Document:

Exhibit 10.185
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CONTRIBUTION AGREEMENT
by and between
Smith/Curry Hotel Group HH-Harris, LLC
a North Carolina limited liability company
and
Lodging Fund REIT III OP, LP
a Delaware limited partnership
Dated as of March 21, 2022
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TABLE OF CONTENTS
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	1.
	Defined Terms
	1

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	2.
	Contribution; Total Consideration; Inspection and Title
	5

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	2.1
	Contribution of Property
	5

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	2.2
	Contribution of Assets
	6

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	2.3
	Inventory
	6

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	2.4
	Excluded Assets
	6

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	2.5
	Assumed Liabilities
	6

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	2.6
	Excluded Liabilities
	6

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	2.7
	Existing Loans and Creditors
	6

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	2.8
	Consideration and Exchange of Series T Limited Units
	7

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	2.9
	Treatment as Contribution
	7

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	2.10
	Allocation of Total Consideration
	8

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	2.11
	Terms of Series T Limited Units
	8

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	2.12
	Term of Agreement
	8

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	2.13
	Management Company
	8

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	2.14
	Risk of Loss
	8

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	2.15
	Escrow
	8

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	2.16
	Title
	9

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	2.17
	Due Diligence Period
	9

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	3.
	Closing
	10

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	3.1
	Conditions Precedent
	10

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	3.2
	Time and Place
	12

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	3.3
	Closing Deliveries
	12

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	3.4
	Closing Costs
	13

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	4.
	Representations and Warranties and Indemnities
	13

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	4.1
	Representations and Warranties of the Operating Partnership
	13

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	4.2
	Representations and Warranties of the Contributor
	16

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	5.
	Indemnification
	22

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	5.1
	Survival of Representations and Warranties; Remedy for Breach
	22

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	5.2
	General Indemnification
	23

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	5.3
	Notice and Defense of Claims
	23

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	5.4
	Limitations on Indemnification Under Section 5.2.1
	23

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	5.5
	Indemnification
	23

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	5.6
	Matters Excluded from Indemnification
	24

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	5.7
	Offset
	24

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	6.
	Covenants
	24

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	6.1
	Covenants of the Contributor
	24

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	6.2
	Prorations
	25

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	6.3
	Tax Covenants
	27

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	6.4
	Capital Contribution
	27

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	7.
	Termination
	27

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	7.1
	Termination
	27

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	7.2
	Default by the Operating Partnership
	28

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	7.3
	Default by the Contributor
	28

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	8.
	Miscellaneous
	28

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	8.1
	Further Assurances
	28

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	8.2
	Counterparts
	28

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	8.3
	Governing Law
	29

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TABLE OF CONTENTS
(continued)
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	8.4
	Amendment; Waiver
	29

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	8.5
	Entire Agreement
	29

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	8.6
	Assignability
	29

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	8.7
	Titles
	29

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	8.8
	Third Party Beneficiary
	29

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	8.9
	Severability
	29

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	8.10
	Reliance
	29

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	8.11
	Survival
	29

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	8.12
	Days
	29

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	8.13
	Calculating Time Periods
	29

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	8.14
	Incorporation of Exhibits
	29

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	8.15
	Notice
	29

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	8.16
	Force Majeure
	30

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	8.17
	Impracticability
	30

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	8.18
	Equitable Remedies
	30

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	EXHIBITS
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	A
	Legal Description of the Property
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	B
	Contribution and Assumption Agreement
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	C
	Assignment of Warranties
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	D
	Total Consideration
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	E
	Non-Competition Agreement and Non-Solicitation Agreement
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	F
	Confidentiality and Non-Disclosure Agreement
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	G
	Tax Information
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	SCHEDULES
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	2.2
	List of Contributed Assets, Assumed Agreements and Leases
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	2.4
	List of Excluded Assets
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	2.5
	List of Assumed Liabilities; Permitted Liens
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	2.6
	List of Excluded Liabilities
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	2.10
	Allocation of Total Consideration
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	3.1.8
	3-05 Audit 
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	APPENDICES
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	A
	Disclosure Schedule
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CONTRIBUTION AGREEMENT
This Contribution Agreement (this “Agreement”) is made and entered into as of March 21, 2022 (the “Effective Date”) by and between Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Operating Partnership”), and Smith/Curry Hotel Group HH-Harris, LLC, a North Carolina limited liability company (the “Contributor”).
RECITALS
A.The Contributor currently owns a certain 112-room hotel business known as the Hilton Garden Charlotte North located at 9315 Statesville Road, Charlotte, North Carolina 28269 (the “Property”), as the Property is more fully described in Exhibit A.
B.The Operating Partnership desires to acquire the Property, along with the Contributed Assets whereby the Operating Partnership will acquire a direct fee simple interest and ownership in the Property.
NOW, THEREFORE, in consideration of the foregoing premises, and the mutual undertakings set forth below, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
	1.
	Defined Terms.

The following terms have the meanings set forth below:
“Act” shall have the meaning as set forth in Section 4.2.9.
“Actions” mean all actions, litigations, complaints, charges, accusations, investigations, petitions, suits, arbitrations, mediations or other proceedings, whether civil or criminal, at law or in equity, or before any arbitrator or Governmental Entity.
“Adverse Change” shall have the meaning as set forth in Section 2.16.1.
“Adverse Change Review Period” shall have the meaning as set forth in Section 2.16.1. 
“Affiliate” shall have the meaning set forth in the OP Agreement.
“Agreement” shall have the meaning as set forth in the Preamble. 
“Amendment” shall have the meaning as set forth in Section 2.8. 
“Assumed Agreements” shall have the meaning as set forth in Section 2.2. 
“Assumed Liabilities” shall have the meaning as set forth in Section 2.5. 
“Basket” shall have the meaning as set forth in Section 5.4.
“Closing” shall have the meaning as set forth in Section 3.2. 
“Closing Agent” shall have the meaning as set forth in Section 2.14. 
“Closing Date” shall have the meaning as set forth in Section 3.2.
“Closing Documents” shall have the meaning as set forth in Section 3.3. 
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Common Limited Units” shall have the meaning set forth in the OP Agreement. 
“Company” shall mean Lodging Fund REIT III, Inc., a Maryland corporation.
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“Contributed Assets” shall have the meaning as set forth in Section 2.2. 
“Contributor” shall have the meaning as set forth in the Preamble.
“Contributor Point of Contact” shall have the meaning as set forth in Section 2.17.3(d). 
“Contributor’s Breakage Fee” shall have the meaning as set forth in Section 7.3. 
“Contributor’s Cure Period” shall have the meaning as set forth in Section 2.15. 
“Deed” shall have the meaning as set forth in Section 3.3.2.
“Disclosure Schedule” means that disclosure schedule attached as Appendix A. 
“Due Diligence Documents” shall have the meaning as set forth in Section 2.16.1. 
“Due Diligence Period” shall have the meaning as set forth in Section 2.16.1. 
“Due Diligence Review” shall have the meaning as set forth in Section 2.16.3. 
“Earnest Money” shall have the meaning as set forth in Section 2.14.
“Environmental Law” means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders, demands, approvals, authorizations and similar items of any Governmental Entity and all applicable judicial, administrative and regulatory decrees, judgments and orders relating to the protection of human health or the environment as in effect on the Closing Date, including but not limited to those pertaining to reporting, licensing, permitting, investigation, removal and remediation of Hazardous Materials, including without limitation (i) the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251), the Safe Drinking Water Act (42 U.S.C. 300f et seq.), the Toxic Substances Control Act (15 U.S.C. 2601 et seq.), the Endangered Species Act (16 U.S.C. 1531 et seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. 11001 et seq.), and (ii) applicable state and local statutory and regulatory laws, statutes and regulations pertaining to Hazardous Materials.
“Environmental Permits” means any and all licenses, certificates, permits, directives, requirements, registrations, government approvals, agreements, authorizations, and consents that are required under or are issued pursuant to any Environmental Laws.
“Effective Date” shall have the meaning as set forth in the Preamble. 
“Excluded Assets” shall have the meaning as set forth in Section 2.4. 
“Excluded Liabilities” shall have the meaning as set forth in Section 2.6. 
“Existing Loan” shall have the meaning as set forth in Section 2.7.1.
“Existing Loan Documents” shall have the meaning as set forth in Section 2.7.1.
“Fixtures and Personal Property” shall mean all fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, business supplies, software, tools, linens (in no event less than 2.5par), inventories of standard supplies, services and amenities including without limitation paper goods, brochures, office supplies, unopened food and beverage inventory, chinaware, glassware, flatware, soap, gasoline, fuel oil, inventory held for sale, engineering, pool, maintenance and housekeeping supplies, TV, phone, and internet services, software and hardware, and other operation and guest supplies (each of which shall be maintained and transferred in accordance with brand standards), merchandise, goods, electronics, customer lists and records (including but not limited to customer, supplier, advertising, promotional material, sales, services, delivery and/or operations lists and records), goodwill, intellectual and/or proprietary information and property and applications therefor or licenses thereof and other items of personal property used in connection with the ownership, operation or maintenance of the
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Property, including all assets located off site from the Property but owned and used by the Contributor in connection with operation of the Property; excluding, however, all fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, business supplies, software, tools, linens, merchandise, goods, electronics and other items of personal property owned by tenants, subtenants, guests, invitees, employees, easement holders, service contractors and other Persons who own any such property located on the Property.
“Franchise Agreement” shall have the meaning as set forth in Section 3.1.12.
“Governmental Entity” means any governmental agency or quasi-governmental agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.
“Hazardous Material” means any substance:
(a)the presence of which requires investigation or remediation under any Environmental Law action or policy, administrative request or civil complaint under the foregoing or under common law; or
(b)which is controlled, regulated or prohibited under any Environmental Law as in effect as of the Closing Date, including the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.); or
(c)which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and as of the Closing Date is regulated by any Governmental Entity; or
(d)the presence of which on, under or about, the Property poses a hazard to the health or safety of persons on or about the Property; or
(e)which contains gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls (PCBs) or asbestos or asbestos-containing materials or urea formaldehyde foam insulation; or
		(f)
	radon gas.

“Indemnified Contributor Party” shall have the meaning as set forth in Section 5.5. 
“Indemnified OP Party” shall have the meaning as set forth in Section 5.5. 
“Indemnified Party” shall have the meaning as set forth in Section 5.2.1. 
“Independent Consideration” shall have the meaning as set forth in Section 2.14.
“Intangible Personal Property” shall mean all, right, title and interest relating to the Property in and to all intangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management, or occupancy of the Property, including without limitation: all trade names and trademarks associated with the ownership of the Property; the plans and specifications for the Improvements; warranties; guaranties; indemnities; claims against third parties; claims against tenants for tenant improvement reimbursements; all contract rights related to the construction, operation, ownership or management of the Property; certificates of occupancy; applications, permits, approvals and licenses; insurance proceeds and condemnation awards or claims thereto to be assigned to the Operating Partnership hereunder; all books and records relating to the Property; any existing computer software or programs; any franchise agreements which shall not be terminated at the Closing and are to be assigned to the Operating Partnership, if any; any records, files, lists, and other tangible assets that pertain to the Property, including lists and records pertaining to any one or more of the following: the Contributor’s customers, suppliers, advertising, promotional material, sales, services, delivery, and/or operations, except those items, if any, required to be retained by law, including accounting records and returns.
“Inventory Period” shall have the meaning as set forth in Section 2.3.1. 
“Key Personnel” shall have the meaning as set forth in Section 2.17.3(d).
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“Knowledge” means with respect to any representation or warranty so indicated, the actual knowledge, of the Contributor.
“Leases” shall have the meaning as set forth in Section 4.2.21. “Lender” shall have the meaning as set forth in Section 2.7.1.
“Liens” means with respect to any real and personal property, all mortgages, pledges, liens, options, charges, security interests, mortgage deed, restrictions, prior assignments, encumbrances, covenants, encroachments, assessments, purchase rights, rights of others, licenses, easements, voting agreements, liabilities or claims of any kind or nature whatsoever, direct or indirect, including, without limitation, interests in or claims to revenues generated by such property.
“Losses” shall have the meaning as set forth in Section 5.2.1.
“Material Adverse Effect” shall have the meaning as set forth in Section 4.2.3.
“Maximum Total Consideration Adjustment” shall have the meaning as set forth in Section 2.13. “Merchandise” shall have the meaning as set forth in Section 2.3.1.
“Name” shall have the meaning as set forth in Section 4.2.19(c). “NDA” shall have the meaning as set forth in Section 6.1.8.
“Non-Competition Agreement and Non-Solicitation Agreement” shall have the meaning as set forth in Section 6.1.7.
“Objections” shall have the meaning as set forth in Section 2.15. “OFAC” shall have the meaning as set forth in Section 4.2.32.
“Offering Documents” shall have the meaning as set forth in Section 2.16.2. “Offering Review Period” shall have the meaning as set forth in Section 2.16.2.
“OP Agreement” shall mean the Amended and Restated Limited Partnership Agreement of Lodging Fund REIT III OP, LP, a Delaware limited partnership, as may be amended.
“Operating Partnership” shall have the meaning as set forth in the Preamble. “Other Taxes” means Taxes other than income Taxes.
“Permitted Liens” means:
(a)Liens securing taxes, the payment of which is not now due and payable or the payment of which is actively being contested in good faith by appropriate proceedings diligently pursued;
(b)Zoning laws and ordinances applicable to the Property which are not violated by the existing structures or present uses thereof or the transfer of the Property;
(c)non-exclusive easements for public utilities and other operational purposes that do not materially interfere with the current use of the Property; and
(d)all Liens listed in Schedule 2.5 of the Disclosure Schedule and any similar liens incurred in any refinancing of the related obligations.
“Person” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or governmental entity.
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“PIP” shall have the meaning as set forth in Section 4.2.31.
“Preliminary Title Report” means the preliminary commitment for title insurance committing to insure marketable fee simple title as of the date of the Closing, subject only to the Permitted Liens.
“Property” shall have the meaning as set forth in the Recitals.
“Property Deposits” shall have the meaning as set forth in Section 6.2.1(b)(i).
“Property Reports” means the property condition assessment reports, appraisals, zoning reports and other similar reports prepared for the Property.
“Proprietary Rights” shall have the meaning as set forth in Section 4.2.19(a). 
“REIT Shares” shall have the meaning set forth in the OP Agreement.
“Release” shall have the same meaning as the definition of “release” in the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) at 42 U.S.C. Section 9601(22), but not including the exclusions identified in that definition, at subparts (A) through (D).
“Satisfaction Notice” shall have the meaning as set forth in Section 2.16.1. 
“Series T Limited Units” shall have the meaning set forth in the OP Agreement. 
“Service Contracts” shall have the meaning as set forth in Section 4.2.23.
“Subscription Agreement” shall mean the Subscription Agreement to be entered into by Contributor with respect to the acquisition of the Series T Units.
“Tax” or “Taxes” means any federal, state, provincial, local or foreign income, gross receipts, license, payroll, employment-related, excise, goods and services, harmonized sales, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.
“Tax Return” means any return, declaration, report, claim for refund, or information return or statement related to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Tenants” shall have the meaning as set forth in Section 4.2.21. 
“Title Company” shall have the meaning as set forth in Section 2.15. 
“Title Policy” shall have the meaning as set forth in Section 3.1.6.
“Total Consideration” shall have the meaning as set forth in Section 2.8. 
“Transfer” shall have the meaning as set forth in Section 4.2.9(a).
	2.
	Contribution; Total Consideration; Inspection and Title.

2.1Contribution of Property. At the Closing and subject to the terms and conditions contained in this Agreement, the Contributor shall contribute, transfer, assign, convey and deliver to the Operating Partnership, absolutely and unconditionally, and free and clear of all Liens (other than Permitted Liens), all of its right, title and interest to the Property. The contribution of the Property shall be evidenced by a Deed. The parties shall take such additional actions and execute such additional documentation as may be required by the Contributor’s entity documents and the OP Agreement, or as reasonably requested by the Operating Partnership in order to effect the transactions contemplated hereby.
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2.2Contribution of Assets. At the Closing and subject to the terms and conditions contained in this Agreement, the Contributor shall contribute, transfer, assign convey and deliver to the Operating Partnership, and the Operating Partnership shall acquire and accept, all of the Contributor’s right, title and interest in and to (i) (a) those assets listed on Schedule 2.2, (b) all Fixtures and Personal Property related to the Property, and (c) all Intangible Personal Property now or hereafter used in connection with the operation, ownership, maintenance, management or occupancy of the Property, to the extent transferable and disclosed to the Operating Partnership (collectively, the “Contributed Assets”), and (ii) (a) those certain agreements listed on Schedule 2.2, which such agreements and arrangements related to the Property to which Contributor (or its affiliates or predecessors) is a party and (b) Service Contracts (collectively, the “Assumed Agreements”), and in each case, free and clear of any and all Liens, subject only to the Permitted Liens listed on Schedule [2.2]. The contribution of the Contributed Assets and the Assumed Agreements and the assumption of all obligations thereunder shall be evidenced by a Contribution and Assumption Agreement in substantially the form of Exhibit B.
2.3Inventory. In addition to the purchase and sale of the Contributed Assets Contributor shall, sell and the Operating Partnership will buy the inventory of saleable merchandise of Contributor , subject to the following:
2.3.1Purchase and Sale of Merchandise Inventory. An inventory of all merchandise will be conducted not earlier than 15 days prior to Closing but not later than 1 day prior to Closing (the “Inventory Period”), and Contributor shall sell, transfer, and deliver to the Operating Partnership all of the merchandise and other inventory used in connection with the Property. As used in this Agreement, the “Merchandise” will include only unopened merchandise and merchandise that (i) is not obsolete and (ii) has an expiration of 30 days or more after Closing Date.
2.3.2Method of Taking Inventory. The Contributor and the Operating Partnership mutually agree to a method of inventory during the Inventory Period, and only if the Parties do not agree, then the Operating Partnership will use an inventory auditing service to conduct the counting of inventory. Expense for auditing service shall be shared equally between Contributor and Operating Partnership.
2.3.3Inventory Purchase Price. The Merchandise shall be purchased at the Contributor’s then- current wholesale cost. The Contributor shall provide written evidence of the Contributor’s then-current wholesale cost, which will include the cost of the delivery of the Merchandise, if any. If no wholesale price is agreed to, then the inventory purchase price will be considered a part of the Total Consideration.
2.4Excluded Assets. Notwithstanding the foregoing, the parties expressly acknowledge and agree that all assets and property of the Contributor set forth on Schedule 2.4, shall be deemed “Excluded Assets” and not contributed, transferred, assigned, conveyed or delivered to the Operating Partnership pursuant to this Agreement, and the Operating Partnership shall not have any rights or obligations with respect thereto. Unless otherwise agreed in writing, the Contributor, at the Contributor’s expense, shall remove the Excluded Assets from the Property as soon as possible after the Closing Date but in no event later than 7 business days after the Closing Date. If the Contributor fails to comply with the foregoing provisions, the Operating Partnership may dispose of such items at the Contributor’s expense or make such other arrangements as the Operating Partnership may determine appropriate.
2.5Assumed Liabilities. On the terms and subject to the conditions set forth in this Agreement, at the Closing, the Operating Partnership shall assume from the Contributor and thereafter pay, perform or discharge in accordance with their terms all of the liabilities of the Contributors listed on Schedule 2.5 (the “Assumed Liabilities”).
2.6Excluded Liabilities. Notwithstanding the foregoing, the parties expressly acknowledge and agree that the Operating Partnership shall not assume or agree to pay, perform or otherwise discharge any liabilities, obligations or other expenses of either the Contributor (or acquire the Property subject thereto) other than those assumed pursuant to the Contribution and Assumption Agreement and the Assumed Liabilities (the “Excluded Liabilities”), and such Excluded Liabilities shall not be contributed, transferred, assigned, conveyed or delivered to the Operating Partnership pursuant to this Agreement or any other means, and the Operating Partnership shall not have any obligations with respect thereto.
		2.7
	Existing Loans and Creditors.

2.7.1The Contributor has obtained certain financing encumbering the Property through Goldman Sachs Mortgage Company at a fixed interest rate of 5.1495%, with a term of 10 years, at an original loan
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balance of $10,090,000, (the “Original Loan Balance) and collectively, the “Original Loan Balance”) (the “Existing Loan” and collectively, the “Existing Loans”). Such notes, deed of trusts and all other documents or instruments evidencing or securing such Existing Loans, including any financing statements, and any amendments, modifications and assignments of the foregoing, shall be referred to, collectively, as the “Existing Loan Documents.” Each Existing Loan shall be considered a Permitted Lien for purposes of this Agreement. The Operating Partnership at its election shall either (i) assume the applicable Existing Loans at the Closing (subject to obtaining any necessary consents from the holder of the mortgage or deed of trust related to the Existing Loans (the “Lender”) prior to the Closing), (ii) take title to the Property subject to the lien of the Existing Loan Documents or (iii) cause the Existing Loans to be refinanced or repaid in connection with the Closing. The Operating Partnership shall have the right to discuss with Goldman Sachs Mortgage Company any of the options described in this Section 2.7.1 immediately upon the Contributor discussing the transaction contemplated by this Agreement with such entities.
2.7.2Nothing contained in this Agreement shall preclude the Operating Partnership from reducing or increasing the indebtedness secured by the Property above the amount outstanding on the Existing Loans in connection with any refinancing which may occur concurrently with or after the Closing. The Contributor shall use commercially reasonable efforts along with the Operating Partnership in seeking to process approval of the assumption of the Existing Loan or in beginning the process for any refinancing or a payoff.
2.7.3Before the Closing, the Contributor shall furnish to the Operating Partnership a true and complete list of all existing creditors. This list shall set forth the names and addresses of all of the Contributor’s creditors and shall contain information regarding the nature and extent of the claim or claims of each creditor. The Contributor shall afford to the Operating Partnership access to the Contributor’s books and records related to each claim and shall furnish the Operating Partnership with such financial and operating data and other information regarding each such claim as the Operating Partnership may from time to time reasonably request.
2.7.4On or before Closing, the Contributor will pay all amounts owed to any creditors or persons and entities that otherwise possess any type of right or interest in the Contributed Assets arising from the ownership or operation of the Property by the Contributor prior to the Closing. If the creditor holds or obtains a lien on the Contributed Assets, then the following shall apply:
(a)The Contributor, on written notice given by the Operating Partnership to the Contributor, shall pay such monies arising from the ownership or operation of the Property by the Contributor prior to the Closing required to obtain the release of any lien on the property.
(b)In the event of default by the Contributor as to the foregoing, the Operating Partnership, on written notice given by the Operating Partnership to the Contributor, shall have the right to pay for the same and/or obtain the release of lien, if any, and receive a credit toward the Total Consideration at Closing.
2.7.5On or after Closing, Operating Partnership will pay all amounts owed to any creditors or persons and entities that otherwise possess any type of right or interest in the Contributed Assets arising from the ownership or operation of the Property by and attributable to the Operating Partnership after Closing. For the avoidance of doubt, the Operating Partnership shall not be responsible for any existing (known or unknown) claims, liens or creditors attributable to the Contribution, whether claimed before or after the Closing.
2.8Consideration and Exchange of Series T Limited Units. Subject to this Section, the Operating Partnership shall, in exchange for the Property, the Contributed Assets, the Assumed Liabilities and the Assumed Agreements, transfer to the Contributor consideration equal to the Contributor’s “Total Consideration” as indicated on Exhibit D. The transfer of the Series T Limited Units to the Contributor shall be evidenced by an amendment (the “Amendment”) to the OP Agreement as determined by the Operating Partnership. The parties shall take such additional actions and execute such additional documentation as may be required by such party’s operating agreement and the OP Agreement in order to effect the transactions contemplated hereby.
2.9Treatment as Contribution. The transfer, assignment and exchange effectuated pursuant to this Agreement shall constitute a “capital contribution” to the Operating Partnership and is intended to be governed by Section 721(a) of the Code, and the Contributor hereby consents to such treatment.
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2.10Allocation of Total Consideration. Except as otherwise contained in this Agreement, the Total Consideration shall be allocated as set forth in Schedule 2.10. The Operating Partnership and the Contributor agree to (i) be bound by the allocation, (ii) act in accordance with the allocation in the preparation of financial statements and filing of all tax returns and in the course of any tax audit, tax review or tax litigation relating thereto and (iii) take no position and cause their affiliates that they control to take no position inconsistent with the allocation for income tax purposes.
2.11Terms of Series T Limited Units. The Series T Limited Units shall be entitled to cash distributions according to Exhibit D and may be converted to Common Limited Units pursuant to the OP Agreement and on terms set forth therein and in Exhibit D. The Contributor acknowledges that the Series T Limited Units will be converted into Common Limited Units pursuant to the terms in the OP Agreement beginning at either 24, 36 or 48 months, which such election will be at option of the Contributor, after issuance to the Contributor and will be valued pursuant to the conversion formula as set forth on Exhibit D. The Contributor acknowledges that the assigned value upon conversion may be higher or lower than the initial valuation depending on the information imputed into the formula set forth on Exhibit D.
2.12Term of Agreement. If the Closing does not occur by the Closing Date, and unless extended by written agreement of the parties hereto, this Agreement shall be deemed terminated and shall be of no further force and effect and neither the Operating Partnership nor the Contributor shall have any further obligations hereunder except as specifically set forth herein.
2.13Management Company. The Operating Partnership shall evaluate HP Hotel Management, Inc. (“HP Hotels”) as the potential management company to manage the Property. If a management agreement is not executed with HP Hotels, the Operating Partnership and the Contributor shall jointly select a management company. Neither the Operating Partnership nor the selected management company shall be liable to the Contributor for, and the Contributor hereby waives, any claims, damages or losses incurred under any theory of liability as a result of, arising out of, in connection with, or related to the management company’s management and operation of the Property or the Property’s performance after the Closing Date.
2.14Risk of Loss. The risk of loss relating to the Contributor’s Property prior to Closing shall be borne by the Contributor. If, prior to the Closing, the Property is partially or totally destroyed or damaged by fire or other casualty, or is taken by eminent domain or through condemnation proceedings, then the Operating Partnership may, at its option (so long as the cost of repairing such destruction or damage is in the reasonable judgment of the Operating Partnership in excess of $50,000 (the “Maximum Total Consideration Adjustment”), determine not to acquire the Property if it has been partially or totally destroyed, damaged or taken (with an adjustment to the Contributor’s Total Consideration as indicated on Exhibit D). After the occurrence of any such casualty or condemnation affecting the Property, the Operating Partnership may also, at its option within 30 days after the Operating Partnership is notified of any such casualty or condemnation, elect to (a) acquire the Property and (b) direct the Contributor to pay or cause to be paid to the Operating Partnership upon or following the Closing any sums collected by the Contributor, if any, under any policies of insurance, if any, or award proceeds relating to such casualty or condemnation (to the extent that the Contributor has not applied such sums or proceeds to the restoration of the Property or otherwise to address the impacts of such casualty or condemnation) and otherwise assign to the Operating Partnership upon or following the Closing all rights of the Contributor to collect such sums as may then be uncollected, and/or to the extent available to the Contributor, adjust or settle any insurance claim or condemnation proceeding, which the Contributor has not adjusted or settled prior to the Closing. Under such circumstances, the Contributor’s Total Consideration shall be reduced by the amount of (i) any deductibles under the applicable insurance policies or award with respect to the Property contributed at Closing and (ii) any uninsured casualty or loss with respect to the Property contributed at Closing. Insurance on the transferred Property shall be cancelled as of 12:01 a.m. EST after the Closing Date, and thereafter the Operating Partnership shall be solely responsible for all risk of loss relating to the Property. In the event that this Agreement is terminated by the Operating Partnership as provided above, the Earnest Money shall be returned in full to the Operating Partnership and neither party shall have any further duties or obligations to the other, except for any obligations expressly surviving the termination of this Agreement.
2.15Escrow. Escrow shall be opened by the Operating Partnership with First American Title Company (the “Closing Agent”) upon execution of this Agreement by both parties. The Operating Partnership will deposit an earnest money deposit of $100,000 (the “Earnest Money”) which shall be applied to the cash payable by the Operating Partnership at the Closing. A copy of this fully-executed Agreement will be delivered to the Closing Agent by the
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Operating Partnership and will serve as escrow instructions together with any additional instructions required by the Contributor and/or the Operating Partnership or their respective counsels. The Contributor and the Operating Partnership agree to cooperate with the Closing Agent and sign any additional instructions reasonably required by the Closing Agent to close escrow. If there is any conflict between any other instructions and this Agreement, this Agreement shall control. Notwithstanding anything else herein, in all events, the sum of One Hundred and xx/100 Dollars ($100.00) (the “Independent Consideration”), which sum has been bargained for and agreed to as consideration for Contributor’s execution and delivery of this Agreement, will be payable to the Contributor out of the Earnest Money, even if this Agreement is terminated under its express provisions. The Independent Consideration is independent of all other consideration provided in this Agreement, and is nonrefundable in all events. The Operating Partnership and Contributor stipulate that the Independent Consideration is sufficient consideration to support this Agreement notwithstanding the Operating Partnership’s rights to terminate this Agreement as set forth herein.
2.16Title. Within 3 business days after the Effective Date, the Operating Partnership shall, at the expense of the Operating Partnership, order the Preliminary Title Report from First American Title Insurance Company (the “Title Company”). The Operating Partnership shall have until 11:59 pm EST on the later of (i) 10 days prior to the expiration of the Due Diligence Period and (ii) 5 days after the date which the Operating Partnership receives the Preliminary Title Report to examine title and make any objections thereto and making of requests for specific endorsements, said objections or requests (“Objections”) to be made in writing or deemed waived. If any Objections are so made, the Contributor shall within 5 days after receipt of the Operating Partnership’s Objections (the “Contributor’s Cure Period”) respond to the Operating Partnership in writing whether the Contributor shall cure such Objections or decline to cure any Objection. If the Contributor shall decide to make no efforts or shall be unwilling to cure, remove, or obtain insurable title over the Operating Partnership’s Objections, the Operating Partnership may, by the later of the end of the Due Diligence Period or within 5 days after the expiration of the Contributor’s Cure Period, by notice to the Contributor, either (a) waive its Objections and proceed to Closing, or (b) terminate this Agreement by notice to the Contributor and receive a full return of the Earnest Money or (c) cure the defect at Contributor’s expense not to exceed $15,000 and the cost would be credited at Closing.
		2.17
	Due Diligence Period.

2.17.1The Operating Partnership. Within three (3) business days after the Effective Date, the Contributor shall (i) deliver to the Operating Partnership due diligence documents as requested by the Operating Partnership within the due diligence request list (previously provided to the Contributor)(the “Due Diligence Documents”). The Operating Partnership shall have until 11:59 pm EST on the date which is 45 days following the later of (i) the Effective Date or (ii) the date which the Operating Partnership receives all Due Diligence Documents (the “Due Diligence Period”) to review the Due Diligence Documents. During the Due Diligence Period, the Operating Partnership may cancel this Agreement for any reason or no reason by delivering a cancellation notice to the Contributor and Closing Agent on or before the expiration of the Due Diligence Period and the Earnest Money shall be immediately returned in full to the Operating Partnership and neither party shall have any further duties or obligations to the other hereunder (except for any obligation expressly surviving the termination of this Agreement). If the Operating Partnership does not notify the Contributor and Closing Agent in writing, signed only by Norman H. Leslie or David R. Durell, on or before the expiration of the Due Diligence Period that the Operating Partnership is satisfied with the Due Diligence Period (the “Satisfaction Notice”), the Operating Partnership will be deemed to have exercised its right of termination. This Agreement will terminate and the Earnest Money shall be immediately returned in full to the Operating Partnership and neither party shall have any further duties or obligations hereunder (except for any obligation expressly surviving the termination of this Agreement). In addition to the foregoing, within one (1) business day following the expiration of the Due Diligence Period, the Operating Partnership will provide the Contributor written notice confirming the Operating Partnership’s termination of this Agreement. Notwithstanding anything herein to the contrary, if, after the end of the Due Diligence Period, any new matters arise which were not disclosed in the Due Diligence Documents and such matters materially or adversely affect the Property or render incomplete or inaccurate any of the Due Diligence Documents or if any new matters appear on updates to the Preliminary Title Report (an “Adverse Change”), the Operating Partnership shall have five (5) business days from notice of the Adverse Change (the “Adverse Change Review Period”) to review and to accept or reject the Adverse Change. The Operating Partnership may cancel this Agreement during the Adverse Change Review Period if any Adverse Change is not acceptable to the Operating Partnership. If this Agreement is so terminated, the Earnest Money shall be returned immediately returned in full to the Operating Partnership and neither party shall have any further
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duties or obligations to the other hereunder (except for any obligation expressly surviving the termination of this Agreement).
2.17.2The Contributor. The Operating Partnership has delivered to the Contributor the Confidential Private Placement Memorandum and all related documents (collectively, the “Offering Documents”) of the Operating Partnership. Upon execution of this Agreement, the Contributor shall have fourteen (14) business days to review the Offering Documents (the “Offering Review Period”). During the Offering Review Period, the Contributor may cancel this Agreement for any reason by delivering a cancellation notice to the Operating Partnership and Closing Agent on or before the expiration of the Offering Review Period and neither party shall have any further duties or obligations to the other hereunder (except for any obligation expressly surviving the termination of this Agreement).
2.17.3Access by the Operating Partnership. The Contributor will permit the Operating Partnership and its representatives to make a full business, financial, accounting, and legal review of the Property to the extent the Operating Partnership deems necessary (the “Due Diligence Review”).
(a)Such right will include the right to monitor the sales and operations of the Property from and after the Effective Date.
(b)The Contributor will take all reasonable steps necessary to cooperate with the Operating Partnership in undertaking the Due Diligence Review.
(c)Except as set forth in this Agreement or as agreed by the Contributor and Operating Partnership, the Due Diligence Review by the Operating Partnership or its representatives will not affect the representations and warranties of the Contributor or the Operating Partnership’s reliance on them.
(d)During the Due Diligence Period, the primary Contributor point of contact will be Timothy Fridley (the “Contributor Point of Contact”). Furthermore, during the Due Diligence Period, the Operating Partnership will be given direct access, and ability to communicate to the General Manager, Assistant General Manager, Head Housekeeper, Chief Engineer, and Director of Sales (collectively, “Key Personnel”).
(e)The Contributor’s obligation to provide information to the Operating Partnership will continue through the Closing even if the Due Diligence Period has ended.
2.17.4Operating Partnership shall, jointly and severally, indemnify and hold harmless the Contributor and its respective directors, officers, employees, agents, representatives and affiliates (other than the Contributor) (each of which is an “Contributor Indemnified Party”) from and against any and all claims, losses, damages, liabilities and expenses, including, without limitation, amounts paid in settlement, reasonable attorneys’ fees, costs of investigation, costs of investigative, judicial or administrative proceedings or appeals therefrom, and costs of attachment or similar bonds (collectively, “Contributor Losses”), asserted against, imposed upon or incurred by the Contributor Indemnified Party in connection with or as a result of Operating Partnership’s physical Due Diligence investigations at or on Property.
	3.
	Closing.

3.1Conditions Precedent. The obligations of the Operating Partnership to effect the transactions contemplated hereby shall be subject to the following conditions precedent:
3.1.1The representations and warranties of the Contributor contained in this Agreement shall have been true and correct in all respects on the date such representations and warranties were made and on the Closing Date as if made at and as of such date except with respect to information discovered or disclosed during the during the Due Diligence Period, provided that the Contributor’s Breakage Fee (as defined in Section 7.3) shall apply should the Contributor disclose an item that causes the Operating Partnership to terminate this Agreement and the Contributor, at the reasonable discretion of the Operating Partnership, should have disclosed on the Effective Date or during Due Diligence.
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3.1.2The obligations of the Contributor contained in this Agreement to be performed by Contributor shall have been duly performed on or before the Closing Date, including without limitation, the Contributor’s obligations to deliver the Closing deliveries set forth in Section 3.3, and the Contributor shall not have breached any of its covenants contained herein in any material respect;
3.1.3Concurrently with the Closing, the Contributor shall have executed and delivered to the Operating Partnership the documents required to be delivered pursuant to Section 3.3;
3.1.4The Contributor shall have obtained and delivered to the Operating Partnership any consents or approvals of any Governmental Entity or third parties (including, without limitation, any lenders and lessors) required to consummate the transactions contemplated hereby;
3.1.5No order, statute, rule, regulation, executive order, injunction, stay, decree or restraining order shall have been enacted, entered, promulgated or enforced by any court of competent jurisdiction or Governmental Entity that prohibits the consummation of the transactions contemplated hereby, and no litigation or governmental proceeding seeking such an order shall be pending, threatened or reasonably foreseeable;
3.1.6The Title Company shall be irrevocably committed to issue an ALTA extended coverage owner’s policy of title insurance (in current form), with such endorsements thereto as the Operating Partnership may reasonably request (including, without limitation, non-imputation endorsements and deletion of creditors’ rights), with coverage for the Property acceptable to the Operating Partnership in its commercially reasonable discretion, and levels of reinsurance for the Property as reasonably acceptable to the Operating Partnership, insuring fee simple to all real property and improvements comprising the Property in the name of the Operating Partnership (or a subsidiary thereof, as the Operating Partnership may designate), subject only to the Permitted Liens (the “Title Policy”).
3.1.7There shall not have occurred between the Effective Date and the Closing Date any material adverse change in any of the assets, business, financial condition, results or prospects of operation of the Property, taken as a whole.
3.1.8If necessary, the Contributor shall make all reasonable and good faith efforts to cooperate with and provide assistance to the Operating Partnership and its third party auditor in complying with the Company’s reporting requirements to the Securities and Exchange Commission, including without limitation, any Rule 3-05 or Rule 3-14 of Regulation S-X Audit as described on Schedule 3.1.8.
3.1.9The Operating Partnership shall have received environmental reports or assessments on the Property, at Operating Partnership’s sole cost and expense, and operations requested by the Operating Partnership which show the Property in an environmental condition reasonably satisfactory to the Operating Partnership, in its sole discretion. If the Operating Partnership does not request the foregoing, this condition will be waived without further action by the Parties.
3.1.10If any of the Property or Contributed Assets are materially damaged at any time before the Closing, and the damages cannot reasonably be repaired on payment of the sums available by insurance settlement or from any sums to be paid by the Operating Partnership to the Contributor at the Closing, the Operating Partnership, at its option and notwithstanding anything herein to the contrary, shall have the right to terminate this Agreement and, on giving notice of such election to the Contributor, the Operating Partnership will immediately receive a refund of the Earnest Money in full termination of this Agreement. This paragraph will not apply if the damages are caused by the Operating Partnership’s negligence.
3.1.11This Agreement is conditioned on the Operating Partnership assuming or replacing the Contributor’s current mortgage loan. If the Operating Partnership is unable to assume or replace such loan under terms commercially reasonable and acceptable to the Operating Partnership, at any point prior to the Closing Date, the Operating Partnership will give notice of such inability to the Contributor and notwithstanding anything herein to the contrary, the Operating Partnership shall have the right to terminate this Agreement and, on giving notice of such election to the Contributor, the Operating Partnership will immediately receive a refund of the Earnest Money in full termination of the Agreement.
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3.1.12The Operating Partnership shall have assumed the existing franchise agreement from the Contributor or have entered into a new franchise agreement under term of years acceptable to the Operating Partnership, in the Operating Partnership’s sole and absolute discretion (the “Franchise Agreement”).
3.1.13Notification. Between the Effective Date and the Closing, Contributors shall promptly notify the Operating Partnership in writing if the Contributor has Knowledge of any fact or condition that causes or constitutes a breach of any of the representations and warranties made by it in this Agreement on the date hereof, or if Contributor has Knowledge of the occurrence after the Effective Date of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in any part of the Disclosure Schedules, the Contributor shall promptly deliver to the Operating Partnership a supplement to its disclosures specifying said change. During the same period, Contributor shall promptly notify the Operating Partnership of the occurrence of any breach of any covenant of the Contributor in this Agreement or of the occurrence of any event that may make the satisfaction of the conditions in herein impossible or unlikely.
Any or all of the foregoing conditions may be waived by the Operating Partnership in its sole and absolute discretion.
3.2Time and Place. The closing date on the Operating Partnership’s acquisition of the Property shall be upon the 30th day after (i) the expiration of the Due Diligence Period (the “Closing” or the “Closing Date” as the context may require) or (ii) the expiration of the Contributor’s Cure Period, unless extended in accordance with the Adverse Change Review Period pursuant to Section 2.16.1. However, the Closing Date may be earlier upon the mutual agreement of the parties. The Closing Date may be extended at the election of the Operating Partnership for two 30-day periods at no cost, to accommodate any delays in third party services or requirements.
3.3Closing Deliveries. At the Closing, the parties shall make, execute, acknowledge and deliver, or cause to be made, executed, acknowledged and delivered, the legal documents and other items (collectively the “Closing Documents”) necessary to carry out the intention of this Agreement and the other transactions contemplated to take place in connection therewith, which Closing Documents and other items shall include, without limitation, the following:
		3.3.1
	The Contribution and Assumption Agreement in the form attached hereto as Exhibit B;

3.3.2A duly executed and notarized special warranty deed (the “Deed”), in the form provided for under the law of the State of North Carolina and otherwise in conformity with the custom in the jurisdiction where the Property is located and in form and substance satisfactory to the Operating Partnership, conveying good, indefeasible and marketable fee simple title to the Property, subject only to the Permitted Liens;
		3.3.3
	The OP Agreement;

		3.3.4
	The Amendment evidencing the transfer of Series T Limited Units to the Contributor;

3.3.5The Contributor shall deliver all books and records, title insurance policies, leases, lease files, contracts, stock certificates, original promissory notes, and other indicia of ownership or interest with respect to the Property which are in the Contributor’s possession or which can be obtained through the Contributor’s reasonable efforts along with appropriate evidence of the Contributor’s assignment thereof;
3.3.6An affidavit from the Contributor, stating under penalty of perjury, the Contributor’s United States Taxpayer Identification Number and that the Contributor is not a foreign person pursuant to Section 1445(b)(2) of the Code and a comparable affidavit satisfying any applicable federal and state law and Section 4.2.7 and any other withholding requirements;
3.3.7The Contributor shall deliver a beneficiary’s statement or other evidence satisfactory to the Operating Partnership in its sole discretion confirming the outstanding principal balance and term of the Existing Loan to be assumed by the Operating Partnership;
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3.3.8The Contributor shall deliver any other documents reasonably requested by the Operating Partnership or reasonably necessary or desirable to assign, transfer, convey, contribute and deliver the Contributor’s Property (subject to the Permitted Liens) and effectuate the transactions contemplated hereby, including, without limitation, and only to the extent applicable, quitclaim deeds and/or grant deeds, assignments of ground leases, air space leases and space leases, bills of sale, assignments, and all state and local transfer tax returns and any filings with any applicable governmental jurisdiction in which the Operating Partnership is required to file its partnership documentation or the recording of the Contribution and Assumption Agreement or Deed or other Property transfer documents as required;
3.3.9If requested by the Operating Partnership, a certified copy of all appropriate corporate resolutions or partnership actions authorizing the execution, delivery and performance by the Contributor of this Agreement, any related documents and the documents listed in this Section 3.3;
		3.3.10
	The Contributor shall deliver to the Operating Partnership possession of the Property;

3.3.11The Operating Partnership, on the one hand, and the Contributor, on the other hand, shall provide to the other a certification regarding the accuracy of each of their respective representations and warranties herein and in this Agreement as of such date. The Contributor shall provide a certification that it has performed the respective covenants required to be performed by them prior to Closing;
3.3.12The Contributor shall deliver an affidavit as may be required by the Title Company to delete from the Title Policy the standard exceptions and to issue any title endorsements as may be required by the Operating Partnership;
		3.3.13
	Closing Statements detailing all prorations and adjustments;

		3.3.14
	A duly executed Non-Competition and Non-Solicitation Agreement;

3.3.15The Contributor shall cause to have delivered any UCC searches in form and content satisfactory to the Operating Partnership, however the Operating Partnership shall first look to the Title Company for any recorded UCC filings;
3.3.16The Contributor shall deliver evidence that any existing Leases shall be terminated as of the Closing Date; and
3.3.17The Contributor shall deliver an Assignment of Warranties, in the form as attached hereto and incorporated herein as Exhibit C.
3.4Closing Costs.  Subject to Section 2.14, the Operating Partnership shall be responsible for (i) reassessments, (ii) escrow charges, (iii) the cost of any endorsements to the Owner’s Title Policy which the Operating Partnership shall require, (iv) all costs associated with any new Property Reports obtained by the Operating Partnership and (v) all costs relating to the issuance of the Franchise Agreement. In addition, Operating Partnership shall be responsible for (i) the cost of the Owner’s Title Policy (with extended coverage) obtained by the Operating Partnership, (ii) one-half of any documentary or other transfer taxes, (iii) any recording taxes or fees, (iv) all costs associated with an updated title commitment/search, The Contributor shall be responsible for (i) any fees related to the Operating Partnership’s assumption of the Existing Loan, if any, (i) the cost of scheduling, ordering and providing the Operating Partnership an approved change of ownership PIP, and (ii) any withholding taxes required to be paid and/or withheld in respect of the Contributor at Closing as a result of the Contributor’s tax status. Each party will pay its own attorneys’ fees for this transaction.
	4.
	Representations and Warranties and Indemnities.

4.1Representations and Warranties of the Operating Partnership. The Operating Partnership hereby represents and warrants to the Contributor that:
4.1.1Organization; Authority. The Operating Partnership has been duly formed and is validly existing under the laws of the jurisdiction of its formation and is and at the Closing shall be treated as a “partnership” for federal income tax purposes, and has all requisite power and authority to enter this Agreement, each agreement
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contemplated hereby and to carry out the transactions contemplated hereby and thereby, and own, lease or operate its property and to carry on its business as described in the Memorandum and, to the extent required under applicable law, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary.
4.1.2Due Authorization. The execution, delivery and performance of this Agreement by the Operating Partnership has been duly and validly authorized by all necessary action of the Operating Partnership. This Agreement and each agreement, document and instrument executed and delivered by or on behalf of the Operating Partnership pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the Operating Partnership, each enforceable against the Operating Partnership in accordance with its terms, as such enforceability may be limited by bankruptcy or the application of equitable principles.
4.1.3Consents and Approvals. No consent, waiver, approval, authorization, or order of or qualification with any third party or any governmental body, agency or authority is required for the performance by the Operating Partnership of its obligations under this Agreement and all other agreements contemplated hereby or in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby.
4.1.4Partnership Matters. The Series T Limited Units which will be part of the Total Consideration, when issued and delivered in accordance with the terms of this Agreement for the consideration described herein, will be duly and validly issued, and free of any Liens other than any Liens arising through the Contributor.
4.1.5No Violation; Non-Contravention. None of the execution, delivery or performance of this Agreement, any agreement contemplated hereby and the consummation of the contribution transaction contemplated hereby and thereby will (a) result in a default (or an event that, with notice or lapse of time or both would become a default) or give to any third party any right of termination, cancellation, amendment or acceleration under, or result in any loss of any material benefit, pursuant to any material agreement, document or instrument to which the Operating Partnership or any of its properties or assets may be bound, or (b) contravene, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, cancellation or amendment of (i) the organizational documents, including the charters and bylaws, if any, of Operating Partnership, (ii) any agreement, document or instrument to which Operating Partnership is a party or by which Operating Partnership is bound of (iii) any applicable law, or term or provision of any judgment, order, writ, injunction, or decree of any governmental or regulatory authority, which is binding on Operating Partnership or by which Operating Partnership; (c) result in the creation of any lien upon the Property or any other assets of Operating Partnership; or (d) contravene any provision of applicable law, the certificate of limited partnership of the Operating Partnership, the OP Partnership Agreement or other constitute document of the Operating Partnership, or any agreement or other instrument binding upon the Operating Partnership or any applicable law, judgment, order or decree of any governmental body, agency or court having jurisdiction over the Operating Partnership.
4.1.6Tax Status of the Operating Partnership; Taxes. The Operating Partnership has at all times during its existence been properly treated as a partnership for federal income tax purposes and not as an association or publicly traded partnership taxable as a corporation for such purposes. Each subsidiary of the Operating Partnership has at all times during its existence been properly treated as either a “disregarded entity” or a partnership for federal income tax purposes and not as an association or publicly traded partnership taxable as a corporation for such purposes.
(a)The Operating Partnership has duly and timely filed (or caused to be filed on its behalf) with the appropriate governmental entity all U.S. federal and all other material Tax Returns required to be filed by it, taking into account any extensions of time within which to file such Tax Returns, and all such tax returns were and are true, correct and complete and duly and timely paid in full (or there has been duly and timely paid in full on its behalf), or made adequate provision for, all material amounts of Taxes required to be paid by it.
(b)(i) There are no audits, investigations or proceedings pending (or threatened in writing) for and/or in respect of any material Taxes or material Tax Returns of the Operating Partnership and the Operating Partnership is not a party to any litigation or administrative proceeding relating to Taxes; (ii) no deficiency for Taxes of the Operating Partnership has been claimed, proposed or assessed in writing or, to the knowledge of the Operating Partnership, threatened in writing, by any governmental entity, which deficiency has not yet been settled, except for such deficiencies which are being contested in good faith; (iii) the Operating Partnership has not extended
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or waived (nor granted any extension or waiver of) the limitation period for the assessment or collection of any Tax that has not since expired; and (iv) the Operating Partnership has not entered into any “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law).
(c)The Operating Partnership has complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 1445, 1446 and 3402 of the Code or similar provisions under any state and foreign Laws) and have duly and timely withheld and, in each case, have paid over to the appropriate governmental entities any and all material amounts required to be so withheld and paid over on or prior to the due date thereof under all applicable laws.
(d)There are no material Tax liens upon any property or assets of the Operating Partnership except liens for Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP.
(e)There are no Tax Protection Agreements (as hereinafter defined) in force as of the date of this Agreement, and, as of the date of this Agreement, no person has raised in writing a material claim against the Operating Partnership or any of its affiliates for any breach of any Tax Protection Agreement. As used herein, “Tax Protection Agreement” means any written agreement to which the Operating Partnership or any of its affiliates is a party pursuant to which: (i) any liability to holders of limited partnership interests in the Operating Partnership relating to Taxes may arise, whether or not as a result of the consummation of the transactions contemplated hereunder; and/or (ii) in connection with the deferral of income Taxes of a holder of limited partnership interests in the Operating Partnership or any of its affiliates have agreed to (A) maintain a minimum level of debt, continue a particular debt or provide rights to guarantee debt, (B) retain or not dispose of assets for a period of time that has not since expired, (C) make or refrain from making Tax elections, and/or (D) only dispose of assets in a particular manner.
4.1.7Disclosure. Neither this Agreement (including all the exhibits and schedules hereto) nor any other statements or certificates made or delivered in connection with the offering or issuance of the Series T Limited Units pursuant hereto contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances under which they were made.
4.1.8No Outside Reliance. Notwithstanding anything contained in this Agreement or the Closing Documents to the contrary, Operating Partnership acknowledges and agrees that the Contributor has not made, and is not making, any representation or warranty whatsoever, express or implied, beyond those expressly given in this Agreement, including any implied warranty or representation as to condition, merchantability, suitability or fitness for a particular purpose or trade as to any of the Contributed Assets. Except as otherwise expressly set forth in this Agreement, the Operating Partnership understands and agrees that any and all Contributed Assets are furnished “as is”, “where is” and, subject only to the representations and warranties contained in this Agreement or any Closing Document, with all faults and without any other representation or warranty of any nature whatsoever.
4.1.9No Brokers. Neither the Operating Partnership nor any of its officers, directors or employees, to the extent applicable, has employed or made any agreement with any broker, finder or similar agent or any person or firm which will result in the obligation of the Contributor or any of its affiliates to pay any finder’s fee, brokerage fees or commissions or similar payment in connection with the transactions contemplated by the Agreement. The Operating Partnership shall indemnify, defend and hold the Contributor harmless from and against any other broker’s commission or finder’s fee and other claims asserted by any person claiming a broker’s commission or finder’s fee concerning this Agreement or the purchase and sale of the Property. The terms and conditions of this Section shall survive Closing.
4.1.10Insurance. The Operating Partnership agrees that prior to entering the Property to conduct any inspection, the Operating Partnership, its engineers, architects, employees, contractors, consultants, representatives and agents (collectively, the “Operating Partnership Parties”) shall obtain, maintain and deliver evidence satisfactory to Contributor thereof, at no cost or expense to Contributor which insurance shall provide coverage against any claim for personal injury or property damage caused by Operating Partnership or any Operating Partnership Parties. The Operating Partnership and its primary inspection company (i.e. Partner Engineering) shall maintain commercially reasonable amounts of insurance and, upon the request of contributor evidence such amounts with a certificate of insurance.
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4.2Representations and Warranties of the Contributor. The Contributor represents and warrants to the Operating Partnership, which representations and warranties are true and correct as of the Effective Date and will be true and correct as of the date of Closing, except as to information discovered or disclosed during the Due Diligence Period, provided that the Contributor’s Breakage Fee (as defined in Section 7.3) shall apply should the Contributor disclose an item that causes the Operating Partnership to terminate this Agreement and the Contributor, at the reasonable discretion of the Operating Partnership, should have disclosed at the Effective Date:
4.2.1Organization; Authority; Qualification. The Contributor is duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation. The Contributor has all requisite power and authority to enter into this Agreement, each agreement contemplated hereby and to carry out the transactions contemplated hereby and thereby, and to own, lease or operate its property and to carry on its business as presently conducted and, to the extent required under applicable law, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary.
4.2.2Due Authorization. The execution, delivery and performance of the Agreement by the Contributor has been duly and validly authorized by all necessary action of the Contributor. The Agreement and each agreement, document and instrument executed and delivered by or on behalf of the Contributor pursuant to the Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the Contributor, each enforceable against the Contributor in accordance with its terms, as such enforceability may be limited by bankruptcy or the application of equitable principles.
4.2.3Consents and Approvals. Except as shall have been satisfied prior to the Closing Date, no consent, waiver, approval or authorization of any third party or governmental authority or agency is required to be obtained by the Contributor in connection with the execution, delivery and performance of the Agreement and the transactions contemplated hereby, except for those consents, waivers, approvals or authorizations, the failure of which to obtain would not have a material adverse effect on the assets, business, financial condition and results of operation of the Property, taken as a whole (a “Material Adverse Effect”).
4.2.4Full Disclosure. This Agreement and any other information furnished to the Operating Partnership in connection with the transactions contemplated by this Agreement neither contains any untrue statement of material fact nor omits to state any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.
		4.2.5
	Ownership of the Property; Contributed Assets.

(a)The Contributor is the sole owner of the Property, beneficially and of record, free and clear of any Liens of any nature (other than the Permitted Liens) and has full power and authority to convey the Property, free and clear of any Liens (other than the Permitted Liens), and, upon delivery of consideration for the Property as herein provided, the Operating Partnership will acquire good and marketable title thereto, free and clear of any Liens (other than the Permitted Liens and any liens arising through the Operating Partnership).
(b)The Contributor is the sole owner of the Contributed Assets, beneficially and of record, free and clear of any Liens of any nature (other than Permitted Liens) and has full power and authority to convey the Contributed Assets, free and clear of any Liens (other than the Permitted Liens), and, upon delivery of consideration for such Contributed Assets as provided herein, the Operating Partnership will acquire good and marketable title thereto, free and clear of any Liens (other than Permitted Liens and any liens arising through the Operating Partnership). The Property, Contributed Assets and Assumed Agreements constitute all assets, rights, interests, and property interests owned or held by the Contributor related to the Property.
(c)The Contributor has not been served with any notice of intent to claim a mechanic’s Lien on the Property and states that all parties who have furnished labor or materials on or at the Property within the last 90 days whether for repair, improvement, or otherwise have been fully compensated. Further, the Contributor has not contracted for nor is liable for obligations related to repairs, services, and other items that will not be paid in full at Closing, however, the Contributor will provide the Title Company with such documents requested by Title Company for the issuance of without the standard exception for liens.
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4.2.6No Violation. To Contributor’s Knowledge, none of the execution, delivery or performance of the Agreement, any agreement contemplated thereby and the transactions contemplated hereby and thereby does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, acceleration, cancellation or other right adverse to the Contributor or the Operating Partnership of (a) the organizational documents, including the operating agreement, if any, of the Contributor, (b) any agreement, document or instrument to which the Contributor is a party or by which the Contributor, Property, or the Contributed Assets are bound or (c) any term or provision of any judgment, order, writ, injunction, or decree, or require any approval, consent or waiver of, or make any filing with, any person or governmental or regulatory authority or foreign, federal, state, local or other law binding on the Contributor or by which the Contributor, or any of its assets or properties (including the Contributed Assets) are bound or subject; provided in the case of (b) and (c) above, unless any such violation, conflict, breach or default would not have a Material Adverse Effect.
4.2.7Non-Foreign Status. The Contributor is a United States person (as defined in Section 7701(a)(30) of the Code) and is not a “foreign person” (within the meaning of Section 1445 of the Code), and is, therefore, not subject to the provisions of the Code relating to the withholding of sales proceeds to foreign persons, and is not subject to any state withholding requirements. The Contributor will provide affidavits at the Closing to this effect as provided for in this Section 4.2.7.
4.2.8Withholding. The Contributor shall execute at Closing such certificates or affidavits reasonably necessary to document the inapplicability of any United States federal or state withholding provisions, including without limitation those referred to in Section 4.2.7. If the Contributor fails to provide such certificates or affidavits, the Operating Partnership may withhold a portion of any payments otherwise to be made to the Contributor as required by the Code or applicable state law.
4.2.9Investment Purposes. The Contributor acknowledges its understanding that the offering and issuance of the Series T Limited Units to be acquired pursuant to the Agreement are intended to be exempt from registration under the Securities Act of 1933, as amended and the rules and regulations in effect thereunder (the “Act”) and that the Operating Partnership’s reliance on such exemption is predicated in part on the accuracy and completeness of the representations and warranties of the Contributor contained herein. In furtherance thereof, the Contributor represents and warrants to the Operating Partnership as follows:
(a)Investment. The Contributor is acquiring the Series T Limited Units solely for its own account for the purpose of investment and not as a nominee or agent for any other person and not with a view to, or for offer or sale in connection with, any distribution of any thereof. The Contributor agrees and acknowledges that it will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, “Transfer”) any of the Series T Limited Units, except as set forth in the OP Agreement, unless (i) the Transfer is pursuant to an effective registration statement under the Act and qualification or other compliance under applicable blue sky or state securities laws, or (ii) counsel for the Contributor (which counsel shall be reasonably acceptable to the Operating Partnership) shall have furnished the Operating Partnership with an opinion, reasonably satisfactory in form and substance to the Operating Partnership, to the effect that no such registration is required because of the availability of an exemption from registration under the Act and qualification or other compliance under applicable blue sky or state securities laws, and (iii) the Transfer is permitted pursuant to the OP Agreement. The term “Transfer” shall not include any redemption of the Series T Limited Units or exchange of the Series T Limited Units for REIT Shares pursuant to Section 9.4 of the OP Agreement. Notwithstanding the foregoing, no Transfer shall be made unless it is permitted under the OP Agreement.
(b)Knowledge. The Contributor is knowledgeable, sophisticated and experienced in business and financial matters and fully understands the limitations on transfer imposed by the Federal securities laws and as described in the Agreement. The Contributor is able to bear the economic risk of holding the Series T Limited Units for an indefinite period and is able to afford the complete loss of its investment in the Series T Limited Units; the Contributor has received and reviewed all information and documents about or pertaining to the Company, the Operating Partnership, the business and prospects of the Operating Partnership and the issuance of the Series T Limited Units as the Contributor deems necessary or desirable, has had cash flow and operations data for the Property made available by the Operating Partnership upon request and has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such information and documents, the Operating Partnership, the Property, the business and prospects of the Operating Partnership and the Series T Limited
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Units which the Contributor deems necessary or desirable to evaluate the merits and risks related to its investment in the Series T Limited Units and to conduct its own independent valuation of the Property.
(c)Holding Period.  The Contributor acknowledges that it has been advised that (i) the Series T Limited Units must be held for 12 months and may have to be held indefinitely thereafter, and the Contributor must continue to bear the economic risk of the investment in the Series T Limited Units (and any Common Stock that might be exchanged therefor), unless they are subsequently registered under the Act or an exemption from such registration is available (it being understood that the Operating Partnership has no intention of so registering the Series T Limited Units) and (ii) a notation shall be made in the appropriate records of the Operating Partnership indicating that the Series T Limited Units are subject to restrictions on transfer.
(d)Accredited Investor. The Contributor is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Act). The Contributor has previously provided the Operating Partnership with a duly executed Accredited Investor Questionnaire. No event or circumstance has occurred since delivery of such questionnaire to make the statements contained therein false or misleading.
4.2.10No Brokers. Neither the Contributor nor any of the Contributor’s respective officers, directors or employees, to the extent applicable, has employed or made any agreement with any broker, finder or similar agent or any person or firm which will result in the obligation of the Operating Partnership or any of its affiliates to pay any finder’s fee, brokerage fees or commissions or similar payment in connection with the transactions contemplated by the Agreement. The Contributor shall indemnify, defend and hold the Operating Partnership harmless from and against any other broker’s commission or finder’s fee and other claims asserted by any person claiming a broker’s commission or finder’s fee concerning this Agreement or the purchase and sale of the Property. The terms and conditions of this Section 4.2.10 shall survive Closing.
4.2.11Solvency. The Contributor will be solvent immediately following the transfer of the Property and the Contributed Assets to the Operating Partnership.
4.2.12Taxes. No tax lien or other charge exists or will exist upon consummation of the transactions contemplated hereby with respect to the Property, except such tax liens for which the tax is not delinquent and has been properly reserved for payment by the Contributor. The copies of the real property tax bills for the Property for the current tax year which have been furnished or made available to the Operating Partnership are true and correct copies of all of the tax bills for such tax year actually received by the Contributor or the Contributor’s agents for the Property. For federal income tax purposes, the Contributor is, and at all times during its existence has been either (i) a partnership or limited liability company taxable as a partnership (rather than an association or a publicly traded partnership taxable as a corporation) or (ii) a disregarded entity. The Contributor has timely and properly filed all Tax Returns relating to Other Taxes required to be filed by it (including any extensions to file thereof) and has timely paid all Other Taxes required to be paid by it. None of the Tax Returns relating to Other Taxes filed by the Contributor is the subject of a pending or ongoing audit, and no federal, state, local or foreign taxing authority has asserted any tax deficiency or other assessment against the Property
4.2.13Litigation or Insolvency Proceedings. There is no Action, litigation, claim or other proceeding, either judicial or administrative (including, without limitation, any governmental action or proceeding), pending or, to the Contributor’s Knowledge, threatened or reasonably anticipated in the last 12 months, against the Property, the Contributor, or the Contributed Assets or that would reasonably be expected to adversely affect the Contributor’s ability to consummate the transactions contemplated hereby. The Contributor is not bound by any outstanding order, writ, injunction or decree of any court, Governmental Entity or arbitration against or affecting all or any portion of its Property or the Contributed Assets, which in any such case would impair the Contributor ability to enter into and perform all of its obligations under the Agreement or would have a Material Adverse Effect. The Contributor is not involved in any proceeding by or against the Contributor in any court under the Bankruptcy Code or any other insolvency or debtor’s relief act, whether state or federal, or for the appointment of a trustee, receiver, liquidator, assignee, or other similar official of the Contributor or the Contributor’s property.
4.2.14Compliance With Laws. To the Contributor’s Knowledge, the Property has been maintained or operated and on the Effective Date are, and as of the Closing Date will be, in compliance in all material respects with all applicable laws, ordinances, rules, regulations, codes, orders and statutes (including, without limitation, those currently relating to fire safety, conservation, parking, the Occupational Safety and Health Act, the
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Americans with Disabilities Act, zoning and building laws) whether federal, state or local, foreign. The Contributor presently possesses and will continue to possess at the Closing Date all governmental licenses, permits, certificates of inspection, other authorizations, filings, and registrations which are necessary for a hotel to be operated at the Property. The Contributor has not received written notice of any violation of any laws, ordinances or regulations from any governmental or regulatory authority with respect to the Property that has not been corrected.
4.2.15Eminent Domain. There is no existing or, to the Contributor’s Knowledge, proposed or threatened condemnation, eminent domain or similar proceeding, or private purchase in lieu of such a proceeding, in respect of all or any material portion of the Property.
4.2.16Licenses and Permits. To the Contributor’s Knowledge, all notices, licenses, permits, certificates (including certificates of occupancy), rights, privileges, franchises and authority required in connection with the construction, use, occupancy, management, leasing and operation of the Property has been obtained and are in full force and effect, are in good standing, except for those licenses, permits and certificates, the failure of which to obtain or maintain in good standing, would not have a Material Adverse Effect on the Property.
		4.2.17
	Real Property.

(a)Neither the Contributor nor any other party to any material agreement affecting the Property, has given to the Contributor or, to the Contributor’s Knowledge, received any notice of any uncured default with respect to any material agreement affecting the Property which would have a material adverse effect on the Property, and, no event has occurred or, to the Contributor’s Knowledge, is threatened, which through the passage of time or the giving of notice, or both, would constitute a default thereunder which would have a material adverse effect on the Property or would cause the acceleration of any material obligation of any party thereto or the creation of a Lien upon any Property, except for Permitted Liens. To the Contributor’s Knowledge, such agreements are valid and binding and in full force and effect, have not been amended, modified or supplemented since such time as such agreements were made available to the Operating Partnership, except for such amendments, modifications and supplements delivered or made available to the Operating Partnership.
(b)To the Contributor’s Knowledge, the Contributor owns fee title to the Property as described in the Preliminary Title Report and has insurable fee simple title to the Property.
4.2.18Environmental Compliance. To the Contributor’s Knowledge, the Property is currently in compliance with all Environmental Laws and Environmental Permits. The Contributor has not received any notice from the United States Environmental Protection Agency or any other federal, state, county or municipal entity or agency that regulates Hazardous Materials or public health risks or other environmental matters or any other private party or Person claiming any violation of, or requiring compliance with, any Environmental Laws or Environmental Permits or demanding payment or contribution for any Release or other environmental damage in, on, under, or upon the Property. The Contributor has not received any notice of any investigation or litigation with respect to Hazardous Materials located in, on, under or upon the Property is pending or, to the Contributor’s Knowledge, has been threatened in the last 12 months by any Governmental Entity or any third party. To the Contributor’s Knowledge, no environmental conditions exist at, on, under, upon or affecting the Property or any portion thereof that would reasonably be likely to result in any material claim, liability or obligation under any Environmental Laws or Environmental Permit or any material claim by any third party.
		4.2.19
	Trademarks and Tradenames; Proprietary Rights.

(a)There are no actions or other judicial or administrative proceedings against the Contributor, or the Property pending or, to the Contributor’s Knowledge, threatened or reasonably anticipated in the last 12 months, that concern any copyrights, copyright application, trademarks, trademark registrations, trade names, service marks, service mark registrations, trade names and trade name registrations or any trade secrets being transferred to the Operating Partnership hereunder (the “Proprietary Rights”) and that, if adversely determined, would have a Material Adverse Effect. There are no patents or patent applications relating to the operations of the Property as conducted prior to the Closing.
(b)To the Contributor’s Knowledge, the current use of the Proprietary Rights does not conflict with, infringe upon or violate any copyright, trade secret, trademark or registration of any other person.
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(c)The Contributor agrees that from and after the Closing Date, the Operating Partnership shall have all of the Contributor’s right to use in or in connection with the conduct of any business (i) Hilton Garden Inn Charlotte North (the “Name”) or (ii) any part or portion of the Name, either alone or in combination with one or more other words. After the Closing Date, the Contributor agrees that it will not use the Name directly or indirectly, either alone or in combination with one or more other words, in or in connection with any business, activities, or operations that the Contributor directly or indirectly may carry on or conduct.
		4.2.20
	Condition of Property.

(a)To the Contributor’s Knowledge, there is no material defect in the structural condition of the Property, the roof thereon, the improvements thereon, the structural elements thereof and the mechanical systems thereon (including, without limitation, all HVAC, plumbing, electrical, elevator, security, utility, sprinkler and safety systems), nor any material damage from casualty or other cause, nor any soil condition of the Property that will not support all of the improvements thereon without the need for unusual or new subsurface excavations, fill, footings, caissons or other installations, except for any such defect, damage or condition that has been corrected or will be corrected in the ordinary course of the business of the Property as disclosed as part of its scheduled annual maintenance and improvement program. There are no outstanding citations issued by any health, building, or other governmental agency, under the Occupational Safety and Health Act and/or under the Americans with Disabilities Act having jurisdiction over the operation of the Fixtures and Personal Property. To the Contributor’s Knowledge, there have been no alterations to the exteriors of any of the buildings or other improvements on the Property that would render any surveys or plans provided to the Operating Partnership materially inaccurate or otherwise reflect a material deficiency in title to such improvements.
(b)To the Contributor’s Knowledge, the Fixtures and Personal Property is presently operating and has been regularly maintained and will be in the same working condition in all material respects as of the Closing Date and there are no known defects that have not been disclosed to the Operating Partnership.
4.2.21Leases. As used herein, the term “Leases” shall include all leases, licenses, tenancies, possession agreements and occupancy agreements related to the Property, and all references to “tenants” and “Tenants” hereunder shall include all tenants, licensees or parties in possession under any such documents. Schedule 2.2 contains a complete and accurate list of all Leases. The Contributor owns fee title to the Property and holds the lessor’s interest under such Leases; a true and complete copy of all such Leases have been made available to the Operating Partnership; the Contributor, as lessor under such Leases, has not received any notice that it is in default of any of its obligations under such Leases beyond any applicable grace period which has not been cured. To the Contributor’s Knowledge, all material obligations of the lessor under the Leases that have accrued to the Effective Date have been performed or satisfied. To the Contributor’s Knowledge, no tenants under any of the Leases is presently the subject of any voluntary or involuntary bankruptcy or insolvency proceedings. The Contributor shall terminate all Leases prior to the Closing.
4.2.22Tangible Personal Property. The Contributor owns or leases all of the tangible personal property constituting Fixtures and Personal Property which is used in and necessary to the operation of the Property. To the Contributor’s Knowledge, such Fixtures and Personal Property are free and clear of all Liens, other than Liens pursuant to the agreements pursuant to which such Fixtures and Personal Property are leased and Permitted Liens.
4.2.23Service Contracts. Except for those contracts disclosed in Schedule 4.2.23, , there are no service or maintenance contracts affecting the Property which are not cancelable upon 30 days’ notice or less; true and correct copies of the service, equipment, franchise, operating, management, parking, supply, utility and maintenance agreements relating to the Property (the “Service Contracts”) have been made available to the Operating Partnership and the same are in full force and effect and have not been modified or amended except in the ordinary course of the applicable Contributor’s business. To the Contributor’s Knowledge, no material event of default exists (which remains uncured) under any of the Service Contracts. All prepaid Service Contracts being assigned have been fully paid by Contributor.
4.2.24Employees. Except as provided in Schedule 4.2.24, the Contributor has no employee benefit plans now in effect which are subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended. To Contributor’s Knowledge, no individuals are employed by any of the Property and
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transactions contemplated by the Agreement will not result in any liability with respect to labor and employment matters but agrees to cause the following:
(a)Notification and Termination of Employees. At a mutually agreed upon time after this Agreement is executed that is not more than 3 days prior to the Closing Date, the Contributor and the Operating Partnership shall jointly announce the Agreement to the Contributor’s employees, and shall cooperate so that the Contributor’s notices of termination and any offers of employment by the Operating Partnership are delivered simultaneously so that appropriate management representatives may explain the termination and any offers of employment to the employees. As of the Closing Date, the Contributor will terminate all employees and will pay to all employees all wages, salaries, commissions, bonuses, benefit plan contributions, and other compensation. The Operating Partnership may, in its discretion, re-employ some or all of such employees on the day after the Closing Date.
(b)Exclusion of Employee Benefits. The Contributor acknowledges that (i) the Operating Partnership does not assume any employee benefits of the Contributor whatsoever, unless such employee benefits are specifically assumed as Assumed Liabilities and (ii) the Operating Partnership will have no obligation to provide employee benefits other than such benefits as the Operating Partnership will agree to provide to its employees in the exercise of the Operating Partnership’s sole discretion.
(c)Collective Bargaining Agreements. There are no collective bargaining agreements currently in effect between the Contributor and labor unions or organizations representing any of the Contributor’s employees; and there does not now exist and there has been no formal or informal request to the Contributor for collective bargaining or for an employee election from any union or from the National Labor Relations Board.
(d)Employee Verification. The Contributor represents that the Property’s employees are legally able to work within the United States, and employment status has been verified through E-Verify if hired after July 1st 2013.
(e)Employment Regulations Compliance. To the Contributor’s Knowledge, (i) there are no unfair labor practice complaints against the Contributor pending before the National Labor Relations Board, and no such complaints have been threatened, (ii) there is no labor strike, dispute slowdown, or stoppage actually in progress or threatened against the Contributor, (iii) no grievance or arbitration proceedings are pending and no such claim has been asserted and (iv) the Operating Partnership shall not incur any liability or obligation of any kind arising out of the Contributor’s employment of or termination of the Contributor’s employees nor for any other claim by any of the Contributor’s employees arising out of any employment relationship with the Contributor. In the event that the WARN Act or portions thereof apply to the Agreement, the Contributor is responsible for compliance with the duties and obligations of the employer under the act.
4.2.25Existing Loans. Schedule 2.5 to the Disclosure Schedule and/or the Preliminary Title Report lists all secured loans presently encumbering the Property, and any unsecured loans to be assumed by the Operating Partnership or any subsidiary of the Operating Partnership at Closing and the respective balance of such loans as of the date the Agreement. To the Contributor’s Knowledge, the Existing Loan Documents are in full force and effect as of the Effective Date. To the Contributor’s Knowledge, no event of default or event that with the passage of time or giving of notice or both would constitute a material event of default has occurred as of the Effective Date under any of the Existing Loan Documents. True and correct copies of the existing Loan Documents have been made available to the Operating Partnership.
4.2.26Real Property Taxes; Zoning. Neither the Contributor (nor its affiliates) has received any notification of any material new or increased general or special tax assessments for the Property except as may be disclosed in the Preliminary Title Report, as of the Effective Date, or as may be disclosed in the Title Policy as of the Closing. The Property is assessed for real property tax through one tax bill and the Property is comprised of one or more independent tax lots. The Contributor has not received any written notice (which remains uncured) from any governmental authority stating that the Property is currently violating any zoning, land use or other similar rules or ordinances in any material respect.
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4.2.27Insurance. The Contributor currently has in place public liability, casualty and other insurance coverage with reputable insurance companies with respect to the Property, as the case may be, in customary amounts for projects similar to the Property in the markets in which the Property is located but in an amount of no less than full replacement cost of the improvements and general liability insurance in a per occurrence amount of no less than $1,000,000 and aggregate claims amount of no less than $2,000.000 for each policy and shall maintain such coverage in full force and effect until the Closing, and in all cases substantially in compliance with the existing financing arrangements. To the Contributor’s Knowledge, each of such policies is in full force and effect, and all premiums due and payable thereunder have been fully paid when due. No written notice of cancellation, default or non-renewal has been received or to the Contributor’s Knowledge threatened with respect thereto. There are no outstanding claims on the Contributor’s insurance policies relating to the Property or any portion thereof.
4.2.28Utilities. All public utilities, including telephone, gas, electric power, sanitary and storm sewer and water, are available for connection at the boundaries of the Property; such utilities are adequate for the current use of the Property; and the means of ingress and egress, parking, access to public streets and drainage facilities are adequate for the current use of the Property.
4.2.29Competition. Except as disclosed in Schedule 4.2.29, neither the Contributor nor any individual owner, officer, director, shareholder, or member has any direct or indirect interest in any person or entity engaged or involved in any business which is competitive with the Property. The directors, managers, officers, and other owners, will not compete directly or indirectly with Property following the Closing Date; and, the names of directors, managers, officers, and the resident agent of the Contributor, together with each individual owner, are set forth on attached Exhibit E.
4.2.30Full Disclosure. This Agreement neither contains any knowingly untrue statement of material fact nor knowingly omits to state any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.
4.2.31Brand Standards. The Contributor represents that to its Knowledge that the hotel operated at the Property is within brand standards, and that any future Property Improvement Plan (“PIP”) items that have been negotiated for delayed implementation have been disclosed to the Operating Partnership.
4.2.32OFAC. The Contributor is not, nor will the Contributor become, a person or entity with whom United States persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including, without limitation, the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action, and is not and will not engage in any dealings or transactions or be otherwise with such person or entities.
4.2.33No Representations. The Contributor acknowledges that no representation or warranty has been made by the Company or the Operating Partnership with respect to the legal and tax consequences of the transfer of the Property, the Contributed Assets, the Assumed Liabilities and the Assumed Agreements to the Operating Partnership and the receipt of Series T Limited Units and the Total Consideration, as consideration therefor. The Contributor further represents and warrants that it has not relied on the Operating Partnership or its affiliates, representatives, counsel or other advisors and its respective representatives for legal or tax advice and the Contributor acknowledges that it has not relied upon any other such representation or warranty with respect to legal and tax matters.
4.2.34Offset. To the extent the Contributor fails to comply with the terms of this Section 4.2, the Operating Partnership may be entitled to offset such obligations against the Series T Units by reducing the contribution or conversion values or the Series T Units.
	5.
	Indemnification.

5.1Survival of Representations and Warranties; Remedy for Breach. All representations and warranties contained in Section 4.1 and 4.2 (as qualified by the Disclosure Schedule) or in any Schedule or certificate delivered pursuant hereto shall survive the Closing.
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		5.2
	General Indemnification.

5.2.1The Contributor shall, jointly and severally, indemnify and hold harmless the Operating Partnership and its respective directors, officers, employees, agents, representatives and affiliates (other than the Contributor) (each of which is an “Indemnified Party”) from and against any and all claims, losses, damages, liabilities and expenses, including, without limitation, amounts paid in settlement, reasonable attorneys’ fees, costs of investigation, costs of investigative, judicial or administrative proceedings or appeals therefrom, and costs of attachment or similar bonds (collectively, “Losses”), asserted against, imposed upon or incurred by the Indemnified Party in connection with or as a result of any breach of a representation, warranty or covenant of the Contributor contained in this Agreement for a period of eighteen (18) months from and after the Closing Date, except caused by the negligence or willful misconduct of Operating Partnership.
5.2.2With respect to any claim of an Indemnified Party pursuant to this Section 5.2, to the extent available, the Operating Partnership agrees to use diligent good faith efforts to pursue and collect any and all available proceeds under any insurance policy which covers the matter which is the subject of the indemnification prior to seeking indemnification from the Contributor until all proceeds, if any, to which the Operating Partnership or the Indemnified Party is entitled pursuant to such insurance policy have been exhausted; provided, however, that the Operating Partnership may make a claim under this Section 5.2 even if an insurance coverage dispute is pending, in which case, if the Indemnified Party later receives insurance proceeds with respect to any Losses paid by the Contributor for the benefit of any Indemnified Party, then the Indemnified Party shall reimburse the Contributor in an amount equivalent to such proceeds in excess of any deductible amount pursuant to Section 5.4 up to the amount actually paid by the Contributor to the Indemnified Party in connection with such indemnification (it being understood that all costs and expenses incurred by the Contributor with respect to insurance coverage disputes shall constitute Losses paid by the Contributor for purposes of this Section 5.2.3).
5.3Notice and Defense of Claims. As soon as reasonably practicable after receipt by the Indemnified Party of notice of any liability or claim incurred by or asserted against the Indemnified Party that is subject to indemnification under this Section 5, the Indemnified Party shall give notice thereof to the Contributor, including liabilities or claims to be applied against the indemnification deductible established pursuant to Section 5.4; provided that failure to give notice to the Contributor will not relieve it from any liability which it may have to any Indemnified Party, unless it did not learn of such claim and such failure results in the forfeiture by the Contributor of substantial rights and defenses. The Indemnified Party may at its option demand indemnity under this Section 5 as soon as a claim has been threatened by a third party, regardless of whether an actual Loss has been suffered, so long as the Indemnified Party shall in good faith determine that such claim is not frivolous and that the Indemnified Party may be liable for, or otherwise incur, a Loss as a result thereof and shall give notice of such determination to the Contributor. The Indemnified Party shall permit the Contributor, at the Contributor’s option and expense, to assume the defense of any such claim by counsel selected by the Contributor and reasonably satisfactory to the Indemnified Party, and to settle or otherwise dispose of the same; provided, however, that the Indemnified Party may at all times participate in such defense at its expense; and provided further, however, that the Contributor shall not, in defense of any such claim, except with the prior written consent of the Indemnified Party in its sole and absolute discretion, consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff in question to all Indemnified Parties a release of all liabilities in respect of such claims, or that does not result only in the payment of money damages which are paid in full by the Contributor. If the Contributor shall fail to undertake such defense within 30 days after such notice, or within such shorter time as may be reasonable under the circumstances or as required by applicable law, then the Indemnified Party shall have the right to undertake the defense, compromise or settlement of such liability or claim on behalf of and for the account of the Contributor at the Contributor’s sole cost and expense.
5.4Limitations on Indemnification Under Section 5.2.1. The Contributor shall not be liable under Section 5.2.1 unless and until the total amount recoverable by the Indemnified Parties from the Contributor under Section 5.2.1 exceeds $10,000, in the aggregate (the “Basket”); provided, however, that claims for Losses exceeding the Basket shall be recoverable from the first dollar of Losses. Notwithstanding anything herein to the contrary, any Losses arising out of a breach of representations or warranties contained in Sections 4.2.1, 4.2.2, 4.2.7, 4.2.8 and 4.2.10 shall not be subject to the Basket and shall be recoverable from the first dollar of Losses.
5.5Indemnification. From and after the Closing Date, the Operating Partnership shall indemnify and hold harmless the Contributor and the Contributor’s directors, officers, managers, members, employees, agents and
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representatives, as well as its affiliates (each of which is an “Indemnified Contributor Party”) from and against any Losses asserted against, imposed upon or incurred by the Indemnified Contributor Party in connection with or as a result of (i) all fees, costs and expenses of the Operating Partnership in connection with the transactions contemplated by this Agreement, (ii) the failure of the Operating Partnership after the Closing Date to perform any obligation required to be performed pursuant to any contract or obligation assigned to and assumed by the Operating Partnership (including the Assumed Agreements), and (iii) the Assumed Liabilities. The Contributor shall indemnify and hold harmless the Operating Partnership and the Operating Partnership’s directors, officers, managers, members, employees, agents and representatives, as well as its affiliates (each of which is an “Indemnified OP Party”) from and against Losses asserted against, imposed upon or incurred by the Indemnified OP Party in connection with or as a result of: (i) any breach of a representation, warranty or covenant of the Contributor contained in this Agreement and (ii)all fees, costs and expenses of the Contributor in connection with the transactions contemplated by this Agreement.
5.6Matters Excluded from Indemnification. Notwithstanding anything in this Agreement to the contrary, the Operating Partnership shall have no obligation under this Agreement to indemnify or hold harmless the Contributor from any Losses arising as a direct result of the Contributor’s breach of this Agreement or the Contributor’s negligence.
5.7Offset. To the extent the Contributor fails to comply with the terms of this Section 5, the Operating Partnership may be entitled to offset such obligations against the Series T Units by reducing the contribution or conversion values or the Series T Units, provided that prior to any offset the Operating Partnership provides the Contributor notice of such defect, and a commercially reasonably opportunity to cure (not to exceed the then agreed to closing date).
	6.
	Covenants.

		6.1
	Covenants of the Contributor.

6.1.1From the Effective Date through the Closing, the Contributor shall not, without the prior written consent of the Operating Partnership:
(a)Sell, transfer (or agree to sell or transfer), assign or otherwise dispose of, or cause the sale, transfer, assignment or disposition of (or agree to do any of the foregoing) all or any portion of its interest in the Contributed Assets or Assumed Agreements or all or any portion of its interest in the Property; or
(b)Except as otherwise disclosed in the Disclosure Schedule, mortgage, pledge or encumber all or any portion of its Property or Contributed Assets.
6.1.2From the Effective Date through the Closing, the Contributor shall conduct its business with respect to the Property in the ordinary course of business consistent with past practices, and shall to the extent within its control, not, without the prior written consent of the Operating Partnership:
(a)Enter into any material transaction not in the ordinary course of business with respect to any Property;
(b)Except as otherwise disclosed in the Disclosure Schedule, mortgage, pledge or encumber (other than by Permitted Liens) the Property or any assets related to the Property or the Contributed Assets, except (i) liens for taxes not delinquent or being disputed by the Contributor in good faith and by appropriate proceeding in the ordinary course of the Contributor’s business, and (ii) mechanics’ liens being disputed by the Contributor in good faith and by appropriate proceeding in the ordinary course of the Contributor’s business;
(c)Cause or permit a change to the existing use of the Property other than as a result of entering into new Leases in compliance with this Agreement;
(d)Cause or take any action that would render any of the representations or warranties regarding the Property as set forth in this Agreement untrue in any material respect (other than as a result of entering into new Leases in compliance with this Agreement); or
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(e)Enter into any new Leases related to the Property. The Operating Partnership shall approve or disapprove in writing any such action by the Contributor within 5 business days after receiving a written request (providing all information reasonably relevant to the Operating Partnership’s consideration) for such approval from the Contributor, which approval shall be in the Operating Partnership’s sole and absolute discretion.
6.1.3From the Effective Date, the Contributor agrees to provide the Operating Partnership with such tax information relating to the Property as reasonably requested by the Operating Partnership and to cooperate with the Operating Partnership with respect to its filing of tax returns;
6.1.4From the Effective Date, the Contributor shall promptly provide notice to the Operating Partnership upon any discovery that may lead to the Contributor’s representations and warranties contained in this Agreement being incomplete, inaccurate or in any manner not completely true and correct as of the Closing Date, including without limitation, any matter which if uncured prior to the Closing Date would have such effect, even if the Contributor intends to cure, correct or remedy such matter prior to the Closing and is implementing such cure, correction or remedy. If the disclosed item(s) represents a breach by the Contributor and the Operating Partnership determines in good faith that the disclosed item(s) contained in any such notice represents an impairment in the value of the Property in excess of the Maximum Total Consideration Adjustment, then the Operating Partnership may elect, in its sole discretion, to terminate this Agreement and, if such election is made, shall receive a full return of the Earnest Money. In the alternative, in the event that such impairment in value is below the Maximum Total Consideration Adjustment or the Operating Partnership otherwise elects to proceed with the acquisition of the Property, then the Operating Partnership may deduct from the Contributor’s Total Consideration an amount representing the reduction in value to the Property that the Operating Partnership reasonably determines has resulted or is likely to result from such disclosed item(s).
6.1.5If the liquor license has not been transferred to the Operating Partnership effective as of the Closing Date, and to the extent allowable under the State of North Carolina, parties will execute a mutually agreeable temporary liquor management agreement to oversee and control the food and beverage operations of the Property. The Contributor and the Operating Partnership will cooperate with information as reasonably required to facilitate the transfer of the existing liquor permit. The Contributor shall reasonably cooperate with the Operating Partnership in connection with the transfer of the liquor license to the Operating Partnership or its designee on or after the Closing Date. The Operating Partnership shall pay all application fees in connection with the transfer of the liquor license.
6.1.6From the Effective Date, the Contributor agrees to provide the Operating Partnership with all information relating to the franchise at the Property as reasonably requested by the Operating Partnership and to cooperate with the Operating Partnership with respect to entering into or assuming the Franchise Agreement.
6.1.7Neither the Contributor nor any owner, subsidiary or affiliate of the Contributor shall establish, engage in, or become interested in, directly or indirectly, as an owner, partner, agent, shareholder, employee, independent contractor, consultant, or otherwise, within a radius of 25 miles from the Property in the operation of a hotel for a period 36 months. At the Closing, the Contributor shall execute the Non-Competition and Non-Solicitation Agreement set forth as Exhibit E (the “Non-Competition Agreement and Non-Solicitation Agreement”).
6.1.8The Contributor shall enter into the Confidentiality and Non-Disclosure Agreement (the “NDA”), set forth as Exhibit F, with the Operating Partnership.
		6.2
	Prorations.

6.2.1Prorations. All income and expenses of the Property shall be apportioned as of 12:01 a.m. EST on the Closing Date, with the Operating Partnership being deemed to be the owner of the Property during the entire day on which the Closing Date occurs and being entitled to receive all revenue of the Property, and being obligated to pay all expenses of the Property, with respect to such day. If the Prorated items result in a credit to Contributor, it shall be in addition to the Total Consideration.
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		(a)
	Such prorated items shall include the following:

(i)any other income with respect to the Property received by the Closing Date, if any, and for the current month not yet delinquent. Such proration shall be based on an operating statement updated not less than 1 day prior to the Closing Date;
(ii)taxes and assessments (including personal property taxes on the Fixtures and Personal Property) levied against the Property;
(iii)utility charges for which the Contributor is liable, if any, such charges to be apportioned at the Closing on the basis of the most recent meter reading occurring prior to the Closing (dated not more than 15 days prior to the Closing) or, if unmetered, on the basis of a current bill for each such utility;
(iv)all amounts payable with respect to Assumed Liabilities in effect as of the Closing;
(v)credit shall be given to the Contributor for interest accounts, impound accounts, escrow accounts and other reserves included within the Existing Loans, which shall be transferred to the Operating Partnership at the Closing;
(vi)room charges for the night before the Closing Date and ending on the morning of the Closing Date shall be split between the Contributor and the Operating Partnership on a fifty/fifty (50/50) basis and
(vii)any other operating expenses or other items pertaining to the Property which are customarily prorated between a transferor and transferee of real estate in the county in which the Property is located. 
(b)Notwithstanding anything contained in this Section 6.2.1, the following shall apply:
(i)The Operating Partnership shall be entitled to a credit against the Contributor’s Total Consideration to be delivered for the total sum of all deposits with respect to the Assumed Liabilities (not including interest accounts, impound accounts, escrow accounts and other reserves included within the Existing Loans, which shall be addressed in accordance with Section 6.2.1(a)(v) above) (the “Property Deposits”) to the extent not paid over to the Operating Partnership, and the Operating Partnership shall assume at the Closing the obligation under the Assumed Liabilities with respect to all Property Deposits credited or paid over to the Operating Partnership;
(ii)Except as provided in the following sentence, all delinquent real estate taxes and assessments shall be paid by the Contributor at or before the Closing, together with any interest, penalties or other fees related to any delinquent taxes. In determining prorations relating to non-delinquent taxes, the Operating Partnership shall be credited with an amount equal to the real estate taxes and assessments applicable to the period prior to the Closing Date, to the extent such amount has not been actually paid by the Contributor. In the event that the Contributor has paid prior to the Closing any real estate taxes or assessments related to the Property applicable to the period after the Closing Date, the Contributor shall be entitled to a credit for such amount. In connection with the re-proration of real estate taxes and assessments for which a credit was given or a proration was made at the Closing, the Parties shall adjust the differences between them promptly upon receipt of the actual or estimated (if unknown) taxable amount. If, after the Closing, any additional real estate taxes or assessments applicable to the period prior to the Closing Date are levied for any reason, including back assessments or escape assessments, then the Contributor shall pay all such additional amounts, including any additional fees and interest, if any. If, after the Closing, the Contributor or the Operating Partnership receive any property tax refunds regarding any Property relating to a period prior to the Closing, then that portion of the refunds related to a period prior to the Closing that is required to be refunded to any tenant of the Property shall be delivered to or retained by, as the case may be, the Operating Partnership for the purpose of making such refund payments with the remaining portion of such refunds retained by or delivered to, as the case may be, the Contributor. The Operating Partnership shall pay all supplemental taxes resulting from the change in ownership and reassessment occurring as the result of the Closing pursuant to this Agreement;
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(iii)The Operating Partnership shall take all steps necessary to effectuate the transfer of all utilities to the name of the Operating Partnership as of Closing, where necessary, post deposits with the utility companies, and provide the Contributor with written evidence of the transfer at or prior to Closing. The Contributor shall be entitled to recover any and all deposits held by any utility company as of the Closing Date;
(iv)The net proration credit to or charge against the Contributor on account of the prorations adjustments to be made upon the Closing shall be reflected through an adjustment to the cash portion of the Contributor’s Total Consideration to be delivered pursuant to this Agreement. Any other proration adjustments made following the Closing shall be made in cash; and
(v)If any prorations hereunder cannot be calculated accurately on the Closing Date, then they shall be calculated as soon after the Closing Date as feasible. Either party owing the other party a sum of money based on such subsequent proration(s) shall promptly pay said sum to the other party, with interest per annum at the prime rate of interest as set forth in The Wall Street Journal, plus 2% from the Closing Date to the date of payment if payment is not made within 10 business days after delivery of a bill therefor. Once all revenue and expense amounts have been finally and completely ascertained, the Operating Partnership shall prepare a final proration statement which shall be subject to the Contributor’s reasonable approval. Upon the Contributor’s acceptance and approval of any final proration statement submitted by the Operating Partnership, such statement shall be conclusively deemed to be accurate and final. To the extent any reconciliation is required, the Operating Partnership shall be permitted to offset any amounts by adjusting the Series T Limited Units transferred to the Contributor.
		6.3
	Tax Matters.

(a)The Contributor and Operating Partnership shall reasonably cooperate, to the extent reasonably requested by the Contributor or the Operating Partnership, in connection with providing information relating to any Property or transactions contemplated hereunder as the parties reasonably may request in (i) filing any tax return, amended tax return or claim for tax refund, (ii) determining any liability for taxes or a right to a tax refund, (iii) conducting or defending any proceeding in respect of taxes, or (iv) performing tax diligence, including with respect to the impact of this transaction on the Company’s tax status as a REIT.
(i)The Contributor shall promptly notify the Operating Partnership in writing upon receipt by the Contributor or any of their respective affiliates of notice of any pending or threatened federal, state, local or foreign tax audits or assessments relating to the income, property or operations of the Contributor. The Operating Partnership may participate at its own expense in the prosecution of any claim or audit with respect to taxes attributable to any taxable period ending on or before the Closing Date. The Contributor shall retain all tax returns, schedules and work papers, and all material records and other documents relating thereto, until the expiration of the statute of limitations (and, to the extent notified by any party, any extensions thereof) of the taxable years to which such tax returns and other documents relate and until the final determination of any tax in respect of such years.
(b)Capital Contribution. The Contributor and the Operating Partnership (i) agree that the contribution transaction pursuant to this Agreement shall constitute a “capital contribution” to the Operating Partnership and is intended to be governed by Section 721(a) of the Code (subject to the limitations and qualifications of Subchapter K of the Code), (ii) intend that no gain or loss shall be recognized by the Contributor for income tax purposes as a result of such transaction, provided, and only if requested by the Contributor, the Contributor provides information to the Operating Partnership reasonably demonstrating that the “disguised sale” rules in Section 707 of the Code are not applicable, (iii) shall report such transaction in a manner consistent with such intent, except to the extent that a final determination within the meaning of Section 1313(a) of the Code requires otherwise and (iv) agree that the Contributor or the Operating Partnership will not take any action that could jeopardize such tax treatment.
	7.
	Termination.

7.1Termination. Provided that the Operating Partnership is not in default, this Agreement may be terminated prior to the Closing Date at the Operating Partnership’s option (and the Earnest Money immediately returned to the Operating Partnership in full) in the event of any of the following occurrences:
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7.1.1The Contributor fails to comply with any of the Contributor’s obligations hereunder, and Operating Partnership has given thirty (30) days written notice;
		7.1.2
	A default exists in any material financial obligation of the Contributor;

7.1.3Any representation made or contained in any submission from the Contributor proves to be materially untrue, substantially false or misleading at any time prior to the Closing Date;
		7.1.4
	There shall be a material action, suit or proceeding pending or threatened against the Contributor;

7.1.5The Title Company shall refuse to provide written confirmation it will issue an owner’s title insurance policy reflecting only Permitted Liens, endorsements or affirmative insurance requested by the Operating Partnership during the Due Diligence Period; and
7.1.6Notice of termination given by the Operating Partnership pursuant to any express right to do so under this Agreement.
7.2Default by the Operating Partnership. If the Operating Partnership fails to perform any of the Operating Partnership’s obligations hereunder, then the Contributor, at the Contributor’s option, if such failure continues for 15 business days after written notice of such default from the Contributor and as the Contributor’s sole and exclusive remedy, the Contributor shall have the right to terminate this Agreement by giving written notice to the Operating Partnership, in which event the Contributor shall be entitled to the full Earnest Money Deposit as liquidated damages, and neither the Operating Partnership nor the Contributor shall have any further rights or obligations under this Agreement except matters that survive termination. Notwithstanding the foregoing, this provision is not intended to limit the Operating Partnership’s obligations to indemnify the Contributor for certain matters as expressly provided in this Agreement nor is it intended to limit the Operating Partnership’s ability to terminate this Agreement as provided herein.
7.3Default by the Contributor. If the Contributor fails to perform any of the Contributor’s closing obligations, then the Contributor will have thirty (30) days to cure after receipt of written notice from the Operating Partnership; if any of the Contributor’s representations or warranties set forth herein are determined to be materially inaccurate or untrue when made and such failure continues for 15 business days after written notice thereof from the Operating Partnership (or such longer period as reasonably required by the Contributor to effect such cure, but in no event more than 30 days) or the Closing Date of earlier, then the Operating Partnership, at the Operating Partnership’s option and as the Operating Partnership’s sole and exclusive remedies, shall have the right to (i) terminate this Agreement by giving written notice to the Contributor, whereupon the Earnest Money shall be immediately delivered to the Operating Partnership by the Title Company upon receipt of written notice from the Operating Partnership of such termination and the Contributor shall reimburse the Operating Partnership for the Operating Partnership’s third party actual documented reasonable out-of-pocket expenses not to exceed $100,000 (the “Contributor’s Breakage Fee”) and thereafter, neither the Operating Partnership nor the Contributor shall have any further rights or obligations hereunder except matters which survive termination, (ii) pursue a damage claim not to exceed the Contributor Breakage Fee (plus a refund of the Earnest Money) or (iii) enforce specific performance of the obligations of the Contributor under this Agreement. Any suit for specific performance must be filed within 180 days after the Closing Date or shall thereafter be barred. Notwithstanding the foregoing, this provision is not intended to limit the Contributor’s obligations to indemnify the Operating Partnership for certain matters as expressly provided in this Agreement.
	8.
	Miscellaneous.

8.1Further Assurances. The Contributor and the Operating Partnership shall take such other actions and execute such additional documents following the Closing as the other may reasonably request in order to effect the transactions contemplated hereby.
8.2Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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8.3Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the state in which the Property is located, without regard to the choice of laws provisions thereof.
8.4Amendment; Waiver. Any amendment hereto shall be in writing and signed by all parties hereto. No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the party against whom enforcement is sought.
8.5Entire Agreement. This Agreement, the exhibits and schedules hereto constitutes the entire agreement and supersede conflicting provisions set forth in all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof, as the case may be.
8.6Assignability. This Agreement shall be binding upon, and shall be enforceable by and inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that this Agreement may not be assigned (except by operation of law) by any party without the prior written consent of the other parties, and any attempted assignment without such consent shall be void and of no effect except that the Operating Partnership may assign this Agreement to a wholly owned Affiliate, including a special purpose entity.
8.7Titles. The titles and captions of the Articles, Sections and paragraphs of this Agreement are included for convenience of reference only and shall have no effect on the construction or meaning of this Agreement.
8.8Third Party Beneficiary. Except as may be expressly provided or incorporated by reference herein, including, without limitation, the indemnification provisions hereof, no provision of this Agreement is intended, nor shall it be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any customer, affiliate, stockholder, partner, member, director, officer or employee of any party hereto or any other person or entity.
8.9Severability. If any provision of this Agreement, or the application thereof, is for any reason held to any extent to be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision and to execute any amendment, consent or agreement deemed necessary or desirable by the Operating Partnership to effect such replacement.
8.10Reliance. Each party to this Agreement acknowledges and agrees that it is not relying on tax advice or other advice from the other party to this Agreement, and that it has or will consult with its own advisors.
8.11Survival. It is the express intention and agreement of the parties hereto that the representations, warranties and covenants of the Contributor and the Operating Partnership set forth in this Agreement shall survive the consummation of the transactions contemplated hereby. The provisions of this Agreement that contemplate performance after the Closing and the obligations of the parties not fully performed at the Closing shall survive the Closing and shall not be deemed to be merged into or waived by the instruments of Closing.
8.12Days. All references to days in this Agreement will be construed as calendar days unless otherwise specified and a day will begin at 12:00 a.m. Eastern Standard Time and end at 11:59 p.m. Eastern Standard Time.
8.13Calculating Time Periods. In calculating any time period prescribed or allowed by this Agreement, the day of the act or event from which the time period begins to run is not included and the last day of the time period is included.
8.14Incorporation of Exhibits. All exhibits attached and referred to in this Agreement are hereby incorporated and will be deemed to be a part of this Agreement.
8.15Notice. Any notice to be given hereunder by any party to the other shall be given in writing by either (i) personal delivery, (ii) registered or certified mail, postage prepaid, return receipt requested, or (iii) facsimile transmission (provided such facsimile is followed by an original of such notice by mail or personal delivery as
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provided herein), and any such notice shall be deemed communicated as of the date of delivery (including delivery by overnight courier, certified mail or facsimile). Mailed notices shall be addressed as set forth below, but any party may change the address set forth below by written notice to other parties in accordance with this paragraph.
To the Contributor:
Smith/Curry Hotel Group HH Harris, LLC
Attn: Timothy Fridley, Manager
245 W Garrison Boulevard, Suite G 
Gastonia, North Carlina 28052
To the Operating Partnership:
Lodging Fund REIT III OP, LP Attn: Dave Durell
644 Lovett S.E., Suite B
Grand Rapids, Michigan 49506
With copy to:
Legendary Capital 
Attn: Linzey Erickson
1635 43rd Street S, Suite 205 
Fargo, North Dakota 58103
8.16Force Majeure. A party is not liable for failure to perform the party’s obligations if such failure is as a result of acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), pandemic, war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalization, decrees of a court, tribunal or governmental authority, government sanction, blockage, embargo, labor dispute, strike, or lockout. If a party asserts any force majeure as an excuse for failure to perform, such non-performing party must prove that it took reasonable steps to minimize delay or damages caused by foreseeable events and that the other Party was timely notified of the likelihood or actual occurrence of a force majeure event. In the event of non-performance and/or termination pursuant to this Section 8.16, notwithstanding any other provision of this Agreement, the Earnest Money shall be returned to the Operating Partnership in full.
8.17Impracticability. Neither party shall not be required to perform its obligations under this Agreement to the extent the performance (i) becomes impracticable, in any material respect, as a result of a cause or causes outside the reasonable control of the Operating Partnership or Contributor, (ii) would require the either party to violate any applicable laws, rules, or regulations, or (iii) would result in the breach of any agreement or other applicable contract existing on the Execution Date. In the event of non-performance and/or termination pursuant to this Section 8.17, notwithstanding any other provision of this Agreement, the Earnest Money shall be returned to the Operating Partnership in full.
8.18Equitable Remedies. The Contributor agrees that irreparable damage would occur to the Operating Partnership in the event that any of the provisions of this Agreement were not performed in accordance with the specific terms hereof or were otherwise breached. It is accordingly agreed that the Operating Partnership may seek an injunction or injunctions to prevent breaches of this Agreement by the Contributor and to enforce specifically the terms and provisions hereof in any federal or state court located in the state in which the Property is located (as to which the parties agree to submit to jurisdiction for the purpose of such action), this being in addition to any other remedy to which the Operating Partnership is entitled under this Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Contribution Agreement as of the date first written above.
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	OPERATING PARTNERSHIP:

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	​

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	Lodging Fund REIT III OP, LP

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	a Delaware limited partnership

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	​

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	By:
	Lodging Fund REIT III, Inc.

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	Its:
	General Partner

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	​

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	/s/ David Durell

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	By: 
	David R. Durell

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	Its: 
	Chief Investment Officer

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	​

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	CONTRIBUTOR:

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	​

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	Smith/Curry Hotel Group HH Harris, LLC

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	a North Carolina limited liability company

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	​

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	By:
	/s/ Timothy Fridley

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	Name:
	Timothy Fridley

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	Title:
	Manager

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EXHIBIT A
TO
CONTRIBUTION AGREEMENT 
LEGAL DESCRIPTION OF THE PROPERTY
Lying an being situate in Mecklenburg County, North Carolina, and being more particularly described as follows:
FEE TRACT
Being all of Lot 2 of PANO/SMITH HOTEL GROUP – MAP 1 Subdivision as the same is shown on a map thereof in Map Book 32 at Page 835 (a revision of Map Book 29 at Page 693), in the Office of the Register of Deeds of Mecklenburg County, North Carolina.
EASEMENT TRACT A
TOGETHER WITH the easement rights contained in that certain Parking Easement recorded in Book 10370 at Page 961, in the Office of the Register of Deeds of Mecklenburg County, North Carolina.
EASEMENT TRACT B
TOGETHER WITH perpetual, non-exclusive easements contained in that certain Declaration of Covenants, Conditions and Restrictions recorded in Book 10330, page 893.
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Exhibit A
1

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EXHIBIT B
TO
CONTRIBUTION AGREEMENT 
CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby assigns, transfers and conveys to Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Operating Partnership”), its entire legal and beneficial right, title and interest (other than any Excluded Assets) in, to all of the Contributed Assets and the Assumed Agreements, as listed on Schedule 2.2 of the Agreement, together with all amendments, waivers, supplements and other modifications of and to such agreements, contracts, licenses and other instruments through the date hereof, in each case to the fullest extent assignment thereof is permitted by applicable law,
TO HAVE AND TO HOLD the same unto the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership absolutely and unconditionally accepts the foregoing assignment of each Contributed Asset and Assumed Agreement and assumes all Assumed Liabilities in respect of the Assumed Agreements, and agrees to be bound by the terms, conditions and covenants thereof, and to perform all duties and obligations of the Contributor thereunder from and after the date hereof.
The Contributor for itself, its successors and assigns hereby covenants and agrees that, at any time and from time to time after the date hereof upon the written request of the Operating Partnership, the Contributor will, without further consideration, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, each and all of such further acts, deeds, assignments, transfers, conveyances and assurances as may reasonably be required by the Operating Partnership in order to assign, transfer, set over, convey, assure and confirm unto and vest in the Operating Partnership, its successors and assigns, title to the Assumed Agreements (other than the Excluded Assets) granted, transferred, conveyed and delivered by this Agreement.
Capitalized terms used herein, but not defined have the meanings ascribed to them in the Contribution Agreement, dated as of [], 2022, between the Operating Partnership and the Contributor.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered the Agreement as of the date first above written.
	​
	CONTRIBUTOR:

	​
	​

	​
	Smith/Curry Hotel Group HH Harris, LLC

	​
	a North Carolina limited liability company

	​
	​

	​
	By:
	​

	​
	Name:
	​

	​
	Title:
	​

​
​

Exhibit B
1

​

ACKNOWLEDGEMENT
​
STATE OF_____________)
) ss.: 
COUNTY OF___________)
On ____________________, before me, the undersigned, a Notary Public in and for said State, personally appeared, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and executed before me the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
​
	​
	Notary Public
	(SEAL)

​
​

Exhibit B
2

​

EXHIBIT C 
TO
CONTRIBUTION AGREEMENT 
ASSIGNMENT OF WARRANTIES
​
​

Exhibit C
1

​

EXHIBIT D 
TO
CONTRIBUTION AGREEMENT 
TOTAL CONSIDERATION
Total Consideration pursuant to Section 2.8 of the Agreement shall be $15,000,000 consisting of:
$8,850,000 via assumption of Contributor’s current financing as of the Effective Date
$5,850,000 in Series T Limited Units, equivalent to 585,000 Series T Limited Units
At Closing, Operating Partnership shall make available to the Contributor a maximum of $300,000 in cash, and any amounts not received or used by the Contributor shall be a dollar for dollar increase to the Series T Limited Units. If the Contributor needs more than $300,000 then the Series T Limited Units will be decreased, so the Total Consideration is never more than $15,000,0000.
Distributions pursuant to Section 2.11 of the Agreement shall be: 
Base Year NOI = $1,421,640
Years 1-3 Distribution Schedule
​
Payable as cash distributions 14, 26, and 34 months post-closing
​
	Distribution Amount
	Condition

	1%
	If NOI is equal or greater than 70% but less than 80% of Base Year NOI

	2%
	If NOI is equal or greater than 80% but less than 90% of Base Year NOI

	3%
	If NOI is equal or greater than 90% but less than 100% of Base Year NOI

	4%
	If NOI is equal or greater than 100% but less than 110% of Base Year NOI

	5%
	If NOI is equal or greater than 110% but less than 120% of Base Year NOI

	6%
	If NOI is equal or greater than 120% of Base Year NOI

​
Consistent with the foregoing table, the Contributor is eligible for an advance on the month 14 distributions at month eight (8), any such amounts paid shall be reconciled at month 14 and subject to the terms of the Partnership Agreement; if an early distribution is unavailable under the Partnership Agreement, then Operating Partnership shall endeavor to make a an assignment of available Net Cash Flow in lieu of a distribution.
The number of Common Limited Units in the Operating Partnership shall be determined based on the formula below, which shall constitute the Series T Value. The Series T Value shall be determined upon (i) 24, 36 or 48 months after the Closing Date or (ii) the sale of (a) the Property or (b) substantially all of the Operating Partnership’s assets.
Conversion Valuation Formula means the Applicable Cap Rate when applied to the then current trailing 12 month net operating income of the Contributed Asset, less amounts incurred or accrued by the Partnership for (i) any funds advanced as cash at closing (ii) the Original Loan Balance, (iii) loan assumption or origination fees and related expenses, (iv) if applicable, costs of prepayment or defeasance and related expenses, (v) PIP and capital expenditures, (vi) operating cash infused by the General Partner and/or Partnership, (vii) any shortfall of the 10% minimum cumulative yield on General Partner’s invested capital, and (ix) any other unrealized or unreimbursed costs of operating the Contributed Asset.
Applicable Cap Rate shall mean 9.5%
​

Exhibit D
1

​

“12 month net operating income of the Contributed Asset” shall mean: (a) the Gross Revenue of the Property, minus (b) Operating Expenses for the Property, for the current trailing twelve (12)-month period.
“Gross Revenue” shall include the following amounts recorded in accordance with generally accepted accounting principles consistently applied:
(a)The entire amount of the price charged, whether wholly or partly for cash or on credit, or otherwise, for the rental of all rooms, suites, conference rooms, restaurants, banquet facilities, and any other facilities and for all goods, wares, and merchandise sold, leased, licensed, or delivered, and all charges for services sold or performed in, at, upon, or from any part of, the Property;
(b)All gross income from parking fees and valet service fees billed to guests of or visitors to the Property or any transient use of parking facilities by anyone;
(c)Without duplication, all deposits received and not refunded to the person or entity making the deposit in connection with any transactions at such time as the Operating Partnership becomes entitled to such deposit or the expiration of one (1) year from the date of such deposit, whichever first occurs;
(d)In-room entertainment services, communication services, Internet services, in-room masseur/masseuse services, and the like, if charged to a guest of the Property.
“Operating Expenses” shall mean: all of the ordinary and normal expenses of operation of the Property, determined on an annualized accrual basis, including annualized property taxes and property assessed clean energy (“PACE”) loan payments, insurance premiums (or taxes and/or insurance impounds, if taxes and/or insurance are impounded by Lender), reserve account equal to 4 percent (4%) of Gross Revenue for furniture, fixtures and equipment reserves, franchise fees and royalties, telephone and internet expenses, administrative and general expenses, management fees, utilities, repair and maintenance, salaries and wages, and advertising and marketing expenses; provided, however, that Operating Expenses will not include:
		a.
	depreciation and amortization;

		b.
	non-cash items;

		c.
	all capital items or expenditures, including construction costs and professional fees and other expenses relating thereto and any amortization thereof;

		d.
	costs of repair or restoration after a casualty or condemnation;

		e.
	debt service payments made to lenders;

		f.
	income or franchise taxes; and

		g.
	extraordinary one-time expenses that are not reasonably expected to be incurred in future periods.

“Net Cash Flow” means the Property Net Operating Income (including any FF&E Reserves) less Principal and Interest, less any distributions provided on T-Unit Equity, less Borrower’s Fund Level Expenses attributable to Property.
“Combined Yield” defined as the sum of Borrower’s 10% annual returns plus Borrower’s share of Distributable Cash, divided by all of Borrower’s invested capital, annualized.
​

Exhibit D
2

​

EXHIBIT E
TO
CONTRIBUTION AGREEMENT
NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT
This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this “Agreement”) is dated as of _______________, 2022 (the “Effective Date”), between Lodging Fund REIT III OP, LP a Delaware limited partnership with an address of 1635 43rd Street South, Suite 205, Fargo, North Dakota 58103 (“Operating Partnership”), Smith/Curry Hotel Group HH Harris, LLC, a North Carolina limited liability company with an address of 245 W. Garrison Boulevard, Suite G, Gastonia, North Carlina 28052 (“Contributor”), and Timothy Fridley, its manager and Charles Yates, and any operating officers of the Contributor (the “Interested Parties”). The Contributor and Interested Parties are collectively referred to herein as the “Restricted Parties.”
R E C I T A L S:
A.The Operating Partnership and Contributor have entered into a Contribution Agreement, dated as of ______________, 2021, (the “Contribution Agreement”), pursuant to which the Contributor has agreed to contribute property to the Operating Partnership, such property located at 9315 Statesville Road, Charlotte, North Carolina, 28269 (the “Hotel”).
B.The agreement of the Restricted Parties to deliver this Agreement was a material inducement to Operating Partnership in entering into the Purchase Agreement.
C.The Operating Partnership, as the owner of the Hotel from and after the date of closing of the Contribution Agreement, desires to preclude the Restricted Parties from competing against it during the term of this Agreement.
A G R E E M E N T
For valuable consideration, the parties agree to the following covenants and agreements set forth in this Agreement and in the Contribution Agreement:
1.1Non-Competition. The Restricted Parties covenant and agree that, for a period of 3 years beginning on the closing date of the Purchase Agreement (the “Closing Date”), neither the Restricted Parties, nor any entity controlled by the Restricted Parties (an “Affiliate”) will, without the prior written consent of the Operating Partnership, directly or indirectly, own, manage, operate, join, control, or engage or participate in the ownership, management, operation, or control of, or be connected as a shareholder, director, officer, agent, partner, joint venturer, lender, employee, consultant or advisor with, any business or organization any part of which engages in the business of hotel or motel ownership or management or is in competition with any of the business activities of the Operating Partnership, or any affiliate of the Operating Partnership within the Non-Competition Area.
1.2Geographic Restriction. The term “Non-Competition Area” in this Agreement means the area within a 25-mile radius of the Hotel. This provision will not apply to any business which was in operation prior to the Effective Date of the Contribution Agreement, and will not restrict the Interested Parties, individually or as owners or employees of an entity from managing or consulting regarding one or more hotel(s) or motel(s) under management agreement for owner(s) or lender(s) which either or both Interested Parties: (a) do business with prior to the Effective Date, (b) are part of a multi-property management relationship with owner(s); or a lender(s); or (c) is a property in receivership or foreclosure controlled by a lender.
		1.3
	Confidential Information.

(a)On and after the Closing Date, the Restricted Parties will not use or disclose to anybody, and will cause all of their respective Affiliates to refrain from disclosing, any Confidential Information except: (a) where necessary to comply with any legal obligation, such as a court order or subpoena, provided the Restricted Parties will first promptly notify the Operating Partnership prior to any such disclosure and permit Operating Partnership to intervene to block such disclosure; (b) where necessary, to the Restricted Parties’ attorneys and accountants, provided
​

Exhibit E
1

​

that they will have first been apprised of the limitations of this Agreement and will have agreed to be comply with and be bound by such limitations; or (c) where the Restricted Parties have obtained the express, prior written consent from the Operating Partnership.
(b)The term “Confidential Information” includes but is not limited to information specific to the Hotel, including but not limited to: customer lists, contact information, needs, preferences and history of service; business operations and methods; training materials; marketing plans; customer relations information; service and operations forms; practices, procedures, policies and guidelines; sales information; supplier/vendor agreements and information; and all other information, lists, records and data relating to or dealing with the business operations or activities of the Hotel, the disclosure of which may provide valuable benefits to any other person or entity or which would embarrass or damage the Hotel, Operating Partnership or their affiliates, monetarily or otherwise. Furthermore, the term “Confidential Information” is intended to be construed broadly, including information in all forms, written or oral, on paper or stored electronically or in any other medium, and includes all originals, summaries, portions and copies of any such information. Confidential Information does not include information that: (i) was widely known in the industry at the time of disclosure to the Restricted Party, or (ii) becomes widely known or readily available other than by a breach of this Agreement.
1.4Non-Solicitation; Non-Interference. Except with the prior written approval of the Operating Partnership, for a period of 3 years after the Closing Date, neither the Restricted Parties nor their respective Affiliates will (a) employ or offer to employ any person who was principally employed at the Hotel on the Closing Date, (b) solicit, recruit, or encourage any employee or independent contractor of the Hotel or Operating Partnership to leave his or her employment, (c) hire, employ or cause to be hired, or establish a business with, any person who was employed at the Hotel, within the 12-month period preceding the Closing Date, (d) solicit any business clients of the Hotel or encourage them to terminate any contracts, and (e) interfere with or encourage any adjustments to long term negotiated rate clientele. In addition, any attempt by any Restricted Party to induce others to terminate any contracts, employment, or independent contractor relationship with Operating Partnership or the Hotel, or any effort by any Restricted Party to interfere with any of the relationships between each of the Operating Partnership and the Hotel and any of their business clients, employees, or independent contractors, would be harmful and damaging to the Operating Partnership. For purposes of this Section 1.3, an “employee” will include any person who is a common law employee or who is an independent contractor providing personal services.
1.5Non-Disparagement. The Restricted Parties will not: (a) make any disparaging or defamatory statements about Operating Partnership, the Hotel or their affiliates, or (b) authorize, encourage or participate with anyone to make such statements.
1.6Reasonableness; Independent Covenants. The Restricted Parties acknowledge that the restrictions set forth in this Agreement are reasonable and necessary to prevent the use and disclosure of the Hotel’s and the Operating Partnership’s Confidential Information, to protect the goodwill and business relationships of the Hotel, and to otherwise protect the legitimate business interests of Operating Partnership and the Hotel from and after the Closing Date. The Restricted Parties further acknowledge that all restrictions in this Agreement are reasonable in all respects, including duration, territory and scope of activity restricted.
		1.7
	Remedies.

(a)The Restricted Parties agree that if they or any of their Affiliates engage or threaten to engage in any activity that constitutes a violation of any of the provisions of this Agreement, Operating Partnership will have the right and remedy to have the provisions of this Agreement specifically enforced by law or by any court having jurisdiction.
(b)The Restricted Parties agree a breach of this Agreement would cause immediate irreparable injury to Operating Partnership and/or the Hotel and that money damages would not provide an adequate remedy at law for any breach. Further, without limiting any other legal or equitable remedies available to it, Operating Partnership will be entitled to obtain equitable relief by temporary restraining order, preliminary and permanent injunction or otherwise from any court of competent jurisdiction (without the requirement of posting a bond or other security), including, without limitation, injunctive relief to prevent the Restricted Parties’ failure to comply with the terms and conditions of Section 1 of this Agreement. Such right and remedy will be in addition to, and not in lieu of,
​

Exhibit E
2

​

any other rights and remedies available to Operating Partnership at law or in equity, including the right to seek monetary damages.
(c)The applicable 3-year period of the covenants contained in Section 1.4 above will be extended on a day for day basis for each day during which a Restricted Party is in violation of the covenant, so that each Restricted Party is restricted from engaging in the activities prohibited by the covenant for the full 3-year time period.
(d)The Restricted Parties agree that Operating Partnership will have the right to set-off any damages hereunder against any amount owed by Operating Partnership to Contributor at or after the closing of the Purchase Agreement.
(e)The Restricted Parties agree that the existence of any claim or cause of action by a Restricted Party against Operating Partnership, whether predicated on this Agreement or otherwise, will not constitute a defense to the enforcement by Operating Partnership of the covenants and restrictions in this Agreement.
1.8Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be employed in the interpretation of this Agreement or any exhibits or amendments hereto.
1.9Severability. If any provision of this Agreement will, for any reason, be adjudged by any court of competent jurisdiction to be invalid or unenforceable, such judgment will not affect, impair or invalidate the remainder of this Agreement but will be confined in its operation to the provision or provisions hereof directly involved in the controversy in which such judgment will have been rendered, and this Agreement will be construed as if such provision had never existed, unless such construction would operate as an undue hardship on Contributor or Operating Partnership or would constitute a substantial deviation from the general intent of the parties as reflected in this Agreement.
1.10Notices. All notices, requests, demands, and other communications under this Agreement will be in writing and will be sent by hand messenger, electronic facsimile transmission, electronic mail (e-mail), reputable overnight courier, or certified mail, postage prepaid, return receipt requested. Notices and other communications will be deemed to have been duly given, as applicable (i) if by hand delivery, on the date of delivery, if such date is a business day (or if such date is not a business day, then on the first business day following such date), (ii) if by electronic facsimile transmission, the date of transmission as evidenced by automated date and time confirmation from sender’s machine, (iii) if given by e-mail, the communication is instantaneous and the day of receipt can be designated to be the same day as sending and a written copy must also be sent via certified mail, (iv) if given by overnight courier, 1 business day after deposit with the overnight courier, or (v) if given by certified mail, 1 business day after deposit with the United States Post Office. Notices will be addressed as set forth below, or to any other address that the parties will designate in writing:
If to the Restricted Parties:
Smith/Curry Hotel Group HH Harris, LLC Attn: Timothy Fridley, Manager
245 W Garrison Boulevard, Suite G Gastonia, North Carlina 28052
If to Operating Partnership:
Lodging Fund REIT III OP, LP Attn: David Durell
644 Lovett SE, Suite B Grand Rapids, MI 49506
​

Exhibit E
3

​

With copy to:
Legendary Capital Attn: Linzey Erickson
1635 43rd Street S, Suite 205
Fargo, ND 58103
1.11Other Legal Obligations. Nothing in this Agreement shall be construed to limit or otherwise waive any other legal obligations of the Restricted Parties in favor of the Operating Partnership.
1.12Benefit and Binding Effect. The Restricted Parties may not assign this Agreement without the prior written consent of Operating Partnership. The Operating Partnership may assign to an entity of which the Operating Partnership or one of its affiliates is a constituent. This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.
1.13Further Assurances. The parties will execute upon request any other documents that may be necessary and helpful for the effectiveness and enforceability desirable to the implementation and consummation of this Agreement.
1.14Governing Law. This Agreement will be governed by the laws of the State of New York, without giving effect to the conflict of laws provisions thereof.
1.15Entire Agreement. This Agreement constitutes the entire agreement and understanding between the parties hereto concerning the subject matter hereof.
1.16Headings. The headings herein are included for ease of reference only and will not control or affect the meaning or construction of the provisions of this Agreement.
1.17Amendments/Waivers. This Agreement cannot be amended except by an agreement in writing that makes specific reference to this Agreement and which is signed by the party against which enforcement of any such amendment is sought. Any waiver of any provision of this Agreement must be in writing and signed by the party granting the waiver.
1.18Counterparts. This Agreement may be signed in counterparts with the same effect as if the signature on each counterpart were upon the same instrument.
[signature page follows]
​

Exhibit E
4

​

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
​
	​

	​

	​

	​

	​
	OPERATING PARTNERSHIP:

	​
	​

	​
	Lodging Fund REIT III OP, LP

	​
	a Delaware limited partnership

	​
	​

	​
	By:
	Lodging Fund REIT III, Inc.

	​
	Its:
	General Partner

	​
	​

	​
	​

	​
	​
	By: 
	​

	​
	​
	Name:
	​

	​
	​
	Title:
	​

	​
	​

	​
	​

	​
	CONTRIBUTOR:

	​
	​

	​
	Smith/Curry Hotel Group HH Harris, LLC

	​
	a North Carolina limited liability company

	​
	​

	​
	By:
	/s/ Timothy Fridley

	​
	Name:
	Timothy Fridley

	​
	Title:
	Manager

	​
	​

	​
	RESTRICTED PARTIES:

	​
	​

	​
	​

	​
	Timothy Fridley

	​
	​

	​
	​

	​
	Charles Yates

​
​

Exhibit E
5

​

EXHIBIT F
TO
CONTRIBUTION AGREEMENT 
CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT
THIS AGREEMENT is made and entered into as of March 21, 2022 by and between Lodging Fund REIT III OP, LP (individually and collectively with its subsidiaries, owners and affiliates, the “Partnership”) and Smith/Curry Hotel Group HH Harris, LLC (“Contributor”) (the Partnership and Contributor individually, a “Party” and collectively, the “Parties”).
The Parties intend to exchange Confidential Information to one another in connection with the possibility of engaging in the transaction described in the Contribution Agreement (the “Transaction”).
In consideration of the promises exchanged herein, the Parties hereto agree that the following terms and conditions shall apply when one Party discloses "Confidential Information" to the other Party:
	1.
	DEFINITION OF “CONFIDENTIAL INFORMATION”. As used in this Agreement, the term “Confidential Information” means all information relating to or used in the Partnership’s business, regardless of whether it is marked “confidential” or otherwise. Confidential Information includes, but is not limited to, all business processes and procedures, systems, methods of doing business, data, reports, specifications, formulae, proposals, strategies, business plans and analyses, financial information and projections, investment strategy, marketing, advertising, promotions, market research, plans, information about past, present or potential investors, information about past, present or potential vendors, information about existing or future technology, and proprietary software or models. Without limiting the foregoing, the term “Confidential Information” expressly includes: the Partnership’s investment strategies, including without limitation the possibility of entering into an umbrella real estate investment trust (“UPREIT”) transaction; and potential details related to the Transaction, including without limitation potential Transaction terms, provisions, and pricing. The foregoing notwithstanding, the term “Confidential Information” does not include information that

		a)
	Is or becomes known to the public through no fault of the receiving Party;

		b)
	The receiving Party already rightfully possessed before the disclosing Party disclosed it to the receiving Party;

		c)
	Is subsequently disclosed to the receiving Party by a third-party who is not under obligation of confidentiality to the disclosing Party; or

		d)
	The receiving Party develops independently without using Confidential Information.

	2.
	NON-DISCLOSURE OBLIGATIONS. Neither Party shall not disclose Confidential Information of the other Party to any of its officers, directors, employees, contractors or agents or to any third-party without the disclosing Party’s written consent, except that (a) the receiving Party may disclose such information to its officers, directors, employees, contractors, and agents whose duties justify their need to know such Confidential Information, and who have been clearly informed of their obligation to maintain the confidential status of such Confidential Information, and in the case of contractors or agents, who have signed a written document acknowledging the obligation to maintain the confidential status of Confidential Information, and shall cause them to comply fully with these obligations; and (b) the receiving Party may disclose Confidential Information to the extent required by applicable federal, state or local law, regulation, court order, or other legal process, provided such Party has given the disclosing Party prior written notice of such required disclosure and, to the extent reasonably possible, has given the disclosing Party an opportunity to contest such required disclosure at the disclosing Party’s expense.

	3.
	PROTECTION OF CONFIDENTIAL INFORMATION. The receiving Party shall use the same care to prevent the unauthorized use or disclosure of the Confidential Information as such Party uses with respect to its own confidential information of a similar nature, which shall not in any case be less than the care a

​

Exhibit F
1

​

reasonable business person would use under similar circumstances. Without limiting the foregoing, the receiving Party shall take reasonable action by instruction, agreement or otherwise with respect to such Party’s employees or other persons permitted access to Confidential Information to cause them to comply fully with the receiving Party’s obligations hereunder.
	4.
	PERMITTED USE OF CONFIDENTIAL INFORMATION. The receiving Party may not use the Confidential Information directly or indirectly for any purpose other than the purpose for which it was originally disclosed, or for any purposes which could be deemed to be adverse to or competitive with the disclosing Party’s business. Notwithstanding the foregoing and anything to the contrary in this Agreement, nothing contained herein shall impair Buyer’s right (or the right of any permitted assignee or Lodging Fund REIT III, Inc. (“Parent”)) to disclose information relating to this Agreement, the Contribution Agreement, or the Property (a) to any due diligence representatives and/or consultants that are engaged by, work for or are acting on behalf of, any securities dealers, investment advisors and/or broker-dealers evaluating Buyer, its permitted assignees or Parent, (b) in connection with any filings with governmental agencies (including the Securities and Exchange Commission) by Parent, (c) to any broker-dealers or investment advisors in Parent’s selling group and any of Parent’s investors, including pursuant to the confidential offering memorandum used in connection with Parent’s ongoing private offering, and (d) to the public as long as such information does not specifically disclose the identity of the Contributor or the Property if such disclosure occurs before the end of the Due Diligence Period.

	5.
	DESTRUCTION OF CONFIDENTIAL INFORMATION. Upon the written request of the disclosing Party, the receiving Party shall cease using and arrange for the destruction of all copies of any Confidential Information then in the receiving Party’s possession or under such Party’s control. The receiving Party agrees to dispose of the Confidential Information in such a manner that the information cannot be read or reconstructed after destruction. Upon the written request of the disclosing Party, the receiving Party shall certify in writing that it has complied with the obligations set forth in this paragraph.

	6.
	INFORMATION SECURITY. (a) The receiving Party shall take appropriate measures designed to protect the security, confidentiality, and integrity of Confidential Information; (b) the receiving Party shall restrict access to Confidential Information to those officers, directors, employees, contractors, agents or other third parties whose access the disclosing Party deems appropriate; (c) Confidential Information shall continue to be subject to the terms of this Agreement indefinitely; and (d) the disclosing Party shall have the right to review the receiving Party’s operations and procedures to ensure compliance with the foregoing requirements. The receiving Party agrees to indemnify the disclosing Party for all reasonable fees, costs, charges, and expenses resulting from any unauthorized access to Confidential Information.

	7.
	OWNERSHIP OF CONFIDENTIAL INFORMATION. The disclosing Party shall retain all right, title and interest in and to its own Confidential Information. Neither this Agreement nor any disclosure of Confidential Information shall be deemed to grant the receiving Party any license or other intellectual property right.

	8.
	DISCLAIMERS. The receiving Party acknowledges and agrees that the disclosing Party provides Confidential Information disclosed hereunder on an “AS IS” basis, without warranties of any kind, except as specified in Section 7 above. Without limiting the foregoing, the disclosing Party does not represent or warrant that Confidential Information is accurate, complete or current. The disclosure of Confidential Information containing business plans is for planning purposes only. The disclosing Party may change or cancel its plans at any time at such Party's sole discretion. The receiving Party further acknowledges and understands that disclosure of Confidential Information is not a representation that the parties will enter into any type of business relationship.

	9.
	INJUNCTIVE RELIEF. The receiving Party acknowledges that the unauthorized use or disclosure by such Party of Confidential Information would cause immediate and irreparable damage that could not be fully remedied by monetary damages. The receiving Party therefore agrees that the disclosing Party may specifically enforce this Agreement and shall be entitled to injunctive or other equitable relief to prevent unauthorized use or disclosure without the necessity of proving actual damage.

​

Exhibit F
2

​

	LO. 
	TERMlNATION. This Agreement shall remain in full force and effect until the earlier of (i) the Parties' execution of a binding agreement superseding this Agreement, or (ii) a date two year after the conclusion of business discussions between the Parties.

	11.
	SEVERABILITY. If any provision of this Agreement is held invalid, illegal or unenforceable the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

	12.
	GENERAL. This Agreement supplements the LOI, and to the extent inconsistent, supersedes any other non­ disclosure or confidentiality agreement between the Parties. The Parties may not amend this Agreement except in a writing that each party signs. The terms of such an amendment shall apply as of the effective date of the amendment, unless the amendment specifies otherwise. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns. The laws of the State of North Dakota shall govern this Agreement. No provision of this Agreement may be waived, except pursuant to a writing executed by the party against whom the waiver is sought to be enforced. No failure or delay in exercising any right or remedy or requiring the sati faction of any condition under this Agreement operates as a waiver or estoppel of any right, remedy or condition. All remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available at law in equity or otherwise.

	​

	​

	​

	​

	​

	​

	LODGING FUND REIT III OP, LP
	CONTRIBUTOR

	on behalf of itself and its subsidiaries,
	​

	owners and affiliates
	​

	​
	​

	By:
	/s/ David Durell
	​
	By:
	/s/ Timothy Fridley
	​

	Name:
	David R. Durell
	Name:
	Timothy Fridley

	Title:
	Chief Investment Officer
	Title:
	Manager

​
​

Exhibit F
3

​

EXHIBIT G 
TO
CONTRIBUTION AGREEMENT 
TAX INFORMATION
​
​

Exhibit G
1

​

Schedule 2.2
List of Contributed Assets, Assumed Agreements and Leases
​

Schedule 2.2
1

​

Schedule 2.4
List of Excluded Assets
		1.
	Contributor’s cash, cash equivalents and investments not relating to the operation of the Property.

		2.
	Any Fixtures and Personal Property that contains hazardous materials that the Operating Partnership requires to be removed.

		3.
	Any management agreement pertaining to the Property, which management agreements must be terminated at Closing.

		4.
	Any applicable offset at closing resulting from the then current value of the furniture fixture and equipment (“FF&E’) reserve account.

​

Schedule 2.4
1

​

Schedule 2.5
List of Assumed Liabilities; Permitted Liens
​

Schedule 2.5
1

​

Schedule 2.6
List of Excluded Liabilities
​

Schedule 2.6
1

​

Schedule 2.10
Allocation of Total Consideration
​

Schedule 2.10
1

​

Schedule 3.1.8
3-05 Audit
Contributor acknowledges that under either Rule 3-05 or Rule 3-14 of Regulation S-X, the Operating Partnership is required to provide certain information in connection with reports the Company is required to file with the Securities and Exchange Commission.
Accordingly, Contributor agrees to:
(a)allow the Operating Partnership and its representatives which includes third party auditors, at the Operating Partnership’s sole cost and expense, to perform an audit of the Property, the Contributed Assets and business operations of and at the Property to the extent required under either Rule 3-05 or Rule 3-14 of Regulation S-X (hereinafter a “Rule 3-05 or 3-14 Audit”); and
(b)make available to the Operating Partnership and its representatives for inspection and audit following the Closing, at the Contributor’s offices the Contributor’s books and records relating solely to the Contributor’s operations that are reasonably requested by the Operating Partnership (but specifically excluding Contributor’s tax returns) for any full or partial years reasonably necessary to complete the Rule 3-05 or 3-14 Audit; and
(c)sign the management representation letter to be provided by the Operating Partnership’s independent auditors. In connection with the foregoing, the Operating Partnership will give the Contributor no less than 10 business days’ prior written notice of the Operating Partnership’s plans to inspect and audit such books and records, and the Contributor’s obligation to perform herein shall extend beyond the Closing.
Notwithstanding the foregoing, the Contributor will not be required to (a) prepare or compile any materials, (b) incur any third-party costs or expenses in connection with the Rule 3-05 or 3-14 Audit, (c) provide any books, records or materials that could reasonably be expected to be books, records or materials in the possession or control of the tenant parties, (d) provide any books, records or materials that are not within the possession or control of the Contributor, or (e) make any representations or warranties with respect to such information beyond a customary management representation letter signed by the Contributor reasonably requested by any accounting firm engaged by the Operating Partnership to deliver its auditors report with respect to the Rule 3-05 or Rule 3-14 Audit. The Operating Partnership acknowledges and agrees that the foregoing accounting and financial materials to be provided by the Contributor does not include any information or materials related to the period prior to the date the Contributor acquired the Property and the Contributed Assets and is to be limited solely to information regarding the Property and the Contributed Assets after they were placed into operation by the Contributor. The Contributor acknowledges that the Rule 3-05 or Rule 3-14 Audit may require the Operating Partnership to perform a Rule 3-05 or 3-14 Audit both after the Effective Date and after the Closing Date and the Contributor agrees that the Contributor’s obligations under this Schedule 3.1.8 are material terms of this Agreement, and breach of this Schedule 3.1.8 will constitute a default under the terms of this Agreement. The Contributor further agrees, that the Operating Partnership’s sole and absolute remedy in the event of default is that of specific performance.

Schedule 3.1.8
1Exhibit 10.186
​

​
LOAN AGREEMENT
BETWEEN
LF3 LAKEWOOD, LLC
​
AND
​
LF3 LAKEWOOD TRS, LLC
COLLECTIVELY, AS BORROWER
AND
LEGENDARY A-1 BONDS, LLC
AS LENDER
MARCH 29, 2022
​
​
​

​

​
TABLE OF CONTENTS
	​
	Page

	​
	​

	LIST OF SCHEDULES 
	iii

	Article I      Definitions 
	1

	Section 1.1
	Specific Definitions
	1

	Article II     General Loan Terms
	8

	Section 2.1
	The Loan
	8

	Section 2.2
	Interest, Monthly Payments
	9

	(a)
	Generally
	9

	(c)
	Taxes
	9

	(d)
	Requirements of Law
	9

	Section 2.3
	Loan Repayment
	9

	(a)
	Repayment
	9

	(b)
	Mandatory Prepayments
	9 

	(c)
	Optional Prepayments
	10 

	Section 2.4
	Release of Property
	10

	Section 2.5
	Payments and Computations
	10

	(a)
	Making of Payments
	10

	(b)
	Computations
	10

	(c)
	Late Payment Charge
	10

	Section 2.6
	Extension Option
	10

	Article III     Reserves 
	​
	11

	Section 3.2
	Required Repairs
	11

	Section 3.3
	Taxes and Insurance Escrow
	11

	Section 3.4
	Operating Expense Subaccount
	11

	Section 3.6
	FF&E Reserve
	11

	(a)
	Funding of FF&E Reserve
	11

	(b)
	Disbursements of FF&E Reserve Funds
	11

	Section 3.7
	Casualty/Condemnation Funds
	12

	Section 3.8
	Excess Cash Flow Subaccount .
	​

	Section 3.9
	Grant of Security Interest, Application of Funds
	12

	Section 3.10
	Property Cash Flow Allocation
	13

	Section 3.11
	Reasonable Care
	13

	Section 3.12
	Lender’s Liability
	13

	Article IV     Representations And Warranties
	14

	Section 4.1
	Organization, Special Purpose
	14

	Section 4.2
	Proceedings, Enforceability
	14

	Section 4.3
	No Conflicts
	14

	Section 4.4
	Litigation
	14

	Section 4.5
	Agreements
	14

	Section 4.6
	Title
	15

	Section 4.7
	No Bankruptcy Filing
	15

	Section 4.8
	Full and Accurate Disclosure
	15

	Section 4.9
	No Plan Assets
	16

	Section 4.10
	Compliance
	16

	Section 4.11
	Contracts
	16

	Section 4.12
	Federal Reserve Regulations, Investment Company Act
	16

	Section 4.13
	Utilities and Public Access
	16

	Section 4.14
	Physical Condition
	16

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TABLE OF CONTENTS, PAGE i

​

	Section 4.15
	Leases
	17

	Section 4.16
	Fraudulent Transfer
	17

	Section 4.17
	Ownership of Borrower
	17

	Section 4.18
	Management Agreement
	17

	Section 4.19
	Franchise Agreement
	17

	Section 4.20
	Hazardous Substances
	18

	Section 4.21
	Name, Principal Place of Business
	18

	Section 4.22
	Other Debt
	18

	Section 4.23
	Embargoed Person
	18

	Section 4.24
	Anti-Money Laundering
	18

	Section 4.25
	Sharing Agreements
	18

	Section 4.26
	Labor Matters
	18

	Section 4.27
	Operating Lease
	18

	Article V     Covenants
	19

	Section 5.1
	Existence
	19

	Section 5.2
	Taxes
	19

	Section 5.3
	Repairs, Maintenance and Compliance, Alterations
	19

	(a)
	Repairs, Maintenance and Compliance
	19

	(b)
	Alterations
	19

	Section 5.4
	Performance of Other Agreements
	20

	Section 5.5
	Cooperate in Legal Proceedings
	20

	Section 5.6
	Further Assurances
	20

	Section 5.7
	Environmental Matters
	20

	Section 5.8
	Title to the Property, Liens
	20

	Section 5.9
	Leases
	20

	Section 5.10
	Estoppel
	21

	Section 5.11
	Property Management
	21

	(a)
	Management Agreement
	21

	(b)
	Termination of Manager
	21

	Section 5.12
	Special Purpose Bankruptcy Remote Entity
	21

	Section 5.13
	Change in Business or Operation of Property
	22

	Section 5.14
	Certain Prohibited Actions
	22

	Section 5.15
	Prohibited Transfers, Loan Assumption
	22

	Section 5.16
	Expenses
	23

	Section 5.17
	Indemnity
	24

	Section 5.18
	Embargoed Person
	25

	Section 5.19
	Anti-Money Laundering
	26

	Section 5.20
	Easements, Rights-of-Way, and Restrictive Covenants
	26

	Section 5.21
	Use and Operation of the Property
	26

	Section 5.22
	Hotel Covenants .
	​

	Section 5.23
	Operating Lease Covenants
	28

	Article VI     Notices And Reporting
	29

	Section 6.1
	Notices
	29

	Section 6.2
	Borrower Notices and Deliveries
	30

	Section 6.3
	Financial Reporting
	30

	(a)
	Bookkeeping
	30

	(b)
	Quarterly Reports
	30

	(c)
	Annual Reports
	30

	(d)
	Other Reports
	31

	Article VII    Insurance, Casualty, And Condemnation
	31

	Section 7.1
	Insurance
	31

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TABLE OF CONTENTS, PAGE ii

​

	​
	(a) Coverage
	31

	​
	(b) Policies
	31

	Section 7.2
	Casualty
	32

	(a)
	Notice, Restoration
	32

	(b)
	Settlement of Proceeds
	32

	Section 7.3
	Condemnation
	32

	(a)
	Notice, Restoration
	32

	(b)
	Collection of Award
	32

	Section 7.4
	Application of Proceeds or Award
	33

	(a)
	Application to Restoration
	33

	(b)
	Application to Debt
	33

	(c)
	Procedure for Application to Restoration
	33

	Article VIII    Defaults
	34

	Section 8.1
	Events of Default
	34

	Section 8.2
	Remedies
	35

	(a)
	Acceleration
	35

	(b)
	Remedies Cumulative
	35

	(c)
	Delay
	36

	(d)
	Lender’s Right to Perform
	36

	Article IX    Miscellaneous
	36

	Section 9.1
	Survival
	36

	Section 9.2
	Lender’s Discretion
	36

	Section 9.3
	Rules of Construction
	37

	Section 9.4
	Modification, Waiver in Writing
	37

	Section 9.5
	Time of Essence
	37

	SECTION 9.6
	WAIVER OF JURY TRIAL
	37

	Section 9.7
	Severability
	38

	Section 9.8
	Preferences
	38

	Section 9.9
	Waiver of Notice
	38

	Section 9.10
	Remedies of Borrower
	38

	Section 9.11
	Prior Agreements
	38

	Section 9.12
	Offsets, Counterclaims and Defenses
	38

	Section 9.13
	No Usury
	38

	Section 9.14
	Conflict, Construction of Documents
	39

	Section 9.15
	No Third Party Beneficiaries
	39

	Section 9.16
	Joint and Several Liability
	39

	Section 9.17
	Assignment
	42

	SECTION 9.18
	GOVERNING LAW
	42

	Section 9.19
	Counterparts
	42

	Section 9.20
	Final Agreement
	42

​
​
LIST OF SCHEDULES
Schedule 1 - Form of Note 
Schedule 2 - Required Repairs 
Schedule 3 - Organization of Borrower 
Schedule 4 - Definition of Special Purpose Bankruptcy Remote Entity 
Schedule 5 - Service Contracts
​
​

TABLE OF CONTENTS, PAGE iii

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​
LOAN AGREEMENT
This Loan Agreement (this “Agreement”), dated as of March 29, 2022 (the “Effective Date”) is made by and between LF3 LAKEWOOD, LLC, a Delaware limited liability company (“SPE Owner”) and LF3 LAKEWOOD TRS, LLC, a Delaware limited liability company (“TRS Lessee”; and collectively with SPE Owner, “Borrower”), and LEGENDARY A-1 BONDS, LLC, a Delaware limited liability company (“Lender”).
Article I Definitions
Section 1.1 Specific Definitions. The following terms have the meanings set forth below:
“Affiliate” means, as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by, or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person.
“Approved Capital Expenses” means those Capital Expenses incurred by Borrower that are approved by Lender in its reasonable discretion.
“Approved Operating Expenses” means Operating expenses incurred by Borrower which (i) are for real estate taxes, insurance premiums, electric, gas, oil, water, sewer or other utility service to the Property, (ii) are for sales, use, occupancy, liquor or similar taxes at the Hotel, (iii) as customarily occurred in the normal course of business in the operation of the Hotel, or (iv) have been approved in writing by Lender.
“Borrower Representative” means individually or collectively, as the context may require, SPE Owner’s Member, SPE Owner’s Member GP, and TRS Lessee’s Member.
“Business Day” means any day other than a Saturday or a Sunday or any day on which commercial banks in Lakewood, Colorado are authorized or required to close.
“Capital Expenses” means expenses that are necessary for the repair and improvement of the Property which are required to be capitalized under GAAP.
“Change in Control” means if Control Party no longer has the power to direct or cause the direction of the management and policies of Borrower or Borrower Representative.
“Code” means the Internal Revenue Code of 1986, as amended and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.
“Contributor” means RLC-VI LAKEWOOD, LLC, a Colorado limited liability company.
“Control” means with respect to any Person, either (i) ownership directly or indirectly of 25 percent or more of all equity interests in such Person or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise.
“Control Party” means SPE Owner’s Member GP, or any Successor Control Party.
“Debt” means the unpaid Principal, all interest accrued and unpaid thereon and all other sums due to Lender in respect of the Loan or under any Loan Document.
“Debt Service” means with respect to any particular period, the scheduled Principal and interest payments due under the Note in such period.
​

LOAN AGREEMENT, PAGE 1

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​
“Debt Service Amount” means Debt Service due on the Loan during the 12 month period ending on the applicable Determination Date; provided, during the first 12 months after the Effective Date, the Debt Service Amount will be calculated based on Debt Service made to the applicable Determination Date, provided such payments will be annualized; and provided further, if at any time during the 12 month period ending on the applicable Determination Date, interest-only payments are due, then with respect to such interest-only period, the Debt Service Amount will be the monthly payment of Principal and interest that would be due based on a 25 year amortization schedule using the then-current interest rate.
Default” means the occurrence of any event under any Loan Document which, with the giving of notice or passage of time, or both, would be an Event of Default.
“Determination Date” means the last day of each Fiscal Quarter occurring after the Effective Date.
“ERISA” means the Employment Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.
“ERISA Affiliate” means all members of a controlled group of corporations and all trades and business (whether or not incorporated) under common control and all other entities which, together with Borrower, are treated as a single employer under any or all of Section 414(b), (c), (m) or (o) of the Code.
“Excusable Delay” means a delay due to acts of God, governmental restrictions, stays, judgments, orders, decrees, war, other enemy actions, terrorism, civil commotion, fire, casualty, strikes, work stoppages, shortages of labor or materials or other causes beyond the reasonable control of the party in question.
“FF&E” means fixtures, furnishings, equipment, furniture, and other items of tangible personal property now or hereafter located in or on the Property or the Improvements or used in connection with the use, occupancy, operation and maintenance of all or any part of the hotel located on the Property, other than stocks of food and other supplies held for consumption in normal operation but including, without limitation, appliances, machinery, equipment, signs, artwork, office furnishings and equipment, guest room furnishings, and specialized equipment for kitchens, laundries, bars, restaurant, public rooms, health and recreational facilities, linens, dishware, all partitions, screens, awnings, shades, blinds, floor coverings, hall and lobby equipment, heating, lighting, plumbing, ventilating, refrigerating, incinerating, elevators, escalators, air conditioning and communication plants or systems with appurtenant fixtures, vacuum cleaning systems, call or beeper systems, security systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, reservation system computer and related equipment, all equipment, manual, mechanical or motorized, for the construction, maintenance, repair and cleaning of, parking areas, walks, underground ways, truck ways, driveways, common areas, roadways, highways and streets, and the Vehicles (as defined in the Uniform System of Accounts for Hotels).
“Fiscal Quarter” means, the quarterly accounting periods of Borrower consistent with the Borrower’s accounting and reporting practices in effect on the Effective Date.
“Force Majeure Event” means any damage to the Improvements or disruption to the operation of the Property that is caused by fire or acts of God (such as flood, lightning, earthquake, or hurricane), war, strikes, other labor disputes, or riots or similar civil disturbance, but only to the extent such damage or disruption (a) is beyond the control of and not caused in whole or in part by negligence, illegal acts, or willful misconduct of Borrower, its employees, or any Person acting under Borrower’s control or with the approval or authorization of Borrower and (b) could not have been avoided or overcome by the exercise of due diligence or reasonable foresight on the part of Borrower or any other such Person.
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LOAN AGREEMENT, PAGE 2

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​
“Franchise Agreement” means the License Agreement dated as of March 29, 2022, between TRS Lessee, as licensee, and Franchisor, as licensor.
“Franchisor” means Fairfield Inn & Suites.
“GAAP” means generally accepted accounting principles in the United States of America as of the date of the applicable financial report.
“Governmental Authority” means any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) now or hereafter in existence.
“Gross Revenues” means, for any period, the Rents actually received by Borrower or Manager.
“Guarantor” means SPE Owner’s Member.
“Guaranties” means (i) the Guaranty Agreement dated as of the Effective Date by SPE Owner’s Member, guarantying the obligations of Borrower under the Loan Documents, and (ii) the Guaranty dated as of the Effective Date by Contributor, guarantying the repayment of Tranche B by Borrower.
“Hotel Transactions” means, collectively, (i) occupancy arrangements for customary hotel transactions in the ordinary course of Borrower’s business conducted at the hotel located at the Property, including nightly rentals (or licensing) of individual hotel rooms or suites, banquet room use, and food and beverage services, and (ii) informational or guest services that are terminable on one month’s notice or less without cause and without penalty or premium, including co-marketing, promotional services, and outsourced services.
“Improvements” means all buildings and other improvements on the Land.
“Insurance Requirements” means collectively, (i) all material terms of any insurance policy required pursuant to this Agreement and (ii) all material regulations and then-current standards applicable to or affecting the Property or any part thereof or any use or condition thereof, which may, at any time, be recommended by the Board of Fire Underwriters, if any, or such other body exercising similar functions, having jurisdiction over the Property.
“Interest Period” means (i) the period beginning on and including the Effective Date and ending on the last day of the calendar month in which the Effective Date occurs, (ii) each calendar month thereafter until the calendar month before the month in which the Maturity Date occurs, and (iii) the period beginning on the first day of the calendar month in which the Maturity Date occurs and ending on the Maturity Date.
“Interest Rate” means seven percent (7.0%) per annum.
“Inventory” means, as defined in the UCC, and including items which would be entered on a balance sheet under the line items for “Inventories” or “china, glassware, silver, linen and uniforms” under the Uniform System of Accounts for Hotels.
“Land” means the tract of land located in Jefferson County, Colorado described on Exhibit A to the Security Instrument.
“Leases” means all leases, licenses, and other agreements or arrangements heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, the Property or the Improvements, including any guarantees, extensions, renewals, modifications or amendments thereof and all additional remainders, reversions and other rights and estates appurtenant thereunder. As used herein, the term “Leases” will not include Hotel Transactions.
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LOAN AGREEMENT, PAGE 3

​

​
“Legal Requirements” means statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, any Loan Document or all or part of the Property or the construction, ownership, use, alteration or operation thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instrument, either of record or known to Borrower, at any time in force affecting all or part of the Property.
“Lien” means any mortgage, deed of trust, lien (statutory or otherwise), pledge, hypothecation, easement, restrictive covenant, preference, assignment, security interest or any other encumbrance, charge or transfer of, or any agreement to enter into or create any of the foregoing, on or affecting all or any part of the Property or any interest therein, or any direct or indirect interest in Borrower or Borrower Representative, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances.
“Loan” means the loan in the Principal amount made pursuant to this Agreement and evidenced by the Note.
“Loan Documents” means this Agreement and all other documents, agreements and instruments now or hereafter evidencing, securing or delivered to Lender in connection with the Loan, including, but not limited to, the following, each of which is dated as of the Effective Date (a) the Loan Agreement, (b) the Note, (c) the Security Instrument, (d) the Guaranties, and (e) the Environmental Indemnity Agreement made by Guarantor and Borrower (the “Environmental Indemnity”), as each of the foregoing may be (and each of the foregoing defined terms will refer to such documents as they may be) amended, restated, replaced, supplemented or otherwise modified from time to time.
“Management Agreement” means the Management Agreement dated March 29, 2022, between TRS Lessee and Manager, as each of the same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with Section 5.11.
“Manager” means initially NHS, LLC d/b/a National Hospitality Services, a North Dakota limited liability company, and will include any successor, assignee or replacement manager appointed by a Borrower in accordance with Section 5.11.
“Material Alteration” means any alteration affecting structural elements of the Property, any utility or HVAC system contained in the Property, or the exterior of any building constituting a part of the Property, or any alteration at the Property the cost of which exceeds $200,000, in each case, however, other than the following, which will not constitute Material Alterations means (i) Required Repairs, (ii) alterations performed as part of a Restoration, or (iii) alterations performed in connection with Approved Capital Expenses (iv) any Property Improvement Plan consented to by Lender.
“Maturity Date” means the date on which the final payment of principal of the Note becomes due and payable as therein provided, whether at the Stated Maturity Date, by declaration of acceleration, or otherwise.
“Net Cash Flow”  means for any period Gross Revenues actually received by Borrower or Manager, annualized, less the greater of (1) Approved Operating Expenses and (2) operating expenses actually paid by Borrower or Manager for the 12 month period ending with the most recent calendar month reporting. For the purpose of determining Net Cash Flow, operating expenses will (x) not include depreciation, amortization and other non-cash items, debt service, Capital Expenses, any contributions to any of the Reserve Funds, income taxes or other taxes in the nature of income taxes on sales, or use taxes required to be paid to any Governmental Authority, equity distributions, and other extraordinary and non-recurring items, and legal or other professional services fees and expenses unrelated to the operation of
​

LOAN AGREEMENT, PAGE 4

​

​
the Property, (y) be increased to reflect known increases in operating expenses that are anticipated, in Lender’s reasonable determination, to occur within the succeeding 12-month period including without limitation those related to Taxes and Insurance Premiums and (z) include (I) the actual fees paid to the Manager pursuant to the Management Agreement for such period of determination and (II) an amount equal to the greater of (x) an imputed capital improvement/FF&E requirement amount equal to the Required Percentage (as defined in Section 3.10(b) of Gross Revenue per annum (regardless of whether a reserve therefor is required hereunder or the amount of such reserve) and (y) the amount actually deposited into the FF&E Reserve Subaccount.
“Note” means the Promissory Note in the form of Schedule 1 hereto made by Borrower to Lender, in the original amount of $13,845,000.00, as the same may be amended, restated, modified, or assigned, dated March 29, 2022 by and between Borrower and Lender.
“Obligations” means (a) Borrower’s obligations for the payment of the Debt (b) the performance of all obligations of Borrower contained herein, (c) the performance of each obligation of Borrower contained in any other Loan Document, (d) the payment of all costs, expenses, legal fees and liabilities incurred by Lender in connection with the enforcement of any of Lender’s rights or remedies under the Loan Documents, or any other instrument, agreement or document which evidences or secures any other Obligations or collateral therefor, whether now in effect or hereafter executed, and (e) the payment, performance, discharge and satisfaction of all other liabilities and obligations of Borrower to Lender, whether now existing or hereafter arising, direct or indirect, absolute or contingent, and including, without limitation, each liability and obligation of Borrower under any one or more of the Loan Documents and any amendment, extension, modification, replacement or recasting of any one or more of the instruments, agreements and documents referred to herein or therein or executed in connection with the transactions contemplated hereby or thereby.
“Officer’s Certificate” means a certificate delivered to Lender by Borrower which is signed by an authorized officer of the appropriate entity and the person executing such Officer’s Certificate has the power and authority to execute the same.
“Operating Lease” means the Lease Agreement dated March 29, 2022, between SPE Owner, as landlord, and TRS Lessee, as tenant, as it may be further amended, restated, replaced, supplemented, extended or otherwise modified from time to time in accordance with the terms of the Loan Documents.
“Payment Date” means (i) the Effective Date and (ii) the first Business Day of each calendar month after the month in which the Effective Date occurs..
“Permitted Encumbrances” means (i) the Liens created by the Loan Documents, (ii) all Liens and other matters disclosed in the title insurance policy insuring the Lien of the Security Instrument, (iii) Liens, if any, for Taxes or other charges not yet due and payable and not delinquent, (iv) any workers’, mechanics’ or other similar Liens on the Property provided that any such Lien is bonded or discharged within 30 days after Borrower first receives notice of such Lien and (v) such other title and survey exceptions as Lender approves in writing in Lender’s discretion.
“Permitted FF&E Financing” means, collectively any purchase agreement, equipment leases, financing leases and other agreements relating to the acquisition of FF&E related to the ownership and operation of the Property provided that (i) such financing and/or leasing is subject to commercially reasonable terms and conditions and at a market rate of interest and/or leasing rate, (ii) the aggregate annual amount of payments (including principal and interest) of such financing and/or leasing for FF&E will at all times be less than one percent of the then-Principal, (iii) the removal of any FF&E which is the subject of such financing and/or leasing will not materially damage or impair the value of the Property, (iv) the financing and/or leasing does not create a lien or security interest on any Property other than the FF&E being financed and/or leased, (v) such financing and/or leasing is not evidenced by a note, and (vi)
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LOAN AGREEMENT, PAGE 5

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​
upon request by Lender, Borrower will provide Lender with copies of the documentation for such financing and/or leasing.
“Permitted Transfer” means
		(i)
	a Lease, easement, license, or Hotel Transaction entered into in accordance with the Loan Documents,

		(ii)
	a Permitted Encumbrance or Permitted FF&E Financing,

		(iii)
	any Transfer of direct limited liability company interests in SPE Owner or any Transfer of direct limited liability company interests in TRS Lessee, provided, however, (a) Borrower will give Lender notice of such Transfer not less than ten Business Days prior to the date of such Transfer together with all instruments effecting such Transfer and such other information regarding the Transfer as Lender may reasonable require, (b) Borrower will pay all of Lender’s out-of-pocket costs of review and (c) all the Transfers in this subparagraph (iii) must satisfy the Transfer Conditions;

		(iv)
	any Transfer, directly as a result of the death of a natural person, of stock, membership interests or other ownership interests previously held by the decedent in question to the Person or Persons lawfully entitled thereto, or

		(v)
	Transfers of ownership interests in any entity that is a publicly traded entity on a nationally recognized stock exchange.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, estate, trust, unincorporated association, any other person or entity, and any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.
“Personalty” means the property described in Section 1.02(b) of the Security Instrument.
“Plan” means (i) an employee benefit or other plan established or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA Affiliate makes or is obligated to make contributions and (ii) that is covered by Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code.
“Principal” means the principal amount of the Note, which on the date hereof is $13,845,000.00
“Property” means the Land and Improvements thereon consisting of an approximately 142-key hotel owned by Borrower and encumbered by the Security Instrument, together with all rights pertaining to such real property and Improvements, and all other collateral for the Loan as more particularly described in the granting clauses of the Security Instrument and referred to therein as the Property. The street address of the Property is 3605 S. Wadsworth Blvd., Lakewood, Colorado 80235.
“Rents” means all rents, additional rents, rent equivalents, moneys payable as damages (including, without limitation, payments in the nature of Lease termination payments and payments by reason of the rejection of a Lease in a Bankruptcy Proceeding) or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, fees, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other payment and consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower, Manager or any of their agents or employees from any and all sources arising from or attributable to the Property and the Improvements, including all
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receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of all or any portion(s) of the Property and/or the Improvements or rendering of services by Borrower, Manager or any of their agents or employees and proceeds, if any, from business interruption or other loss of income insurance. Rents will include revenues from the rental of rooms, guest suites, conference and banquet rooms, food and beverage facilities, health clubs, spas or other amenities, telephone services, laundry, vending, television and parking and all other items of revenue, receipts or other income as identified in the Uniform System of Accounts of Hotels.
“Reserve Funds” means, collectively, the Tax and Insurance Escrow Funds, the Operating Expense Reserve Funds, the Excess Cash Flow and any other escrow or reserve fund established pursuant to the Loan Documents.
“Security Instrument” means the Deed of Trust, Security Agreement, Assignment of Leases, Assignment of Rents, and Financing Statement concerning property located in Jefferson County, Colorado, to be filed for record on or about the date hereof in the appropriate public records.
“SPE Owner’s Member” means Lodging Fund REIT III OP, LP, a Delaware limited partnership.
“SPE Owner’s Member GP” means Lodging Fund REIT III, Inc., a Maryland corporation.
“State” means the State of Colorado.
“Stated Maturity Date” means initially, (i) with respect to Tranche A only, March 28, 2023, or the Tranche A Extended Stated Maturity Date if the Loan is extended pursuant to Section 2.6, and (ii) with respect to Tranche B only, May 28, 2022, or June 28, 2022 if such Tranche B Stated Maturity Date is extended pursuant to Section 2.6.
“Subordination Agreement” means the Collateral Assignment, Subordination, Non- Disturbance and Attornment Agreement by and between Borrower, Lender, and Manager, and will include the Collateral Assignment, Subordination, Non- Disturbance and Attornment Agreement by and between Borrower, Lender, and Franchisor if executed and delivered pursuant to Section 5.22(c).
“Successor Control Party” means any Person that succeeds to the ownership of all or substantially all of the assets of the Control Party, provided that such Person directly or indirectly owns assets, or has assets under management, equal to or greater than $300,000,000.00.
“Taxes” means all real estate and personal property taxes, assessments, water rates or sewer rents, maintenance charges, impositions, vault charges and license fees, now or hereafter levied or assessed or imposed against all or part of the Property, provided that Taxes will not include income taxes, sales and use taxes, occupancy taxes or other similar taxes.
“Term” means the entire term of this Agreement, which will expire only upon repayment in full of the Debt and full performance of each and every obligation to be performed by Borrower pursuant to the Loan Documents.
“Tranche A” shall have the meaning set forth in Section 2.1.
“Tranche B” shall have the meaning set forth in Section 2.1.
“Transfer” means any sale, conveyance, transfer, lease, assignment, lien, hypothecation, encumbrance or pledge, or the entry into any agreement to sell, convey, transfer, lease, assign, lien, hypothecate, encumber or pledge whether by law or otherwise, of, on, in or affecting (a) all or part of the
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Property (including any legal or beneficial direct or indirect interest therein), (b) any direct or indirect interest in Borrower (including any profit interest), or (c) any direct or indirect interest in Borrower Representative.
“Transfer Conditions” means, after giving effect to the Transfer in question, (a) the Transfer will not cause Borrower to cease to be a Special Purpose Bankruptcy Remote Entity or to breach the OFAC Laws, (b) the Transfer will not result in (y) the transferee (together with its Affiliates) increasing its direct or indirect interest in Borrower or in Borrower Representative to an amount that exceeds 49 percent or (z) a Change in Control, (c) SPE Owner’s Member GP will continue to own at least 51 percent of all equity interests (direct or indirect) in Borrower, and (d) no Person will acquire, either directly or indirectly, 30 percent or more of the direct or indirect equity interests in Borrower or Borrower Representative (that did not already own 30 percent or more of the direct or indirect equity interests in Borrower or Borrower Representative prior to such acquisition).
“TRS Lessee’s Member” means Lodging Fund REIT III TRS, Inc., a Delaware corporation.
“UCC” means the Uniform Commercial Code as in effect in the State or the state in which any of the Accounts are located, as the case may be.
“Uniform System of Accounts for Hotels” means the accounting standards printed in the then most recently revised edition of A Uniform System of Accounts for Hotels, as adopted by the Hotel Association of New York City, Inc. and the American Hotel and Motel Association, as amended or changed from time to time by the Hotel Association of New York City, Inc. and the American Hotel and Motel Association (or other appropriate board or committee of both Associations), except that any accounting principle or practice required or permitted to be changed by the Hotel Association of New York City, Inc. and the American Hotel and Motel Association (or other appropriate board or committee of both Associations) in order to continue as an accounting standard or practice may be so changed only so long as such required or permitted change will not have the effect of permitting Borrower’s and Guarantor’s compliance with any financial covenants or performance tests contained in this Agreement when without such change, such parties would not so comply.
“Welfare Plan” means an employee welfare benefit plan, as defined in Section 3(1) of ERISA.
Article II General Loan Terms
Section 2.1 The Loan. Lender is making the Loan to Borrower on the Effective Date, which will mature on the Maturity Date.  Borrower acknowledges receipt of the Loan in separate tranches, as follows:  (i) on the Effective Date, “Tranche A” in the amount of $12,610,000.00, the proceeds of which are being and will be used to retire the existing debt on the Property, and (ii) “Tranche B” in the amount of $1,235,000.00, the proceeds of which are being and will be used for necessary expenses relative to the closing of the transaction contemplated by this Agreement and/or the operations and/or title of the Property, and for no other purpose whatsoever. No amount of the Loan that is repaid may be reborrowed.  Lender shall be entitled to an origination fee in the amount of one percent (1.0%) of the initial Loan amount (the “Origination Fee”), which Origination Fee shall be paid pursuant to the terms of the Contribution Agreement (as hereinafter defined).  If the closing contemplated under the Contribution Agreement fails to take place, the Origination Fee shall be payable by Borrower upon the termination thereof.  Additionally, Borrower shall pay to Lender on the Effective Date a one-time loan modification fee in the amount of $50,000.00 as consideration for Lender increasing the Loan amount to include Tranche B.  Lender shall fund Tranche B in multiple advances from and after the Effective Date up to and until fully depleted, upon Lender’s receipt of draw requests from Borrower accompanied by written invoices for the amounts so requested and (if required by Lender) lien waivers from the proposed payee (which may be conditional pending only receipt of payment).  Security for Tranche B shall consist of that certain Pledge and Security Agreement of even date herewith executed by Contributor in favor of Lender,
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whereby Contributor pledges its Series T Limited Units which have been transferred or are to be transferred to Pledgor pursuant to the Contribution Agreement.  Borrower hereby agrees to an assignment of all distributions otherwise owing to Contributor under the Contribution Agreement upon an exercise of remedies by Lender under such Pledge and Security Agreement.
Section 2.2 Interest, Monthly Payments.
(a)Generally. From and after the Effective Date, interest on the unpaid Principal will accrue at the Interest Rate and be payable as hereinafter provided. On first Payment Date, Borrower will pay interest only on the unpaid Principal from the Effective Date through and including the last day of the calendar month in which the Effective Date occurs. On each Payment Date, through and including the Maturity Date, Borrower will pay interest only on the unpaid Principal accrued and accruing through the last day of the Interest Period in which such Payment Date occurs. All accrued and unpaid interest will be due and payable on the Maturity Date.
(b)Taxes. Any and all payments by Borrower hereunder and under the other Loan Documents will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on Lender’s income, and franchise taxes imposed on Lender by the law or regulation of any Governmental Authority (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to in this Section 2.2(c) as “Applicable Taxes”). If Borrower is required by law to deduct any Applicable Taxes from or in respect of any sum payable hereunder to Lender, the following will apply: (i) the sum payable will be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.2(c)), Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower will make such deductions and (iii) Borrower will pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Payments pursuant to this Section 2.2(c) will be made within ten days after the date Lender makes written demand therefor.
Section 2.3 Loan Repayment.
(a)Repayment. Borrower will repay the entire outstanding principal balance of the Note in full on the Maturity Date, together with (i) accrued and unpaid interest thereon to (but excluding) the date of repayment and any (ii) any other amounts then due and owing under the Loan Documents. Except during the continuance of an Event of Default, all proceeds of any repayment, including any prepayments of the Loan, will be applied by Lender as follows in the following order of priority: First, accrued and unpaid interest at the Interest Rate, second, to Principal, and third, to any other amounts then due and owing under the Loan Documents. If prior to the Stated Maturity Date, the Debt is accelerated following the occurrence and during the continuance of an Event of Default, then Lender will be entitled to receive the Principal and accrued interest and other sums due under the Loan Documents. During the continuance of an Event of Default, all proceeds of repayment, including any payment or recovery on the Property (whether through foreclosure, deed-in-lieu of foreclosure, or otherwise) will, unless otherwise provided in the Loan Documents, be applied in such order and in such manner as Lender will elect in Lender’s discretion.
(b)Mandatory Prepayments. The Loan is subject to mandatory prepayment in certain instances of Insured Casualty or Condemnation (each a “Casualty/Condemnation Prepayment”), in the manner and to the extent set forth in Section 7.4(b). Each Casualty/Condemnation Prepayment, after deducting Lender’s costs and expenses (including reasonable attorneys’ fees and expenses) in connection with the settlement or collection of the Proceeds or Award, will be applied in the same manner as repayments under Section 2.3(a), and if such Casualty/Condemnation Payment is made on any date other
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than a Payment Date, then such Casualty/Condemnation Payment will include interest that would have accrued on the Principal prepaid to but not including the next Payment Date.
(c)Optional Prepayments. Borrower may prepay all of the Principal on any Payment Date, but only if Borrower gives Lender at least 30 days’ prior written notice thereof.  Borrower may not partially prepay the Principal.
Section 2.4 Release of Property. Lender will, upon the written request and at the expense of Borrower, upon the indefeasible payment in full of the Debt in accordance herewith, release the Lien of the Loan Documents if not theretofore released.
Section 2.5 Payments and Computations.
(a)Making of Payments. Each payment by Borrower will be made in immediately available funds by 2:00 p.m., Central Standard time, on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. All such payments will be made irrespective of, and without any deduction, set-off or counterclaim whatsoever and are payable without relief from valuation and appraisement laws and with all costs and charges incurred in the collection or enforcement thereof, including attorneys’ fees and court costs.
(b)Computations. Interest payable under the Loan Documents will be computed on the basis of the actual number of days elapsed over a three hundred sixty 360-day year.
(c)Late Payment Charge. If any Principal, interest or other sum due under any Loan Document is not paid by Borrower on the date on which it is due (other than the balloon payment due on the Maturity Date), Borrower will pay to Lender upon demand an amount equal to the lesser of 5 percent of such unpaid sum or the maximum amount permitted by applicable law (the “Late Payment Charge”), in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Such amount will be secured by the Loan Documents.
Section 2.6 Extension Option. Borrower may request that Lender extend (the “Extension Option”) the Stated Maturity Date, for Tranche A only, to March 28, 2024 (the “Tranche A Extended Stated Maturity Date”). Upon receipt of any such request to so extend the Stated Maturity Date for Tranche A, Lender will promptly confirm to Borrower in writing that the Stated Maturity Date will be so extended upon the satisfaction each of the following conditions:
		(a)
	Borrower will give Lender its written notice requesting such extension (an “Extension Notice”) not less than 60 days prior to original or then-current Stated Maturity Date, as applicable (i.e., the then-current Maturity Date without giving effect to the requested extension) (the “Current Maturity Date”);

		(b)
	No Event of Default exists at the time such request is made and on the then-current Stated Maturity Date (i.e., the then-current Stated Maturity Date without giving effect to the requested extension), and no more than two Events of Default have occurred before the time that such request is made (including an Event of Default that is continuing at the time that the request is made);

		(c)
	Borrower delivers to Lender an Officer’s Certificate confirming the accuracy of the information contained in clause (b) above; and

		(d)
	Borrower delivers to Lender an extension fee in the amount of $126,100.00.

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Additionally, Borrower may request that Lender extend the May 28, 2022 Stated Maturity Date for Tranche B for a period of thirty (30) days to June 28, 2022.  Upon receipt of any such request to so extend the Stated Maturity Date for Tranche B, Lender will promptly confirm to Borrower in writing that the Stated Maturity Date for Tranche B only will be so extended upon the satisfaction each of the following conditions:
		(e)
	Borrower will give Lender its Extension Notice not less than 10 days prior to the original Stated Maturity Date for Tranche B, i.e., May 18, 2022;

		(f)
	No Event of Default exists at the time such request is made and on the then-current Stated Maturity Date (i.e., the then-current Stated Maturity Date without giving effect to the requested extension), and no more than two Events of Default have occurred before the time that such request is made (including an Event of Default that is continuing at the time that the request is made);

		(g)
	Borrower delivers to Lender an Officer’s Certificate confirming the accuracy of the information contained in clause (f) above; and

		(h)
	Borrower delivers to Lender an extension fee for Tranche B in the amount of $25,000.00.

If Tranche B is not fully repaid by June 28, 2022, neither Borrower nor Contributor may thereafter prepay Tranche B except in the event Lender has exercised its rights under the Pledge and Security Agreement in accordance with the terms set forth in Section 2.1 above, and then in such event, only to the extent distributions are earned and paid to Lender pursuant to the Pledge and Security Agreement.  In the event Tranche B is not repaid by June 28, 2022, Borrower and Lender agree that Tranche B shall be repaid at the conversion event as defined in the Contribution Agreement in the form of Common Limited Units in the SPE Owner’s Member.  Borrower and Lender agree that the then-remaining balance shall be repaid in the amount of up to $2,161,250.00 in Common Limited Units, less the amount of any distributions theretofore made to Lender pursuant to the Pledge and Security Agreement.  Borrower and Lender hereby agree that the Common Limited Unit payment is a fair and reasonable mechanism for the Tranche B repayment, which accounts for uncertainty in the valuation of private, non-traded ownership rights.
With respect to any request by Borrower to extend the Stated Maturity Date pursuant to this Section 2.6, if Borrower is unable to satisfy all of the foregoing conditions within the applicable time frames for each such condition, Lender will have no obligation to extend the Stated Maturity Date hereunder.  As this Extension Option results in Lender receiving additional interest, and Borrower having additional time to repay the principal and paying additional interest, Borrower and Lender each acknowledge there is sufficient consideration for the Extension Option.
Article III Reserves
Section 3.1 Required Repairs. Borrower will perform and complete each item of the repairs and environmental remedial work at the Property described on Schedule 2 (the “Required Repairs”) within the designated time frame set forth for such item on Schedule 2.
Section 3.2 Taxes and Insurance Escrow; Interest Reserve.
(a)Taxes and Insurance.  Upon a Transfer or assumption of the Loan contemplated by Section 5.15 below (including without limitation, any assumption of the Loan contemplated by that certain Contribution Agreement dated December 30, 2021, by and between Contributor and SPE Owner’s Member, as amended by (i) that certain First Amendment to Contribution Agreement dated as of February 23, 2022, (ii) that certain Second Amendment to Contribution Agreement dated as of March 3, 2022, (iii) that certain Third Amendment to Contribution Agreement dated as of March 15, 2022, and (iv) that certain Fourth Amendment to Contribution Agreement dated as of March 22, 2022 [as amended, the
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“Contribution Agreement”]) or upon the Contribution Agreement being terminated by either party thereto, Borrower will pay to Lender $0.00 (the “Tax and Insurance Escrow Initial Deposit”). Additionally, Borrower will pay to Lender on each Payment Date (a) one-twelfth of the Taxes that Lender estimates will be payable during the next 12 months in order to accumulate with Lender sufficient funds to pay all such Taxes at least 30 days prior to their respective delinquency dates and (b) one-twelfth of the Insurance Premiums that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least 30 days prior to the expiration of the Policies (the “Tax and Insurance Escrow Monthly Deposit”, which, together with the Tax and Insurance Escrow Initial Deposit, are hereinafter called the “Tax and Insurance Escrow Funds”). If no Event of Default has occurred and is continuing then Lender will (x) apply the Tax and Insurance Escrow Funds to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Section 5.2 and Section 7.1, provided that Borrower has promptly supplied Lender with notices of all Taxes and Insurance Premiums due. In making any payment relating to Taxes and Insurance Premiums, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If Lender determines in its reasonable judgment that the current balance of Tax and Insurance Escrow Funds will be insufficient to pay (or in excess of) the Taxes or Insurance Premiums not otherwise relating to Policies maintained through Manager’s (or its Affiliates’) insurance programs next coming due, Lender may increase (or decrease) the amount of the Tax and Insurance Escrow Monthly Deposit required to be made by Borrower.  If Borrower fails to fund the Tax and Insurance Escrow Initial Deposit when and as contemplated herein, Lender may advance the sums necessary to do so (without waiving the obligation of Borrower to do so, or the Event of Default arising from its failure to do so) and add such amount to the amount of the Loan.
(b)Interest Reserve.  Additionally, upon a Transfer or assumption of the Loan contemplated by Section 5.15 below (including without limitation, any assumption of the Loan contemplated by the Contribution Agreement) or upon the Contribution Agreement being terminated by either party thereto, Borrower will fund and establish with Lender a reserve in the aggregate amount of approximately $0.00 (the “Interest Reserve Fund”).  For so long as no Event of Default has occurred hereunder or under any of the other Loan Documents, Lender shall on each Payment Date (or such other dates as it shall determine) advance from the Interest Reserve Fund to itself the amount of the monthly debt service payment and other accrued interest then due and payable under the Note, and interest on any amounts advanced from the Interest Reserve Fund shall not accrue until the date of such advance.  Once there are no funds remaining in the Interest Reserve Fund or upon an Event of Default, Lender shall have no further obligation for funding of accrued and unpaid interest, or amounts payable and unpaid, whereupon Borrower shall be and remain responsible for the continuation of all such monthly debt service payments from funds other than proceeds of the Loan.  If Borrower fails to fund the Interest Reserve Fund when and as contemplated herein, Lender may advance the sums necessary to do so (without waiving the obligation of Borrower to do so, or the Event of Default arising from its failure to do so) and add such amount to the amount of the Loan.
Section 3.3 [Reserved].
Section 3.4 Casualty/Condemnation Funds. Borrower will pay, or cause to be paid, to Lender, immediately upon receipt, all Proceeds or Awards due to any Casualty or Condemnation (the “Casualty/Condemnation Funds”). The Casualty/Condemnation Funds will be disbursed in accordance with the provisions of Article VII.
Section 3.5 Grant of Security Interest, Application of Funds. As security for payment of the Debt and the performance by Borrower of all other terms, conditions and provisions of the Loan Documents, Borrower
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hereby pledges and assigns to Lender, and grants to Lender a security interest in, the following (the “Account Collateral”): all Borrower’s right, title and interest in and to all Rents and the Reserve Funds, all Subaccounts created pursuant to this Agreement (collectively, the “Accounts”), and all payments to or monies held in any of the Accounts. Borrower hereby grants to Lender a continuing security interest in, and agrees to hold in trust for the benefit of Lender, all Rents in its possession prior to payment of such Rents to Lender. Borrower will not, and will not permit Manager to, further pledge, assign or grant any security interest in any Account, or permit any Lien to attach thereto, or any levy to be made thereon, or any UCC-l Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. This Agreement is, among other things, intended by the parties to be a security agreement for purposes of the UCC. Except as otherwise provided in this Agreement, upon the occurrence and during the continuance of an Event of Default, Lender may apply any sums in any Account in any order and in any manner as Lender will elect in Lender’s discretion without seeking the appointment of a receiver and without adversely affecting the rights of Lender to foreclose the Lien of the Security Instrument or exercise its other rights under the Loan Documents. Accounts will not constitute trust funds and may be commingled with other monies held by Lender. Upon repayment in full of the Debt, all remaining funds in the Subaccounts, if any, will be promptly disbursed to Borrower.
Section 3.6 Property Cash Flow Allocation. Notwithstanding anything to the contrary contained in this Agreement or any of the other Loan Documents, after the occurrence of a Default or an Event of Default, Lender may apply any Reserve Funds, all Rents, and other proceeds of repayment in such order and in such manner as Lender will elect.
Section 3.7 Reasonable Care. Beyond the exercise of reasonable care in the custody thereof, Lender will have no duty as to any Account Collateral in its possession or control as agent therefor or bailee thereof or any income thereon or the preservation of rights against any person or otherwise with respect thereto. Lender will be deemed to have exercised reasonable care in the custody and preservation of the Account Collateral in its possession if the Account Collateral is accorded treatment substantially equal to that which Lender accords its own property, it being understood that Lender will not be liable or responsible for any loss or damage to any of the Account Collateral, or for any diminution in value thereof, by reason of the act or omission of Lender, its Affiliates, agents, employees or bailees, except to the extent that such loss or damage results from Lender’s or its Affiliate’s, agent’s, employee’s or bailee’s gross negligence or willful misconduct. In no event will Lender be liable either directly or indirectly for losses or delays resulting from any event which may be the basis of an Excusable Delay, computer malfunctions, interruption of communication facilities, labor difficulties or other causes beyond Lender’s reasonable control or for indirect, special or consequential damages except to the extent of Lender’s or its Affiliate’s agent’s, employee’s or bailee’s gross negligence or willful misconduct. Notwithstanding the foregoing, Borrower acknowledges and agrees that Lender does not have custody of the Account Collateral.
Section 3.8 Lender’s Liability.
(a) Lender will be responsible for the performance only of such duties with respect to the Account Collateral as are specifically set forth in this Article 3 or elsewhere in the Loan Documents, and no other duty will be implied from any provision hereof. Lender will not be under any obligation or duty to perform any act with respect to the Account Collateral which would cause it to incur any out-of-pocket expense or liability or to institute or defend any suit in respect hereof, or to advance any of its own monies. Borrower will indemnify and hold Lender, its employees and officers harmless from and against any loss, cost or damage (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by Lender in connection with the transactions contemplated hereby with respect to the Account Collateral except as such may be caused by the negligence, gross negligence or willful misconduct of Lender, its employees, officers, agents, Affiliates or bailees.
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(b)Lender will be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper, document or signature believed by it in good faith to be genuine, and, in so acting, it may be assumed that any person purporting to give any of the foregoing in connection with the provisions hereof has been duly authorized to do so. Lender may consult with counsel, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it hereunder and in good faith in accordance therewith.
Article IV Representations And Warranties
Borrower represents and warrants to Lender as of the Effective Date that:
Section 4.1 Organization, Special Purpose. Each of Borrower and Borrower Representative has been duly organized and is validly existing and in good standing under the laws of the state of its formation, with requisite power and authority, and all rights, licenses, permits and authorizations, governmental or otherwise, necessary to own its properties and to transact the business in which it is now engaged. Each Borrower and Borrower Representative is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, business and operations. Each Borrower, SPE Owner’s Member, and SPE Owner’s Member GP, and TRS Lessee’s Member is a Special Purpose Bankruptcy Remote Entity.
Section 4.2 Proceedings, Enforceability. Borrower has taken all necessary action to authorize the execution, delivery and performance of the Loan Documents. The Loan Documents have been duly executed and delivered by Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and general principles of equity. The Loan Documents are not subject to, and Borrower has not asserted, any right of rescission, set-off, counterclaim or defense, including the defense of usury. No exercise of any of the terms of the Loan Documents, or any right thereunder, will render any Loan Document unenforceable.
Section 4.3 No Conflicts. The execution, delivery and performance of the Loan Documents by Borrower and the transactions contemplated hereby will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (other than pursuant to the Loan Documents) upon any of the property of Borrower (including the Property) pursuant to the terms of, any agreement or instrument to which Borrower is a party or by which its property is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over Borrower or any of its properties (including the Property). Borrower’s rights under the Licenses and the Management Agreement will not be adversely affected by the execution and delivery of the Loan Documents, Borrower’s performance thereunder, the recordation of the Security Instrument, or the exercise of any remedies by Lender. Any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by Borrower of the Loan Documents has been obtained and is in full force and effect.
Section 4.4 Litigation. There are no actions, suits or other proceedings at law or in equity by or before any Governmental Authority now pending (or threatened in writing or otherwise known to Borrower) against or affecting Borrower, Borrower Representative or the Property, which, if adversely determined, might materially adversely affect the condition (financial or otherwise) or business of Borrower, Borrower Representative or the condition or ownership of the Property.
Section 4.5 Agreements. Borrower is not a party to any agreement or instrument or subject to any restriction which might adversely affect Borrower or the Property, or Borrower’s business, properties, operations or condition, financial or otherwise. To the best of Borrower’s knowledge, Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations,
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covenants or conditions contained in any Permitted Encumbrance or any other agreement or instrument to which it is a party or by which it or the Property is bound.
Section 4.6 Title. Borrower has good and indefeasible title in fee to the real property and good title to the balance of the Property, free and clear of all Liens other than the Permitted Encumbrances. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements in connection with the transfer of the Property to Borrower have been paid. The Security Instrument, together with any UCC Financing Statements required to be filed in connection therewith creates (a) a valid, perfected first priority lien on the Borrower’s interest in the Property and (b) valid and perfected first priority security interests in and to, and perfected collateral assignments of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances. All mortgage, recording, stamp, intangible or other similar taxes required to be paid by any Person under applicable Legal Requirements in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents have been paid. No Condemnation or other proceeding has been commenced or, to Borrower’s best knowledge, is contemplated with respect to all or part of the Property or for the relocation of roadways providing access to the Property. There are no claims for payment for work, labor or materials affecting the Property which are or may become a Lien prior to, or of equal priority with, the Liens created by the Loan Documents. There are no outstanding options to purchase or rights of first refusal affecting all or any portion of the Property. The survey for the Property delivered to Lender does not fail to reflect any material matter affecting the Property or the title thereto. Except as shown on the survey of the Property delivered to Lender, all of the Improvements included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and no improvement on an adjoining property encroaches upon the Property, and no easement or other encumbrance upon the Property encroaches upon any of the Improvements, except those insured against by the title insurance policy insuring the Lien of the Security Instrument. Each parcel comprising the Property is a separate tax lot and is not a portion of any other tax lot that is not a part of the Property. There are no pending or proposed special or, to the knowledge of Borrower, other assessments for public improvements or otherwise affecting the Property, or any contemplated improvements to the Property that may result in such special or other assessments.
Section 4.7 No Bankruptcy Filing. Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency law or the liquidation of all or a major portion of its property (a “Bankruptcy Proceeding”), and Borrower has no knowledge of any Person contemplating the filing of any such petition against it. In addition, neither Borrower nor Borrower Representative nor Guarantor has been a party to, or the subject of a Bankruptcy Proceeding for the past ten years.
Section 4.8 Full and Accurate Disclosure. No statement of fact made by Borrower in any Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained therein not misleading. There is no material fact presently known to Borrower that has not been disclosed to Lender which adversely affects, or, as far as Borrower can foresee, might adversely affect, the Property or the business, operations or condition (financial or otherwise) of Borrower. All financial data, including the statements of cash flow and income and operating expense, that have been delivered to Lender in respect of Borrower and the Property (a) are true, complete and correct in all material respects, (b) accurately represent the financial condition of Borrower and the Property as of the date of such reports, and (c) to the extent prepared by an independent certified public accounting firm, have been prepared in accordance with GAAP and the Uniform System of Accounts for Hotels consistently applied throughout the periods covered, except as disclosed therein. Borrower has no contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, unrealized or anticipated losses from any unfavorable commitments or any liabilities or obligations not expressly permitted by this Agreement. Since the date of such financial statements, there has been no
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materially adverse change in the financial condition, operations or business of Borrower or the Property from that set forth in said financial statements.
Section 4.9 No Plan Assets. Borrower is not an “employee benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of Borrower constitute or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101.
Section 4.10 Compliance. Borrower, the Property, and the use of the Property comply in all material respects with all applicable Legal Requirements (including with respect to parking and applicable zoning and land use laws, regulations, and ordinances). To the best of Borrower’s knowledge, Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, the violation of which might materially adversely affect the condition (financial or otherwise) or business of Borrower. The Property is used exclusively for hotel use and other appurtenant and related uses. No legal proceedings are pending or, to the knowledge of Borrower, threatened with respect to the zoning of the Property. To the best of Borrower’s knowledge, all certifications, permits, licenses and approvals, including certificates of completion and occupancy permits required for the legal use, occupancy and operation of the Property (collectively, the “Licenses”), have been obtained and are in full force and effect. The use being made of the Property is in conformity with the certificate of occupancy issued for the Property and all other restrictions, covenants and conditions affecting the Property.
Section 4.11 Contracts. Except as set forth on Schedule 5, there are no service, maintenance or repair contracts affecting the Property that are not terminable on one month’s notice or less without cause and without penalty or premium. All service, maintenance or repair contracts affecting the Property have been entered into at arms-length in the ordinary course of Borrower’s business and provide for the payment of fees in amounts and upon terms comparable to existing market rates.
Section 4.12 Federal Reserve Regulations, Investment Company Act. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose that would be inconsistent with such Regulation U or any other regulation of such Board of Governors, or for any purpose prohibited by Legal Requirements or any Loan Document. Borrower is not (i) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended, (ii) a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.
Section 4.13 Utilities and Public Access. The Property has rights of access to public ways and is served by water, sewer, sanitary sewer, storm drain and electric facilities adequate to service it for its intended uses. All public utilities necessary or convenient to the full use and enjoyment of the Property are located in the public right-of-way abutting the Property, and all such utilities are connected so as to serve the Property without passing over other property absent a valid easement. All roads necessary for the use of the Property for its current purpose have been completed and have either been dedicated to public use and accepted by all Governmental Authorities.
Section 4.14 Physical Condition. The Property, including all Improvements, parking facilities, systems, Personalty and landscaping, are in good condition, order and repair in all material respects, to the best of Borrower’s knowledge, there exists no structural or other material defect or damages to the Property, whether latent or otherwise. Borrower has not received notice from any insurance company or bonding company of any defect or inadequacy in the Property, or any part thereof, which would adversely affect its insurability or cause the imposition of extraordinary premiums or charges thereon or any termination
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of any policy of insurance or bond. No portion of the Property is located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards.
Section 4.15 Leases. Borrower has delivered to Lender a true, correct and complete rent roll for the Property (the “Rent Roll”), which includes all Leases affecting the Property. Except as set forth on the Rent Roll: (i) to the best of Borrower’s knowledge, each Lease is in full force and effect, (ii) the tenants under the Leases have accepted possession of and are in occupancy of all of their respective demised premises, have commenced the payment of rent under the Leases, and there are no offsets, claims or defenses to the enforcement thereof, (iii) all rents due and payable under the Leases have been paid and no portion thereof has been paid for any period more than 30 days in advance, (iv) the rent payable under each Lease is the amount of fixed rent set forth in the Rent Roll, and there is no claim or basis for a claim by the tenant thereunder for an adjustment to the rent, (v) no tenant has made any claim against the landlord under any Lease which remains outstanding, to the best of Borrower’s knowledge, there are no defaults on the part of the landlord under any Lease, and no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default, (vi) to Borrower’s best knowledge, there is no present material default by the tenant under any Lease, (vii) all security deposits under Leases are as set forth on the Rent Roll, (viii) Borrower is the sole owner of the entire lessor’s interest in each Lease, (ix) each Lease is the valid, binding and enforceable obligation of the Borrower and, to the best of Borrower’s knowledge, the applicable tenant thereunder, (x) no Person has any possessory interest in, or right to occupy, the Property except under the terms of the Lease, and (xi) to the best of Borrower’s knowledge, each Lease is subordinate to the Loan Documents, either pursuant to its terms or pursuant to a subordination and attornment agreement. None of the Leases contains any option to purchase or right of first refusal to purchase the Property or any part thereof. Neither the Leases nor the Rents have been assigned or pledged except to Lender, and no other Person has any interest therein except the tenants thereunder.
Section 4.16 Fraudulent Transfer. Borrower has not entered into the Loan or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and Borrower has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the transactions contemplated by the Loan Documents, the fair saleable value of Borrower’s assets exceeds and will, immediately following the execution and delivery of the Loan Documents, exceed Borrower’s total liabilities, including subordinated, unliquidated, disputed or contingent liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. Borrower’s assets do not and, immediately following the execution and delivery of the Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).
Section 4.17 Ownership of Borrower. The organizational chart attached hereto as Schedule 3 is complete and accurate and illustrates all Persons who have a direct or indirect ownership interest in Borrower.
Section 4.18 Management Agreement. The Management Agreement is in full force and effect. There is no default, breach or violation existing thereunder, and, to the best of Borrower’s knowledge, no event has occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation thereunder, by either party thereto. The Management Agreement constitutes all of the agreements with respect to the management of the Property.
Section 4.19 Franchise Agreement. The Franchise Agreement is in full force and effect. There is no default, breach or violation existing thereunder, and, to the best of Borrower’s knowledge, no event has
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occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation thereunder, by either party thereto.
Section 4.20 Hazardous Substances. The representations and warranties made by Borrower in the Environmental Indemnity are incorporated by this reference as if fully set forth herein.
Section 4.21 Name, Principal Place of Business. Borrower does not use and will not use any trade name and has not done and will not do business under any name other than its actual name set forth herein. The principal place of business of Borrower is its primary address for notices as set forth in Section 6.1, and Borrower has no other place of business.
Section 4.22 Other Debt. There is no indebtedness with respect to the Property or any indebtedness secured over excess cash flow or any residual interest therein, whether secured or unsecured, other than Permitted Encumbrances and Permitted Indebtedness.
Section 4.23 Embargoed Person. (a) None of the funds or assets of Guarantor or of Borrower constitute property of, or are beneficially owned directly or, to Borrower’s best knowledge, indirectly, by any Embargoed Person (as hereinafter defined) and (b) no Embargoed Person has any direct interest, and to Borrower’s best knowledge, as of the Effective Date, based upon reasonable inquiry by Borrower, indirect interest, of any nature whatsoever in Borrower or any Guarantor, as applicable, with the result that the investment in Borrower or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law.
Section 4.24 Anti-Money Laundering. None of the funds of Borrower, Borrower Representative or any Guarantor, as applicable, that are used to consummate this transaction are derived from or are the proceeds of any unlawful activity, with the result that the investment in Borrower, Borrower Representative or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law or may cause any of the Property to be subject to forfeiture or seizure. Borrower has ascertained the identity of all persons and entities that have provided funds to capitalize Borrower and has conducted verification procedures which are sufficient to establish the identity and source of such funds.
Section 4.25 Sharing Agreements. There are no joint services, reciprocal easement or other similar sharing agreements relating to the Property.
Section 4.26 Labor Matters. Borrower is not a party to any collective bargaining agreements.
Section 4.27 Operating Lease. SPE Owner is the owner and lessor of landlord’s interest in the Operating Lease. The Operating Lease is in full force and effect and there is no default thereunder by either party and there are no conditions that would constitute defaults thereunder. No rent under the Operating Lease has been paid more than one month in advance of its due date. All security deposits (if any) are held by SPE Owner in accordance with applicable law. All work (if any) to be performed by SPE Owner and TRS Lessee under the Operating Lease has been performed as required and has been accepted by TRS Lessee, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by SPE Owner to TRS Lessee has already been received by TRS Lessee. There has been no prior sale, transfer, assignment, hypothecation or pledge of the Operating Lease or of the rent thereunder which is outstanding. TRS Lessee has not assigned the applicable Operating Lease or sublet all or any portion of the premises demised thereby other than pursuant to a Hotel Transaction or Lease. TRS Lessee has no right or option pursuant to the Operating Lease or otherwise to purchase all or any part of the leased premises or the building of which the leased premises are a part.
All of the representations and warranties in this Article 4 and elsewhere in the Loan Documents (1) will survive for so long as any portion of the Debt remains owing to Lender and (2) will be deemed to have
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been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf, provided, however, that the representations, warranties and covenants set forth in Section 4.20 will survive in perpetuity.
Article V Covenants
Borrower hereby covenants and agrees with Lender that:
Section 5.1 Existence. Each of Borrower and Borrower Representative will (a) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, and franchises, (b) continue to engage in the business presently conducted by it, (c) obtain and maintain all Licenses, and (d) qualify to do business and remain in good standing under the laws of each jurisdiction, in each case as and to the extent required for the ownership, maintenance, management and operation of the Property.
Section 5.2 Taxes. Borrower will pay all Taxes prior to delinquency, and deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes have been so paid no later than 30 days before they would be delinquent if not paid (provided, however, that Borrower need not pay such Taxes nor furnish such receipts for payment of Taxes paid by Lender pursuant to Section 3.3). Borrower will not suffer and will promptly cause to be paid and discharged any Lien against the Property, and will promptly pay for all utility services provided to the Property. After prior notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application of any Taxes, provided that (i) no Default or Event of Default has occurred and is continuing, (ii) such proceeding will suspend the collection of the Taxes or all such Taxes will have been paid in full prior to contesting the same, (iii) such proceeding will be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and will not constitute a default thereunder, (iv) no part of or interest in the Property will be in danger of being sold, forfeited, terminated, canceled or lost, (v) if required by Lender, Borrower will have furnished such security as may be required in the proceeding, or as may be requested by Lender, to insure the payment of any such Taxes, together with all interest and penalties thereon, which will not be less than 110 percent of the Taxes being contested, and (vi) Borrower will promptly upon final determination thereof pay the amount of such Taxes, together with all costs, interest and penalties. Lender may pay over any such security or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.
Section 5.3 Repairs, Maintenance and Compliance, Alterations.
(a)Repairs, Maintenance and Compliance. Borrower will cause the Property to be maintained in a good and safe condition and repair and will not remove, demolish or alter the Improvements or Personalty (except for the normal replacement of Personalty with Personalty of equivalent value and functionality). Borrower will promptly comply with all Legal Requirements and immediately cure properly any violation of a Legal Requirement. Borrower will notify Lender in writing within one Business Day after Borrower first receives notice of any such non-compliance. Borrower will promptly repair, replace or rebuild any part of the Property that becomes damaged, worn or dilapidated and will complete and pay for any Improvements at any time in the process of construction or repair. There will never be committed by Borrower and Borrower will not permit any other Person in occupancy of or involved with the operation or use of the Property to commit any act or omission affording any Governmental Authority the right of forfeiture against the Property or any part thereof or any monies paid in performance of Borrower’s obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture.
(b)Alterations. Borrower may, without Lender’s consent, perform alterations to the Improvements and Personalty which (i) do not constitute a Material Alteration, (ii) do not adversely affect
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Borrower’s financial condition or the value or cash flow of the Property, and (iii) are in the ordinary course of Borrower’s business. Borrower will not perform any Material Alteration without Lender’s prior written consent, which consent will not be unreasonably withheld or delayed, provided, however, that Lender may, in its sole and absolute discretion, withhold consent to any alteration the cost of which is reasonably estimated to exceed $200,000. Upon substantial completion of the Material Alteration, Borrower will provide evidence satisfactory to Lender that (i) the Material Alteration was constructed in accordance with applicable Legal Requirements and substantially in accordance with plans and specifications approved by Lender (which approval will not be unreasonably withheld or delayed), (ii) all contractors, subcontractors, materialmen and professionals who provided work, materials or services in connection with the Material Alteration have been paid in full and have delivered unconditional releases of lien and (iii) all material Licenses necessary for the use, operation and occupancy of the Material Alteration (other than those which depend on the performance of tenant improvement work) have been issued. Borrower will reimburse Lender upon demand for all out-of-pocket costs and expenses (including the reasonable fees of any architect, engineer or other professional engaged by Lender) incurred by Lender in reviewing plans and specifications or in making any determinations necessary to implement the provisions of this Section 5.3(b).
Section 5.4 Performance of Other Agreements. Borrower will observe and perform each and every term to be observed or performed by it pursuant to the terms of any agreement or instrument affecting or pertaining to the Property, including the Loan Documents.
Section 5.5 Cooperate in Legal Proceedings. Borrower will cooperate fully with Lender with respect to, and permit Lender, at its option, to participate in, any proceedings before any Governmental Authority which may in any way affect the rights of Lender under any Loan Document.
Section 5.6 Further Assurances. Borrower will, at Borrower’s sole cost and expense, (a) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the Debt and/or for the better and more effective carrying out of the intents and purposes of the Loan Documents, as Lender may reasonably require from time to time, and (b) upon Lender’s request therefor given from time to time after the occurrence of any Default or Event of Default pay for (i) reports of UCC, federal tax lien, state tax lien, judgment and pending litigation searches with respect to Borrower and Borrower Representative and (ii) searches of title to the Property, each such search to be conducted by search firms reasonably designated by Lender in each of the locations reasonably designated by Lender.
Section 5.7 Environmental Matters. The covenants and agreements made by Borrower in the Environmental Indemnity Agreement are incorporated herein by this reference as if fully set forth at length herein.
Section 5.8 Title to the Property, Liens. Borrower will warrant and defend the title to the Property, and the validity and priority of all Liens granted or otherwise given to Lender under the Loan Documents, subject only to Permitted Encumbrances, against the claims of all Persons. Without Lender’s prior written consent, Borrower will not create, incur, assume, permit or suffer to exist any Lien on all or any portion of the Property or any direct or indirect legal or beneficial ownership interest in Borrower or Borrower Representative, except Liens in favor of Lender and Permitted Encumbrances, unless such Lien is bonded or discharged within 30 days after Borrower first receives notice of such Lien.
Section 5.9 Leases. Other than Hotel Transactions, Borrower will not enter into any Lease (or any renewals, amendments or modifications of a Lease) without Lender’s prior consent. Upon request, Borrower will furnish Lender with executed copies of all Leases then in effect, whether executed before or after the Effective Date.
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Section 5.10 Estoppel. After request by Lender, Borrower will within ten days furnish Lender with a statement addressed to Lender, its successors and assigns, duly acknowledged and certified, setting forth (i) the unpaid Principal, (ii) the Interest Rate, (iii) the date installments of interest and/or Principal were last paid, (iv) any offsets or defenses to the payment of the Debt, and (v) that the Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification.
Section 5.11 Property Management.
(a)Management Agreement. Borrower will (i) cause the Property to be managed pursuant to the Management Agreement, (ii) promptly perform and observe all of the covenants required to be performed and observed by it under the Management Agreement and do all things necessary to preserve and to keep unimpaired its rights thereunder, (iii) promptly notify Lender of any default under the Management Agreement of which it is aware, (iv) promptly deliver to Lender a copy of any other notice given for any other reason by Borrower to Manager pursuant to the terms of the Management Agreement, and (v) promptly accept and/or enforce the performance and observance of all of the covenants required to be performed and observed by Manager under the Management Agreement. Without Lender’s prior written consent, such consent to be exercised in Lender’s sole and absolute discretion, Borrower will not (a) surrender, terminate, cancel, extend or renew the Management Agreement, waive any defaults thereunder, or otherwise replace the Manager or enter into any other management agreement, (b) reduce or consent to the reduction of the term of the Management Agreement, (c) increase or consent to the increase of the amount of any charges under the Management Agreement, (d) otherwise modify, change, supplement, alter or amend in any material respect, or waive or release any of its rights and remedies under, the Management Agreement, (e) suffer or permit the occurrence and continuance of a default beyond any applicable cure period under the Management Agreement (or any successor management agreement) if such default permits the Manager to terminate the Management Agreement (or any successor management agreement), or (f) knowingly permit the ownership, management, or control of the Manager to be transferred to any Person except as otherwise permitted pursuant to Section 18.1 of the Management Agreement.  Borrower will not assign, pledge, delegate, waive or transfer any interests, rights or obligations under the Management Agreement, including the proceeds thereof, Borrower will not borrow, or accept any forbearance to collect, any amount due from it to Manager or any affiliate of Manager without the prior written consent of Lender. Lender may ender a cure or to cure any default or purported default in the obligations of Borrower under the Management Agreement, and that any cost incurred by Lender in connection with such cure or attempt to cure will constitute an additional advance as a demand obligation of Borrower under this Agreement and the other Loan Documents.
(b)Termination of Manager. If (i) an Event of Default is continuing and Borrower has the right to terminate the Manager pursuant to the terms of the Management Agreement, or (ii) Manager (A) is in default under the Management Agreement, or (B) commits gross negligence, misappropriation of funds, willful misconduct or fraud with respect to the Property or its duties under the Management Agreement, Borrower will, at the request of Lender, (i) terminate the Management Agreement, and (ii) enter into a new management agreement acceptable to Lender with a replacement manager acceptable to Lender in its sole discretion, and a collateral assignment, subordination and non- disturbance agreement in form and substance acceptable to Lender. Borrower’s failure to appoint an acceptable manager and satisfy the requirements of this Section 5.11(b) within 30 days after Lender’s request of Borrower to terminate the Management Agreement or any other termination or earlier expiration of the Management Agreement will constitute an immediate Event of Default.
Section 5.12 Special Purpose Bankruptcy Remote Entity. Each Borrower, SPE Owner’s Member, and SPE Owner’s Member GP, and TRS Lessee’s Member will at all times be and remain a Special Purpose Bankruptcy Remote Entity. A “Special Purpose Bankruptcy Remote Entity” will have the meaning set
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forth on Schedule 4 hereto. The organizational documents of each Borrower will at all times include the language set forth on Schedule 4.
Section 5.13 Change in Business or Operation of Property. Borrower will not purchase or own any real property other than the Property and will not enter into any line of business other than the ownership and operation of the Property unless otherwise consented to by Lender in writing, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business or otherwise cease to operate the Property as a hotel or terminate such business for any reason whatsoever (other than temporary cessation in connection with renovations to the Property or caused by a Force Majeure Event).
Section 5.14 Certain Prohibited Actions. Borrower will not directly or indirectly do any of the following: (a) change its principal place of business or chief executive office without first giving Lender 30 days’ prior notice, (b) make any change, amendment, or modification to the organizational documents of Borrower, or otherwise take any action that could result in Borrower not being a Special Purpose Bankruptcy Remote Entity, (c) cancel or otherwise forgive or release any claim or debt owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower’s business in its reasonable judgment, (d) create, incur or assume any indebtedness secured by the Property other than the Debt, Permitted FF&E Financing and unsecured trade payables incurred in the ordinary course of business relating to the ownership and operation of the Property which do not exceed, at any time, a maximum amount of one percent of the original amount of the Principal and are not evidenced by a promissory note and are paid when due, but in no event no more than 30 days of the date incurred (collectively, “Permitted Indebtedness”), (e) transfer any License required for the operation of the Property, except to the extent required by a Governmental Authority (unless such requirement is on account of Borrower’s failure to abide by the terms of such License or is otherwise the result of the negligence or intentional misconduct of Borrower or its agents or contractors), or (f) maintain, sponsor, contribute to or become obligated to contribute to, or suffer or permit any ERISA Affiliate of Borrower to, maintain, sponsor, contribute to or become obligated to contribute to, any Plan or any Welfare Plan or permit the assets of Borrower to become “plan assets,” whether by operation of law or under regulations promulgated under ERISA.
Section 5.15 Prohibited Transfers, Loan Assumption. Borrower will not directly or indirectly make, suffer or permit the occurrence of any Transfer other than a Permitted Transfer. In connection with any Transfer otherwise prohibited pursuant to the provisions of this Section 5.15, Borrower may request Lender’s consent to such Transfer and, in connection with a sale of the Property, the assumption of the Loan by the purchaser of the Property, Lender may grant or deny any such consent hereunder in its sole and absolute discretion. Any such assumption of the Loan will be conditioned upon, among other things,
(a) (i) the financial condition and creditworthiness of such purchaser and its direct and indirect owners and sponsors must be acceptable to Lender in all respects, (ii) the delivery of financial information, including, without limitation, audited financial statements and other documents reasonably requested by Lender, for such purchaser and the direct and indirect owners and sponsors of such purchaser in order for Lender to make a determination with respect to the terms of the preceding clause (i),
(b)the delivery of evidence that the purchaser is a Special Purpose Bankruptcy Remote Entity,
(c)the execution and delivery of all documentation reasonably requested by Lender including a replacement guaranty and environmental indemnity agreement, from an entity or entities satisfactory to Lender, the form and substance of each will be the same in all material respects as the Guaranties and Environmental Indemnity delivered by Guarantor,
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(d)the delivery of opinions of Borrower’s counsel requested by, and in form and substance satisfactory to, Lender, including, without limitation, a non-consolidation opinion, with respect to the purchaser and other entities identified by Lender and opinions with respect to the valid formation, due authority and good standing of the purchaser and any additional pledgors and the continued enforceability of the Loan Documents and any other matters requested by Lender,
(e)the delivery of an endorsement to the title insurance policy insuring the Lien of the Security Instrument in form and substance acceptable to Lender, as assumed, subject only to the Permitted Encumbrances,
(f) the payment of all of Lender’s fees, costs and expenses, including, without limitation, attorneys’ fees and costs, actually incurred by Lender in connection with such assumption,
(g) evidence that the new borrower is of good repute and qualified to own properties of this type,
(h) payment to Lender of an assumption fee equal to 1.0% of the then outstanding Principal, and
(i) confirmation that the transferee or its Affiliate (i) as not (within the past ten years) defaulted, or is not now in default, beyond any applicable cure period, of its material obligations, under any material written agreement with Lender, any Affiliate of Lender, or any other financial institution or other person providing or arranging financing, (ii) has not been convicted in a criminal proceeding for a felony or a crime involving moral turpitude or that is not an organized crime figure or is not reputed (as determined in good faith by Lender in its sole discretion) to have substantial business or other affiliations with an organized crime figure, (iii) has not at any time filed a voluntary petition under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, (iv) as to which an involuntary petition (which was not subsequently dismissed within 60 days), has not at any time been filed under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, (v) has not at any time filed an answer consenting to or acquiescing in any involuntary petition filed against it by any other person under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, (vi) has not at any time consented to or acquiesced in or joined in an application for the appointment of a custodian, receiver, trustee or examiner for itself or any of its property, (vii) has not at any time made an assignment for the benefit of creditors, or has at any time admitted its insolvency or inability to pay its debts as they become due, and (viii) has not been found by a court of competent jurisdiction or other governmental authority in a comparable proceeding to have violated any federal or state securities laws or regulations promulgated thereunder.
Notwithstanding anything to the contrary contained in this Section, the parties shall work together, in good faith, to achieve the purposes of the Contribution Agreement, whereupon Guarantor shall be released from all liability associated with its Guaranty.
Section 5.16 Expenses. Borrower will reimburse Lender upon receipt of notice for all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender in connection with the Loan, including
(a) the preparation, negotiation, execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby and all the costs of furnishing all opinions by counsel for Borrower,
(b)Borrower’s and Lender’s ongoing performance under and compliance with the Loan Documents, including confirming compliance with environmental and insurance requirements,
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(c)the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications of or under any Loan Document and any other documents or matters requested by Lender,
(d)the filing and recording of any Loan Documents,
(e)title insurance, surveys, inspections and appraisals,
(f)the creation, perfection or protection of Lender’s Liens in the Property and the Accounts (including fees and expenses for title and lien searches, intangibles taxes, personal property taxes, Security Instrument, recording taxes, due diligence expenses, travel expenses, accounting firm fees, costs of appraisals, environmental reports and Lender’s Consultant, surveys and engineering reports),
(g)enforcing or preserving any rights in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, the Loan Documents, the Property, or any other security given for the Loan,
(h)enforcing any obligations of or collecting any payments due from Borrower under any Loan Document or with respect to the Property or in connection with any refinancing or restructuring of the Loan in the nature of a “work-out”, or any insolvency or bankruptcy proceedings and
(i)the fees and expenses of any special servicer retained in respect of the Loan.
The obligations and liabilities of Borrower under this Section 5.16 will survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents, including the acquisition of the Property by foreclosure or a conveyance in lieu of foreclosure.
Section 5.17 Indemnity. Borrower will protect, indemnify and save harmless Lender, its Affiliates and all of their respective officers, directors, stockholders, members, partners, employees, agents, successors and assigns thereof (collectively, the “Indemnified Parties”) from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including all attorneys’ fees and expenses incurred) imposed upon or incurred by or asserted against the Indemnified Parties or the Property or any part of its interest therein, by reason of the occurrence or existence of any of the following, except to the extent caused by the fraud, illegal acts, willful misconduct or gross negligence of the Indemnified Parties, EVEN IF CAUSED BY THE NEGLIGENCE OF AN INDEMNIFIED PARTY, but not if caused by the willful misconduct or gross negligence of an Indemnified Party: (a) ownership of Borrower’s interest in the Property, or any interest therein, or receipt of any Rents or other sum therefrom, (b) any accident, injury to or death of any persons or loss of or damage to property occurring on or about the Property thereto, (c) any design, construction, operation, repair, maintenance, use, non-use or condition of the Property, including claims or penalties arising from violation of any Legal Requirement or Insurance Requirement, as well as any claim based on any patent or latent defect, whether or not discoverable by Lender, and any claim the insurance as to which is inadequate, (d) any Event of Default under this Agreement or any of the other Loan Documents, (e) any performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof, (f) any negligence or tortious act or omission on the part of Borrower or any of its agents, contractors, servants, employees, sublessees, licensees or invitees, or (g) any contest of Taxes referred to in Section 5.2 hereof, or of the Legal Requirements pursuant to this Agreement. Any amounts the Indemnified Parties are legally entitled to receive under this Section which are not paid within 30 days after written demand therefor by the Indemnified Parties or Lender, setting forth in reasonable detail the amount of such demand and the basis therefor, will bear interest from the date of demand at the Interest Rate, and will, together with such interest, be part of the Debt and secured by the Security Instrument. In case any action, suit or proceeding is brought against the Indemnified Parties by reason of any such occurrence, Borrower will at Borrower’s expense resist and defend such action, suit or proceeding or will cause the same to be
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resisted and defended by counsel at Borrower’s expense for the insurer of the liability or by counsel designated by Borrower (unless disapproved by Lender promptly after Lender has been notified of such counsel), provided, however, that nothing herein will compromise the right of Lender (or any Indemnified Party) to appoint its own counsel at Borrower’s expense for its defense with respect to any action which in the reasonable opinion of counsel for such Indemnified Party presents a conflict or potential conflict between Lender and Borrower that would make such separate representation advisable, provided, further, that if Lender will have appointed separate counsel pursuant to the foregoing, Borrower will not be responsible for the expense of additional separate counsel of any other Indemnified Party unless in the reasonable opinion of Lender a conflict or potential conflict exists between such Indemnified Party and Lender. So long as Borrower is resisting and defending such action, suit or proceeding as provided above in a prudent and commercially reasonable manner, Lender and the Indemnified Parties will not be entitled to settle such action, suit or proceeding without Borrower’s consent which will not be unreasonably withheld or delayed, and claim the benefit of this Section with respect to such action, suit or proceeding and Lender agrees that it will not settle any such action, suit or proceeding without the consent of Borrower, provided, however, that if Borrower is not diligently defending such action, suit or proceeding in a prudent and commercially reasonable manner as provided above, and Lender has provided Borrower with 30 days’ prior written notice, or shorter period if mandated by the requirements of applicable law, and opportunity to correct such determination, Lender may settle such action, suit or proceeding and claim the benefit of this Section 5.17 with respect to settlement of such action, suit or proceeding. Any Indemnified Party will give Borrower prompt notice after such Indemnified Party obtains actual knowledge of any potential claim by such Indemnified Party for indemnification hereunder, provided, however, the failure to do so will not affect Borrower’s indemnification obligations hereunder. The obligations and liabilities of Borrower under this Section 5.17 will survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents, including the acquisition of the Property by foreclosure or a conveyance in lieu of foreclosure.
Section 5.18 Embargoed Person.
At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (i) none of the funds or assets of Borrower, Borrower Representative or Guarantor, whether or not used to repay the Loan, will constitute property of, or will be beneficially owned directly or, to Borrower’s best knowledge, indirectly, by any person, entity or government subject to sanctions or trade restrictions under United States law (“Embargoed Person”) that are identified on (A) the “List of Specially Designated Nationals and Blocked Persons” maintained by the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury’s FINCEN list, and/or to Borrower’s best knowledge, as of the date thereof, based upon reasonable inquiry by Borrower, on any other similar list maintained by OFAC or FINCEN pursuant to any authorizing statute (collectively, the “OFAC Laws”) including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in Borrower, Borrower Representative or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law, or the Loan made by Lender would be in violation of law, or (B) Executive Order 13224 (September 23, 2001) issued by the President of the United States (“Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism”), any related enabling legislation or any other similar Executive Orders, and (ii) no Embargoed Person will have any direct interest or, to Borrower’s best knowledge, indirect interest, of any nature whatsoever in Borrower, Borrower Representative or any Guarantor, as applicable, with the result that the investment in Borrower, Borrower Representative or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law.
At all times throughout the Term, none of any of the Borrower, Borrower Representative or Guarantor, nor any Person controlling, controlled by or under common control with any of Borrower,
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Borrower Representative or Guarantor, nor any Person having a beneficial interest in, or for whom any of the Borrower, Borrower Representative or Guarantor is acting as agent or nominee in connection with the investment, is (a) a country, territory, person or entity named on an OFAC or FINCEN list, or is a Person that resides in or has a place of business in a country or territory named on such lists, (b) a Person resident in, or organized or chartered under the laws of a jurisdiction identified as non-cooperative by the Financial Action Task Force, or (c) a Person whose funds originate from or will be routed through , an account maintained at a foreign shell bank or “offshore bank.”.
None of the Borrower, Borrower Representative or Guarantor, nor any Person controlling, controlled by or under common control with Borrower, Borrower Representative or Guarantor is a “senior political figure” or an “immediate family” member or “close associate” (as all such terms are defined below) of a senior foreign political figure within the meaning of the USA PATRIOT Act (i.e., the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, H.R. 3162, Public Law 107-56, as may be amended). For the purposes of this subsection (c), (i) “senior foreign political figure” means a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party or a senior executive of a foreign government-owned corporation, and such term also includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior political figure, (ii) “immediate family” of a senior foreign political figure includes the figure’s parents, siblings, spouse, children and in-laws, and (iii) “close associate” of a senior foreign political figure means a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.
Section 5.19 Anti-Money Laundering. At all times throughout the Term, including after giving effect to any Transfers permitted pursuant to the Loan Documents, none of the funds of Borrower, Borrower Representative or any Guarantor, as applicable, that are used to consummate this transaction or to repay the Loan will be derived from or are the proceeds of any unlawful activity, with the result that the investment in Borrower, Borrower Representative or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law or may cause any of the Property to be subject to forfeiture or seizure. Borrower has ascertained the identity of all persons and entities that have provided funds to capitalize Borrower and has conducted verification procedures which are sufficient to establish the identity and source of such funds.
Section 5.20 Easements, Rights-of-Way, and Restrictive Covenants. Borrower will not grant any easement, right-of-way, restrictive covenant or encumbrance with respect to all or any portion of the Property or Improvements without the prior written consent of Lender, which consent will not be unreasonably withheld (provided that Lender will not be required to subordinate its lien or other rights under the Loan Documents to any such easement, right-of-way, restrictive covenant or encumbrance). Borrower will at all times comply with all easement agreements, reciprocal easement agreements, declarations, restrictive covenants and any other similar types of agreements now or hereafter affecting the Property, and Borrower will not amend, modify or terminate any such easement agreements, reciprocal easement agreements, declarations, restrictive covenants or any other similar types of agreements without Lender’s prior written consent, to be exercised in its sole and absolute discretion. Borrower will not impose or consent to the imposition of any restrictive covenants, easements, or encumbrances upon the Property and Improvements (or any portions thereof) in any manner that adversely affects in any material respect the value, utility or transferability of the Property and Improvements.
Section 5.21 Use and Operation of the Property. Borrower will not do any of the following:
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change the use of the Property or Improvements, or any portion thereof or take any steps whatsoever to convert the Property or Improvements, or any portion thereof, to a condominium or cooperative form of management or ownership,
without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Property, regardless of the depth thereof or the method of mining or extraction thereof,
initiate or support any limiting change in the permitted uses of the Property and Improvements (or to the extent applicable, zoning reclassification of the Property and Improvements) or any portion thereof, seek any variance under existing land-use restrictions, laws, rules or regulations (or, to the extent applicable, zoning ordinances) applicable to the Property and Improvements or any portion thereof, or use or permit the use of the Property and Improvements in a manner that would result in the use of the Property and Improvements becoming a nonconforming use under applicable land-use restrictions or zoning ordinances or that would violate the terms of any Lease, Legal Requirement or Permitted Encumbrance,
consent to any modification, amendment or supplement to any of the terms of any Permitted Encumbrance in a manner adverse to the interests of Lender,
execute or file any subdivision plat affecting the Property and Improvements (or any portion thereof), or institute, or permit the institution of, proceedings to alter any tax lot comprising the Property and Improvements,
permit or consent to the Property’s (or any portion thereof) being used by the public or any Person in such manner as might make possible a claim of adverse usage or possession or of any implied dedication or easement, or
without the prior written consent of Lender, enter into any Material Agreement.
Section 5.22 Franchise Agreement
Borrower will cause the hotel located on the Property to be operated pursuant to the Franchise Agreement.
Borrower will (i) promptly perform and/or observe all of the covenants and agreements required to be performed and observed by it under the Franchise Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder, (ii) promptly notify Lender of any default under the Franchise Agreement of which it is aware, (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received by it under the Franchise Agreement, and (iv) promptly enforce the performance and observance of all of the covenants and agreements required to be performed and/or observed by the Franchisor under the Franchise Agreement.
If Borrower will enter into any new or amended Franchise Agreement, Lender will receive within 30 days following the execution of such Franchise Agreement a Subordination Agreement from the Franchisor which is in form and substance reasonably acceptable to Lender and, without limiting the foregoing, pursuant to which Franchisor will agree (i) that Lender will have the right, but not the obligation, to cure any defaults under the Franchise Agreement, (ii) to give Lender written notice of, and a reasonable time to cure, any default of Borrower under the Franchise Agreement, (iii) not to assert against Lender any defaults which by their nature are personal to Borrower and not curable by Lender, (iv) to allow Lender, at Lender’s option, to either terminate the Franchisor upon the occurrence of an Event of Default or to require Franchisor to attorn to enter into a new Franchise Agreement with Lender on substantially the same terms as the existing Franchise Agreement, (v) that, if Lender or its Affiliate will
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acquire title to the Property, Lender or its Affiliate will have an option to succeed to the interest of Borrower under the Franchise Agreement without payment of any fees to Franchisor, (vi) that the Franchise Agreement will remain in effect during any foreclosure proceedings by Lender provided Lender cures all monetary defaults under the Franchise Agreement, (vii) not to modify, cancel, surrender or otherwise terminate the Franchise Agreement during the Term without the consent of Lender, and (viii) that if Lender or its Affiliate succeeds to Borrower’s interest under the Franchise Agreement, Lender may assign its rights therein to any entity which acquires the Property from Lender or its Affiliate (subject to Franchisor’s reasonable approval).
Borrower will not, without Lender’s prior written consent (i) surrender, terminate or cancel the Franchise Agreement, (ii) reduce or consent to the reduction of the term of the Franchise Agreement, (iii) increase or consent to the increase of the amount of any charges under the Franchise Agreement, or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, the Franchise Agreement.
Without in any way limiting the covenants set forth in the Loan Documents, Borrower will: (i) cause the hotel located on the Property to be operated, repaired and maintained as a well-maintained hotel, providing amenities, services and facilities substantially equivalent to hotels of similar average room rate and targeted market segment from time to time operating in the same or comparable geographic area of the Property, taking into consideration the age and location of the hotel located on the Property and (ii) maintain Inventory in amounts sufficient to meet the hotel industry standard for hotels comparable to the hotel located on the Property and at levels sufficient for the operation of the hotel located on the Property at full occupancy levels.
Section 5.23 Hospitality License Covenants. Borrower will maintain, or cause Manager to maintain, all hospitality licenses required to operate the Property as operating on the Effective Date. Borrower will cause Manager to maintain a liquor license and all other necessary hospitality licenses in full force and effect throughout the term of the Loan.
Section 5.24 Operating Lease Covenants.
Borrower represents, covenants and warrants that it is the express intent of SPE Owner and TRS Lessee that the Operating Lease constitute a lease under applicable real property laws and laws governing bankruptcy, insolvency and creditors’ rights generally, and that the sole interest of TRS Lessee in the Property is as tenant under the Operating Lease. In the event that is will be determined that the Operating Lease is not a lease under applicable real property laws and laws governing bankruptcy, insolvency and creditors’ rights generally, and that the interest of TRS Lessee in the Property is other than that of tenant under the Operating Lease, then Borrower hereby covenants and agrees that it will cause TRS Lessee’s interest in the Property, however characterized , to continue to be subject and subordinate to the lien of the Security Instrument on all of the same terms and conditions as contained in the Operating Lease. The Operating Lease and any and all rights and interests of TRS Lessee thereunder and to the Property are and shall be in all respects subject and subordinate to the lien and security interests created under the Security Instrument and other Loan Documents, and to all renewals, extensions, increases, supplements, amendments, modifications and replacements of any of the foregoing and any advances made thereunder.
Without Lender’s prior written consent, Borrower will not (i) surrender, terminate or cancel the Operating Lease, (ii) reduce or consent to the reduction of the term of the Operating Lease, (iii) increase or consent to the increase of the amount of any charges under the Operating Lease, (iv) modify, change, supplement, alter or amend the Operating Lease or waive or release any of SPE Owner’s rights and remedies under the Operating Lease, or (v) waive, excuse, condone or in any way release or discharge TRS Lessee of or from TRS Lessee’s obligations, covenants and/or conditions under the Operating Lease.
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Borrower will, from time to time, deliver to Lender such certificates of estoppel with respect to compliance by Borrower with the terms of the Operating Lease as may be requested by Lender.
Article VI Notices And Reporting
Section 6.1 Notices. Any notice, demand, request, approval, consent, or other communication made from or to a party as required by, permitted by, or contemplated in this Agreement (each a “Notice”) will only be effective if (i) it is in writing and (ii) the intended recipient actually receives it or is deemed to have received it in accordance with this paragraph. A Notice will be deemed received (x) if sent by local or overnight courier to the Recipient’s Address, upon delivery or first attempted delivery and (y) if sent by registered or certified first class mail, return receipt requested, two business days after deposit in the mail. If, however, a provision in this Agreement specifies different methods and requirements regarding a particular Notice, such provision will control with regard to the specified Notice. “Recipient’s Address” means the recipient’s address identified below as the recipient’s notice address (or as its address, if a separate notice address is not specified), or a new address identified in a Notice from the recipient to the sending party at least ten days before the date of the sending party’s Notice.
To Lender:
Legendary A-1 Bonds, LLC
c/o Legendary Capital
Attn: General Counsel
1635 43rd Street South, Suite 205
Fargo, North Dakota  58103
Email:  lerickson@legendarycap.com
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With a copy to:
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Foley & Lardner LLP
Attn:  Clifton M. Dugas, II
2021 McKinney Ave., Suite 1600
Dallas, Texas  75201
Email:  cdugas@foley.com
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To Borrower:
LF3 Lakewood, LLC
LF3 Lakewood TRS, LLC
Attn: Ryan Rued
1635 43rd Street South, Suite 205
Fargo, North Dakota  58103
Email:  rrued@legendarycap.com
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With a copy to:
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durellaw PLC
Attn:  John H. Faris
644 Lovett SE, Suite B
Grand Rapids, MI 49506
Email:  jhf@durellaw.com
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Section 6.2 Borrower Notices and Deliveries. Borrower will (a) give prompt written notice to Lender of: (i) any litigation, governmental proceedings or claims or investigations pending or threatened against Borrower or Borrower Representative which might materially adversely affect the Property or Borrower’s or Borrower Representative’s condition (financial or otherwise), business, operations or assets, (ii) any event or circumstance resulting in, or which would reasonably be expected to result in, a material adverse change in the Property or Borrower’s or Borrower Representative’s condition (financial or otherwise), business, operations or assets, or of the occurrence of any Default or Event of Default of which Borrower has knowledge, together with a detailed statement of the steps being taken to cure such Default or Event of Default, and (b) furnish and provide to Lender: all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, reasonably requested, from time to time, by Lender. In addition, after request by Lender (but no more frequently than twice in any year), Borrower will furnish to Lender (x) within ten days, a certificate addressed to Lender, its successors and assigns reaffirming all representations and warranties of Borrower set forth in the Loan Documents as of the date requested by Lender or, to the extent of any changes to any such representations and warranties, so stating such changes, and (y) within 30 days, tenant estoppel certificates addressed to Lender, its successors and assigns from each tenant at the Property in form and substance reasonably satisfactory to Lender.
Section 6.3 Financial Reporting.
(a)Bookkeeping. Borrower will keep or cause Manager to keep on a calendar year basis, in accordance with GAAP and the Uniform System of Accounts for Hotels, proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and all items of income and expense and any services, Personalty or furnishings provided in connection with the operation of the Property, whether such income or expense is realized by Borrower, Manager or any Affiliate of Borrower. Lender will have the right from time to time during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower or other Person maintaining them, and to make such copies or extracts thereof as Lender will desire. After an Event of Default which remains uncured, Borrower will pay any costs incurred by Lender to examine such books, records and accounts, as Lender will determine to be necessary or appropriate in the protection of Lender’s interest.
(b)Quarterly Reports. Borrower will furnish to Lender within 45 days after the end of each calendar quarter (excluding the last fiscal quarter in each fiscal year) (i) complete financial statements for the fiscal quarter then ended, and (ii) copies of the most recent Franchisor quality assurance reports available to Borrower.  Financial statements are to include standard hotel data of rooms sold and rooms available for the fiscal quarter and gross revenue breakdown of room revenue from other review for such period.
(c)Annual Reports. Borrower will furnish to Lender annually, within 90 days after each calendar year, a complete copy of Borrower’s annual audited financial statements prepared by a “big four” accounting firm or a regional accounting firm reasonably acceptable to Lender, each in accordance with GAAP and the Uniform System of Accounts for Hotels and containing balance sheets and statements of profit and loss for Borrower and the Property in such detail as Lender may reasonably request. Each such statement (i) will be in form and substance satisfactory to Lender, (ii) will set forth the financial condition and the income and expenses for the Property on a monthly basis for the immediately preceding calendar year, including statements of annual Net Cash Flow as well as a list of tenants and (iii) will be accompanied by an Officer’s Certificate certifying (A) that such statement is true, correct, complete and accurate in all material respects and presents fairly the financial condition of the Property and has been prepared in accordance with GAAP and the Uniform System of Accounts for Hotels and (B) whether there exists a Default or Event of Default, and if so, the nature thereof, the period of time it has existed and the action then being taken to remedy it.
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(d)Other Reports. Borrower will furnish to Lender (x) within five Business Days of receipt, any notices or reports received from Manager pursuant to the Management Agreement and/or the Franchise Agreement and (y) within ten Business Days after request, such further detailed information with respect to the operation of the Property and the financial affairs of Borrower or Borrower Representative as may be reasonably requested by Lender.
Article VII Insurance, Casualty, And Condemnation
Section 7.1 Insurance.
(a)Coverage. Borrower shall obtain and keep in full force and effect insurance of the types and in amounts customarily carried in lines of business and in geographic areas similar to Borrower's and as Lender may specify from time to time including insurance of the types and in amounts specified in the Insurance Requirements Agreement, which may specify, among other things, (i) property insurance; (ii) business income insurance; (iii) builder's risk insurance, for any period during which construction shall take place on the Property; (iv) commercial general liability insurance, including excess/umbrella coverage and, if liquor, beer, or wine may be sold at or from the Property, liquor liability coverage; (v) worker’s compensation insurance; (vi) flood insurance; (vii) earthquake insurance, for Property located in an area designated by the US Geological Survey as high hazard; and (viii) such other policies and coverages as may be necessary to comply with Applicable Law or as Lender may otherwise require. Each required insurance policy and coverage (each, a “Policy”) and each required binder, certificate, or other evidence of coverage (collectively, with the Policy, the “Policy Documents”) shall satisfy the requirements set forth in this Section and in any Insurance Requirements Agreement (collectively, the “Insurance Requirements”), unless, in a particular case, Lender, in its sole discretion and in writing, modifies or waives a particular Insurance Requirement. All Insurance Requirements are at the sole cost and expense of Borrower and apply to each Property.
(b)Policy Requirements. All policies of insurance (the “Policies”) required pursuant to Section 7.1.1 will (i) be issued by companies approved by Lender and licensed to do business in the State, with a rating of A/X or better in the current Best’s Insurance Reports, (ii) name Lender and its successors and/or assigns as their interest may appear as the mortgagee (in the case of property insurance) or an additional insured (in the case of liability insurance), (iii) contain (in the case of property insurance) a Non-Contributory Standard Mortgagee Clause and a Lender’s Loss Payable Endorsement, or their equivalents, naming Lender as the Person to which all payments made by such insurance company will be paid, (iv) contain a waiver of subrogation against Lender, (v) be assigned and the originals thereof delivered to Lender, (vi) contain such provisions as Lender deems reasonably necessary or desirable to protect its interest, including (A) endorsements providing that neither Borrower, Lender nor any other party will be a co-insurer under the Policies, (B) that Lender will receive at least 30 days’ prior written notice of any modification, reduction or cancellation of any of the Policies, (C) an agreement whereby the insurer waives any right to claim any premiums and commissions against Lender, provided that the policy need not waive the requirement that the premium be paid in order for a claim to be paid to the insured and (D) providing that Lender is permitted to make payments to effect the continuation of such policy upon notice of cancellation due to non-payment of premiums, (vii) in the event any insurance policy (except for general public and other liability and worker’s compensation insurance) will contain breach of warranty provisions, such policy will provide that with respect to the interest of Lender, such insurance policy will not be invalidated by and will insure Lender regardless of (A) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (B) the occupancy or use of the premises for purposes more hazardous than permitted by the terms thereof, or (C) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of the Loan Documents, and (viii) be satisfactory in form and substance to Lender and approved by Lender as to amounts, form, risk coverage, deductibles, loss payees and insureds. Borrower will pay the premiums for such Policies (the “Insurance Premiums”) prior to or upon the closing of the Loan and furnish to Lender
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evidence of the renewal of each of the Policies together with (unless such Insurance Premiums have been paid by Lender under this Agreement) receipts for or other evidence of the payment of the Insurance Premiums reasonably satisfactory to Lender. If Borrower does not furnish such evidence and receipts at least 30 days prior to the expiration of any expiring Policy, then Lender may, but will not be obligated to, procure such insurance and pay the Insurance Premiums therefor, and Borrower will reimburse Lender for the cost of such Insurance Premiums promptly on demand, with interest accruing at the Interest Rate. Borrower will deliver to Lender a certified copy of each Policy within 30 days after its effective date. Within 30 days after request by Lender, Borrower will obtain such increases in the amounts of coverage required hereunder as may be reasonably requested by Lender, taking into consideration changes in the value of money over time, changes in liability laws, changes in prudent customs and practices, and the like.
Section 7.2 Casualty.
(a)Notice, Restoration. If the Property is damaged or destroyed, in whole or in part, by fire or other casualty (a “Casualty”), Borrower will give prompt notice thereof to Lender. Following the occurrence of a Casualty, Borrower, regardless of whether insurance proceeds are available, will promptly proceed to restore, repair, replace or rebuild the Property in accordance with Legal Requirements to be of at least equal value and of substantially the same character as prior to such damage or destruction.
(b)Settlement of Proceeds. If a Casualty covered by any of the Policies (an “Insured Casualty”) occurs where the loss does not exceed $250,000, provided no Default or Event of Default has occurred and is continuing, Borrower may settle and adjust any claim without the prior consent of Lender, provided such adjustment is carried out in a competent and timely manner, and Borrower is hereby authorized to collect and receive the insurance proceeds (the “Proceeds”). In the event of an Insured Casualty where the loss equals or exceeds $250,000 (a “Significant Casualty”) or if an Event of Default exists, Lender may, in its sole discretion, settle and adjust any claim without the consent of Borrower and agree with the insurer(s) on the amount to be paid on the loss, and the Proceeds will be due and payable solely to Lender and held by Lender in the Casualty/Condemnation Subaccount and disbursed in accordance herewith. If Borrower or any party other than Lender is a payee on any check representing Proceeds with respect to a Significant Casualty, Borrower will immediately endorse, and cause all such third parties to endorse, such check payable to the order of Lender. Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to endorse such check payable to the order of Lender. The expenses incurred by Lender in the settlement, adjustment and collection of the Proceeds will become part of the Debt and will be reimbursed by Borrower to Lender upon demand.
Section 7.3 Condemnation.
(a)Notice, Restoration. Borrower will promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting the Property (a “Condemnation”) and will deliver to Lender copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Borrower, regardless of whether an Award is available, will promptly proceed to restore, repair, replace or rebuild the Property in accordance with Legal Requirements to the extent practicable to be of at least equal value and of substantially the same character (and to have the same utility) as prior to such Condemnation.
(b)Collection of Award. Lender is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any award or payment in respect of a Condemnation (an “Award”) and to make any compromise, adjustment or settlement in connection with such Condemnation. Notwithstanding any Condemnation (or any transfer made in lieu of or in anticipation of such Condemnation), Borrower will continue to pay the Debt at the time and in the manner provided for in the Loan Documents, and the Debt will not be reduced unless and until any
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Award will have been actually received and applied by Lender to expenses of collecting the Award and to discharge of the Debt. Lender will not be limited to the interest paid on the Award by the condemning authority but will be entitled to receive out of the Award interest at the rate or rates provided in the Note. If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of such Award, Lender will have the right, whether or not a deficiency judgment on the Note will be recoverable or will have been sought, recovered or denied, to receive all or a portion of the Award sufficient to pay the Debt. Borrower will cause any Award that is payable to Borrower to be paid directly to Lender. Lender will hold such Award in the Casualty/Condemnation Subaccount and disburse such Award in accordance with the terms hereof.
Section 7.4 Application of Proceeds or Award.
(a)Application to Restoration. If an Insured Casualty or Condemnation occurs where (i) the loss is in an aggregate amount less than (x) 30 percent of the unpaid Principal in the event of an Insured Casualty or (y) 15 percent of the unpaid Principal in the event of a Condemnation, (ii) in the reasonable judgment of Lender, the Property can be restored within six (6) months, and prior to six (6) months before the Stated Maturity Date and prior to the expiration of the rental or business interruption insurance with respect thereto, to the Property’s pre-existing condition and utility as existed immediately prior to such Insured Casualty or Condemnation and to an economic unit not less valuable and not less useful than the same was immediately prior to the Insured Casualty or Condemnation, and after such restoration will adequately secure the Debt and (iii) no Default or Event of Default will have occurred and be then continuing, then the Proceeds or the Award, as the case may be (after reimbursement of any expenses incurred by Lender), will be applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Property (the “Restoration”), in the manner set forth herein. Borrower will commence and diligently prosecute such Restoration. Notwithstanding the foregoing, in no event will Lender be obligated to apply the Proceeds or Award to reimburse Borrower for the cost of Restoration unless, in addition to satisfaction of the foregoing conditions, both (x) Borrower will pay (and if required by Lender, Borrower will deposit with Lender in advance) all costs of such Restoration in excess of the net amount of the Proceeds or the Award made available pursuant to the terms hereof, and (y) Lender will have received evidence reasonably satisfactory to it that during the period of the Restoration, the Rents will be at least equal to the sum of the operating expenses and Debt Service, as reasonably determined by Lender.
(b)Application to Debt. Except as provided in Section 7.4, any Proceeds and/or Award may, at the option of Lender in its discretion, be applied to the payment of (i) accrued but unpaid interest on the Note, (ii) the unpaid Principal and (iii) other charges due under the Note and/or any of the other Loan Documents, or applied to reimburse Borrower for the cost of any Restoration, in the manner set forth in Section 7.4(c).
(c)Procedure for Application to Restoration. If Borrower is entitled to reimbursement out of the Proceeds or an Award held by Lender, such Proceeds or Award will be disbursed from time to time from the Casualty/Condemnation Subaccount upon Lender being furnished with (i) evidence satisfactory to Lender of the estimated cost of completion of the Restoration, (ii) a fixed price or guaranteed maximum cost construction contract for Restoration satisfactory to Lender, (iii) prior to the commencement of Restoration, all immediately available funds in addition to the Proceeds or Award that in Lender’s judgment are required to complete the proposed Restoration, (iv) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey, permits, approvals, licenses and such other documents and items as Lender may reasonably require and approve in Lender’s discretion, (v) all plans and specifications for such Restoration, such plans and specifications to be approved by Lender prior to commencement of any work and (vi) Lender will be satisfied that the Restoration will be completed in accordance with any requirements under the Franchise Agreement. Lender may, at Borrower’s expense, retain a consultant to review and approve all requests for disbursements, which approval will also be a condition precedent to any disbursement. No payment made
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prior to the final completion of the Restoration will exceed 90 percent of the value of the work performed from time to time, funds other than the Proceeds or Award will be disbursed prior to disbursement of such Proceeds or Award, and at all times, the undisbursed balance of such Proceeds or Award remaining in the hands of Lender, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Lender by or on behalf of Borrower for that purpose, will be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the Restoration, free and clear of all Liens or claims for Lien. Provided no Default or Event of Default then exists, any surplus that remains out of the Proceeds held by Lender after payment of such costs of Restoration will be paid to Borrower. Any surplus that remains out of the Award received by Lender after payment of such costs of Restoration will, in the discretion of Lender, be retained by Lender and applied to payment of the Debt.
Article VIII Defaults
Section 8.1 Events of Default. An “Event of Default” will exist with respect to the Loan if any of the following occur:
(a)any portion of the Debt due hereunder is not paid when due or any other amount under Section 3.10(a)(i) through (vi) is not paid in full on each Payment Date,
(a)any Taxes are not paid prior to delinquency (unless Lender is paying such Taxes pursuant to Section 3.3),
(d)the Policies are not kept in full force and effect, or are not delivered to Lender upon request,
(e)a Transfer other than a Permitted Transfer occurs,
(f)any representation or warranty made by Borrower or Guarantor or in any Loan Document, or in any report, certificate, financial statement or other instrument, agreement, or document furnished by Borrower or Guarantor in connection with any Loan Document, is false or misleading in any material respect as of the date the representation or warranty was made,
(g)Borrower, Borrower Representative, or Guarantor makes an assignment for the benefit of creditors, is generally not paying its debts as they become due, or admits in writing its inability to pay its debts as they become due,
(h)a receiver, liquidator, or trustee will be appointed for Borrower, Borrower Representative or Guarantor, or Borrower, Borrower Representative or Guarantor will be adjudicated a bankrupt or insolvent, or any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, will be filed by or against, consented to, orchestrated or participated in the orchestration of, acquiesced in by, aided, solicited or supported by, colluded to be caused by, or failed to be contested by Borrower, Borrower Representative or Guarantor, as the case may be, or any proceeding for the dissolution or liquidation of Borrower, Borrower Representative or Guarantor will be instituted, provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to, not aided, solicited, supported, colluded to be caused or orchestrated by, not participated in the orchestration of by, not acquiesced in by, and properly contested by Borrower, Borrower Representative or Guarantor, as the case may be, only upon the same not being discharged, stayed or dismissed within 60 days,
(i)Borrower breaches any covenant contained in any of Sections 5.7, 5.12, 5.13, 5.14, 5.18, 5.19, 5.20, 5.21, or 6.3,
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(i)except as expressly permitted in this Agreement, the actual or threatened alteration, improvement, demolition, or removal of all or any of portion of the Improvements without the prior written consent of Lender,
(k)an Event of Default as defined or described elsewhere in this Agreement or in any other Loan Document occurs, or any other event will occur or condition will exist, if the effect of such event or condition is to accelerate or to permit Lender to accelerate the maturity of any portion of the Debt,
(l)a default occurs under any term, covenant or provision set forth herein or in any other Loan Document which specifically contains a notice requirement or grace period and such notice has been given and such grace period has expired,
(m)any of the assumptions contained in any substantive non-consolidation opinion, delivered to Lender by Borrower’s counsel in connection with the Loan or otherwise hereunder, were not true and correct as of the date of such opinion or thereafter became untrue or incorrect,
(n)a default is continuing under any of the other terms, covenants or conditions of this Agreement or any other Loan Document not otherwise specified in this Section 8.1, for five days after notice to Borrower (and Guarantor, if applicable) from Lender, in the case of any default which can be cured by the payment of a sum of money, or for 30 days after notice from Lender in the case of any other default, provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within such 30 day period, and Borrower (or Guarantor, if applicable) will have commenced to cure such default within such 30 day period and thereafter diligently and expeditiously proceeds to cure the same, such 30 day period will be extended for an additional period of time as is reasonably necessary for Borrower (or Guarantor, if applicable) in the exercise of due diligence to cure such default, such additional period not to exceed 30 days.
(o)Guarantor breaches any of the covenants contained in the Guaranty, or
(p)a default by Borrower has occurred and continues beyond any applicable cure period under the Management Agreement (or any successor management agreement) or the Franchise Agreement.
Section 8.2 Remedies.
(a)Acceleration. Upon the occurrence of an Event of Default (other than an Event of Default described in paragraph (f) or (g) of Section 8.1) and at any time and from time to time thereafter, so long as such Event of Default remains uncured, in addition to any other rights or remedies available to it pursuant to the Loan Documents or at law or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in and to the Property, including declaring the Debt to be immediately due and payable (including unpaid interest and any other amounts owing by Borrower), without notice or demand, and upon any Event of Default described in paragraph (f) or (g) of Section 8.1, the Debt (including unpaid interest and any other amounts owing by Borrower) will immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained in any Loan Document to the contrary notwithstanding. Notwithstanding anything to the contrary set forth herein, after the occurrence of an Event of Default, Lender may accept or reject the tender of cure for such Event of Default in its sole and absolute discretion.
(b)Remedies Cumulative. Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under the Loan Documents or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt will be declared, or be automatically, due and payable, and whether
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or not Lender will have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents. Any such actions taken by Lender will be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth in the Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing, (i) to the extent permitted by applicable law, Lender is not subject to any “one action” or “election of remedies” law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Lender will remain in full force and effect until Lender has exhausted all of its remedies against the Property, the Security Instrument has been foreclosed, the Property has been sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. To the extent permitted by applicable law, nothing contained in any Loan Document will be construed as requiring Lender to resort to any portion of the Property for the satisfaction of any of the Debt in preference or priority to any other portion, and Lender may seek satisfaction out of the entire Property or any part thereof, in its discretion.
(c)Delay. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default, or the granting of any indulgence or compromise by Lender will impair any such remedy, right or power hereunder or be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default will not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon. Notwithstanding any other provision of this Agreement, Lender reserves the right to seek a deficiency judgment or preserve a deficiency claim in connection with the foreclosure of the Security Instrument to the extent necessary to foreclose on all or any portion of the Property, the Rents, the Accounts or any other collateral.
(d)Lender’s Right to Perform. If Borrower fails to perform any covenant or obligation contained herein and such failure will continue for a period of five Business Days after Borrower’s receipt of written notice thereof from Lender, without in any way limiting Lender’s right to exercise any of its rights, powers or remedies as provided hereunder, or under any of the other Loan Documents, Lender may, but will have no obligation to, perform, or cause performance of, such covenant or obligation, and all costs, expenses, liabilities, penalties and fines of Lender incurred or paid in connection therewith will be payable by Borrower to Lender upon demand and if not paid will be added to the Debt (and to the extent permitted under applicable laws, secured by the Security Instrument and other Loan Documents) and will bear interest thereafter at the Interest Rate. Notwithstanding the foregoing, Lender will have no obligation to send notice to Borrower of any such failure.
Article IX Miscellaneous
Section 9.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto will survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and will continue in full force and effect so long as any of the Debt is unpaid or such longer period if expressly set forth in this Agreement. All Borrower’s covenants and agreements in this Agreement will inure to the benefit of the respective legal representatives, successors and assigns of Lender.
Section 9.2 Lender’s Discretion. Whenever pursuant to this Agreement or any other Loan Document, Lender exercises any right given to it to approve or disapprove, or consent or withhold consent, or decide whether any arrangement or term is to be satisfactory to Lender or is to be in Lender’s discretion, the decision of Lender to approve or disapprove, to consent or withhold consent, or to decide whether arrangements or terms are satisfactory or not satisfactory, or acceptable or unacceptable or in Lender’s
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discretion will (except as is otherwise specifically herein provided) be in the sole discretion of Lender and will be final and conclusive.
Section 9.3 Rules of Construction. In this Agreement and each other Loan Document, (a) a capitalized term that is not defined in this Agreement, but is defined in another Loan Document, will have the meaning ascribed to it in the other Loan Document, (b) headings of articles, sections, paragraphs, and other subdivisions of this Agreement (each a “subdivision”) are for convenience only and do not modify the meaning of the text following a heading, (c) each Exhibit, Schedule, Attachment, Annex, and other attachment to this Agreement (each an “attachment”) is incorporated into the Loan Document to which it is attached, (d) unless reference is made to another document, a reference to a subdivision or attachment refers to such subdivision of or attachment to the Loan Document containing the reference, (e) a capitalized term that refers to another document or a Legal Requirement refers to such document or a Legal Requirement as renewed, extended, supplemented, amended, or modified at any time, (f) a word indicating a particular gender includes all genders and a word indicating the singular include the plural and vice versa, unless the context otherwise requires, (g) the rule of ejusdem generis will not be applied to limit the generality of any term when followed by specific examples, and the words “include”, “including”, and similar terms will be construed as if followed by “without limitation to”, (h) consent of or notice to any Person means prior written consent and prior written notice, respectively, (i) “year” means a calendar year, unless otherwise specified, and (j) ”party” means a party to such Loan Document.
Section 9.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement or of any other Loan Document, nor consent to any departure by Borrower therefrom, will in any event be effective unless the same will be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent will be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to or demand on Borrower will entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under any other Loan Document, will operate as or constitute a waiver thereof, nor will a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under any Loan Document, Lender will not be deemed to have waived any right either to require prompt payment when due of all other amounts due under the Loan Documents, or to declare an Event of Default for failure to effect prompt payment of any such other amount.
Section 9.5 Time of Essence. Time is of the essence as to all obligations created by and all notices required by this Agreement
Section 9.6 WAIVER OF JURY TRIAL. EACH PARTY WAIVES ITS RIGHT TO A JURY TRIAL FOR ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MIGHT BE FILED IN A COURT AND THAT RELATE TO THE SUBJECT MATTER OF THE TRANSACTION ARISING OUT OF THE LOAN DOCUMENTS, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP AND THE PARTIES HAVE EACH RELIED ON THIS WAIVER IN ENTERING INTO THE LOAN DOCUMENTS. EACH PARTY WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IF LITIGATION OCCURS, THIS WAIVER AND THE AGREEMENT IN WHICH IT IS CONTAINED MAY BE FILED AS A CONSENT TO A TRIAL BY THE COURT.
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Section 9.7 Severability. The invalidity or unenforceability of one or more covenants, terms, or conditions in this Agreement will not affect the remainder of this Agreement.
Section 9.8 Preferences. Upon the occurrence and continuance of an Event of Default, Lender will have the continuing and exclusive right to apply or reverse and reapply (or having so applied, to reverse and reapply) any and all payments by Borrower to any portion of the Debt. To the extent Borrower makes a payment to Lender, or Lender receives proceeds of any collateral, which is in whole or in part subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Debt or part thereof intended to be satisfied will be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. This provision will survive the expiration or termination of this Agreement and the repayment of the Debt.
Section 9.9 Waiver of Notice. Borrower will not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or any other Loan Document specifically and expressly requires the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which no Loan Document specifically and expressly requires the giving of notice by Lender to Borrower.
Section 9.10 Remedies of Borrower. If a claim or adjudication is made that Lender or any of its agents,, has acted unreasonably or unreasonably delayed acting in any case where by law or under any Loan Document, Lender or any such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents will be liable for any monetary damages, and Borrower’s sole remedy will be to commence an action seeking injunctive relief or declaratory judgment. Any action or proceeding to determine whether Lender has acted reasonably will be determined by an action seeking declaratory judgment. Borrower specifically waives any claim against Lender and its agents with respect to actions taken by Lender or its agents on Borrower’s behalf.
Section 9.11 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements, understandings and negotiations among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents.
Section 9.12 Offsets, Counterclaims and Defenses. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents or otherwise offset any obligations to make payments required under the Loan Documents. Any assignee of Lender’s interest in and to the Loan Documents will take the same free and clear of all offsets, counterclaims or defenses which Borrower may otherwise have against any assignor of such documents, and no such offset, counterclaim or defense will be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents, and any such right to interpose or assert any such offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower.
Section 9.13 No Usury. Borrower and Lender intend at all times to comply with applicable state law or applicable United States federal law (to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under state law) and that this Section 9.13 will control every other agreement in the Loan Documents. If the applicable law (state or federal) is ever judicially interpreted so as to render usurious any amount called for under the Note or any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Debt, or if Lender’s exercise of the
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option to accelerate the maturity of the Loan or any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by applicable law, then it is Borrower’s and Lender’s express intent that all excess amounts theretofore collected by Lender will be credited against the unpaid Principal and all other Debt (or, if the Debt has been or would thereby be paid in full, refunded to Borrower), and the provisions of the Loan Documents immediately be deemed reformed and the amounts thereafter collectible thereunder reduced, without the necessity of the execution of any new document, so as to comply with applicable law, but so as to permit the recovery of the fullest amount otherwise called for thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Loan will, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Notwithstanding anything to the contrary contained in any Loan Document, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.
Section 9.14 Conflict, Construction of Documents. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement will control. The parties hereto acknowledge that each is represented by separate counsel in connection with the negotiation and drafting of the Loan Documents and that the Loan Documents will not be subject to the principle of construing their meaning against the party that drafted them.
Section 9.15 No Third Party Beneficiaries. The Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in any Loan Document will be deemed to confer upon anyone other than the Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained therein.
Section 9.16 Joint and Several Liability. If more than one Person has executed this Agreement as “Borrower,” the representations, covenants, warranties and obligations of all such Persons hereunder will be joint and several. Each entity that constitutes Borrower acknowledges and agrees that it will be jointly and severally liable for the Loan and all other Obligations arising under this Agreement and/or any of the other Loan Documents. In furtherance thereof, each Borrower acknowledges and agrees as follows:
For the purpose of implementing the joint borrower provisions of the Loan Documents, each Borrower hereby irrevocably appoints each other Borrower as its agent and attorney-in-fact for all purposes of the Loan Documents, including the giving and receiving of notices and other communications.
To induce Lender to make the Loan, and in consideration thereof, each Borrower hereby agrees to indemnify Lender against, and hold Lender harmless from, any and all liabilities, expenses, losses, damages and/or claims of damage or injury asserted against Lender by any Borrower or by any other Person arising from or incurred by reason of (i) reliance by Lender on any requests or instructions from any Borrower, or (ii) any other action taken by Lender in good faith with respect to this Agreement or the other Loan Documents.
Each Borrower acknowledges that the liens and security interests created or granted herein and by the other Loan Documents will secure the Obligations of all Borrowers under the Loan Documents and, in full recognition of that fact, each Borrower consents and agrees that Lender may, at any time and from time to time, without notice or demand, and without affecting the enforceability or security hereof or of any other Loan Document:
		(i)
	agree with any Borrower to supplement, modify, amend, extend, renew, accelerate, or otherwise change the time for payment or the terms of the Obligations or any part thereof, including any increase or decrease of the rate(s) of interest thereon,

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		(ii)
	agree with any Borrower to supplement, modify, amend or waive, or enter into or give any agreement, approval or consent with respect to, the Obligations or any part thereof or any of the Loan Documents or any additional security or guaranties, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder,

		(iii)
	accept new or additional instruments, documents or agreements in exchange for or relative to any of the Loan Documents or the Obligations or any part thereof,

		(iv)
	accept partial payments on the Obligations,

		(v)
	receive and hold additional security or guaranties for the Obligations or any part thereof,

		(vi)
	release, reconvey, terminate, waive, abandon, subordinate, exchange, substitute, transfer and enforce any security for or guaranties of the Obligations, and apply any security and direct the order or manner of sale thereof as Lender, in its sole and absolute discretion, may determine,

		(vii)
	release any Person or any guarantor from any personal liability with respect to the Obligations or any part thereof, or

		(viii)
	settle, release on terms satisfactory to Lender or by operation of applicable laws or otherwise liquidate or enforce any Obligations and any security therefor or guaranty thereof in any manner, consent to the transfer of any such security and bid and purchase at any sale, and consent to the merger, change or any other restructuring or termination of the corporate existence of any Borrower or any other Person, and correspondingly restructure the obligations of such Borrower or other Person, and any such merger, change, restructuring or termination will not affect the liability of any Borrower or the continuing existence of any lien or security interest hereunder, or under any other Loan Document to which any Borrower is a party, or the enforceability hereof or thereof with respect to all or any part of the Obligations.

Upon the occurrence of and during the continuance of any Event of Default, Lender may enforce this Agreement and the other Loan Documents independently as to each Borrower and independently of any other remedy or security Lender at any time may have or hold in connection with the Obligations, and in collecting on the Loan it will not be necessary for Lender to marshal assets in favor of any Borrower or any other Person or to proceed upon or against and/or exhaust any other security or remedy before proceeding to enforce this Agreement and the other Loan Documents. Each Borrower expressly waives any right to require Lender, in connection with Lender’s efforts to obtain repayment of the Loan and other Obligations, to marshal assets in favor of any Borrower or any other Person or to proceed against any other Person or any collateral provided by any other Person, and agrees that Lender may proceed against any Persons and/or collateral in such order as it will determine in its sole and absolute discretion in connection with Lender’s efforts to obtain repayment of the Loan and other Obligations. Lender may file a separate action or actions against each Borrower to enforce the Obligations, whether action is brought or prosecuted with respect to any other security or against any other Person, or whether any other Person is joined in any such action or actions. Each Borrower agrees that Lender, each Borrower and/or any other Person may deal with each other in connection with the Obligations or otherwise, or alter any contracts or agreements now or hereafter existing among any of them, in any manner whatsoever, all without in any way altering or affecting the security of this Agreement or the other Loan Documents. The rights of Lender hereunder and under the other Loan Documents will be reinstated and revived, and the enforceability of this Agreement and the other Loan Documents will continue, with respect to any amount
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LOAN AGREEMENT, PAGE 40

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at any time paid on account of the Obligations, which thereafter will be required to be restored or returned by Lender as a result of the bankruptcy, insolvency or reorganization of any Borrower or any other Person, or otherwise, all as though such amount had not been paid. The enforceability of this Agreement and the other Loan Documents at all times will remain effective even though any or all Obligations, or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against any Borrower or any other Person and whether or not any Borrower or any other Person will have any personal liability with respect thereto. Each Borrower expressly waives any and all defenses to the enforcement of its Obligations under the Loan Documents now or hereafter arising or asserted by reason of (i) any disability or other defense of any Borrower or any other Person with respect to the Obligations, (ii) the unenforceability or invalidity of any security or guaranty for the Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Obligations, (iii) the cessation for any cause whatsoever of the liability of any Borrower or any other Person (other than by reason of the full and final payment and performance of all Obligations), (iv) any failure of Lender to marshal assets in favor of any of the Borrowers or any other Person, (v) any failure of Lender to give notice of sale or other disposition of any Collateral or Pledged Collateral for the Obligations to Borrower or to any other Person or any defect in any notice that may be given in connection with any such sale or disposition, (vi) any failure of Lender to comply in any non-material respect with applicable laws in connection with the sale or other disposition of any collateral or other security for any Obligation, (vii) any act or omission of Lender or others that directly or indirectly results in or aids the discharge or release of any Borrower or of any other Person or of any of the Obligations or any other security or guaranty therefor by operation of law or otherwise, (viii) any law that provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety’s or guarantor’s obligation in proportion to the principal obligation, (ix) any failure of Lender to file or enforce a claim in any bankruptcy or similar proceeding with respect to any Person, (x) the election by Lender, in any bankruptcy or similar proceeding of any Person, of the application or non-application of Section 1111(b)(2) of the Bankruptcy Code, (xi) any extension of credit or the grant of any lien under Section 364 of the Bankruptcy Code except to the extent otherwise provided in this Agreement, (xii) any use of cash collateral under Section 363 of the Bankruptcy Code, (xiii) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy or similar proceeding of any Person, (xiv) the avoidance of any lien or security interest in favor of Lender securing the Obligations for any reason, or (xv) any bankruptcy or similar proceeding commenced by or against any Person, including any discharge of, or bar or stay against collecting, all or any of the Obligations (or any interest thereon) in or as a result of any such proceeding.
Borrowers represent and warrant to Lender that they have established adequate means of obtaining from each other, on a continuing basis, financial and other information pertaining to their respective businesses, operations and condition (financial and otherwise) and their respective properties, and each now is and hereafter will be completely familiar with the businesses, operations and condition (financial and otherwise) of the other and their respective properties. Each Borrower hereby expressly waives and relinquishes any duty on the part of Lender to disclose to such Borrower any matter, fact or thing related to the businesses, operations or condition (financial or otherwise) of the other Borrowers or the other Borrowers’ properties, whether now known or hereafter known by Lender during the life of this Agreement. With respect to any of the Obligations, Lender need not inquire into the powers of any Borrower or the officers, employees or other Persons acting or purporting to act on such Borrower’s behalf.
EACH BORROWER WARRANTS AND AGREES THAT EACH OF THE WAIVERS AND CONSENTS SET FORTH HEREIN IS MADE WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE AND CONSEQUENCES, WITH THE UNDERSTANDING THAT EVENTS GIVING RISE TO ANY DEFENSE WAIVED MAY DIMINISH, DESTROY OR OTHERWISE ADVERSELY AFFECT RIGHTS THAT EACH OTHERWISE MAY HAVE AGAINST THE OTHER, AGAINST LENDER OR
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LOAN AGREEMENT, PAGE 41

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OTHERS, OR AGAINST ANY COLLATERAL. IF ANY OF THE WAIVERS OR CONSENTS HEREIN IS DETERMINED TO BE CONTRARY TO ANY APPLICABLE LAW OR PUBLIC POLICY, SUCH WAIVERS AND CONSENTS WILL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW.
Section 9.17 Assignment. The Loan, the Note, the Loan Documents and/or Lender’s rights, title, obligations and interests therein may be assigned by Lender and any of its successors and assigns to any Person at any time in its discretion, in whole or in part, whether by operation of law (pursuant to a merger or other successor in interest) or otherwise. Upon such assignment, all references to Lender in this Loan Agreement and in any Loan Document will be deemed to refer to such assignee or successor in interest and such assignee or successor in interest will thereafter stand in the place of Lender. Borrower may not assign its rights, title, interests or obligations under this Loan Agreement or under any of the Loan Documents.
Section 9.18 Governing Law. THIS AGREEMENT AND ANY CONTROVERSY, DISPUTE, CLAIM OR CAUSE OF ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE BREACH THEREOF, THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY OTHER DISPUTE BETWEEN OR AMONG THE PARTIES TO THE LOAN DOCUMENTS (WHETHER IN CONTRACT, TORT OR OTHERWISE) WILL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND INTERPRETED PURSUANT TO THE LAWS OF THE STATE OF COLORADO; PROVIDED THAT ADMINISTRATIVE AGENT AND LENDERS WILL RETAIN ALL RIGHTS UNDER FEDERAL LAW. THIS AGREEMENT IS PERFORMABLE FOR ALL PURPOSES IN JEFFERSON COUNTY, COLORADO. THE PARTIES HEREBY AGREE THAT ANY LAWSUIT, ACTION, OR PROCEEDING THAT IS BROUGHT (WHETHER IN CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ACTS, CONDUCT OR OMISSIONS OF ADMINISTRATIVE AGENT AND/OR LENDERS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS WILL BE BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN JEFFERSON COUNTY, COLORADO. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH LAWSUIT, ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND (C) FURTHER WAIVES ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED AT THE ADDRESS FOR NOTICES CONTAINED ON THE SIGNATURE PAGE OF THIS AGREEMENT.
Section 9.19 Counterparts. To facilitate execution, this Agreement may be executed in multiple identical counterparts. The signature of each party, or the signature of all persons required to bind a party, need not appear on each counterpart. All counterparts, taken together, will constitute a single document. The validity of a signature page will not be affected by its detachment from one counterpart of this Agreement and attachment to an identical counterpart of this Agreement.
Section 9.20 Final Agreement. This Agreement is the final, complete, and exclusive agreement of the parties regarding its subject matter, and supersedes all prior and contemporaneous agreements, representations, and understandings regarding such subject matter. No modification of this Agreement will be binding on the parties to it unless contained in a writing signed by the parties hereto.
Section 9.21 Maximum Interest Rate.  It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply with the applicable Colorado law governing the maximum rate of interest payable on the indebtedness evidenced by this Note and the Loan Agreement (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Colorado law).  If the applicable law is ever judicially
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interpreted so as to render usurious any amount (i) contracted for, charged, taken, reserved or received pursuant to this Note, the Loan Agreement, any of the other Loan Documents or any other communication or writing by or between Borrower and Lender related to the transaction or transactions that are the subject matter of the Loan Documents, (ii) contracted for, charged, taken, reserved or received by reason of Lender’s exercise of the option to accelerate the maturity of this Note, or (iii) Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of this Note, then it is Borrower’s and Lender’s express intent that all amounts charged in excess of the Maximum Lawful Rate (as hereinafter defined) shall be automatically canceled, ab initio, and all amounts in excess of the Maximum Lawful Rate theretofore collected by Lender shall be credited on the principal balance of this Note (or, if this Note has been or would thereby be paid in full, refunded to Borrower), and the provisions of this Note, the Loan Agreement, and other Loan Documents shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity for the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however, if this Note has been paid in full before the end of the stated term of this Note, then Borrower and Lender agree that Lender shall, with reasonable promptness after Lender discovers or is advised by Borrower that interest was received in an amount in excess of the Maximum Lawful Rate, either refund such excess interest to Borrower and/or credit such excess interest against this Note then owing by Borrower to Lender.  Borrower hereby agrees that as a condition precedent to any claim seeking usury penalties against Lender, Borrower will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation, and Lender shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either refunding such excess interest to Borrower or crediting such excess interest against this Note and then owing by Borrower to Lender.  All sums contracted for, charged, taken, reserved or received by Lender for the use, forbearance or detention of any debt evidenced by this Note shall, to the extent permitted by applicable law, be amortized or spread, using the actuarial method, throughout the stated term of this Note (including any and all renewal and extension periods) until payment in full so that the rate or amount of interest on account of this Note does not exceed the Maximum Lawful Rate from time to time in effect and applicable to this Note for so long as debt is outstanding.  As used hereunder the term “Maximum Lawful Rate” shall mean the maximum lawful rate of interest which may be contracted for, charged, taken, received or reserved by Lender in accordance with the applicable laws of the State of Colorado (or applicable United States federal law to the extent that such law permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Colorado law), taking into account all Charges made in connection with the transaction evidenced by this Note and the other Loan Documents.  As used hereunder, the term “Charges” shall mean all fees, charges and/or any other things of value, if any, contracted for, charged, taken, received or reserved by Lender in connection with the transactions relating to this Note and the other Loan Documents, which are treated as interest under applicable law.
Section 9.23 Lender Put Option.  At any time prior to the Stated Maturity Date, as the same may be extended, Lender shall have the right, but not the obligation, to convert Tranche A to corresponding shares of equity in SPE Owner’s Member GP (the “Put Option”), based on the then-outstanding balance of the Loan and the current value of the shares in SPE Owner’s Member GP, by delivering written notice (the “Put Notice”) to Borrower of its election to exercise the Put Option.  The closing of any Put Option shall be consummated within five (5) days of the Put Notice or on such other business day mutually agreed to by Lender and SPE Owner’s Member GP.
[NO FURTHER TEXT ON THIS PAGE]
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LOAN AGREEMENT, PAGE 43

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Executed to be effective as of the Effective Date.
	

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	Borrower:

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	LF3 LAKEWOOD, LLC,

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	a Delaware limited liability company

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	By:
	Lodging Fund REIT III OP, LP,

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	a Delaware limited partnership, its sole member

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	By:
	Lodging Fund REIT III, Inc.,

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	a Maryland corporation, its general partner

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	By:
	/s/ Samuel C. Montgomery
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	Name:
	Samuel C. Montgomery

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	Title:
	Chief Financial Officer

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	LF3 LAKEWOOD TRS, LLC,

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	a Delaware limited liability company

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	By:
	Lodging Fund REIT III TRS, Inc.,

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	a Delaware corporation, its sole member

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	By:
	/s/ Samuel C. Montgomery
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	Name:
	Samuel C. Montgomery

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	Title:
	Chief Financial Officer

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	Lender:

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	LEGENDARY A-1 BONDS, LLC,

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	a Delaware limited liability company

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	By:
	/s/ Norman H. Leslie
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	Name:
	Norman H. Leslie

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	Title:
	Manager

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	By:
	/s/ Corey R. Maple
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	Name:
	Corey R. Maple

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	Title:
	Manager

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LOAN AGREEMENT

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SCHEDULE 1
FORM OF PROMISSORY NOTE
	$13,845,000.00
	March 29, 2022

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For value received, LF3 Lakewood, LLC, a Delaware limited liability company and LF3 Lakewood TRS, LLC, a Delaware limited liability company (collectively, “Maker”), promises to pay to the order of Legendary A-1 Bonds, a Delaware limited liability company at its principal place of business at 1635 43rd Street S, Suite 205, Fargo, ND 58103 (together with its successors and assigns “Payee”), or at such place as the holder hereof may from time to time designate in writing, the principal sum of Thirteen Million Eight Hundred Forty-Five Thousand and 00/100 Dollars ($13,845,000.00), in lawful money of the United States of America, with interest on the unpaid principal balance from time to time outstanding to be computed in the manner, at the times and, subject to the provisions of Section 2.2(a) of the Loan Agreement dated of even date herewith between Payee, as lender, and Maker, as borrower (the “Loan Agreement”), at the Interest Rate. Capitalized terms used but not defined herein will have the respective meanings given such terms in the Loan Agreement.
1.Payment Terms. Maker will pay to Payee the monthly interest on the unpaid Principal and in the manner and at the times specified in Article 2 of the Loan Agreement, which payments will be applied in the order of priority set forth in the Loan Agreement. Maker will also pay to Payee interest, if any, and all other amounts due and payable as and when provided for in the Loan Agreement. The balance of the Principal, together with all accrued and unpaid interest thereon, and all other amounts payable to Payee hereunder, under the Loan Agreement and under the other Loan Documents will be due and payable on the Maturity Date.
2.Prepayment.  The principal balance of this Note may be prepaid in whole or in part upon: (i) not less than ten (10) days prior written notice to Payee specifying the date on which prepayment is to be made (the “Prepayment Date”); (ii) payment of accrued interest to and including the Prepayment Date; or if Payee would incur costs and expenses as a result of the Prepayment Date not being the last day of the applicable interest period, to and including the last day of the applicable interest period in which the Prepayment Date occurs; and (iii) payment of all other sums then due under this Note, the Security Agreement and the other Loan Documents to the extent then payable.  If any such notice of prepayment is given, the principal amount set forth in such notice and the other sums required under this Section 2 shall be due and payable on the Prepayment Date, provided, however, that Maker may revoke any such prepayment election on or before the date which is ten (10) calendar days prior to the Prepayment Date by written notice to Payee.
3.Loan Documents. This Note is evidence of the Loan and is executed pursuant to the terms and conditions of the Loan Agreement. This Note is secured by and entitled to the benefits of, among other things, the Security Instrument and the other Loan Documents. Reference is made to the Loan Documents for a description of the nature and extent of the security afforded thereby, the rights of the holder hereof in respect of such security, the terms and conditions upon which this Note is secured, and the rights and duties of the holder of this Note. All of the agreements, conditions, covenants, provisions and stipulations contained in the Loan Documents to be kept and performed by Maker are by this reference hereby made part of this Note to the same extent and with the same force and effect as if they were fully set forth in this Note, and Maker covenants and agrees to keep and perform the same, or cause the same to be kept and performed, in accordance with their terms.
4.Loan Acceleration, Prepayment. The Debt will, without notice, become immediately due and payable at the option of Payee upon the occurrence of any Event of Default. This Note may not be prepaid except as expressly provided in, and subject to the terms and conditions of, the Loan Agreement.
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LOAN AGREEMENT, SCHEDULE 1, PAGE 1-1

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5.Revival. To the extent that Maker makes a payment or Payee receives any payment or proceeds for Maker’s benefit, which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other party under the Bankruptcy Code or any other bankruptcy law, common law or equitable cause, then, to such extent, the obligations of Maker hereunder intended to be satisfied will be revived and continue as if such payment or proceeds had not been received by Payee.
6.Amendments. This Note may not be modified, amended, waived, extended, changed, discharged, or terminated orally or by any act or failure to act on the part of Maker or Payee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Whenever used, the singular number will include the plural, the plural the singular, and the words “Payee” and “Maker” will include their respective successors, assigns, heirs, executors and administrators. If Maker consists of more than one person or party, the obligations and liabilities of each such person or party will be joint and several.
7.Waiver. Maker and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest, notice of protest, notice of nonpayment, notice of intent to accelerate the maturity hereof and of acceleration except as otherwise expressly provided in the Loan Documents. No release of any security for the Debt or any person liable for payment of the Debt, no extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of the Loan Documents made by agreement between Payee and any other person or party will release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Maker, and any other person or party who may become liable under the Loan Documents, for the payment of all or any part of the Debt.
8.Maximum Interest Rate.  It is expressly stipulated and agreed to be the intent of Maker and Payee at all times to comply with the applicable Colorado law governing the maximum rate of interest payable on the indebtedness evidenced by this Note and the Loan Agreement (or applicable United States federal law to the extent that it permits Payee to contract for, charge, take, reserve or receive a greater amount of interest than under Colorado law).  If the applicable law is ever judicially interpreted so as to render usurious any amount (i) contracted for, charged, taken, reserved or received pursuant to this Note, the Loan Agreement, any of the other Loan Documents or any other communication or writing by or between Maker and Payee related to the transaction or transactions that are the subject matter of the Loan Documents, (ii) contracted for, charged, taken, reserved or received by reason of Payee’s exercise of the option to accelerate the maturity of this Note, or (iii) Maker will have paid or Payee will have received by reason of any voluntary prepayment by Maker of this Note, then it is Maker’s and Payee’s express intent that all amounts charged in excess of the Maximum Lawful Rate (as hereinafter defined) shall be automatically canceled, ab initio, and all amounts in excess of the Maximum Lawful Rate theretofore collected by Payee shall be credited on the principal balance of this Note (or, if this Note has been or would thereby be paid in full, refunded to Maker), and the provisions of this Note, the Loan Agreement, and other Loan Documents shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity for the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however, if this Note has been paid in full before the end of the stated term of this Note, then Maker and Payee agree that Payee shall, with reasonable promptness after Payee discovers or is advised by Maker that interest was received in an amount in excess of the Maximum Lawful Rate, either refund such excess interest to Maker and/or credit such excess interest against this Note then owing by Maker to Payee.  Maker hereby agrees that as a condition precedent to any claim seeking usury penalties against Payee, Maker will provide written notice to Payee, advising Payee in reasonable detail of the nature and amount of the violation, and Payee shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either refunding such excess interest to Maker or crediting such excess interest against this Note and then owing
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LOAN AGREEMENT, SCHEDULE 1, PAGE 1-2

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by Maker to Payee.  All sums contracted for, charged, taken, reserved or received by Payee for the use, forbearance or detention of any debt evidenced by this Note shall, to the extent permitted by applicable law, be amortized or spread, using the actuarial method, throughout the stated term of this Note (including any and all renewal and extension periods) until payment in full so that the rate or amount of interest on account of this Note does not exceed the Maximum Lawful Rate from time to time in effect and applicable to this Note for so long as debt is outstanding.  As used hereunder the term “Maximum Lawful Rate” shall mean the maximum lawful rate of interest which may be contracted for, charged, taken, received or reserved by Payee in accordance with the applicable laws of the State of Colorado (or applicable United States federal law to the extent that such law permits Payee to contract for, charge, take, receive or reserve a greater amount of interest than under Colorado law), taking into account all Charges made in connection with the transaction evidenced by this Note and the other Loan Documents.  As used hereunder, the term “Charges” shall mean all fees, charges and/or any other things of value, if any, contracted for, charged, taken, received or reserved by Payee in connection with the transactions relating to this Note and the other Loan Documents, which are treated as interest under applicable law.
9.Notices. All notices or other communications required or permitted to be given pursuant hereto will be given in the manner specified in the Loan Agreement.
10.Joint and Several. If more than one Person constitutes Maker, each Person constituting Maker hereunder will have joint and several liability for the obligations of Maker hereunder.
11.Governing Law. This Note will be governed by and construed in accordance with the laws of the State of Colorado.
[SIGNATURE PAGE FOLLOWS]
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LOAN AGREEMENT, SCHEDULE 1, PAGE 1-3

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	Maker:

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	LF3 LAKEWOOD, LLC,

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	a Delaware limited liability company

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	By:
	Lodging Fund REIT III OP, LP,

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	a Delaware limited partnership, its sole member

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	By:
	Lodging Fund REIT III, Inc.,

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	a Maryland corporation, its general partner

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	By: 
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	Name:
	Samuel C. Montgomery

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	Title:
	Chief Financial Officer

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	LF3 LAKEWOOD TRS, LLC,

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	a Delaware limited liability company

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	By:
	Lodging Fund REIT III TRS, Inc.,

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	a Delaware corporation, its sole member

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	By:
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	Name:
	Samuel C. Montgomery

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	Title:
	Chief Financial Officer

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LOAN AGREEMENT, SCHEDULE 1, PAGE 1-4

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SCHEDULE 2
REQUIRED REPAIRS
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LOAN AGREEMENT, SCHEDULE 2, PAGE 2-1

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SCHEDULE 3
ORGANIZATION OF BORROWER
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** Comprised of various investors, all US residents or companies, none of which control LF3 Lakewood, LLC or own, directly or indirectly, 20% or more of LF3 Lakewood, LLC
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LOAN AGREEMENT, SCHEDULE 3, PAGE 3-1

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LOAN AGREEMENT, SCHEDULE 3, PAGE 3-2

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SCHEDULE 4
DEFINITION OF SPECIAL PURPOSE BANKRUPTCY REMOTE ENTITY
A “Special Purpose Bankruptcy Remote Entity” means (x) a limited liability company that is a Single Member Bankruptcy Remote LLC or (y) a corporation, limited partnership or limited liability company which at all times since its formation and at all times thereafter
(i)was and will be organized solely for the purpose of (A) owning the Property, (B) operating, leasing and financing the Property or (C) acting as a general partner of the limited partnership that owns the Property or member of the limited liability company that owns the Property;
(ii)has not engaged and will not engage in any business unrelated to (A) the ownership of the Property, (B) the operation, leasing and financing of the Property, (C) acting as general partner of the limited partnership that owns the Property or (D) acting as a member of the limited liability company that owns the Property, as applicable;
(iii)has not had and will not have any assets other than those related to the Property or its partnership or member interest in the limited partnership or limited liability company that owns the Property, as applicable;
(iv)has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, asset sale (except as expressly permitted by this Agreement), transfer of partnership or membership interests or the like, or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation or operating agreement (as applicable);
(v)if such entity is a limited partnership, has and will have, as its only general partners, Special Purpose Bankruptcy Remote Entities that are corporations or limited liability companies;
(vi)if such entity is a corporation, has and will have at least one Independent Director, and has not caused or allowed and will not cause or allow the board of directors of such entity to take any action requiring the unanimous affirmative vote of 100 percent of the members of its board of directors unless all of the directors and all Independent Directors will have participated in such vote;
(vii)intentionally omitted;
(viii)if such entity is a limited liability company, has and will have articles of organization, a certificate of formation and/or an operating agreement, as applicable, providing that (A) such entity will dissolve only upon the bankruptcy of the managing member, (B) the vote of a majority-in-interest of the remaining members is sufficient to continue the life of the limited liability company in the event of such bankruptcy of the managing member and (C) if the vote of a majority-in-interest of the remaining members to continue the life of the limited liability company following the bankruptcy of the managing member is not obtained, the limited liability company may not liquidate the Property without the consent of the Lender for as long as the Loan is outstanding;
(ix)has not, and without the unanimous consent of all of its partners, directors or members (including all Independent Directors and/or Independent Managers), as applicable, will not, with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest, take any Bankruptcy Action;
(x)has remained and will remain solvent and has maintained and will maintain adequate capital in light of its contemplated business operations;
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(xi)has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity;
(xii)has maintained and will maintain its accounts, books and records separate from any other Person and will file its own tax returns;
(xiii)has maintained and will maintain its books, records, resolutions and agreements as official records;
(xiv)has not commingled and will not commingle its funds or assets with those of any other Person;
(xv)has held and will hold its assets in its own name;
(xvi)has conducted and will conduct its business in its name only, and has not and will not use any trade name,
(xvii)has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other Person;
(xviii)has paid and will pay its own liabilities, including the salaries of its own employees, out of its own funds and assets;
(xix)has observed and will observe all partnership, corporate or limited liability company formalities, as applicable;
(xx)has maintained and will maintain an arm’s-length relationship with its Affiliates;
(xxi) (a)if such entity owns the Property, has and will have no indebtedness other than the Permitted Indebtedness, or
(b)if such entity operates, leases and/or finances the Property, has and will have no indebtedness other than leasehold obligations to the owner of the Property, which are not evidenced by a promissory note and are paid when due, but in no event no more than 30 days of the date incurred,
(c)if such entity acts as the general partner of a limited partnership which owns the Property, has and will have no indebtedness other than unsecured trade payables in the ordinary course of business relating to acting as general partner of the limited partnership which owns the Property which (1) do not exceed, at any time, $10,000 and (2) are not evidenced by a promissory note and are paid when due, but in no event no more than 30 days of the date incurred, or
(d)if such entity acts as a managing member of a limited liability company which owns the Property, has and will have no indebtedness other than unsecured trade payables in the ordinary course of business relating to acting as a member of the limited liability company which owns the Property which (1) do not exceed, at any time, $10,000 and (2) are paid within 30 days of the date incurred;
(xxii)has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except for the Loan;
(xxiii)has not and will not acquire obligations or securities of its partners, members or shareholders;
(xxiv)has allocated and will allocate fairly and reasonably shared expenses, including shared office space, and uses separate stationery, invoices and checks;
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(xxv)except in connection with the Loan, has not pledged and will not pledge its assets for the benefit of any other Person;
(xxvi)has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name and not as a division or part of any other Person;
(xxvii)has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;
(xxviii) has not made and will not make loans to any Person;
(xxix)has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it;
(xxx)has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arm’s-length transaction with an unrelated third party;
(xxxi)has and will have no obligation to indemnify its partners, officers, directors, members or Special Members, as the case may be, or has such an obligation that is fully subordinated to the Debt and will not constitute a claim against it if cash flow in excess of the amount required to pay the Debt is insufficient to pay such obligation; and
(xxxii)will consider the interests of its creditors in connection with all corporate, partnership or limited liability company actions, as applicable.
“Independent Director” means in the case of a corporation, a natural person who has not been, and during the continuation of his or her service as Independent Director is not, directly or indirectly:
(i)an employee, manager, stockholder, director, member, partner, officer, attorney or counsel of the corporation or any of its Affiliates (other than his or her service as an Independent Director of the corporation),
(ii)a creditor, customer of, or supplier or other Person who derives any of its purchases or revenues from its activities with the corporation or any of its shareholders or Affiliates (other than his or her service as an Independent Director if such Person has been provided by a nationally-recognized company that provides professional independent managers),
(iii)a Person controlling or under common control with any such employee, manager, stockholder, director, member, partner, officer, attorney, counsel, customer, supplier or other Person, or
(iv)any member of the immediate family (including a grandchild or sibling) of a person described in clauses (i), (ii) or (iii) immediately above. A natural person who otherwise satisfies the foregoing definition will not be disqualified from serving as an Independent Director of the corporation because such person is an independent director or independent manager of a “Special Purpose Bankruptcy Remote Entity” affiliated with the corporation that does not own a direct or indirect equity interest in the corporation or any entity that is a co-borrower, or the member or general partner of a co-borrower, with the corporation if such individual is an independent director provided by a nationally-recognized company that provides professional independent directors.
“Independent Manager” means in the case of a limited liability company, (a) a member that is a Special Purpose Bankruptcy Remote Entity, (b) a Special Purpose Bankruptcy Remote Entity that is not a
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member or (c) a natural person who has not been, and during the continuation of his or her service as Independent Manager is not, directly or indirectly:
(i)an employee, manager, stockholder, director, member, partner, officer, attorney or counsel of the limited liability company or any of its Affiliates (other than his or her service as an Independent Manager or Special Member of the limited liability company),
(ii)a creditor, customer of, or supplier or other Person who derives any of its purchases or revenues from its activities with the limited liability company or any of its members or Affiliates (other than his or her service as an Independent Manager if such Person has been provided by a nationally-recognized company that provides professional independent managers),
(iii)a Person controlling or under common control with any such employee, manager, stockholder, director, member, partner, officer, attorney, counsel, customer, supplier or other Person, or
(iv)any member of the immediate family (including grandchildren or siblings) of a person described in clauses (i), (ii) or (iii) immediately above. A natural person who otherwise satisfies the foregoing definition will not be disqualified from serving as an Independent Manager of the limited liability company because such person is an independent manager or independent director of a “Special Purpose Bankruptcy Remote Entity” affiliated with the limited liability company that does not own a direct or indirect equity interest in the limited liability company or any entity that is a co-borrower with the limited liability company if such individual is an independent manager provided by a nationally-recognized company that provides professional independent managers.
“Single Member Bankruptcy Remote LLC” means a limited liability company organized under the laws of the State of Delaware which at all times since its formation and at all times thereafter
(i)complies with the following clauses of the definition of Special Purpose Bankruptcy Remote Entity above: (i), (ii)(A), (B) or (C), (iii), (iv), (ix), (x), (xi) and (xiii) through (xxxii);
(ii)has maintained and will maintain its accounts, books and records separate from any other person;
(iii)has and will have an operating agreement which provides that the business and affairs of such limited liability company will be managed by or under the direction of
(A)a board of one (1) or more directors designated by the sole member of the Single Member Bankruptcy Remote LLC (the “Sole Member”), and at all times there will be at least two duly appointed Independent Directors on the board of directors, and the board of directors will not take any action requiring the unanimous affirmative vote of 100 percent of the members of its board of directors unless, at the time of such action there are at least two members of the board of directors who are Independent Directors, and all of the directors and all Independent Directors will have participated in such vote or
(B)Sole Member, provided that at all times there will be at least two Independent Managers designated by Sole Member and the operating agreement provides that Sole Member will not take any Bankruptcy Actions without the unanimous affirmative vote of 100 percent of the Independent Managers;
(iv)has and will have an operating agreement which provides that, as long as any portion of the Debt remains outstanding,
(A)upon the occurrence of any event that causes Sole Member to cease to be a member of such limited liability company (other than (x) upon an assignment by Sole Member of all of its limited liability company interest in such limited liability company and the admission of the transferee, if permitted pursuant to the organizational documents of such limited liability company and the Loan
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Documents, or (y) the resignation of Sole Member and the admission of an additional member of such limited liability company, if permitted pursuant to the organizational documents of such limited liability company and the Loan Documents), one of the Independent Managers will, without any action of any Person and simultaneously with Sole Member ceasing to be a member of such limited liability company, automatically be admitted as the sole member of such limited liability company (the “Special Member”) and will preserve and continue the existence of such limited liability company without dissolution,
(B)no Special Member may resign or transfer its rights as Special Member unless (x) a successor Special Member has been admitted to such limited liability company as a Special Member, and (y) such successor Special Member has also accepted its appointment as an Independent Manager and
(C)except as expressly permitted pursuant to the terms of this Agreement, Sole Member may not resign and no additional member will be admitted to such limited liability company;
(v)has and will have an operating agreement which provides that, as long as any portion of the Debt remains outstanding,
(A)such limited liability company will be dissolved, and its affairs will be would up only upon the first to occur of the following: (x) the termination of the legal existence of the last remaining member of such limited liability company or the occurrence of any other event which terminates the continued membership of the last remaining member of such limited liability company in such limited liability company unless the business of such limited liability company is continued in a manner permitted by its operating agreement or the Delaware Limited Liability Company Act (the “Act”) or (y) the entry of a decree of judicial dissolution under Section 18-802 of the Act;
(B)upon the occurrence of any event that causes the last remaining member of such limited liability company to cease to be a member of such limited liability company or that causes Sole Member to cease to be a member of such limited liability company (other than (x) upon an assignment by Sole Member of all of its limited liability company interest in such limited liability company and the admission of the transferee, if permitted pursuant to the organizational documents of such limited liability company and the Loan Documents, or (y) the resignation of Sole Member and the admission of an additional member of such limited liability company, if permitted pursuant to the organizational documents of such limited liability company and the Loan Documents), to the fullest extent permitted by law, the personal representative of such member will be authorized to, and will, within 90 days after the occurrence of the event that terminated the continued membership of such member in such limited liability company, agree in writing to continue the existence of such limited liability company and to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of such limited liability company, effective as of the occurrence of the event that terminated the continued membership of such member in such limited liability company;
(C)the bankruptcy of Sole Member or a Special Member will not cause such member or Special Member, respectively, to cease to be a member of such limited liability company and upon the occurrence of such an event, the business of such limited liability company will continue without dissolution;
(D)in the event of dissolution of such limited liability company, such limited liability company will conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of such limited liability company in an orderly manner), and the assets of such limited liability company will be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act; and
(E)to the fullest extent permitted by law, each of Sole Member and the Special Members will irrevocably waive any right or power that they might have to cause such limited liability company or any
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of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of such limited liability company, to compel any sale of all or any portion of the assets of such limited liability company pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of such limited liability company.
“Bankruptcy Action” means, with respect to any Person, if such Person
(i)makes an assignment for the benefit of creditors,
(ii)files a voluntary petition in bankruptcy,
(iii)is adjudged a bankrupt or insolvent, or has entered against it an order for relief, in any bankruptcy or insolvency proceedings,
(iv)consents to, orchestrates or participates in the orchestration of, or files a petition or answer seeking for itself, any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation,
(v)files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any bankruptcy or insolvency proceeding,
(vi)seeks, consents to, orchestrates or participates in the orchestration of, or acquiesces in the appointment of a trustee, receiver, liquidator, sequestrator, custodian or any similar official of or for such Person or of all or any substantial part of its properties,
(vii)120 days after the commencement of any proceeding against such Person seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, if the proceeding has not been dismissed,
(viii)within 90 days after the appointment without such Person’s consent or acquiescence of a trustee, receiver or liquidator of such Person or of all or any substantial part of its properties, the appointment is not vacated or stayed, or within 90 days after the expiration of any such stay, the appointment is not vacated or
(ix)takes any action in furtherance of any of the foregoing.
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SCHEDULE 5
SERVICE CONTRACTS

LOAN AGREEMENT, SCHEDULE 5, PAGE 5-1

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