Document:

ex_235279.htm

Exhibit 10.2

 

 

NORTHWEST PIPE COMPANY

 

RESTRICTED STOCK UNIT AGREEMENT 

 

1.    Grant. Northwest Pipe Company (the “Company”) hereby grants you, XXX (the “Employee”), in your position as XXX, an award of XXX Restricted Stock Units under the Company’s 2021 Long Term Incentive Grant (the “2021 LTI Grant”), subject to all of the terms and conditions of this Agreement, the 2021 LTI Grant and the Company’s stockholder approved 2007 Stock Incentive Plan (the “Plan”). The date of this Restricted Stock Unit Agreement (the “Agreement”) is March 18, 2021 (the “Grant Date”). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.

 

2.    Company’s Obligation to Pay. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Employee will have no right to payment of such Restricted Stock Units. Prior to actual payment of any vested Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole shares of the Company’s common stock (“Shares”) only.

 

3.    Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5, and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the Vesting Schedule attached hereto as Appendix A. Restricted Stock Units shall not vest in the Employee unless the Employee shall have been continuously employed by the Company or by one of its Subsidiaries from the Grant Date until the date the Restricted Stock Units vest in accordance with the provisions of this Agreement.

 

4.    Change in Control. In the event a change in control of the Company (as defined in Appendix B) occurs at any time prior to the last vesting date, a pro-rata number of Restricted Stock Units will be calculated based on time elapsed as of the date of the change in control, and those Restricted Stock Units will be immediately vested.

 

5.    Committee Discretion. The Compensation Committee of the Company’s Board of Directors (the “Committee”), in its discretion, may accelerate the vesting of the balance, or some lesser portion of the balance, of the Restricted Stock Units at any time, subject to the terms of the Plan. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Committee.

 

6.    Payment after Vesting. Any Restricted Stock Units that vest in accordance with Sections 3 through 5 will be paid to the Employee as soon as practicable following the date of vesting, subject to Section 9.

 

7.    Clawback provision. If the Company’s financial statements are the subject of a restatement due to misconduct, to the extent permitted by governing law, in all appropriate cases, the Company will seek reimbursement of excess share compensation granted to you per this Agreement. “Excess share compensation” means the positive difference, if any, between (i) the award paid to you and (ii) the award that would have been paid to you had the award been calculated based on the Company’s financial statements as restated.

 

 

 

 

8.    Forfeiture. Notwithstanding any contrary provision of this Agreement, the balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the Employee’s termination of service (with or without cause) will be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company.

 

9.    Death of Employee. Any distribution of Shares that vested during Employee’s lifetime which is to be made to the Employee under this Agreement after the Employee is deceased shall be made to the administrator or executor of the Employee’s estate. Any such administrator or executor must furnish the Company with (a) written notice of his or her status as transferee, and (b) evidence satisfactory to the Company to establish the validity of the transfer and compliance with any laws or regulations pertaining to said transfer.

 

10.  Withholding of Taxes. When Shares are issued as payment for vested Restricted Stock Units, the Company (or the employing Subsidiary) may withhold a portion of the Shares that have an aggregate market value sufficient to pay federal, state, local and foreign income, social insurance, employment and any other applicable taxes required to be withheld by the Company or the employing Subsidiary with respect to the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Employee to make alternate arrangements satisfactory to the Company for such withholdings in advance of the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding. Notwithstanding any contrary provision of this Agreement, no Shares will be issued unless and until satisfactory arrangements (as determined by the Company) have been made by the Employee with respect to the payment of any income and other taxes which the Company determines must be withheld or collected with respect to such Shares. In addition and to the maximum extent permitted by law, the Company (or the employing Subsidiary) has the right to retain without notice from salary or other amounts payable to the Employee, cash having a sufficient value to satisfy any tax withholding obligations that the Company determines cannot be satisfied through the withholding of otherwise deliverable Shares. All income and other taxes related to the Restricted Stock Units award and any Shares delivered in payment thereof are the sole responsibility of the Employee. By accepting this award, the Employee expressly consents to the withholding of Shares and to any additional cash withholding as provided for in this Section 9.

 

11.  Rights as Shareholder. Neither the Employee nor any person claiming under or through the Employee will have any of the rights or privileges of a shareholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) shall have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Employee (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Employee will have all the rights of a shareholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.

 

12.  No Effect on Employment. Subject to any employment contract with the Employee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Employee, as the case may be, and the Company, or the Subsidiary employing the Employee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Employee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the vesting schedule set forth in Appendix A of this Agreement do not constitute an express or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Employee, as the case may be, shall not be deemed a termination of service for the purposes of this Agreement.

 

 

 

 

13.  Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of its Corporate Secretary, at 201 NE Park Plaza Drive, Suite 100, Vancouver WA 98684, or at such other address as the Company may hereafter designate in writing.

 

14.  Grant is Not Transferable. This grant of Restricted Stock Units and the rights and privileges conferred hereby may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Employee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void.

 

15.  Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and will be freely tradable upon receipt. However, an Employee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other applicable securities laws.

 

16.  Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

 

17.  Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Committee shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal governmental agency, which the Committee shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the date of vesting of the Restricted Stock Units as the Committee may establish from time to time for reasons of administrative convenience.

 

18.  Plan Governs. This Agreement is subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.

 

 

 

 

19.  Committee Authority. The Committee will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Committee in good faith will be final and binding upon the Employee, the Company and all other interested persons. No member of the Committee will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.

 

20.  Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

 

21.  Agreement Severable. In the event that any provision in this Agreement is held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

 

22.  Modifications to the Agreement. This Agreement constitutes the entire understanding of the parties on the subjects covered. The Employee expressly warrants that Employee is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein. Modifications to this Agreement can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Employee, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition under Section 409A of the Code prior to the actual payment of Shares pursuant to this award of Restricted Stock Units.

 

23.  Adjustments Upon Changes in Capital. The aggregate number of Restricted Stock Units covered by this Agreement will be proportionally adjusted for any increase or decrease in the number of issued and outstanding Shares resulting from a stock split-up or consolidation of Shares or any like capital adjustments, or the payment of any stock dividend.

 

24.  Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Units award, the Employee expressly warrants that Employee has received a right to receive stock under the Plan, and has received, read and understood the Plan. The Employee understands that the Plan is discretionary in nature and may be amended, suspended or terminated by the Company at any time.

 

25.  Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of Oregon, without regard to principles of conflict of laws.

 

[SIGNATURE PAGE FOLLOWS]

 

 

 

 

 

 

 

 

 

Your signature below indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendices A and B and the Plan. Important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3, 4 and 6 of this Agreement. PLEASE BE SURE TO READ ALL OF THE SPECIFIC TERMS AND CONDITIONS OF THIS AGREEMENT, INCLUDING APPENDICES A AND B.

 

	NORTHWEST PIPE COMPANY	EMPLOYEE

 

	By:	 	 	 

	 	Scott Montross	 	Name:  XXX
	 	President and CEO	 	Title:    XXX
	 	 	 	 
	Date:	  March 18, 2021	 	Date:    XXX
	 	 	 	 

 

5

 

 

Appendix A

 

 

 

 

	
			Restricted Stock Units

			 

				
			Vest Date

			 

			
	
			XXX

			 

				
			January 17, 2022

			
	
			XXX

			 

				
			January 16, 2023

			
	
			XXX

			 

				
			January 15, 2024

			

 

 

 

 

Appendix B

 

Change in Control; Person.

 

	
			A.

				
			For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the following events:

			

 

1.    The consummation of:

 

a.    any consolidation, merger or plan of share exchange involving the Company (a “Merger”) in which the Company is not the continuing or surviving corporation or pursuant to which shares of Common Stock of the Company (“Company Shares”) would be converted into cash, securities or other property, other than a Merger involving Company Shares in which the holders of Company Shares immediately prior to the Merger have the same proportionate ownership of common stock of the surviving corporation immediately after the Merger,

 

b.    any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Company; or

 

c.    the adoption of any plan or proposal for the liquidation or dissolution of the Company.

 

2.    At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board (“Incumbent Directors”) shall cease for any reason to constitute at least a majority thereof unless each new director elected during such two-year period was nominated or elected by two-thirds of the Incumbent Directors then in office and voting (with new directors nominated or elected by two-thirds of the Incumbent Directors also being deemed to be Incumbent Directors); or

 

3.    Any Person (as hereinafter defined) shall, as a result of a tender or exchange offer, open market purchases, or privately negotiated purchases from anyone other than the Company, have become the beneficial owner (within the meaning of Rule 13d‐3 under the Securities Exchange Act of 1934), directly or indirectly, of securities of the Company ordinarily having the right to vote for the election of directors (“Voting Securities”) representing thirty percent (30%) or more of the combined voting power of the then outstanding Voting Securities.

 

Notwithstanding anything in the foregoing to the contrary, unless otherwise determined by the Board, no Change in Control shall be deemed to have occurred for purposes of this Agreement if (1) you acquire (other than on the same basis as all other holders of the Company Shares) an equity interest in an entity that acquires the Company in a Change in Control otherwise described under subparagraph A.1 above, or (2) you are part of a group that constitutes a Person which becomes a beneficial owner of Voting Securities in a transaction that otherwise would have resulted in a Change in Control under subparagraph A.3 above.

 

	
			B.

				
			For purposes of this Agreement, the term “Person” shall mean and include any individual, corporation, partnership, group, association or other “person,” as such term is used in Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”), other than the Company or any employee benefit plan(s) sponsored by the Company.Exhibit
4.2

 

DESCRIPTION
OF SHARES

 

The
following summary of the terms of our stock is only a summary and you should refer to our charter and bylaws for a full description.
Copies of our charter and bylaws are filed as part of the registration statement of which this prospectus is a part.

 

Authorized
Stock

 

Our
charter authorizes us to issue up to 100,000,000 shares of common stock, $0.01 par value per share, and 10,000,000 shares of preferred
stock, $0.01 par value per share.

 

Common
Stock

 

All
of the common stock we are offering will be duly authorized, fully paid and nonassessable when issued. Subject to the preferential
rights of any other class or series of stock and to the provisions of our charter regarding the restriction on the ownership and
transfer of shares of our stock, holders of our common stock will be entitled to receive distributions if authorized by our Board
of Directors out of legally available funds and declared by us and, to share ratably in our assets available for distribution
to the stockholders in the event of a liquidation, dissolution or winding-up.

 

Each
outstanding share of our common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including
the election of directors. There is no cumulative voting in the election of directors, which means that the holders of a majority
of the outstanding common stock can elect all of the directors then standing for election, and the holders of the remaining common
stock will not be able to elect any directors.

 

Holders
of our common stock have no conversion, sinking fund, redemption or exchange rights, and have no preemptive rights to subscribe
for any of our securities. Holders of our stock do not have appraisal rights unless a majority of our Board of Directors determines
that such rights shall apply. Shares of our common stock have equal dividend, distribution, liquidation and other rights.

 

Under
our charter, we cannot make some material changes to our business form or operations without the approval of stockholders holding
at least a majority of the shares of our stock entitled to vote on the matter. Generally, these include (1) certain amendments
to our charter, (2) our liquidation or dissolution, (3) the sale of substantially all of our assets, other than in the ordinary
course of business, (4) our reorganization, and (5) certain mergers or consolidations. Share exchanges in which we are the acquirer,
however, do not require stockholder approval.

 

Our
charter and bylaws provide that the election of directors requires the affirmative vote of holders of a majority of all the shares
present, in person or by proxy, at a meeting of our stockholders at which a quorum is present. Our charter provides that the affirmative
vote of stockholders entitled to cast a majority of the votes entitled to be cast generally in the election of directors may remove
any director with or without cause.

 

Our
registrar and transfer agent is DST Systems, Inc.

 

Preferred
Stock

 

Shares
of preferred stock may be issued in the future in one or more series as authorized by our Board of Directors. Prior to the issuance
of shares of any series, our Board of Directors is required by our charter to fix the number of shares to be included in each
series and the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of redemption for each series. Because our Board of Directors has the power
to establish the preferences, powers and rights of each series of preferred stock, it may provide the holders of any series of
preferred stock with preferences, powers and rights, voting or otherwise, senior to the rights of holders of our common stock.
The issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of us, including
an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide
a premium price for holders of our common stock. However, the issuance of preferred stock must be approved by a majority of independent
directors not otherwise interested in the transaction, who will have access at our expense to our legal counsel or to independent
legal counsel.

 

     

     

    

 

Issuance
of Additional Securities and Debt Instruments

 

Our
directors are authorized to issue additional stock or other convertible securities for cash, property or other consideration on
such terms as they may deem advisable. Subject to restrictions in our charter, our directors may cause us to issue debt obligations
on such terms and conditions as they may determine, including debt with the right to convert into stock. Subject to certain restrictions,
our directors may also cause us to issue warrants, options and rights to buy our common stock on such terms as they deem advisable
to our stockholders, as part of a financing arrangement, or pursuant to our Employee and Director Incentive Restricted Share Plan.
Our directors may cause us to issue warrants, options and rights to buy our common stock even though their exercise could result
in dilution in the value of our outstanding common stock.

 

Restrictions
on Issuance of Securities

 

Our
charter provides that we will not issue:

 

	 	●	equity
    securities which are redeemable solely at the option of the holder;

 

	 	●	debt
    securities unless the historical debt service coverage in the most recently completed fiscal year is sufficient to properly
    service the higher level of debt;

 

	 	●	options
    or warrants to purchase stock to our advisor or sponsor or any affiliates of our advisor or sponsor except on the same terms
    as sold to the general public and in an amount not to exceed 10% of our outstanding common or preferred stock on the date
    of grant of any options or warrants; or

 

	 	●	equity
    securities on a deferred payment basis or similar arrangement.

 

The
charter also provides that options or warrants may be issued to persons other than our advisor or sponsor or any affiliate thereof,
but not at exercise prices less than the fair market value of the underlying securities on the date of grant and not for consideration
(which may include services) that in the judgment of our independent directors has a market value less than the value of such
option or warranty on the date of grant. The charter also provides that the voting rights of shares (other than any publicly held
shares) sold in a private offering shall not exceed the voting rights which bear the same relationship to the voting rights of
a publicly held share as the consideration paid to us for each privately offered share bears to the book value of each outstanding
publicly held share.

 

Restrictions
on Ownership and Transfer

 

The
resale of our shares may be restricted by limitations on transferability of shares imposed by state suitability standards or
blue sky laws. Specifically, the REIT sponsors must establish minimum income and net worth standards for purchasers of
shares in REITs for which there is not likely to be a substantial and active secondary market, such as us. The NASAA REIT
Guidelines require a sponsor to propose minimum income and net worth standards that are reasonable given the type of REIT and
risk associated with the purchase of shares. REITs with greater investor risk must have minimum standards with a substantial
net worth requirement. Generally, unless a particular state regulator decides otherwise, stockholders must have a minimum
annual gross income of $70,000 and a minimum net worth of $70,000, or a minimum net worth of $250,000. For specific states
with increased minimum income and net worth requirements, or other requirements, see the page immediately following the cover
page of this prospectus.

 

In
order to qualify as a REIT under the Code, among other purposes, our charter provides that, subject to exceptions described below,
no person may beneficially own, or be deemed to beneficially own by virtue of the attribution provisions of the Code, (i) more
than 9.8% in value of our aggregate outstanding stock, (ii) more than 9.8%, in number of shares or in value, whichever is more
restrictive, of any class or series of our stock, including our outstanding common stock or (iii) our capital stock to the extent
that such ownership would result in us being “closely-held” within the meaning of Code Section 856(h) (without regard
to whether the ownership interest is held during the last half of a taxable year), or otherwise failing to qualify as a REIT (including,
but not limited to, ownership that would result in us owning (actually or constructively) an interest in a tenant that is described
in Code Section 856(d)(2)(B) if the income derived by the company from such tenant would cause us to fail to satisfy any of the
gross income requirements of Code Section 856(c)). Our charter further provides that any transfer of our common stock or preferred
stock that would result in our common stock and preferred stock being beneficially owned by fewer than 100 persons shall be null
and void, and the intended transferee will not acquire any rights in the common stock or preferred stock intended to be transferred.

 

    	 	 2	 

     

    

 

Subject
to the exceptions described below, to the extent that any person beneficially owns our common or preferred stock in excess of
the 9.8% ownership limits or that would cause us to be “closely-held” within the meaning of the Code or would otherwise
cause us to fail to qualify as a REIT, such shares will be transferred automatically by operation of law, to a trust, the beneficiary
of which will be a qualified charitable organization selected by us. The trustee will be a person unaffiliated with us who is
designated by us. The automatic transfer will be effective as of the close of business on the business day prior to the date of
the transfer. Within 20 days of receiving notice from us of the transfer of shares to the trust, the trustee of the trust will
sell the shares held in the trust to a person or entity who could own such shares without violating the ownership limits. The
trustee will distribute to the prohibited transferee an amount equal to the lesser of the price paid by the prohibited transferee
for the shares held in the trust or the sales proceeds received by the trust for such shares.

 

In
the case of any shares held in the trust resulting from any event other than a transfer or from a transfer for no consideration,
such as a gift, the trustee will be required to sell the shares held in the trust to a qualified person or entity and distribute
to the prohibited owner an amount equal to the lesser of the market price of the shares held in the trust as of the date of the
event or the sales proceeds received by the trust for the shares held in the trust. In either case, any proceeds in excess of
the amount distributable to the prohibited transferee or prohibited owner, as applicable, will be distributed to the beneficiary.
Prior to a sale of any of the shares by the trust, the trustee will be entitled to receive, in trust for the beneficiary, all
dividend and other distributions paid by us with respect to the shares, and also will be entitled to exercise all voting rights
with respect to the shares. Subject to the MGCL effective as of the date that such shares have been transferred to the trust,
the trustee shall have the authority, in its sole discretion, to:

 

	 	●	rescind
    as void any vote cast by a prohibited transferee or prohibited owner, as applicable, prior to the discovery by us that such
    shares have been transferred to the trust; and

 

	 	●	recast
    such vote in accordance with the desires of the trustee acting for the benefit of the beneficiary.

 

However,
if we have already taken irreversible corporate action, then the trustee shall not have the authority to rescind and recast such
vote. Any dividend or other distribution paid to the prohibited transferee or prohibited owner prior to the discovery by us that
such shares had been automatically transferred to a trust as described above, will be required to be repaid to the trustee upon
demand for distribution to the beneficiary. In the event that the transfer to the trust as described above is not automatically
effective for any reason to prevent violation of the ownership limits or such other limit as provided in the charter or as otherwise
permitted by our Board of Directors, our charter provides that the transfer of the excess shares will be voided.

 

Within
20 days of receiving notice from us that shares have been transferred to the trust, the trustee must sell the shares held in the
trust to a person, designated by the trustee, whose ownership of the shares will not violate the ownership limitations described
above. Upon such 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 prohibited transferee or prohibited owner and to the charitable beneficiary. The prohibited
transferee or prohibited owner will receive the lesser of:

 

	 	●	the
    price paid by the prohibited transferee or prohibited owner for the shares or, if the prohibited transferee or prohibited
    owner did not give value for the shares in connection with the event causing the shares to be held in the trust (e.g.,
    in the case of a gift, devise or other such transaction), the market price of the shares on the day of the event causing the
    shares to be held in the trust; and

  

	 	●	the
    price per share received by the trustee (net of any commissions and other expenses of sale) from the sale or other disposition
    of the shares held in the trust.

 

The
trustee may reduce the amount payable to the prohibited transferee or prohibited owner by the amount of dividends and other distributions
which have been paid to the prohibited transferee or prohibited owner and are owed by the prohibited transferee or prohibited
owner to the trustee. Any net sales proceeds in excess of the amount payable to the prohibited transferee or prohibited owner
will be immediately paid to the charitable beneficiary. If, prior to our discovery that shares have been transferred to the trustee,
such shares are sold by a prohibited transferee or prohibited owner, then (i) such shares will be deemed to have been sold on
behalf of the trust and (ii) to the extent that the prohibited transferee or prohibited owner received an amount for such shares
that exceeds the amount that such prohibited transferee or prohibited owner was entitled to receive, such excess must be paid
to the trustee upon demand.

 

    	 	 3	 

     

    

 

In
addition, our shares which are held in trust shall be deemed to have been offered for sale to us, or our designee, at a price
per share equal to the lesser of:

 

	 	●	the
    price per share on the transaction that resulted in such transfer to the trust, or, in the case of a gift, the market price
    at the time of the gift; and

 

	 	●	the
    market price on the date we accept such offer.

 

We
may reduce the amount payable to the prohibited transferee or prohibited owner by the amount of dividends and other distributions
which have been paid to the prohibited transferee or prohibited owner and are owed by the prohibited transferee or prohibited
owner to the trustee. We may pay the amount of such reduction to the trustee for the benefit of the charitable beneficiary.

 

We
shall have the right to accept such offer until the trustee has sold the shares of stock held in the trust. Upon such a sale to
us, the interest of the beneficiary in the shares sold shall terminate and the trustee shall distribute the net proceeds of the
sale to the prohibited transferee or prohibited owner.

 

Our
charter requires all persons who directly or indirectly beneficially own more than 5%, or any lower percentages as required pursuant
to the Code or regulations promulgated under the Code, of our outstanding common and preferred stock, within 30 days after December
31 of each year, to provide to us a written notice stating their name and address, the number of shares of common and preferred
stock they beneficially own directly or indirectly, and a description of how the shares are held. In addition, each beneficial
owner must provide to us any additional information as we may request in order to determine the effect, if any, of their beneficial
ownership on our status as a REIT and to ensure compliance with the 9.8% ownership limits.

 

Our
Board of Directors may exempt a person (prospectively or retroactively) from the 9.8% ownership limits upon the receipt of certain
representations and undertakings required by our charter and upon certain other conditions as it deems appropriate. However, our
Board of Directors may not grant an exemption from the 9.8% ownership limits to any proposed transferee whose beneficial ownership
of our common and preferred stock in excess of the ownership limits would result in the termination of our status as a REIT.

 

Unless
otherwise provided by our Board of Directors, we will not issue share certificates. Ownership of our shares will be recorded by
us in book-entry form. We will provide to the record holders of such shares a written statement of the information required by
Maryland law to be included on stock certificates. In the event that we issue shares of stock represented by certificates, such
certificates will bear a legend referring to the restrictions described above and will contain the information required by Maryland
law.

 

Provisions
of Maryland Law and of Our Charter and Bylaws

 

The
following paragraphs summarize material provisions of Maryland law and of our charter and bylaws. The following summary does not
purport to be complete, and you should review our charter and bylaws, copies of which are exhibits to the registration statement
of which this prospectus is part.

 

Stockholder
Liability.  The Maryland General Corporation Law provides that our stockholders: (i) are not liable personally
or individually in any manner whatsoever for any debt, act, omission or obligation incurred by us or our Board of Directors; and
(ii) are under no obligation to us or our creditors with respect to their shares other than the obligation to pay to us the full
amount of the consideration for which their shares were issued.

 

Business
Combinations.  Under Maryland law, some business combinations (including a merger, consolidation, share exchange
or, under some circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation
and any person who beneficially owns ten percent or more of the voting power of the corporation’s outstanding voting stock
or an affiliate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial
owner of ten percent or more of the voting power of the then-outstanding stock of the corporation (an interested stockholder)
or an affiliate of such an interested stockholder are prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. A person is not an interested stockholder if, prior to the most recent time at
which the person would otherwise have become an interested stockholder, the board of directors of the corporation approved the
transaction which otherwise would have resulted in the person becoming an interested stockholder. The board of directors may provide
that its approval is subject to compliance with any terms and conditions determined by the board of directors.

 

    	 	 4	 

     

    

 

After
the five-year prohibition, any such business combination must be recommended by the board of directors of such corporation and
approved by the affirmative vote of at least:

 

	 	●	80%
    of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

 

	 	●	two-thirds
    of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder
    with whom (or with whose affiliate) the business combination is to be effected.

 

These
super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price (as defined
in the Maryland business combination statute) for their shares and the consideration is received in cash or in the same form as
previously paid by the interested stockholder for its shares.

 

These
provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our Board of Directors
prior to the time that the interested stockholder becomes an interested stockholder. Our board, by resolution, has exempted any
business combinations involving us and The Lightstone Group or any of its affiliates from these provisions. As a result, the five-year
prohibition and the super-majority vote requirement will not apply to any business combinations between any affiliate of The Lightstone
Group and us. As a result, any affiliate of The Lightstone Group may be able to enter into business combinations with us, which
may or may not be in the best interests of the stockholders.

 

Control
Share Acquisition.  Maryland law provides that control shares of a Maryland corporation acquired in a control
share acquisition have no voting rights except to the extent approved by the affirmative vote of stockholders entitled to cast
two-thirds of the votes entitled to be cast on the matter, excluding “control shares”; (1) owned by the acquiring
person, (2) owned by officers, and (3) owned by employees who are also directors. “Control shares” mean voting shares
which, if aggregated with all other voting shares owned by an acquiring person or which the acquiring person can exercise or direct
the exercise of voting power, would entitle the acquiring person to exercise voting power in electing directors within one of
the following ranges of voting power:

 

	 	●	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 the acquiring person is then entitled to vote as a result of having previously obtained stockholder
approval. A control share acquisition occurs when, subject to some exceptions, a person directly or indirectly acquires ownership
or the power to direct the exercise of voting power (except solely by virtue of a revocable proxy) of issued and outstanding control
shares. A person who has made or proposes to make a control share acquisition, upon satisfaction of some specific conditions,
including an undertaking to pay expenses, may compel our 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 control shares. If no request for a meeting is made, we may present
the question at any stockholders’ meeting.

 

If
voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required
by the statute, then, subject to some conditions and limitations, the corporation may acquire any or all of the control shares
(except those for which voting rights have previously been approved) for fair value determined, without regard to the absence
of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or of any meeting
of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares
are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights
may not be less than the highest price per share paid by the acquirer in the control share acquisition.

 

The
control share acquisition statute does not apply to shares acquired in a merger, consolidation or share 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 Maryland law, our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions
of our shares of stock. We cannot assure that such provision will not be amended or eliminated at any time in the future.

 

    	 	 5

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