Document:

EXHIBIT 10.2

 Exhibit 10.2 
  
 PARTICIPATION AGREEMENT 
  
 THIS AGREEMENT made and entered into this              day of
                        , 20    , by and between KH Funding Company, whose principal
office address is 10801 Lockwood Drive, Suite 370, Silver Spring, Maryland 20901 (hereinafter referred to as the “Lender”), and (insert name of bank), whose principal office address is (insert address),(hereinafter referred to as
“Participant”). 
  
 W I T N E S S E T H 
  
 WHEREAS, Lender has agreed to make a certain commercial term Loan to the
Borrower named below, which Loan is, or will be, evidenced by a certain promissory note from the said Borrower and payable to the Lender in the maximum principal amount of the said Loan; and, 
  
 WHEREAS, the said promissory notes and all other documents evidencing or
securing the Loan shall be made in the name of the Lender, and delivered to, the Lender and the Lender shall have the sole right to supervise and manage the said Loan; and, 
  
 WHEREAS, Lender desires to sell and the Participant desires to purchase an undivided ownership interest in the Loan on the
terms and conditions hereinafter set forth. 
  
 NOW. THEREFORE, in
consideration of the mutual covenants herein contained, the parties hereto, intending to be legally bound, mutually agree as follows: 
  
 1.     Definitions. 
  
 1.1    Advance(s):    All disbursements made or to be made by Lender to Borrower or on behalf of Borrower
pursuant to the Loan Documents. 
  
 1.2    Agreed Compensation:    The rate of return per annum based on the Participant’s Percentage Interest, payable from the date an Advance is made or the receipt of Participant’s
share of such Advance, whichever later occurs. 
  
 1.3    Agreement:    This Participation Agreement. 
  
 1.4    Borrower: 
  
 1.5    Certificate:    The Participation Certificate, in the form attached hereto as “Exhibit A”
and incorporated herein, which shall be issued by Lender to evidence the Participation purchased by the Participant, as forth in Section 2.3 below. 
  
 1.6    Collateral:    The Collateral described in the Loan Documents which secures the 
  

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 repayment of the Loan and the obligations of the Borrower, including without limitation any real or personal property, as
the case may be. 
  
 1.7    Collections:    All monies received by Lender from Borrower, or other sources, representing principal or interest (excluding fees) on account of the Loan, as proceeds of the Collateral,
or as payment of Expenses. 
  
 1.8    Emergency Situation:    A circumstance or state of affairs or occurrence that impairs the Collateral, the value of the Collateral or the ability to receive Collections. 
  
 1.9    Expenses:    Shall
include, but are not limited to, attorney’s fees and disbursements, court costs, the fees of any outside agency, and other costs incurred by Lender (excluding such fees and costs which directly arise from the Lender’s breach of the Loan
Documents or Lender’s gross negligence) in connection with the enforcement of any rights and remedies against the Borrower, for the protection or preservation of any Collateral, and for administration of the Loan other than the Lender’s
Service of the Loan. 
  
 1.10    Loan:    The loan made by the Lender to the Borrower in the maximum principal amount of
                                       
     . 
  
 1.11    Loan Closing:    The date the Loan Documents are executed and delivered to the Lender by the Borrower. 
  
 1.12    Loan Commitment Letter: 
  
 1.13    Loan Documents:    The Loan Commitment Letter, the Note and all other
documents securing or evidencing the Loan. 
  
 1.14    Majority of Participants:    The Lender and other entities owning Certificates whose aggregate face value is more than fifty percent (50%) of the Advances outstanding from time to time.

  
 1.15    Note:    The term “Note” shall collectively mean (i) a certain promissory note in the principal amount of
(                        ) made by the Borrower and payable to the order of the Lender. 
  
 1.16    Notice:    Notice to
Lender or Participant as set forth in Section 12.1 below. 
  
 1.17    Participation:    Participant’s undivided fractional interest in the Loan, the Advances, the Collateral and the Collections. 
  
 1.18    Payment Date:    The
date the Agreed Compensation is paid to Participant by Lender which date shall be no more than three (3) business days after Lender has received the Collection of such amount. 
  

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 1.19    Percentage Interest:    The Participation of
Participant expressed as a percentage of the entire Loan as determined from time to time. 
  
 1.20    Personalty:    The personal property, if any, which is security for the Loan. 
  
 1.21    Property:    The real property, if any, which is security for the
Loan. 
  
 1.22    Service:    The servicing and administration of the Loan by Lender. 
  
 2.     General Conditions. 
  
 2.1    Purpose of Loan:    The Advances will be made by Lender in accordance with the terms and conditions
of the Loan Documents for the purposes set forth in the Loan Commitment Letter. 
  
 2.2    Condition of Disbursements:    Prior to any Advances being made, the conditions in the Loan Documents shall have been satisfied, as reasonably determined by
Lender. 
  
 2.3    A) Purchase of
Participation:    Subject to the terms and provision of this Agreement, the Lender hereby sells and Participant hereby purchases a Participation in the Loan equal to the Percentage Interest of
        % of the Loan balance, equal to the aggregate amount of up to
(                    ) of the total principal amount of the Loan. On the date any Advance is to be made by the Lender to the Borrower,
the Participant shall transfer to Lender within two (2) business days, by wire transfer or by another method mutually agreed upon by the Lender and the Participant, that portion of the amount of the applicable Advance equal to the Participant’s
Percentage Interest. The Lender shall thereafter promptly deliver to Participant a Certificate evidencing the Participation in such Advance. 
  
 B) Subject to the Lender’s receipt of Collections, the Lender agrees to provide Participant a rate of interest equal to
            %. 
  
 2.4    Priority of Participants:    The interest of Lender and Participants in the Loan shall be equal in lien and no party shall have any priority over the other party;
In the event of acceleration upon default or otherwise, the Participant shall receive 100% of the Principal collected until the Participant has received an amount equal to the Participant’s investment. 
  
 2.5    Recourse; Liability of
Lender:    Participant shall have no recourse against Lender for any loss except for the remedies set forth herein if the Lender breaches this Agreement. Neither the Lender nor any of its officers, directors, employees,
agents or attorneys shall be liable for any action taken or omitted to be taken by it or by any of them under any of the Loan Documents or in connection therewith or under this Agreement, except for its or their own gross negligence or willful
misconduct. 
  

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 3.    Lender’s Obligations. 
  
 3.1    Possession of Loan Documents:    Lender covenants, warrants and
represents that it has and will continue to have in its possession the Loan Documents. The Lender acknowledges and grants the Participant the right to inspect the original documents upon reasonable notice. 
  
 3.2    Delivery of Copies of Loan Documents to
Participant:    Lender covenants to Participant that it will deliver to each Participant a file binder consisting of true and correct copies of all of the Loan Documents within thirty (30) days from the date of the Loan
Documents. 
  
 3.3    Payment to
Participant; Collections: Lender shall: 
  
 3.3.1:    receive all Collections on the Loan; 
  
 3.3.2:    remit to Participant the Agreed Compensation on the Payment Date and Participant’s Percentage of all Collections; and, 
  
 3.3.3:    use best efforts to recover from Borrower all Expenses that are reimbursable
from Borrower and shall remit to Participant its respective share thereof on the next occurring Payment Date after such recovery from the Borrower. 
  
 3.3.4:    Notwithstanding anything contained herein to the contrary, it is understood and agreed that when the
principal amount of the Loan evidenced by the Promissory Note is paid by the Borrower in accordance with its terms, the amount received by the Lender shall be applied on a pro rata basis to the Participation.  
  
 3.4    Administration: Lender shall: 

 
 3.4.1:    furnish to Participant
copies of all Loan Documents executed or approved subsequent to the date of the original Loan Documents; 
  
 3.4.2:    keep and maintain at the offices of the Lender, complete and accurate books, files and records of all
matters pertaining to the Loan, which books, files and records shall be available for inspection by Participant during normal business hours. 
  
 3.5    Service:    Lender shall Service the Loan continuously from the date of Loan Closing without
compensation or charge (other than its share of the Collections and any fees charged to Borrower pursuant to the Loan Commitment Letter) and at Lender’s sole cost and expense, except as otherwise specifically stated in the Certificate. In
performing its functions and duties hereunder, the Lender shall exercise the same care which it would exercise in dealing with loans for its own account. Lender promises that the Lender shall service the Loan as an independent contractor and shall
use its own facilities and regular employees and shall process by such means and in such manner as it deems 
  

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 best to carry out the terms of this Agreement in accordance with the standard above defined. 
  
 3.6    Trust
Relationship:    Lender shall hold the Loan Documents and Collateral in trust for Participant and any Collections due Participant in trust for Participant. 
  
 4.    Negative Covenants of Lender. 
  
 Lender agrees that Lender will not, without the prior written consent of a majority of the Participants: 
  
 4.1:    make or consent to any material alteration of the
terms of any of the Loan Documents which would (i) change the time for, or amount of, any payment of Collections, Expenses or other amounts in which the Participant has acquired an interest hereunder; (ii) increase the maximum principal amount of
the Loan; or (iii) extend the maturity of the Note; 
  
 4.2:    make or consent to any release or substitution of the terms of any of the Loan Documents or the Collateral; 
  
 4.3:    waive any material claim against the Borrower or any guarantor of the Loan in connection with their obligations under the
Loan. 
  
 5.    Representations and Warranties of the
Lender. Lender represents and warrants that: 
  
 5.1    Lender is the legal owner of the entire indebtedness evidenced by the Note, and the entire beneficial interest in the Loan Documents and has not heretofore sold or transferred or otherwise disposed of any portion
of its interest in the Loan Documents or the Loan and has no obligation to sell or transfer any portion of the Loan Documents or the Loan to anyone; except for the transfer contemplated by this Agreement and any other transfers of participation
interests in the Loan which have been disclosed to the Participant in writing. 
  
 5.2    Lender has the full right, power and authority to assign, transfer and convey the Participation to Participant without notice to or consent of anyone and has taken all corporate action
necessary to authorize it to enter into and execute this Agreement. 
  
 5.3    Lender has not knowingly done or omitted to do or permitted anything to be done or omitted to be done which materially or adversely affects the validity or priority of the Collateral or the validity of the Loan
Documents, and Lender knows of no change from any cause whatsoever materially affecting the Loan. 
  
 5.4    The Lender certifies that it is in good standing with the State of Maryland, is authorized and licensed to act as a mortgage
lender and maintains a Financial Institution Bond. 
  
 6.    Obligations of Participant. 
  

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 6.1    Payment for Future Advances:    If any future
Advances are made to Borrower, each payment by Participant for its undivided interest based on Advances hereafter made to the Borrower in accordance with the Loan Documents, shall be made as specified by Lender for the Advances provided that Lender
has given notice not less than three (3) business days prior to the time the Advances are to be made. Participant’s payments shall be made by wire transfer (or by another method mutually agreed upon by the Lender and the Participant) to the
account specified by Lender. 
  
 6.2    Participant shall pay its Percentage Interest of Expenses within three (3) days after notice of such Expenses from Lender. 
  

6.3    Participant’s Duty to Respond:    Participant recognizes the need to respond to requests of
Lender in matters related to the Loans and Participant agrees that if it does not respond to Lender’s request for a decision on a matter relating to the Loan, requiring Participant’s consent within three (3) business days after Notice to
Participant by Lender, then Participant shall be deemed to have consented to the proposed action by Lender. 
  
 6.4    Risks of the Loan:    Participant acknowledges that it has become a party hereto in reliance upon
its own independent analysis of the Loan Documents and Borrower’s financial condition and credit worthiness based on such documents and information as Participant deemed appropriate or necessary and not in reliance on any analysis or advice
provided by Lender. Participant further acknowledges that Participant will, independently and without reliance on Lender’s advice and analysis and based on such documents and information as Participant deems appropriate at the time, continue to
make its own credit decisions in connection with this Agreement. 
  
 7.    Representations and Warranties of Participant: 
  
 7.1    Directors’ Authorization:    Participant has the full right, power and authority to purchase, acquire and pay the purchase price for the Participation from Lender
without notice to or consent of anyone and has taken all corporate action necessary to authorize it to enter into and execute this Agreement. 
  
 7.2    Loan Documents:    Participant has reviewed and approved the Loan Documents and Participant has
analyzed and underwritten the Loan. Participant represents and warrants that it has been furnished with a copy of the Loan Documents and that Lender has made no representation or warranty, express or implied, and shall have no responsibility, with
respect to (i) the genuineness, legality, validity, binding effect, enforceability, sufficiency, accuracy or completeness of the Loan Documents; (ii) filing, recording or taking of any action with respect to the Loan Documents; (iii) the
collectibility of the Note or any of the other Loan Documents and the value of the Collateral; (iv) the financial or other condition of the Borrower; (v) any other matter having any relation to this Agreement or the Loan Documents, or the Borrower,
or any other person or entity not specifically referred to herein. 
  

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 8.    Mutual Agreements of Participant and Lender. 
  
 8.1    Losses and
Expenses:    Lender and Participant shall share in accordance with their respective Percentage Interests any losses sustained in connection with the Loan and all Expenses incurred hereafter by Lender. All such cost and
expenses to be paid within three (3) business days of notification of the amount due. Lender shall use best efforts to recover from Borrower all Expenses that are reimbursable from Borrower under the Loan Documents and shall remit Participant‘s
share of such Expenses promptly after receipt. However, in the event of acceleration by default or otherwise, the Participant shall receive 100% of the payments received by the Lender until the Participant’s investment and costs have been paid
in full. 
  
 8.2    Advances of Funds by
Lender:    If Lender shall be obligated to make any Advance to Borrower or the Borrower’s designee in accordance with the terms of the Loan Documents; or if Lender, because of Borrower default incurs any Expenses
required to be paid by Borrower, Lender shall advise Participant of the Expense or Advance by written, telegraphic or telephonic or facsimile notice, and Participant shall pay to Lender in accordance with Sections 6.1 and 6.2 above, as the case may
be, its Percentage Interest of such Advance or Expense. Lender shall immediately execute and deliver to Participant an amended Certificate evidencing the Advance or Expense. Notwithstanding the foregoing, in the event the Lender deems it necessary
to incur Expenses in excess of the aggregate amount of $25,000.00, then the prior written consent of a Majority of Participants shall be required for the payment of any Expenses in excess of the aggregate amount of $25,000.00; provided, however,
such consent of a Majority of Participants shall not be required in an Emergency Situation. 
  
 8.3    No Partnership or Joint Venture Relationship:    Neither the execution of this Agreement, nor the sharing in the Loan, the Collateral or the Loan Documents, nor
any agreement to share in profits or losses resulting from the transaction, is intended to be, nor shall it be construed to be, the formation of a partnership or joint venture between Lender and Participant. 
  
 8.4    Other Loans to
Borrower:    Neither Lender or Participant has, as of the date of this Agreement, any loans to, or other direct or indirect financial accommodations to, or financial interest to, the Borrower or
any principal or affiliate of Borrower which has not been disclosed in writing to the other party hereto. Any such loans made or interest acquired hereafter by Lender or Participant shall be reported promptly in writing to the other party.

  
 8.5    Subparticipations:    The Participant reserves the right to sell to other financial institutions subparticipation interests in the Loan from its Percentage Interest; however, the
Participant shall continue to be primarily liable to the Lender for its obligations under this Agreement and any modifications hereto. No Certificates shall be issued by the Lender to evidence any such subparticipations and such subparticipants
shall not be entitled to the Participant’s rights hereunder. The Lender shall be liable solely to the Participant for its obligations hereunder and the Participant’s rights shall not run to the benefit of or be enforceable by any
subparticipant of the Participant. 
  
 8.6    Evidence of Termination:    The Lender and Participant agree that upon Participant’s 
  

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 being paid, in full, its share of Collections and Expenses, it will immediately execute and furnish to Lender, upon
request, an instrument certifying to such fact and to the fact that it no longer holds any interest with respect to the Loan. 
  
 8.7    Participation Not a Security:    The interest in the Loans sold by Lender to Participant shall not
be deemed to be a security within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. 
  
 8.8    Parties’ Intent:    It is the intent and purpose of the parties hereto that this Agreement
represent a sale by Lender to Participant of (a) an undivided interest in a debt, together with the security therefore, and (b) an undivided interest in the Loan, Loan Documents and Collateral and the rights, benefits and obligations arising there
from. This Agreement shall not be deemed to represent a pledge of any interest in the Loan by Lender to Participant, nor a loan from Participant to Lender. Upon execution of this Agreement, Lender and Participant shall be deemed to be joint owners
of the Note and the Loan Documents in accordance with their Percentage Interests. 
  
 9.    Default by Borrower: 
  
 9.1    Responsibilities of Lender:    Lender shall retain all rights with respect to enforcement, collection and administration of the Loan and the Collateral, including the right to accelerate
the Note. However, Lender shall, within ten (10) days of Lender having actual knowledge of the occurrence thereof, inform Participant of any default under the Loan Documents and of all material facts relating to such default or relating to any other
aspect of the Loan which could or might have a material adverse effect on the value of the Collateral or the Loan Documents. Lender shall use its best efforts to keep the Participant informed and up to date with respect to any default and such facts
and any actions taken by Lender in connection therewith. 
  
 9.2    Action on Default:    Notwithstanding the foregoing, following the occurrence of a default by Borrower under the Loan Documents, which gives the Lender the right to accelerate either
immediately or after a limited period of time, and within five (5) days (or sooner if the nature of the default so requires) after notification to Participant by Lender of such default, Lender and Participant shall (i) consult to determine a
mutually acceptable course of action to take with respect to such default and (ii) pursue such course of action without delay and with due diligence. 
  
 If Lender and Participant cannot agree upon a mutually acceptable course of action, then the decision of the Majority of Participants shall determine what actions shall
be taken or Lender shall have the right (but not the obligation) to purchase the Percentage Interest of each Participant who has voted against the course of action, recommended by Lender in accordance with this Section 9.2, at the price equal to the
Purchase Price (as defined in Section 11.1 below). If Lender acquires the Collateral through a foreclosure or UCC sale, Participant shall have an undivided interest in the Collateral equal to its Percentage Interest in the Loan and title shall be
taken in such manner as a Majority of Participants shall determine. In the event of liquidation of the Collateral, then after payment of all reasonable costs and expenses of collection, the Lender shall promptly remit to the Participant its share,
based on the Participant’s Percentage Interest, of all net proceeds received by the Lender as a consequence of such liquidation proceeding or action. 
  

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 In the event of a payment default that remains uncured for ninety (90) days, the Participant may
request that the Lender repurchase the Participant’s interest in the Loan. Upon such written request, the Lender shall be obligated to pay off the Participant in full within ten (10) days. 
  
 10.    Breach by Lender.    Upon failure of
the Lender to perform any material obligation imposed upon it under the Loan Documents or this Agreement, not cured within thirty (30) days after written notice of such breach is given by the Participant to the Lender, or upon failure of Lender to
pay Participant its share of any Collections, or if any dissolution, termination of existence, insolvency, business failure, appointment of receiver of any part of the property, assignment for the benefit of creditors, or the commencement of any
proceeding under any bankruptcy or insolvency law, State or Federal, by or against the Lender, then the Majority of the Participants shall have the right to notify the Borrower of their interests therein and demand and receive payment when due from
the Borrower to the extent of their Percentage Interests and Lender upon demand of a Majority of the Participants, shall assign to the designee of the Majority of Participants the Loan Documents then held by Lender, reserving unto Lender, however,
its own Participation therein. 
  
 Upon such assignment, the
designee of a Majority of the Participants shall thereupon become and be deemed to be the Lender hereunder; and Lender shall become and be deemed to be a Participant hereunder, each with all the same rights, powers, duties, privileges and
obligations in such new capacity hereunto pertaining. 
  
 11.    Breach by Participant. 
  
 11.1    Material Breach; Failure to Fund:    In the event of any material breach of this Agreement by Participant, not cured within ten (10) days after notice of such
breach is given by the Lender to the Participant, or after any failure of Participant to fund its Percentage of the Loan within the time funding is due under this Agreement, the Lender shall, in addition to all other remedies available to it at law
or in equity, have the right (but not the obligation) to purchase Participant’s Percentage Interest at a purchase price (the “Purchase Price”) equal to the principal amount plus accrued interest at the rate of the Certificate. The
Percentage Interest must be conveyed free and clear of all liens, encumbrances and subparticipations at the time of the repurchase by an instrument in a form and with warranties reasonably satisfactory to Lender. In the alternative, Lender shall
have the right (but not the obligation to Participant) to fund Participant’s share of any Advance, and Participant shall pay Lender interest on the amount funded at the default rate under the Note until Participant shall fund its share of such
Advance. 
  
 11.2    Insolvency of
Participant:    If any proceeding is commenced which involves the dissolution, termination of existence, insolvency, business failure, appointment of receiver of any part of the property, or assignment for the benefit of
creditors of, by or against Participant, or upon the 
  

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 commencement of any proceeding under any bankruptcy or insolvency law, State or Federal, by or against Participant,
Lender shall have the right (but not the obligation) to purchase Participant’s interest in the Loan at par value plus accrued interest at the rate of return provided in Section 2.3(B) above. 
  
 12.    Miscellaneous. 
  
 12.1    Notices:    Any notice
which may be required herein shall be in writing and shall be considered to have been given as of the date and time when the same is deposited in a United States Post Office with postage prepaid and mailed by registered or certified United States
Mail, return receipt requested to Lender at the following address: 
  
 KH Funding Company 
 10801 Lockwood Drive, Suite 370 
 Silver Spring, Maryland 20901 
  
 Attention: Robert Harris 
 Phone: (301) 592-8100 
  
 and to Participant at the following address: 
  
 Attention: Loan Administration 
 Phone:

  
 12.2    Successor and
Assigns:    This Agreement shall be binding upon and inure to the benefit of the parties hereunder and their respective legal representatives, successors and assigns, including, but not limited to, any transferees.

  
 12.3    Law
Governing:    This Agreement shall be governed, construed and interpreted in all respects in accordance with the laws of the Commonwealth of Virginia. 
  
 12.4    Amendments:    This Agreement may not be modified, amended,
terminated or otherwise changed orally or by any course of dealing or in any manner except by an agreement in writing signed by the duly authorized officer of the party to be charged. 
  
 12.5    Entire Agreement:    This Agreement and any agreements incorporated
herein by reference constitute the entire contract between the parties hereto and there are no other understandings, oral or written, related to the subject matter hereof other than those specifically incorporated by reference herein. 
  
 12.6    Severability:    If
any term or provision of this Agreement or the application thereof shall 
  

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 to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision
to persons, properties and circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. Each term and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

  
  
  
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 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized
officers and their respective seals to be affixed as of the day and year first above written. 
  

							
	ATTEST:	 	 	 	 KH Funding Company

				
	 	 	 	 	By:	 	 
	 	 	 	 	 Name:
 Title:

  

							
	ATTEST:	 	 	 	 
				
	 	 	 	 	By:	 	 

  

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 Exhibit “A” 
  
 PARTICIPATION CERTIFICATE 
  
 The Participant hereby acknowledges a         % participation interest in the Loan of the Borrower(s) listed below
and the Lender acknowledges acceptance of this participation, more fully described in a Participation Agreement dated
                        , 20        . 
  
 Borrower: 
  
 Note Amount: $ 
  
 Current Loan Balance: $ 
  
 Percent of Participation:                %  
  
 Participation Amount: $ 
  
 Note Rate:            
% 
  
 Participant
Rate:             % 
  
 Fee Paid To Participant: none. 
  
 TOTAL ADVANCED TO DATE: 
  
  
  

							
	Date	 	 	 	 Amount

				
	 	 	 	 	$	 	 

  
 SEEN AND AGREED: 
  

							
	ATTEST:	 	 	 	 
				
	 	 	 	 	By:	 	 

  
  
  

							
	ATTEST:	 	 	 	 KH Funding Company

				
	 	 	 	 	By:	 	 
	 	 	 	 	 	 	 Name:
 Title:Exhibit 10.3

 Exhibit 10.3 
  
 SELLING AGREEMENT 
  
 This Selling Agreement (“Agreement”) made this             day
of            2004 by and between KH Funding Company, a Maryland corporation (the “Company”), and Capital Financial Services Inc., a Wisconsin corporation
(“Seller”) (collectively, the “Parties”). 
  
 WHEREAS, the Company is an issuer of investment debt securities, and has registered or will register the Investment Debt Securities it issues under the Securities Act of 1933 (“1933 Act”), to the extent required thereby, on
Form SB-2 (“Registration Statement”); and 
  
 WHEREAS, the Board of Directors of the Company (“Board”) has established and authorized the issuance of those types of Investment Debt Securities listed on Schedule A hereto (each, a “Note” and collectively, the
“Notes”), as the same may be amended from time to time by mutual written agreement of the Parties (“ Schedule A”); and 
  
 WHEREAS, Seller desires to act as an authorized seller of the Notes; and 
  
 WHEREAS, Seller is a broker-dealer registered under the Securities Exchange Act of 1934 (“1934 Act”) and a
member of the National Association of Securities Dealers, Inc. (“NASD”); and 
  
 NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows: 
  
 1. Appointment and Obligation of Seller. 
  
 The Company hereby appoints Seller as an authorized seller of the Notes and
Seller hereby accepts such appointment. By accepting this appointment, Seller represents and warrants that it is a business corporation duly organized, validly existing, and in good standing under the laws of the State of its incorporation as
indicated above, and that it has full corporate power, authority and legal right to execute, deliver, and perform its duties and comply with its obligations under this Agreement. Further, Seller expressly represents that it is a member of the NASD
and a registered broker-dealer under the 1934 Act, and in such states as broker-dealer registration may be required for the conduct of its business. 

 2. Sale of Notes. 
  
 2.1 Availability of Notes. The Company agrees to issue such Notes as Seller may sell in accordance with the terms and
conditions set forth herein and the disclosures contained in the Company’s Registration Statement. 

 
 2.2 Best Efforts. Seller agrees to use its best efforts to
promote the sale of the Notes, but is not obligated to sell any specific number of Notes. 
  
 2.3 Rejection or Suspension of Sales: Corporate Actions. Notwithstanding anything herein to the contrary, the Company may, at any time, reject for any reason any order to purchase any Note. In addition, the
Company may suspend or terminate the offering of any Note, if such action is required by law, judicial order, or by regulatory authorities having jurisdiction, or if the Board, in its sole discretion, determines that such action is in the best
interests of the Company. Further, the Company reserves the right at all times to terminate the future offering of Notes and to take any corporate actions, including, but not limited to, the dissolution, merger, and sale of its assets, solely upon
the authorization of its Board. 
  
 2.4 Purchase Payments.
Seller shall accept purchase payments for Notes as described in the Company’s then effective prospectus relating to the Notes as it may be amended or supplemented from time to time (“Prospectus,” unless the context otherwise
requires). 
  
 2.5 Manner of Offering. Seller shall offer
the Notes for sale in the manner described in the Company’s Prospectus, and only in those jurisdictions where Seller is legally able to offer or sell such Notes and where the Notes have been properly registered or qualified, or are exempt from
registration. 
  
 2.6 Sales Commissions. As compensation
for services rendered hereunder, Seller shall be entitled to payment of a commission on the sale of Certificates in accordance with Schedule A. 
  
 2.7 Order and Payment Processing. Seller shall immediately transmit to the Company any order to purchase Notes. Such order shall consist of a
completed application to purchase a Note, accompanied by a check made payable to the Company, or any other form of payment deemed acceptable by the Company. The Company, in its sole discretion, reserves the right to reject, for any reason, any
application for the purchase of a Note. 
  
 2.8 Purchases for
Own Account. Seller shall not purchase Notes for its own account for purposes of resale to the public. Seller may purchase Notes for its own investment account upon its written assurance to the Company that the purchase is for investment
purposes only and that such Certificates will not be resold. 
  
 2.9 Non-Exclusivity. Notwithstanding anything herein to the contrary, the Company may appoint other broker-dealers who are registered as such under the 1934 Act and members of the NASD, in addition to Seller to serve as authorized
sellers of the Company’s Notes, and the Notes may be directly sold by the Company without the services of any broker-dealer. 
  

 2 

 3. Withdrawal, Surrender, Conversion and Exchange Requests. 
  
 Seller shall immediately forward any withdrawal, surrender or conversion
request, or a request to exchange one type of Note for another, that it receives to the Company. All such requests shall be provided in a manner deemed acceptable by the Company. The Company will make payments of withdrawal and surrender proceeds
directly to the Note holder. 
  
 4. Allocation of
Expenses. 
  
 Except as set forth herein, each Party
shall bear all expenses of fulfilling its duties and obligations under this Agreement. However, the Company may bear some of Seller’s initial costs in selling the Certificates, as the Parties may mutually agree from time to time. 
  
 5. Marketing Materials. 
  
 5.1 Preparation, Printing, and Distribution. Except as provided
below, the Company, at its sole cost, shall be responsible for preparing, printing, and distributing, or causing the same to be done, all marketing materials to be used in connection with its offer and sale of Notes. Seller may create marketing
materials in connection with the sale of the Notes. However, any such marketing materials shall be created at the Seller’s sole cost, and the Company shall be entitled to use such marketing materials at any time in its sole discretion with
consent of Seller, which will not be unreasonably withheld. The Company will reimburse the Seller for the filing fees paid to the NASD for any marketing materials it may use. 
  
 5.2 Company Approval. Seller shall submit definitive copies of all marketing materials it creates to the Company for
its approval, consent shall not be unreasonably withheld, at least ten (10) business days prior to their first use. The Company shall be deemed to have granted its approval of such marketing materials unless it objects within such ten (10) business
day period. 
  

	 	5.3	Regulatory Approvals. To the extent required and in a timely manner: (i) Seller shall file with the NASD, or any other regulatory body, as appropriate, all marketing
materials it employs (other than the prospectus, annual and semi-annual reports) in the offer and sale of Notes, whether such materials are created by Seller or the Company for Seller’s use. Seller shall obtain all necessary regulatory
approvals of any marketing materials it proposes to employ, and shall, provide to the Company, promptly after receipt thereof, a copy of each NASD approval of marketing materials submitted to the NASD for review and approval.

  

 3 

 6. Non-Marketing Materials. 
  
 6.1 Note Holder Correspondence. Seller, at its sole cost, shall be responsible for preparing, printing, and
distributing, or causing the same to be done, all correspondence with Note holders in its capacity as an authorized Seller, except for correspondence prepared, printed, and distributed by Seller at the Company’s request. Seller shall, from time to time, make such correspondence available to the Company for review upon request. 
  
 6.2 Confirmations. The Seller, at its sole cost, shall be responsible
for preparing, printing, and distributing in a timely manner, or causing the same to be done, confirmations of Note holder transactions generated by the seller and required to be delivered pursuant to applicable law. The Seller acknowledges its
responsibilities as a Broker/Dealer to comply with the confirmation Rules under the 1934 Act and agrees to provide such information as is required under those rules to the company. 
  
 6.3 Prospectuses, Reports, etc. The Company, at its sole cost, shall be responsible for preparing, printing, and
distributing, or causing the same to be done, all Prospectuses, Reports, and other documents required by applicable law to be provided to Note holders of each series, and for filing such materials with the SEC or any other regulatory body, as
appropriate, and shall obtain any necessary regulatory approvals or clearances of these materials. 
  
 7. Conduct of Business. 
  
 7.1 General. In selling Notes, Seller shall comply in all respects with the requirements of all federal and state laws and regulations and the
regulations of the NASD, relating to the sale of the Notes. Neither Seller nor any other person is authorized by the Company to give any information or to make any representations, other than those contained in the Company’s Registration
Statement, Prospectus or Reports, and any marketing materials authorized by the Company as provided in section 5 above. 
  
 7.2 Independent Contractor. Seller shall undertake and discharge its obligations hereunder as an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent the Company in any way and shall not be deemed to be an employee of the Company. Seller shall be responsible for its own conduct and the employment, control and conduct of
its agents and employees, and for injury to such agents or employees or to others through its agents or employees. Seller shall assume full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes

  
 7.3 Non-Exclusive Services. Seller’s services
pursuant to this Agreement shall not be deemed to be exclusive, and Seller may render similar services for other companies in the offering of their Notes, consistent with its best efforts obligations set forth herein. 
  

 4 

 7.4 Records. Seller shall prepare and maintain full and accurate books and records of its business
as conducted under this Agreement, including transactions by its registered representatives, as such books and records are required to be maintained by applicable law and regulations, including applicable rules of the SEC and NASD. Such books and
records shall remain the property of Seller. Seller shall, however, make such books and records available to the Company or regulatory authorities at any reasonable time and place upon request, 
  
 7.5 Notice. Seller shall promptly provide notice to the Company of any
inquiry or investigation with respect to Seller’s activities initiated or conducted by the NASD, SEC, or any other federal or state regulatory entity. 
  
 8. Termination. 
  
 This Agreement may be terminated at any time without cause and without the payment of any penalty, by the Company or by Seller, on thirty days written
notice to the other party. 
  
 9. Definitions.

  
 Intentionally left blank. 
  
 10. Notices. 
  
 Any notice under this Agreement shall be in writing, addressed and
delivered, or mailed postage prepaid, to the other party at such address as the other party may designate for the receipt of notices. Until further notice to the other party, it is agreed that the address of the Company shall be 10801 Lockwood
Drive, Suite 370, Silver Spring, MD 20901, and the address for Seller shall be 1 North Main, Minot, ND 58703. 
  
 11. Severability. 
  
 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule, or otherwise, the remainder of this Agreement shall
not be affected thereby. 
  

 5 

 12. Confidentiality. 
  
 Each party to this agreement shall maintain the confidentiality of any client list or any other proprietary information that
it may acquire in the performance of this agreement. 
  
 13.
Applicable Law. 
  
 This Agreement shall be governed
by the laws of the State of Maryland 
  
 14. Parties to
Cooperate. 
  
 The Company and Seller agree to fully
cooperate with each other in assuring compliance under this Agreement with all federal and state laws and regulations. 
  
 15. Indemnification 
  
 15.1 By Company. The Company hereby agrees to indemnify and hold Seller harmless from and against any and all losses, liability, damages and
expenses (including reasonable attorneys’ fees and expenses) which Seller may incur or be obligated to pay, or for which it may become liable or be compelled to pay in any action, claim or proceeding against it, for or by reason of any breach
by the Company of any of the representations or covenants of the Company in this Agreement, or, to the extent permitted by law, any such losses, liabilities, damages or expenses, based on any untrue statements of material facts or material omissions
contained in the Registration Statement, including any prospectus contained therein or any amendment or supplement thereto. 
  
 15.2. By Seller. Seller hereby agrees to indemnify and hold the Company harmless from and against any and all losses, liability, damages and
expenses (including reasonable attorneys’ fees and expenses) which the Company may incur or be obligated to pay or for which it may become liable or be compelled to pay in any action, claim or proceeding against it, for or by reason of any
breach of any of the representations or covenants of Seller in this Agreement, including, without limitation, Seller’s failure to comply with the provisions of paragraph 7.1 of this Agreement. 
  
 15.3 Survival of Provisions. The provisions of this paragraph 15 shall
survive the expiration or termination of this Agreement. 
  

 6 

 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first written
above. 
  

	
	 Capital Financial Services, Inc.,

	 A Wisconsin corporation

	
	
 Brad Wells

	 Chief Operating Officer

	
	 KH Funding Company,

	 A Maryland corporation

	
	
 Robert L. Harris

	 Chief Executive Officer, President

  

 7 

 SCHEDULE A 
  

This Schedule A is an integral part of the Agreement to which it is attached. Capitalized terms used herein have the same meaning as given to them in
the Agreement, except as otherwise noted. This Schedule A sets out the names of the types of Notes covered by the Agreement and the compensation of Seller for the services rendered with respect thereto. 
  
 NAMES OF NOTES 
  
 Series 3 Senior Secured Notes: 
 One Day
Demand Notes 
 Thirty Day Demand Notes 
 One Year Fixed Term
Notes 
 Three Year Fixed Term Notes 
 Five Year Fixed Term Notes

  
 Series 4 Subordinated Unsecured Notes: 
 One Year Fixed Term Notes 
 Three Year Fixed Term Notes 
 Five Year Fixed Term Notes 
  
 COMPENSATION 
  
 For its
services rendered pursuant to the Agreement, Seller shall be entitled to receive as full compensation therefore, the following sales concessions (subject to any scheduled variations or eliminations of concessions as set forth in the Company’s
Prospectus): 
  
 Concession Schedule 
  
 All concessions due upon the sale of any Note are calculated as a percentage
of the initial purchase payment for such Note, except that with respect to the sale of the One Day and Thirty Day Demand Notes, where the concession is payable quarterly, shall be calculated on the average daily balance for the respective
previous quarter. Trailers are also calculated as a percentage of the initial purchase payment for such Note and to be paid quarterly after the 1st anniversary. 
  

A. For Series 3 Senior Secured Notes 
  

									
	 	 	 	 	 •
	 	 One Day Demand Notes
	  	 0.50% per annum

	 	 	 	 	 •
	 	 Thirty Day Demand Notes
	  	 10.60% per annum

	 	 	 	 	 •
	 	 One Year Fixed Term Notes
	  	 1.00%

	 	 	 	 	 •
	 	 Three Year Fixed Term Notes
	  	 2.00%+0.20% annual trail

	 	 	 	 	 •
	 	 Five Year Fixed Term Notes
	  	 3.00%+ 0.20% annual trail

  
 B. For Series 4
Subordinated Notes 
  

									
	 	 	 	 	 •
	 	 One Year Fixed Term Notes
	  	1.00%
	 	 	 	 	 •
	 	 Three Year Fixed Term Notes
	  	2.00% + 0.40% annual trail
	 	 	 	 	 •
	 	 Five Year Fixed Term Note
	  	3.00%+ 0.40% annual trail

  
 In addition there will
be a 0.10% marketing allowance calculated and paid under the same guidelines to the Seller. 
  
 A concession becomes payable only upon acceptance, by the Company, of the application to purchase a Note, and after payment for such Note has been verified and cleared. The Company will make payment of all concessions
then payable by the 15th of each calendar month. 
  

 8

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