests.


 


In
addition, the board of directors may, in its sole discretion, amend, suspend, or terminate the share repurchase program at any
time if it determines that the funds available to fund the share repurchase program are needed for other business or operational
purposes or that amendment, suspension or termination of the share repurchase program is in the best interest of our stockholders.
If the board of directors decides to amend, suspend or terminate the share repurchase program, we will provide stockholders with
no less than 10 days’ prior written notice, which notice may be provided (a) in a current report on Form 8-K or in our annual
or quarterly reports, as publicly filed or furnished with the SEC, or (b) in a separate mailing to our stockholders. Therefore,
a stockholder may not have the opportunity to make a repurchase request prior to any potential termination of our share repurchase
program.


 


On
March 24, 2020, in response to the COVID-19 pandemic, our board of directors approved the suspension of our share repurchase program,
effective as of April 6, 2020.


 


Business
Combinations


 


Under
the MGCL, business combinations between a Maryland corporation and an interested stockholder or the interested stockholder’s
affiliate are prohibited for five years after the most recent date on which the stockholder becomes an interested stockholder.
For this purpose, the term “business combinations” includes mergers, consolidations, share exchanges or, in circumstances
specified in the MGCL, asset transfers and issuances or reclassifications of equity securities. An “interested stockholder”
is defined for this purpose as: (1) any person who beneficially owns, directly or indirectly, 10% or more of the voting power
of the corporation’s outstanding voting stock; or (2) an affiliate or associate of the corporation who, at any time within
the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding stock of the corporation. A person is not an interested stockholder under the MGCL if the board
of directors approved in advance the transaction by which the person otherwise would become an interested stockholder. However,
in approving the transaction, the board of directors may provide that its approval is subject to compliance, at or after the time
of the approval, with any terms and conditions determined by the board of directors.


 



     


     


    

 





After
the five-year prohibition, any such business combination between the corporation and an interested stockholder generally must
be recommended by the board of directors of the corporation and approved by the affirmative vote of at least: (1) 80% of the votes
entitled to be cast by holders of outstanding shares of voting stock of the corporation and (2) two-thirds of the votes entitled
to be cast by holders of voting stock of the corporation other than shares of stock held by the interested stockholder or its
affiliate with whom the business combination is to be effected, or held by an affiliate or associate of the interested stockholder,
voting together as a single voting group.


 


These
super majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined
under the MGCL, for their shares of common stock in the form of cash or other consideration in the same form as previously paid
by the interested stockholder for its shares of common stock.


 


None
of these provisions of the MGCL will apply, however, to business combinations that are approved or exempted by the board of directors
of the corporation prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the business
combination statute, our board of directors has exempted any business combination involving us and any person. Consequently, the
five-year prohibition and the super majority vote requirements will not apply to business combinations between us and any person.
As a result, any person may be able to enter into business combinations with us that may not be in the best interest of our stockholders,
without compliance with the super majority vote requirements and other provisions of the statute.


 


Should
our board of directors opt into the business combination statute in the future, it may discourage others from trying to acquire
control of us and increase the difficulty of consummating any offer.


 


Business
Combination with Our Advisor


 


Many
REITs that are listed on a national securities exchange or included for quotation on an over-the-counter market are self-administered,
which means that they employ persons or agents to perform all significant management functions. The costs to perform these management
functions are internal, rather than external, and no third-party fees, such as advisory fees, are paid by the REIT. We will consider
becoming a self-administered REIT once our assets and income are, in our board of directors’ view, of sufficient size such
that internalizing some or all of the management functions performed by our advisor is in our best interests and in the best interests
of our stockholders.


 


If
our board of directors should make this determination in the future and seeks to pursue internalizing our management functions
through a business combination with our advisor, or by hiring our advisor’s personnel, our board of directors will form
a special committee comprised entirely of our independent directors to consider and evaluate any such transaction. Unless and
until definitive documentation is executed, we will not be obligated to complete a business combination with our advisor. Pursuant
to the advisory agreement, we are not allowed to solicit or hire any of our advisor’s personnel without our advisor’s
prior written consent for a one-year period following the termination of the advisory agreement.


 


We
do not intend to pay any compensation or other remuneration to our advisor or its affiliates in connection with any internalization
transaction. Subject to the approval of our board of directors, to the extent our advisor or our sponsor performs substantial
services or incurs costs in connection with the internalization, we intend to pay our advisor or our sponsor for such services
and reimburse our sponsor and its affiliates for any and all costs and expenses reasonably associated with the internalization.


 


Control
Share Acquisitions


 


The
MGCL provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except
to the extent approved by a vote of at least two-thirds of the votes entitled to be cast on the matter. Shares of common stock
owned by the acquiror, by officers or by employees who are directors of the corporation are not entitled to vote on the matter.
“Control shares” are voting shares of stock that, if aggregated with all other shares of stock owned by the acquiror
or with respect to which the acquiror has the right to vote or to direct the voting of, other than solely by virtue of a revocable
proxy, would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting
powers:


 



     


     


    

 





		●	one-tenth
                                         or more but less than one-third;



 


		●	one-third
                                         or more but less than a majority; or



 


		●	a
                                         majority or more of all voting power.



 


Control
shares do not include shares of stock the acquiring person is then entitled to vote as a result of having previously obtained
stockholder approval or shares acquired directly from the corporation. Except as otherwise specified in the statute, a “control
share acquisition” means the acquisition of issued and outstanding control shares. Once a person who has made or proposes
to make a control share acquisition has undertaken to pay expenses and has satisfied other required conditions, the person may
compel the board of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting
rights of the shares of stock. If no request for a meeting is made, the corporation may itself present the question at any stockholders
meeting. If voting rights are not approved for the control shares at the meeting or if the acquiring person does not deliver an
“acquiring person statement” for the control shares as required by the statute, the corporation may repurchase any
or all of the control shares for their fair value, except for control shares for which voting rights have previously been approved.
Fair value is to be determined for this purpose without regard to the absence of voting rights for the control shares, and is
to be determined as of the date of the last control share acquisition or of any meeting of stockholders at which the voting rights
for control shares are considered and not approved.


 


If
voting rights for control shares are approved at a stockholders’ meeting and the acquiror becomes entitled to vote a majority
of the shares of stock entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares of
stock as determined for purposes of these appraisal rights may not be less than the highest price per share paid in the control
share acquisition. Some of the limitations and restrictions otherwise applicable to the exercise of dissenters’ rights do
not apply in the context of a control share acquisition.


 


The
control share acquisition statute does not apply to shares of stock acquired in a merger or consolidation or on a stock exchange
if the corporation is a party to the transaction or to acquisitions approved or exempted by the charter or bylaws of the corporation.
As permitted by the MGCL, we have provided in our bylaws that the control share provisions of the MGCL will not apply to any acquisition
by any person of shares of our stock, but our board of directors retains the discretion to opt into these provisions in the future.


 


Advance
Notice of Director Nominations and New Business


 


Our
bylaws provide that with respect to an annual meeting of stockholders, nominations of individuals for election to our board of
directors and the proposal of business to be considered by a stockholder may be made only (1) pursuant to our notice of the meeting,
(2) by or at the direction of our board of directors or (3) by a stockholder who is a stockholder of record both at the time of
giving the advance notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting in the
election of each individual so nominated or on any such other business and who has complied with the advance notice procedures
of our bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may
be brought before the meeting. Nominations of individuals for election to our board of directors at a special meeting may be made
only (1) by or at the direction of our board of directors or (2) provided that the special meeting has been called in accordance
with our bylaws for the purpose of electing directors, by a stockholder who is a stockholder of record both at the time of giving
the advance notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting in the election
of each individual so nominated and who has complied with the advance notice provisions of our bylaws.


 



     


     


    

 





Subtitle
8


 


Subtitle
8 of Title 3 of the MGCL, or Subtitle 8, permits the board of directors of a Maryland corporation with a class of equity securities
registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter
or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in its charter or bylaws, to any
or all of five provisions:


 


		●	a
                                         classified board of directors;



 


		●	a
                                         two-thirds vote requirement for removing a director;



 


		●	a
                                         requirement that the number of directors be fixed only by vote of the directors;



 


		●	a
                                         requirement that vacancies on the board of directors be filled only by the remaining
                                         directors and (if the board is classified) for the remainder of the full term of the
                                         class of directors in which the vacancy occurred; and



 


		●	a
                                         majority requirement for the calling of a stockholder-requested special meeting of stockholders.



 


We
have elected to provide that, at such time as we are eligible to make a Subtitle 8 election, vacancies on our board of directors
may be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy
occurred. Through provisions in our charter and bylaws unrelated to Subtitle 8, we vest in our board of directors the exclusive
power to fix the number of directorships; provided that the number is not fewer than three. We have not elected to be subject
to the other provisions of Subtitle 8.


 


Restrictions
on Roll-Up Transactions


 


In
connection with any proposed “roll-up transaction” (as defined below) involving us and the issuance of securities
of an entity as defined below that would be created or would survive after the successful completion of the roll-up transaction,
an appraisal of all of our assets will be obtained from a competent independent appraiser. In order to qualify as an independent
appraiser for this purpose, the person or entity must have no material current or prior business or personal relationship with
our advisor or directors and must be engaged to a substantial extent in the business of rendering opinions regarding the value
of assets of the type held by us. If the appraisal will be included in a prospectus used to offer the securities of a roll-up
entity, the appraisal shall be filed with the SEC and, if applicable, the states in which registration of such securities is sought
as an exhibit to the registration statement for the offering. Our assets will be appraised on a consistent basis, and the appraisal
will be based on the evaluation of all relevant information and will indicate the value of the assets as of a date immediately
prior to the announcement of the proposed roll-up transaction. The appraisal will assume an orderly liquidation of our assets
over a 12-month period. The terms of the engagement of the independent appraiser will clearly state that the engagement is for
our benefit and the benefit of our stockholders. We will include a summary of the appraisal, indicating all material assumptions
underlying the appraisal, in a report to the stockholders in connection with any proposed roll-up transaction.


 



     


     


    

 





A
“roll-up transaction” is a transaction involving the acquisition, merger, conversion or consolidation, directly or
indirectly, of us and the issuance of securities of another entity, which we refer to as a “roll-up entity,” that
would be created or would survive after the successful completion of such transaction. The term roll-up transaction does not include:


 


		●	a
                                         transaction involving our securities that have been for at least 12 months listed on
                                         a national securities exchange; or



 


		●	a
                                         transaction involving our conversion to a corporate, trust, or association form if, as
                                         a consequence of the transaction, there will be no significant adverse change in any
                                         of the following: common stockholder voting rights; the term of our existence; compensation
                                         to our advisor; or our investment objectives.



 


In
connection with a proposed roll-up transaction, the person sponsoring the roll-up transaction must offer to stockholders who vote
against the proposal the choice of:


 


		(1)	accepting
                                         the securities of a roll-up entity offered in the proposed roll-up transaction; or



 


		(2)	one
                                         of the following:



 


		(a)	remaining
                                         as stockholders and preserving their interests in us on the same terms and conditions
                                         as existed previously; or



 


		(b)	receiving
                                         cash in an amount equal to the stockholder’s pro rata share of the appraised value
                                         of our net assets.



 


We
are prohibited from participating in any proposed roll-up transaction


 


		●	that
                                         would result in common stockholders having voting rights in a roll-up entity that are
                                         less than those provided in our charter, including rights with respect to the election
                                         and removal of directors, annual and special meetings, amendment of our charter and our
                                         dissolution;



 


		●	that
                                         includes provisions that would operate as a material impediment to, or frustration of,
                                         the accumulation of shares by any purchaser of the securities of the roll-up entity,
                                         except to the minimum extent necessary to preserve the tax status of such roll-up entity,
                                         or which would limit the ability of an investor to exercise the voting rights of its
                                         securities of the roll-up entity on the basis of the number of our shares held by that
                                         investor;



 


		●	in
                                         which our common stockholders’ rights to access the records of the roll-up entity
                                         will be less than those provided for in our charter and described above in “—Meetings,
                                         Special Voting Requirements and Access to Records;” or



 


		●	in
                                         which we would bear any of the costs of the roll-up transaction if our common stockholders
                                         reject the roll-up transaction.



 


Reports
to Stockholders


 


Our
charter requires that we prepare an annual report and deliver it to our stockholders within 120 days after the end of each fiscal
year. Among the matters that must be included in the annual report are:


 


		●	financial
                                         statements that are prepared in accordance with GAAP and are audited by our independent
                                         registered public accounting firm;



 



     


     


    

 





		●	the
                                         ratio of the costs of raising capital during the year to the capital raised;



 


		●	the
                                         aggregate amount of advisory fees and the aggregate amount of other fees paid to our
                                         advisor and any affiliate of our advisor by us or third parties doing business with us
                                         during the year;



 


		●	our
                                         total operating expenses for the year, stated as a percentage of our average invested
                                         assets and as a percentage of our net income;



 


		●	a
                                         report from the independent directors that our policies are in the best interests of
                                         our stockholders and the basis for such determination; and



 


		●	separately
                                         stated, full disclosure of all material terms, factors and circumstances surrounding
                                         any and all transactions involving us and our advisor, a director or any affiliate thereof
                                         during the year; and the independent directors are specifically charged with a duty to
                                         examine and comment in the report on the fairness of the transactions.



 


Under
the Securities Act, we must update this prospectus upon the occurrence of certain events, such as property acquisitions. We will
file updated prospectuses and prospectus supplements with the SEC. We are also subject to the informational reporting requirements
of the Exchange Act, and accordingly, we will file annual reports, quarterly reports, proxy statements, when applicable, and other
information with the SEC. In addition, we will provide stockholders directly with periodic updates, including prospectuses, prospectus
supplements, and annual and quarterly reports.


 


Stockholders
may authorize us to provide such periodic updates, electronically by so indicating on their subscription agreement, or by sending
us instructions in writing in a form acceptable to us to receive such periodic updates electronically. Unless a stockholder elects
in writing to receive such periodic updates electronically, all documents will be provided in paper form by mail. Stockholders
must have internet access to use electronic delivery. While we impose no additional charge for this service, there may be potential
costs associated with electronic delivery, such as online charges. The periodic updates will be available on our website. Stockholders
may access and print all periodic updates provided through this service. As periodic updates become available, we will notify
stockholders by sending them an e-mail message that will include instructions on how to retrieve the periodic updates. If our
e-mail notification is returned to us as “undeliverable,” we will contact stockholders to obtain their updated e-mail
address. If we are unable to obtain a valid e-mail address for a stockholder, we will resume sending a paper copy by regular U.S.
mail to its address of record. A stockholder may revoke their consent for electronic delivery at any time and we will resume sending
such stockholder a paper copy of all periodic updates. However, in order for us to be properly notified, a revocation must be
given to us a reasonable time before electronic delivery has commenced. We will provide stockholders with paper copies at any
time upon request. Such request will not constitute revocation of a prior consent to receive periodic updates electronically.