UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

March 16, 2016

Date of report (Date of earliest event reported)

 

 

Condor Hospitality Trust, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

(State or Other Jurisdiction of Incorporation)

 

 

 

1-34087   52-1889548
(Commission File Number)   (IRS Employer Identification No.)

1800 West Pasewalk Ave. Ste. 200

Norfolk, NE

  68701
(Address of Principal Executive Offices)   (Zip Code)

(402) 371-2520

(Registrant’s Telephone Number, Including Area Code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 1.01 Entry into a Material Definitive Agreement.

On March 16, 2016, Condor Hospitality Trust, Inc. (the “Company” or “Condor”) entered into a series of agreements providing for:

 

    the issuance and sale of Condor’s Series D Cumulative Convertible Preferred Stock (the “Series D Stock”) under a private transaction to SREP III Flight-Investco, L.P. (“SREP”), an affiliate of StepStone Group LP;

 

    the cash redemption of all of Condor’s outstanding Series A Cumulative Preferred Stock (the “Series A Stock”) and Series B Cumulative Preferred Stock (the “Series B Stock”); and

 

    the exchange of all of Condor’s outstanding Series C Cumulative Convertible Preferred Stock (the “Series C Stock”) for Series D Stock.

The agreements, related transactions and terms of the Series D Stock are discussed below.

Stock Purchase Agreement

On March 16, 2016, Condor and SREP entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) pursuant to which Condor issued and sold 3,000,000 shares of Series D Stock to SREP on the same date for an aggregate purchase price of $30,000,000. The Stock Purchase Agreement required that $20,147,000 of the purchase price be deposited into an escrow account for purposes of effecting the redemption of the Series A Stock and Series B Stock and that the remaining amount of the purchase price be delivered to Condor.

Redemption

The Stock Purchase Agreement requires Condor to redeem all outstanding shares of the Series A Stock and Series B Stock. On March 16, 2016, Condor issued notices to redeem the Series A Stock and Series B Stock on April 15, 2016 as follows:

 

    all 803,270 outstanding shares of the Series A Stock (NASDAQ: CDORP; CUSIP No. 20676Y205) will be redeemed at the redemption price of $10.00 per share plus $2.084940 per share in accrued and unpaid dividends (plus compounded interest) through the redemption date; and

 

    all 332,500 outstanding shares of the Series B Stock (NASDAQ: CDORO; CUSIP No. 20676Y304) will be redeemed at the redemption price of $25.00 per share plus $6.354167 per share in accrued and unpaid dividends through the redemption date.

With notice given, and the redemption funds deposited in escrow, all rights of the holders of the holders of the Series A Stock and Series B Stock terminated, except the right to receive the redemption price.


Exchange Agreement

The Company entered into an Agreement (the “Exchange Agreement”) dated March 16, 2016 with Real Estate Strategies L.P. (“RES”) and IRSA Inversiones y Representaciones Sociedad Anónima (“IRSA”) pursuant to which all 3,000,000 outstanding shares of Series C Stock were exchanged for 3,000,000 shares of Series D Stock. Pursuant to the Exchange Agreement, in lieu of payment of accrued and unpaid dividends in the amount of $4,947,370 on the Series C Stock, Condor (a) paid to RES an amount of cash equal to $1,484,211, (b) issued to RES 245,156 shares of Series D Stock (such that RES, IRSA and their affiliates do not beneficially own in excess of 49% of the voting stock of Condor) and (c) issued to RES a promissory note, bearing interest at 6.25% per annum, in the principal amount of $1,011,599 and convertible into a number of shares of Series D Stock that would have otherwise been issued on account of the remaining accrued and unpaid dividends but for the foregoing 49% limitation (the “Note”).

If Series D Stock is outstanding, RES at its option may at any time elect to convert the Note, in whole or part, by notice delivered to the Company, into a number of shares of Series D Stock, determined by dividing the principal amount of the Note to be converted by $10.00, provided that, any such conversion shall be reduced such that RES, together with its affiliates, does not beneficially own more than 49% of the voting stock of the Company. Any such conversion shall reduce the principal amount of the Note proportionally.

Any time the Series D Stock is required by its terms to be converted into common stock, par value $0.01 per share, of the Company (the “Common Stock”), the Note will be automatically converted into the number of shares of Common Stock that RES would have received had RES converted this Note into Series D Stock immediately prior to the conversion of the Series D Stock, provided that, any such conversion shall be reduced such that RES, together with its affiliates, does not beneficially own more than 49% of the voting stock of the Company, and the Note shall be thereafter converted from time to time when any such conversion will not result in RES, together with its affiliates, beneficially owning more than 49% of the voting stock of the Company. Any such partial conversion will reduce the principal amount of the Note proportionally.

Series D Stock

The principal terms of the Series D Stock are set forth below:

Dividends. A holder will receive preferential cumulative cash dividends at the rate of 6.25% per annum of the $10.00 face value per share (equivalent to a fixed annual amount of $0.625 per year) as an annual cumulative dividend, payable quarterly, commencing June 30, 2016, for each share of Series D Stock, when authorized by the Board or a duly authorized committee thereof. Dividends are cumulative and accrue, whether or not declared, and unpaid dividends will earn 6.25% interest, compounded quarterly.

Whenever the dividends on any share of Series D Stock are in arrears for four consecutive quarters, then upon written notice delivered by one or more holders that hold in the aggregate not less than 40% of the outstanding Series D Stock (a “Dividend Event Notice”), the Company shall


(i) take all appropriate action reasonably within its means to maximize the assets legally available for paying such dividends and to monetize such assets (for example, but without limiting the generality of the foregoing, by selling or liquidating all of some of the Company’s assets or by selling the Company as a going concern), (ii) pay out of all such assets legally available (including any proceeds from any sale or liquidation of such assets) the maximum possible amount of such unpaid dividends, and (iii) thereafter, at any time and from time to time when additional assets of the Company (including any proceeds from any sale or liquidation of such assets) become legally available to pay such unpaid dividends, pay such remaining unpaid dividends until all dividends accumulated on the Series D Stock have been fully paid.

Rank. With respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding up, the Series D Stock will rank (a) prior or senior to the Common Stock, (b) prior or senior to all classes or series of preferred stock issued by the Company (the “Preferred Stock”), the terms of which specifically provide that such shares rank junior to the Series D Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company (together with the Common Stock, collectively, “Junior Shares”), (c) on a parity with the Series A Stock, the Series B Stock and the Series C Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company and with all classes or series of shares of Preferred Stock issued by the Company, the terms of which specifically provide that such shares rank on a parity with the Series D Preferred Stock (collectively, “Parity Shares”) and (d) junior to all existing and future indebtedness of the Company.

Liquidation Preference. Upon Condor’s liquidation, dissolution or winding up, before any distribution is made to the holders of Common Stock or any other capital stock that ranks junior, the holders of the Series D Stock are entitled to a liquidation preference of $10.00 per share (the “Liquidation Preference”), plus the sum of (i) an amount equal to any accrued and unpaid dividends to the date of payment and (ii) (A) $2.00 per share in cash, if the liquidation, dissolution or winding up occurs on or before March 16, 2019, (B) $3.00 per share in cash, if the liquidation, dissolution or winding up occurs from March 16, 2019 and on or before March 16, 2020, or (C) $4.00 per share in cash, if the liquidation, dissolution or winding up occurs after March 16, 2020.

Special Liquidation Distribution. If a qualified stock offering (a “Qualified Offering” described below) has not occurred on or before March 31, 2021, holders that hold in the aggregate not less than 40% of the outstanding shares of the Series D Stock have the right to elect by written notice to the Company (a “Special Liquidation Event Notice”) to have the Company fully liquidate in a commercially reasonable manner as determined by the Board of Directors of the Company (the “Board”) to provide for liquidation distributions to the holders of the Series D Stock in an amount per share of Series D Preferred Stock equal to $14.00 in cash (the “Liquidation Special Distribution”), plus accrued and unpaid dividends (whether or not declared) on the Series D Preferred Stock through the date on which such liquidation distributions are made to the holders of the Series D Preferred Stock. If the Special Liquidation Event Notice has been delivered to the Company, then the dividend rate on the Series D Stock after March 31, 2021 will increase from 6.25% per annum to 12.5% per annum.

Redemption. The Company may redeem each outstanding share of Series D Stock, at any time but subject to the requirements for the share price of the Common Stock and the


approvals set forth below, in all cases for cash at a redemption price equal to the redemption amount per share set forth below (the “Redemption Amount”), plus all accrued and unpaid dividends thereon to the date of redemption (i) in whole, or (ii) in part, provided that (x) any partial redemptions are made pro rata (as nearly as practicable without creating factional shares) to all holders of Series D Preferred Stock, (y) any partial redemptions do not in the aggregate exceed $30,000,000 in Liquidation Preference, and (z) the Company may not borrow funds, or delay making any capital expenditures or paying any operating expenses, for the purpose of making any such partial redemptions.

The “Redemption Amount” with respect to a share of Series D Stock means:

(i) 120% of the Liquidation Preference for redemption on or before March 16, 2019;

(ii) 130% of the Liquidation Preference for redemption from March 16, 2019 and prior to March 16, 2020; and

(iii) 140% of the Liquidation Preference for redemption on or after March 16, 2020.

Prior to receiving a Special Event Liquidation Notice, the Company may not call shares of Series D Preferred Stock for redemption unless the closing sales price of the Common Stock equals or exceeds $1.60 per share on the trading day immediately preceding the date the notice of redemption is given. The closing sales price of the Common Stock shall be as reported by the Nasdaq Stock Market or any other national securities exchange on which the shares of Common Stock are then listed for trading, or if none, the most recently reported “over the counter” trade price or if none, as determined in good faith by the Board and set forth in a resolution adopted by no less than seven of the nine members of the Board. Further, a call for redemption may only be made with the approval of no less than seven of the nine members of the Board if the closing sale price of the Common Stock is between and including $1.60 and $1.99 per share, and with the approval of no less than a majority of the members of the Board if the closing sale price of the Common Stock is $2.00 or higher per share. A call for redemption made after the Company has received a Special Event Liquidation Notice requires the approval of no less than a majority of the members of the Board. A holder of Series D Stock may exercise conversion rights with respect to any shares of the holder’s Series D Preferred Stock called for redemption up to the date of the payment of the redemption price of such shares.

Conversion. The Series D Stock is convertible, at the option of the holder, at any time into common stock at a conversion price of $1.60 for each share of common stock, which is equal to the rate of 6.25 shares of Common Stock for each share of Series D Preferred Stock.

Conversion Price. The initial conversion price will be $1.60, but the conversion price will be subject to anti-dilution adjustments upon the occurrence of stock splits and stock dividends.

Required Conversion. All outstanding shares of Series D Stock shall be converted into the number of shares of Common Stock automatically upon closing of a Qualified Offering without any further action by the holders of such shares or the Company. As promptly as practicable following such Qualified Offering, the Company shall send each holder of shares of Series D Stock written notice of such event, along with the payment of any accrued and unpaid dividends with respect to such shares of Series D Stock through the Conversion Date.


“Qualified Offering” means (i) the sale of Common Stock in a single offering of at least $50,000,000 or (ii) the sale of Common Stock in up to three separate offerings totaling at least $75,000,000 in the aggregate, in each case at an offering price per share of Common Stock equal to at least the lesser of:

(i) $2.00 per share (appropriately adjusted for anti-dilution events described above) if the closing of the applicable Qualified Offering occurs on or before September 16, 2017;

(ii) the greater of (x) $2.00 per share (appropriately adjusted in the same manner as the Conversion Price pursuant to Section 10 below) or (y) 90% of “NAV” per share of Common Stock if the closing of the applicable Qualified Offering occurs after September 16, 2017; or

(iii) $1.60 (appropriately adjusted for anti-dilution events described above) or more upon any closing of any Qualified Offering, provided the Company immediately following the receipt of the net proceeds from the closing of such Qualified Offering makes a cash “Make Whole Payment” to each of the holders of Series D Stock, provided that, the Make Whole Payment shall not exceed the Issuance Market Value Difference.

“Issuance Market Value Difference” means an amount equal to (i) the Conversion Price, minus (ii) the closing consolidated bid price on March 15, 2016 as reported by Nasdaq, adjusted if the Conversion Price is adjusted, in the same manner. The closing consolidated bid price on March 15, 2016 was $0.80 per share of Common Stock.

“NAV” means the net asset value of the Company per share of Common Stock, as net asset value is commonly determined by exchange listed funds and research analysts, immediately prior to the closing of the applicable Qualified Offering.

“Make Whole Payment” means, with respect to each share of Common Stock into which an outstanding share of Series D Stock is converted as a result of a Qualified Offering, an amount per share of such Common Stock determined by the following formula:

1.3*(A – B) = Make Whole Payment

where

A = $2.00, if 90%NAV - $2.00 is a negative number

A = 90%NAV, if 90%NAV- $2.00 is a positive number

B = Adjusted NAV

If A-B is a negative number then the Make Whole Payment is $0.


“Adjusted NAV” means NAV adjusted for the effects of the applicable Qualified Offering, determined by the following formula: the quotient of (i) the sum of (A) NAV, multiplied by the number of shares of outstanding Common Stock assuming full conversion of Series D Stock, plus (B) the net offering proceeds from the Qualified Offering, divided by (ii) the number of shares of Common Stock outstanding after the Qualified Offering.

Voting Rights with Common Stock. The holders of Series D Preferred Stock vote their Series D Stock as a single class with the holders of the Common Stock on all matters submitted to such holders for vote or consent. For each such vote or consent, each share of Series D Stock entitles the holder to cast one vote for each whole vote (rounded to the nearest whole number) that such holder would be entitled to cast had such holder converted its Series D Stock into shares of Common Stock as of the date immediately prior to the record date for determining the shareholders of the Company eligible to vote on any such matter.

Voting Rights as a Class. So long as any shares of Series D Stock remain outstanding, the Company will not, without the affirmative vote or consent of the holders of not less than 75% of the Series D Stock, voting separately as a class:

(i) amend, alter, repeal or make other changes to any provision of the terms of the Series D Stock of any provision elsewhere in the Articles so as to adversely affect any right, preference, privilege or voting power of the Series D Stock or the holders thereof, including without limitation any amendment, alteration, repeal or other change effected in connection with a merger, consolidation or similar transaction (any such transaction, which for the avoidance of doubt does not include any liquidation, dissolution or winding up of the Company, an “Event”);

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking on a parity with, or senior to, the Series D Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Company or otherwise, or reclassify any shares of capital stock into any such shares;

(iii) except for dividends or distributions of cash from the Company’s funds from operations and except as required to preserve the Company’s qualification as a real estate investment trust under the Internal Revenue Code of 1986 (the “Code”), declare or pay any dividends or other distributions on shares of Common Stock or any other Junior Shares;

(iv) except with respect to a Dividend Event Notice or a Special Liquidation Event Notice, (A) merge, consolidate, liquidate, dissolve or wind up the Company or (B) sell, lease or convey all or substantially all of the assets of the Company;

(v) except for a Qualified Offering, sell, issue or potentially issue in an offering by the Company of Common Stock (or securities convertible into or exercisable Common Stock) equal to 20% or more of the Common Stock or 20% or more of the voting stock of the Company outstanding before the issuance;


(vi) engage in any transaction in which the Company is to be a participant and the amount involved exceeds $120,000, other than employment compensation, and in which any of the Company’s directors or executive officers or any member of their immediate families will have a material interest, exclusive of interests arising solely from the ownership of a class of equity securities of the Company provided that all holders of such class of equity securities receive the same benefit on a pro rata basis;

(vii) redeem, or otherwise buy back (including in the open market, but excluding shares exchanged or withheld for the exercise price and/or taxes with respect to employee awards) any shares of common stock until all the shares of the Series D Stock converted, exchanged or redeemed; or

(viii) agree or commit to do any of the foregoing.

However, any Event in which the Series D Stock (or any equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in connection with such Event) remains outstanding after such Event with the same ranking, preferences, rights, voting powers and other terms of the Series D unchanged shall not be deemed to adversely affect the rights, preferences, privileges or voting power of holders of the Series D Stock for purposes of subclause (i) above and also will not be subject to subclause (iv) above; and provided, further, that any Event and any liquidation, dissolution or winding up of the Company in which the holders of Series D Stock receive cash in the amount of the Redemption Amount plus accrued and unpaid dividends in exchange for each of their shares of Series D Stock will not be subject to subclause (i) or subclause (iv) above.

With respect solely to the exercise of the above described voting rights as a class, each share of Series D Stock has one vote per share.

The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series D Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

Investor Rights Agreement

The Company entered into an Investor Rights Agreement (the “Investor Rights Agreement”) dated March 16, 2016 with SREP and StepStone Group Real Estate LP (“StepStone”) pursuant to which (a) John M. Dinkel, Kelly A. Walters and George R. Whittemore resigned as members of the Condor board of directors and (b) the Company appointed three director nominees selected by StepStone to the Condor Board of Directors (Jeff Giller, Brendan MacDonald and Mark Lineham). The Company also agreed to maintain the Condor Board of Directors at no more than nine members.

StepStone may nominate the following number of directors if it beneficially owns the indicated percentage of voting power of Condor: (a) three directors if it owns 22% or more of the outstanding voting power, (b) two directors if it owns 14% or more but less than 22% of the outstanding voting power, and (c) one director if it owns 7% or more but less than 14% of the outstanding voting power.


As long as StepStone has the right to nominate at least two directors, not less than one of those directors must be appointed to the investment, nominating and compensation committees (subject to the independence requirements of the NASDAQ Stock Market listing standards).

Pursuant to the Investor Rights Agreement, the StepStone nominees will be nominated and recommended for election at each annual meeting of Condor shareholders. Subject to the terms of the Investor Rights Agreement, StepStone also agreed to vote for the election of the current Condor Board of Directors who remain on the Condor Board of Directors and their successors as nominated by the nominating committee of the Condor Board of Directors.

The Investor Rights Agreement also requires the Company to register the resale of the common stock issued to StepStone or specified affiliates upon conversion of the Series D Stock.

The Company granted StepStone and its affiliates, among other rights, the right to purchase equity shares or securities convertible into equity shares in future Company offerings on a pro rata basis based on their combined ownership of voting power on a fully diluted basis, until the fifth anniversary of the Investor Rights Agreement (or third anniversary if StepStone and its affiliates beneficially own less than 10,000,000 shares of Common Stock).

The terms of the foregoing agreements and the terms of Series D Stock are qualified in their entirety by reference to the agreements and instruments attached as exhibits to this Current Report on Form 8-K and incorporated herein by reference.

Item 3.02 Unregistered Sales of Equity Securities.

The information contained in Item 1.01 is hereby incorporated by reference. The securities sold were offered and sold in a transaction exempt from registration under the Securities Act of 1933, in reliance on Section 4(a)(2) thereof.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(b) John M. Dinkel, Kelly A. Walters and George R. Whittemore resigned as members of the Board of Directors effective March 16, 2016.

(d) Pursuant to the Investor Rights Agreement, the Board appointed Jeff Giller, Brendan MacDonald and Mark Lineham as members of the Condor board of directors on March 16, 2016. Messrs. Giller and MacDonald are affiliated with StepStone, and the information set forth in Item 1.01 above is incorporated herein by this reference. Directors receive an annual retainer of $20,000. Additionally, directors receive $10,000 per meeting attended in person and $500 per telephonic meeting. At least one of each of Messrs. Giller, MacDonald and Lineham will be appointed a member of the Audit Committee, Compensation Committee, Nominating Committee and Investment Committee. The directors when appointed to committees, pursuant to the Investor Rights Agreement, will receive certain fees in connection with committee service. Committee chairmen receive compensation as follows: Audit Committee chairman annual retainer of $3,000 and Compensation Committee chairman annual retainer of $1,500. Each Audit Committee member, other than the chairman, receives a fee of $375 per quarter. The Investment Committee chairman receives a monthly fee of $750. Each member of the Investment Committee who is an independent director, other than the chairman, receives a monthly fee of $500. From time to time, directors, as authorized representatives of the Board, engage in Board duties outside of meetings, and receive fees for the performance of such additional Board duties in an hourly or daily amount previously set by the Board.


Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On March 16, 2016, the Company supplemented its Amended and Restated Articles of Incorporation, as amended, by filing Articles Supplementary thereto, which classifies and establishes the Series D Stock.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

3.1 Amended and Restated Articles of Incorporation of the Company, as amended.

3.2 Articles Supplementary of the Company classifying and establishing the Series D Stock and filed as a supplement to the Amended and Restated Articles of Incorporation, as amended, of the Company.

10.1 Stock Purchase Agreement, dated as of March 16, 2016, between SREP III Flight-Investco, L.P. and the Company.

10.2 Investor Rights Agreement, dated as of March 16, 2016, by and among SREP III Flight-Investco, L.P., StepStone Group Real Estate LP and the Company.

10.3 Agreement, dated as of March 16, 2016, by and among Real Estate Strategies L.P., IRSA Inversiones y Representaciones Sociedad Anónima and the Company.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    Condor Hospitality Trust, Inc.
Date: March 17, 2016     By:  

/s/ Jonathan Gantt

      Name: Jonathan Gantt
      Title:   Chief Financial Officer


EXHIBIT INDEX

 

Exhibit    Description
  3.1    Amended and Restated Articles of Incorporation of the Company, as amended.
  3.2    Articles Supplementary to the Company classifying and establishing the Series D Stock and filed as a supplement to the Amended and Restated Articles of Incorporation, as amended, of the Company.
10.1    Stock Purchase Agreement, dated as of March 16, 2016, between SREP III Flight-Investco, L.P. and the Company.
10.2    Investor Rights Agreement, dated as of March 16, 2016, by and among SREP III Flight-Investco, L.P., StepStone Group Real Estate LP and the Company.
10.3    Agreement, dated as of March 16, 2016, by and among Real Estate Strategies L.P., IRSA Inversiones y Representaciones Sociedad Anónima and the Company.

Exhibit 3.1

ARTICLES OF AMENDMENT

TO THE

AMENDED AND

RESTATED ARTICLES OF INCORPORATION

OF

SUPERTEL HOSPITALITY, INC.

Supertel Hospitality, Inc., a Maryland corporation (the “Corporation”), hereby certifies to the State Department of Assessments and Taxation of Maryland as follows:

FIRST: The Corporation desires to amend its Amended and Restated Articles of Incorporation as currently in effect (the “Articles”).

SECOND: Article I of the Articles is hereby amended in its entirety as follows:

“I.

NAME

The name of the corporation (which is hereinafter called the “Corporation”) is Condor Hospitality Trust, Inc.”

THIRD: This amendment to the Articles as hereinabove set forth has been duly advised and approved by a majority of the entire board of directors and that the amendment is limited to a change expressly authorized by Section 2-605 of the Maryland General Corporation Law to be made without action by the stockholders.

FOURTH: The undersigned Chief Executive Officer acknowledges theses Articles of Amendment to be the act of the Corporation and as to all matters or facts required to be verified under oath, the undersigned Chief Executive Officer acknowledges that to the best of his knowledge, information, and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

FIFTH: These Articles of Amendment shall become effective as of the later of (i) the time the State Department of Assessments and Taxation of Maryland accepts these Articles of Amendment for record, or (ii) 12:01 a.m. (Eastern Time) on July 15, 2015.

[Signature Page Follows]

 

1


IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to be signed in its name and on its behalf by its Chief Executive Officer and attested to it by its Treasurer on this 14 th day of July, 2015.

 

SUPERTEL HOSPITALITY, INC.
By:   /s/ J. William Blackham
  Name: J. William Blackham
  Title:   Chief Executive Officer
ATTEST:
By:   /s/ Patrick E. Beans
  Name: Patrick E. Beans
  Title:   Treasurer

 

2


AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

SUPERTEL HOSPITALITY, INC.

I.

NAME

The name of the corporation (which is hereinafter called the “Corporation”) is Supertel Hospitality, Inc.

II.

PURPOSE

The purpose for which this Corporation is formed is to transact any and all lawful business, not required to be specifically stated in these Articles, for which corporations may be incorporated under the Maryland General Corporation Law, as amended from time to time.

III.

STOCK

The total number of shares of stock that the Corporation has authority to issue is 200,000,000 shares of Common Stock, $.01 par value per share, and 40,000,000 shares of Preferred Stock, $.01 par value per share. The Board of Directors, with the approval of a majority of the entire Board of Directors, and without any action by the shareholders of the Corporation, may amend the Articles of Incorporation from time to time to increase or decrease the aggregate number of shares of stock of the Corporation or the number of shares of stock of any class or series that the Corporation has authority to issue.

No holder of shares of capital stock of the Corporation shall have any preemptive or preferential right to subscribe to or purchase (i) any shares of any class of the Corporation, whether now or hereafter authorized; (ii) any warrants, rights, or options to purchase any such shares; or (iii) any securities or obligations convertible into any such shares or into warrants, rights, or options to purchase any such shares.

The Preferred Stock may be issued from time to time by the Board of Directors of the Corporation, in such series and with such preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or other provisions as may be fixed by the Board of Directors.

IV.

PRINCIPAL OFFICE AND RESIDENT AGENT

The name and address of the resident agent for service of process of the Corporation in the State of Maryland is CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 1660, Baltimore, MD 21202. The address of the Corporation’s principal office in the State of Maryland is c/o CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 1660, Baltimore, MD 21202. The Corporation may have such other offices and places of business within or outside the State of Maryland as the board of directors may from time to time determine.

 

3


V.

BOARD OF DIRECTORS

 

A. The Corporation shall have a Board of Directors consisting of not less than three (3) nor more than eleven (11) members. A director need not be a shareholder. At the annual meeting of shareholders, the shareholders shall elect directors to serve a one-year term and until their successors are duly elected and qualified.

 

B. Notwithstanding anything herein to the contrary, at all times (except during a period not to exceed sixty (60) days following the death, resignation, incapacity or removal from office of a director prior to expiration of the director’s term of office), a majority of the Board of Directors shall be comprised of persons who are “Independent Directors.” Independent Directors are persons who are not officers or employees of the Corporation or “Affiliates” of (i) any advisor to the Corporation under an advisory agreement, (ii) any lessee of any property of the Corporation, (iii) any subsidiary of the Corporation or (iv) any partnership which is an Affiliate of the Corporation.

 

C. For purposes of the foregoing subsection, “Affiliate” of a person shall mean (i) any person that, directly or indirectly, controls or is controlled by or is under common control with such person, (ii) any other person that owns, beneficially, directly or indirectly, five percent (5%) or more of the outstanding capital stock, shares or equity interests of such person, or (iii) any officer, director, employee, partner or trustee of such person or any person controlling, controlled by or under common control with such person (excluding directors and persons serving in similar capacities who are not otherwise an Affiliate of such person). The term “person” means and includes individuals, corporations, general and limited partnerships, stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof. For the purposes of this definition, “control” (including the correlative meanings of the terms “controlled by” and “under common control with”), as used with respect to any person, shall mean 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, partnership interests or other equity interests.

 

D. Notwithstanding any other provisions of these Articles of Incorporation or the bylaws of the Corporation (and notwithstanding that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), the provisions of this Article V shall not be amended, altered, changed or repealed without the approval of a majority of the members of the Board of Directors or the affirmative vote of the holders of not less than a majority of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting separately as a class.

VI.

AMENDMENTS

Except as expressly otherwise required by these Articles of Incorporation, (i) an amendment to or restatement of these Articles of Incorporation for which the Maryland General Corporation Law requires shareholder approval, (ii) the approval of a plan of merger or share exchange for which the Maryland General Corporation Law requires shareholder approval, (iii) the approval of

 

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a sale of all, or substantially all of the Corporation’s property, other than in the usual and regular course of business or (iv) the approval of the dissolution of the Corporation shall be approved by a majority of the votes entitled to be cast by each voting group that is entitled to vote on the matter, unless in submitting any such matter to the shareholders the Board of Directors shall require a greater vote.

VII.

LIMITATION OF LIABILITY AND INDEMNIFICATION

 

A. To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and officers of a corporation, no present or former director or officer of the Corporation or its predecessor shall be liable to the Corporation or its shareholders for money damages. To the maximum extent permitted by Maryland law in effect from time to time, the Corporation shall indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation or its predecessor and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity or (b) any individual who, while a director or officer of the Corporation or its predecessor and at the request of the Corporation or its predecessor, serves or has served as a director, officer, trustee, member, manager or partner of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity. The rights to indemnification and advance of expenses provided by the Articles of Incorporation and bylaws shall vest immediately upon election of a director or officer. The Corporation may indemnify any other persons permitted but not required to be indemnified by Maryland law, as applicable from time to time, if and to the extent indemnification is authorized and determined to be appropriate, in each case in accordance with applicable law, by the Board of Directors. The indemnification and payment or reimbursement of expenses provided in these Articles of Incorporation shall not be deemed exclusive of or limit in any way other rights to which any person seeking indemnification or payment or reimbursement of expenses may be or may become entitled under any bylaw, resolution, insurance, agreement or otherwise.

 

B. No amendment of the Articles of Incorporation or repeal of any of its provisions shall limit or eliminate any of the benefits provided to directors and officers under this Article VII in respect of any act or omission that occurred prior to such amendment or repeal.

VIII.

REIT STATUS

The Corporation shall seek to elect and maintain status as a REIT under the Code. It shall be the duty of the Board of Directors to ensure that the Corporation satisfies the requirements for qualification as a REIT under the Code, including, but not limited to, the ownership of its outstanding stock, the nature of its assets, the sources of its income, and the amount and timing of its distributions to its shareholders. The Board of Directors shall take no action to disqualify the Corporation as a REIT or to otherwise revoke the Corporation’s election to be taxed as a REIT without the affirmative vote of two-thirds (2/3) of the number of shares of Common Stock entitled to vote on such matter at a special meeting of the shareholders.

 

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IX.

OWNERSHIP LIMITATIONS

 

A. Restrictions on Transfer.

 

  1. Definitions. The following terms shall have the following meanings:

“Beneficial Ownership” shall mean ownership of shares of Equity Stock by a Person who would be treated as an owner of such shares of Equity Stock either directly or indirectly through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The terms “Beneficial Owner,” “Beneficially Owns,” and “Beneficially Owned” shall have correlative meanings.

“Beneficiary” shall mean, with respect to any Trust, one or more organizations described in each of Section 170(b)(1)(A) (other than clauses (vii) or (viii) thereof) and Section 170(c)(2) of the Code that are named by the Corporation as the beneficiary or beneficiaries of such Trust, in accordance with the provisions of Section (B)(1) of Article IX hereof.

“Board of Directors” shall mean the Board of Directors of the Corporation.

“Constructive Ownership” shall mean ownership of shares of Equity Stock by a Person who would be treated as an owner of such shares of Equity Stock either directly or indirectly through the application of Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The terms “Constructive Owner,” “Constructively Owns,” and “Constructively Owned” shall have correlative meanings.

“Equity Stock” shall mean Preferred Stock and Common Stock of the Corporation. The term “Equity Stock” shall include all shares of Preferred Stock and Common Stock of the Corporation that are held as Shares-in-Trust in accordance with the provisions of Section (B) of Article IX hereof.

“Market Price” on any date shall mean the average of the Closing Price for the five consecutive Trading Days ending on such date. The “Closing Price” on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or the Nasdaq Stock Market or, if the shares of Equity Stock are not listed or admitted to trading on the New York Stock Exchange or the Nasdaq Stock Market, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Equity Stock are listed or admitted to trading or, if the shares of Equity Stock are not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the shares of Equity Stock are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares of Equity Stock selected by the Board of Directors.

 

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“Non-Transfer Event” shall mean an event other than a purported Transfer that would cause any Person to Beneficially Own or Constructively Own shares of Equity Stock in excess of the Ownership Limit, including, but not limited to, the granting of any option or entering into any agreement for the sale, transfer or other disposition of shares of Equity Stock or the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for shares of Equity Stock.

“Ownership Limit” shall mean, with respect to the Common Stock, 9.9% of the number of outstanding shares of Common Stock and, with respect to any class or series of Preferred Stock, 9.9% of the number of outstanding shares of such class or series of Preferred Stock.

“Permitted Transferee” shall mean any Person designated as a Permitted Transferee in accordance with the provisions of Section (B)(5) of Article IX hereof.

“Person” shall mean an individual, corporation, partnership, estate, trust, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a “group” as that term is used for purposes of Section 12(d)(3) of the Securities Exchange Act of 1934, as amended.

“Prohibited Owner” shall mean, with respect to any purported Transfer or Non-Transfer Event, any Person who, but for the provisions of Section (A)(3) of Article IX hereof, would own record title to shares of Equity Stock.

“Redemption Rights” shall mean the rights granted under the Supertel Limited Partnership Agreement to the limited partners to redeem, under certain circumstances, their limited partnership interests for shares of Common Stock (or cash at the option of the Corporation).

“Restriction Termination Date” shall mean the first day after which (i) the Board of Directors determines that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT and (ii) there is an affirmative vote of two-thirds of the number of shares of Common Stock entitled to vote on such matter at a special meeting of the shareholders of the Corporation.

“Shares-in-Trust” shall mean any shares of Equity Stock designated Shares-in-Trust pursuant to Section (A)(3) of Article IX hereof.

“Supertel Limited Partnership Agreement” shall mean the agreement of limited partnership establishing Supertel Limited Partnership, a Virginia limited partnership, as amended and restated from time to time.

“Trading Day” shall mean a day on which the principal national securities exchange on which the shares of Equity Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Equity Stock are not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

 

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“Transfer” (as a noun) shall mean any sale, transfer, gift, assignment, devise or other disposition of shares of Equity Stock, whether voluntary or involuntary, whether of record, constructively or beneficially and whether by operation of law or otherwise. “Transfer” (as a verb) shall not have the correlative meaning.

“Trust” shall mean any separate trust created pursuant to Section (A)(3) of Article IX hereof and administered in accordance with the terms of Section (B) of Article IX hereof, for the exclusive benefit of any Beneficiary.

“Trustee” shall mean any Person or entity unaffiliated with both the Corporation and any Prohibited Owner, such Trustee to be designated by the Corporation to act as trustee of any Trust, or any successor trustee thereof.

 

  2. Restriction on Transfers.

(a) Except as provided in Section (A)(7) of Article IX hereof, prior to the Restriction Termination Date, (i) no Person shall Beneficially Own or Constructively Own outstanding shares of Equity Stock in excess of the Ownership Limit and (ii) any Transfer that, if effective, would result in any Person Beneficially Owning or Constructively Owning shares of Equity Stock in excess of the Ownership Limit shall be void ab initio as to the Transfer of that number of shares of Equity Stock which would be otherwise Beneficially Owned or Constructively Owned by such Person in excess of the Ownership Limit, and the intended transferee shall acquire no rights in such excess shares of Equity Stock.

(b) Except as provided in Section (A)(7) of Article IX hereof, prior to the Restriction Termination Date, any Transfer that, if effective, would result in shares of Equity Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution) shall be void ab initio as to the Transfer of that number of shares which would be otherwise beneficially owned (determined without reference to any rules of attribution) by the transferee, and the intended transferee shall acquire no rights in such shares of Equity Stock.

(c) Prior to the Restriction Termination Date, any Transfer of shares of Equity Stock that, if effective, would result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code shall be void ab initio as to the Transfer of that number of shares of Equity Stock which would cause the Corporation to be “closely held” within the meaning of Section 856(h) of the Code, and the intended transferee shall acquire no rights in such shares of Equity Stock.

(d) Prior to the Restriction Termination Date, any Transfer of shares of Equity Stock that, if effective, would cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of that number of shares of Equity Stock which would cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights in such excess shares of Equity Stock.

 

  3. Transfer to Trust.

 

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(a) If, notwithstanding the other provisions contained in this Section (A) of Article IX, at any time prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event such that any Person would either Beneficially Own or Constructively Own shares of Equity Stock in excess of the Ownership Limit, then, (i) except as otherwise provided in Section (A)(7) of Article IX hereof, the purported transferee shall acquire no right or interest (or, in the case of a Non-Transfer Event, the Person holding record title to the shares of Equity Stock Beneficially Owned or Constructively Owned by such Beneficial Owner or Constructive Owner, shall cease to own any right or interest) in such number of shares of Equity Stock which would cause such Beneficial Owner or Constructive Owner to Beneficially Own or Constructively Own shares of Equity Stock in excess of the Ownership Limit, (ii) such number of shares of Equity Stock in excess of the Ownership Limit (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of Section (B) of Article IX hereof, transferred automatically and by operation of law to the Trust to be held in accordance with that Section (B) of Article IX, and (iii) the Prohibited Owner shall submit such number of shares of Equity Stock to the Corporation for registration in the name of the Trustee. Such transfer to a Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.

(b) If, notwithstanding the other provisions contained in this Section (A) of Article IX, at any time prior to the Restriction Termination Date, there is a purported Transfer or Non-Transfer Event that, if effective, would (i) result in the shares of Equity Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (ii) result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or (iii) cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code, then (x) the purported transferee shall not acquire any right or interest (or, in the case of a Non-Transfer Event, the Person holding record title of the shares of Equity Stock with respect to which such Non-Transfer Event occurred, shall cease to own any right or interest) in such number of shares of Equity Stock, the ownership of which by such purported transferee or record holder would (A) result in the shares of Equity Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (B) result in the Corporation being “closely held” within the meaning of Section 856(h) of the Code, or (C) cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code, (y) such number of shares of Equity Stock (rounded up to the nearest whole share) shall be designated Shares-in-Trust and, in accordance with the provisions of Section (B) of Article IX hereof, transferred automatically and by operation of law to the Trust to be held in accordance with that Section (B) of Article IX, and (z) the Prohibited Owner shall submit such number of shares of Equity Stock to the Corporation for registration in the name of the Trustee. Such transfer to a Trust and the designation of shares as Shares-in-Trust shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event, as the case may be.

 

  4.

Remedies For Breach. If the Corporation, or its designees, shall at any time determine in good faith that a Transfer has taken place in violation of Section (A)(2) of Article IX hereof or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any shares of Equity Stock in violation of Section (A)(2) of Article IX hereof, the Corporation shall take

 

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  such action as it deems advisable to refuse to give effect to or to prevent such Transfer or acquisition, including, but not limited to, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer or acquisition.

 

  5. Notice of Restricted Transfer. Any Person who acquires or attempts to acquire shares of Equity Stock in violation of Section (A)(2) of Article IX hereof, or any Person who owned shares of Equity Stock that were transferred to the Trust pursuant to the provisions of Section (A)(3) of Article IX hereof, shall immediately give written notice to the Corporation of such event and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or Non-Transfer Event, as the case may be, on the Corporation’s status as a REIT.

 

  6. Owners Required To Provide Information. Prior to the Restriction Termination Date:

(a) Every Beneficial Owner or Constructive Owner of more than 5%, or such lower percentages as required pursuant to regulations under the Code, of the outstanding shares of all classes of capital stock of the Corporation shall, within 30 days after January 1 of each year, provide to the Corporation a written statement or affidavit stating the name and address of such Beneficial Owner or Constructive Owner, the number of shares of Equity Stock Beneficially Owned or Constructively Owned, and a description of how such shares are held. Each such Beneficial Owner or Constructive Owner shall provide to the Corporation such additional information as the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership or Constructive Ownership on the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.

(b) Each Person who is a Beneficial Owner or Constructive Owner of shares of Equity Stock and each Person (including the stockholder of record) who is holding shares of Equity Stock for a Beneficial Owner or Constructive Owner shall provide to the Corporation a written statement or affidavit stating such information as the Corporation may request in order to determine the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.

 

  7. Exception. The Ownership Limit shall not apply to the acquisition of shares of Equity Stock by an underwriter that participates in a public offering of such shares for a period of 90 days following the purchase by such underwriter of such shares provided that the restrictions contained in Section (A)(2) of Article IX hereof will not be violated following the distribution by such underwriter of such shares. In addition, the Board of Directors, upon receipt of a ruling from the Internal Revenue Service or an opinion of counsel in each case to the effect that the restrictions contained in Section (A)(2)(b), Section (A)(2)(c), and/or Section (A)(2)(d) of Article IX hereof will not be violated, may exempt a Person from the Ownership Limit provided that (i) the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain that no individual’s Beneficial Ownership or Constructive Ownership of shares of Equity Stock will violate the Ownership Limit and (ii) such Person agrees in writing that any violation or attempted violation will result in such transfer to the Trust of shares of Equity Stock pursuant to Section (A)(3) of Article IX hereof.

 

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B. Shares-in-Trust.

 

  1. Trust. Any shares of Equity Stock transferred to a Trust and designated Shares-in-Trust pursuant to Section (A)(3) of Article IX hereof shall be held for the exclusive benefit of the Beneficiary. The Corporation shall name a Beneficiary for each Trust within five days after discovery of the existence thereof. Any transfer to a Trust, and subsequent designation of shares of Equity Stock as Shares-in-Trust, pursuant to Section (A)(3) of Article IX hereof shall be effective as of the close of business on the business day prior to the date of the Transfer or Non-Transfer Event that results in the transfer to the Trust. Shares-in-Trust shall remain issued and outstanding shares of Equity Stock of the Corporation and shall be entitled to the same rights and privileges on identical terms and conditions as are all other issued and outstanding shares of Equity Stock of the same class and series. When transferred to a Permitted Transferee in accordance with the provisions of Section (B)(5) of Article IX hereof, such Shares-in-Trust shall cease to be designated as Shares-in-Trust.

 

  2. Dividend Rights. The Trust, as record holder of Shares-in-Trust, shall be entitled to receive all dividends and distributions as may be declared by the Board of Directors on such shares of Equity Stock and shall hold such dividends or distributions in trust for the benefit of the Beneficiary. The Prohibited Owner with respect to Shares-in-Trust shall repay to the Trust the amount of any dividends or distributions received by it that (i) are attributable to any shares of Equity Stock designated Shares-in-Trust and (ii) the record date of which was on or after the date that such shares became Shares-in-Trust. The Corporation shall take all measures that it determines reasonably necessary to recover the amount of any such dividend or distribution paid to a Prohibited Owner, including, if necessary, withholding any portion of future dividends or distributions payable on shares of Equity Stock Beneficially Owned or Constructively Owned by the Person who, but for the provisions of Section (A)(3) of Article IX hereof, would Constructively Own or Beneficially Own the Shares-in-Trust; and, as soon as reasonably practicable following the Corporation’s receipt or withholding thereof, shall pay over to the Trust for the benefit of the Beneficiary the dividends so received or withheld, as the case may be.

 

  3. Rights Upon Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation, each holder of Shares-in-Trust shall be entitled to receive, ratably with each other holder of shares of Equity Stock of the same class or series, that portion of the assets of the Corporation which is available for distribution to the holders of such class and series of shares of Equity Stock. The Trust shall distribute to the Prohibited Owner the amounts received upon such liquidation, dissolution, or winding up, or distribution; provided, however, that the Prohibited Owner shall not be entitled to receive amounts pursuant to this Section (B)(3) of Article IX in excess of, in the case of a purported Transfer in which the Prohibited Owner gave value for shares of Equity Stock and which Transfer resulted in the transfer of the shares to the Trust, the price per share, if any, such Prohibited Owner paid for the shares of Equity Stock and, in the case of a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer. Any remaining amount in such Trust shall be distributed to the Beneficiary.

 

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  4. Voting Rights. The Trustee shall be entitled to vote all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of shares of Equity Stock prior to the discovery by the Corporation that the shares of Equity Stock are Shares-in-Trust shall, subject to applicable law, be rescinded and shall be void ab initio with respect to such Shares-in-Trust and the Prohibited Owner shall be deemed to have given, as of the close of business on the business day prior to the date of the purported Transfer or Non-Transfer Event that results in the transfer to the Trust of shares of Equity Stock under Section (A)(3) of Article IX hereof, an irrevocable proxy to the Trustee to vote the Shares-in-Trust in the manner in which the Trustee, in its sole and absolute discretion, desires.

 

  5. Designation of Permitted Transferee. The Trustee shall have the exclusive and absolute right to designate a Permitted Transferee of any and all Shares-in-Trust. In an orderly fashion so as not to materially adversely affect the Market Price of the Shares-in-Trust, the Trustee shall designate any Person as Permitted Transferee, provided, however, that (i) the Permitted Transferee so designated purchases for valuable consideration (whether in a public or private sale) the Shares-in-Trust and (ii) the Permitted Transferee so designated may acquire such Shares-in-Trust without such acquisition resulting in a transfer to a Trust and the redesignation of such shares of Equity Stock so acquired as Shares-in-Trust under Section (A)(3) of Article IX hereof. Upon the designation by the Trustee of a Permitted Transferee in accordance with the provisions of this Section (B)(5) of Article IX, the Trustee shall (i) cause to be transferred to the Permitted Transferee that number of Shares-in-Trust acquired by the Permitted Transferee, (ii) cause to be recorded on the books of the Corporation that the Permitted Transferee is the holder of record of such number of shares of Equity Stock, (iii) cause the Shares-in-Trust to be canceled, and (iv) distribute to the Beneficiary any and all amounts held with respect to the Shares-in-Trust after making that payment to the Prohibited Owner pursuant to Section (B)(6) of Article IX hereof.

 

  6.

Compensation to Record Holder of Shares of Equity Stock that Become Shares-in-Trust. Any Prohibited Owner shall be entitled (following discovery of the Shares-in-Trust and subsequent designation of the Permitted Transferee in accordance with Section (B)(5) of Article IX hereof or following the acceptance of the offer to purchase such shares in accordance with Section (B)(7) of Article IX hereof) to receive from the Trustee following the sale or other disposition of such Shares-in-Trust the lesser of (i) in the case of (a) a purported Transfer in which the Prohibited Owner gave value for shares of Equity Stock and which Transfer resulted in the transfer of the shares to the Trust, the price per share, if any, such Prohibited Owner paid for the shares of Equity Stock, or (b) a Non-Transfer Event or Transfer in which the Prohibited Owner did not give value for such shares (e.g., if the shares were received through a gift or devise) and which Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of shares to the Trust, the price per share equal to the Market Price on the date of such Non-Transfer Event or Transfer, and (ii) the price per share received by the Trustee from the sale or other disposition of such Shares-in-Trust in accordance with Section (B)(5) of Article IX hereof. Any amounts received by the Trustee in respect of such Shares-in-Trust and in excess of such amounts to be paid the

 

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  Prohibited Owner pursuant to this Section (B)(6) shall be distributed to the Beneficiary in accordance with the provisions of Section (B)(5) of Article IX hereof. Each Beneficiary and Prohibited Owner waive any and all claims that they may have against the Trustee and the Trust arising out of the disposition of Shares-in-Trust, except for claims arising out of the gross negligence or willful misconduct of, or any failure to make payments in accordance with this Section (B), by such Trustee or the Corporation.

 

  7. Purchase Right in Shares-in-Trust. Shares-in-Trust shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that created such Shares-in-Trust (or, in the case of devise, gift or Non-Transfer Event, the Market Price at the time of such devise, gift or Non-Transfer Event) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation shall have the right to accept such offer for a period of ninety days after the later of (i) the date of the Non-Transfer Event or purported Transfer which resulted in such Shares-in-Trust and (ii) the date the Corporation determines in good faith that a Transfer or Non-Transfer Event resulting in Shares-in-Trust has occurred, if the Corporation does not receive a notice of such Transfer or Non-Transfer Event pursuant to Section (A)(5) of Article IX hereof.

 

C. Remedies Not Limited. Nothing contained in this Article IX shall limit the authority of the Corporation to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its shareholders by preservation of the Corporation’s status as a REIT and to ensure compliance with the Ownership Limit.

 

D. Ambiguity. In the case of an ambiguity in the application of any of the provisions of this Article IX, including any definition contained in Section (A)(1) of Article IX hereof, the Board of Directors shall have the power to determine the application of the provisions of this Article IX with respect to any situation based on the facts known to it.

 

E. Legend. Each certificate for shares of Equity Stock shall bear the following legend:

“The shares of [Common or Preferred] Stock represented by this certificate are subject to restrictions on transfer for the purpose of the Corporation’s maintenance of its status as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”). No Person may (i) Beneficially Own or Constructively Own shares of Common Stock in excess of 9.9% of the number of outstanding shares of Common Stock, (ii) Beneficially Own or Constructively Own shares of any class or series of Preferred Stock in excess of 9.9% of the number of outstanding shares of such class or series of Preferred Stock, (iii) beneficially own shares of Equity Stock that would result in the shares of Equity Stock being beneficially owned by fewer than 100 Persons (determined without reference to any rules of attribution), (iv) Beneficially Own shares of Equity Stock that would result in the Corporation being “closely held” under Section 856(h) of the Code, or (v) Constructively Own shares of Equity Stock that would cause the Corporation to Constructively Own 10% or more of the ownership interests in a tenant of the Corporation’s real property, within the meaning of Section 856(d)(2)(B) of the Code. Any Person who attempts to Beneficially Own or Constructively Own shares of Equity Stock in excess of the above limitations must immediately notify the Corporation in writing. If the restrictions above are violated, the shares of Equity Stock represented hereby will be transferred automatically and by operation of law to a Trust and shall be designated Shares-in-Trust. All capitalized terms in this legend have the meanings defined in the Corporation’s Amended and Restated Articles of Incorporation, as the same may be further amended from time to time, a copy of which, including the restrictions on transfer, will be sent without charge to each shareholder who so requests.”

 

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F. Severability. If any provision of this Article IX or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply with the determination of such court.

X.

ESTABLISHMENT OF SERIES A CUMULATIVE PREFERRED STOCK

Pursuant to Article III hereof, the Board of Directors has established the following Series of Preferred Stock.

 

A. Terms of the Series A Cumulative Preferred Stock.

 

  1. Designation and Number. A series of Preferred Stock, designated the “Series A Cumulative Preferred Stock”, is hereby established. The number of authorized shares of Series A Cumulative Preferred Stock shall be 2,500,000.

 

  2. Maturity. The Series A Cumulative Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption.

 

  3. Rank. The Series A Cumulative Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, rank (a) prior or senior to the Common Stock issued by the Corporation; (b) prior or senior to all classes or series of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank junior to the Series A Cumulative Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation, (c) on a parity with all classes or series of shares of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank on a parity with the Series A Cumulative Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation (the “Parity Shares”) and (d) junior to all existing and future indebtedness of the Corporation.

 

  4. Dividends.

(a) Holders of Series A Cumulative Preferred Stock shall be entitled to receive, when and as authorized by the Board of Directors of the Corporation, or a duly authorized committee thereof, and declared by the Corporation out of funds of the Corporation legally available for payment, preferential cumulative cash dividends at the rate of 8% per annum of the Liquidation Preference (as defined below) per share (equivalent to a fixed annual amount of $.80 per share). Such dividends shall be cumulative from the date of original issue and shall be payable in arrears on the last day of each month (or, if not a Business Day (as defined below), the next succeeding Business Day, each a “Dividend Payment Date”) for the period ending on such Dividend Payment Date, commencing on the date of issue. “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. The first dividend will be paid on January 31, 2006 with respect to the period beginning on the date of issue and ending on January

 

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31, 2006. Each Share of Series A Convertible Preferred Stock, $0.01 par value per share of the Corporation’s predecessor, Supertel Hospitality, Inc., a Virginia corporation, was converted into one share of Series A Cumulative Preferred Stock of the Corporation. For the avoidance of doubt, dividends previously paid by the Corporation’s predecessor, and dividends accrued but unpaid until time of such conversion, with respect to such predecessor’s Series A Convertible Preferred Stock, $0.01 par value per share, are, respectively, payments of dividends and accrued but unpaid dividends in the amounts and for the same periods provided for herein with respect to the Series A Cumulative Preferred Stock of the Corporation. Any dividend payable on the Series A Cumulative Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year. Dividends will be payable in arrears to holders of record as they appear on the share records of the Corporation at the close of business on the applicable record date, which shall be the first day of the calendar month in which the Dividend Payment Date occurs or such other date designated by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”).

(b) No dividends on Series A Cumulative Preferred Stock shall be authorized by the Board of Directors of the Corporation or declared or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the Series A Cumulative Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series A Cumulative Preferred Stock will accumulate and earn additional dividends at 8%, compounded monthly. Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any other class or series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series A Cumulative Preferred Stock (other than a dividend payable in capital stock of the Corporation ranking junior to the Series A Cumulative Preferred Stock as to dividends and upon liquidation) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Cumulative Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Cumulative Preferred Stock and the shares of any other class or series of Preferred Stock ranking on a parity as to dividends with the Series A Cumulative Preferred Stock, all dividends declared upon the Series A Cumulative Preferred Stock and any other class or series of Preferred Stock ranking on a parity as to dividends with the Series A Cumulative Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series A Cumulative Preferred Stock and such other class or series of Preferred Stock, shall in all cases bear to each other the same ratio that accrued dividends per share on the Series A Cumulative Preferred Stock and such other class or series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.

 

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(d) Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series A Cumulative Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than a dividend payable in capital stock of the Corporation ranking junior to the Series A Cumulative Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series A Cumulative Preferred Stock as to dividends or upon liquidation, nor shall the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series A Cumulative Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for any other class or series of capital stock of the Corporation ranking junior to the Series A Cumulative Preferred Stock as to dividends and upon liquidation or redemption for the purpose of preserving the Corporation’s qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”)). Holders of Series A Cumulative Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series A Cumulative Preferred Stock as provided above. Any dividend payment made on the Series A Cumulative Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable.

(e) If, for any taxable year, the Corporation elects to designate as “capital gain dividends” (as defined in Section 857 of the Code) any portion (the “Capital Gains Amount”) of the dividends (as determined for federal income tax purposes) paid or made available for the year to holders of all classes of shares (the “Total Dividends”), then the portion of the Capital Gains Amount that shall be allocable to the holders of Series A Cumulative Preferred Stock shall be the amount that the total dividends (as determined for federal income tax purposes) paid or made available to the holders of the Series A Cumulative Preferred Stock for the year bears to the Total Dividends. The Corporation may elect to retain and pay income tax on its net long-term capital gains. In such a case, the holders of Series A Cumulative Preferred Stock would include in income their appropriate share of the Corporation’s undistributed long-term capital gains, as designated by the Corporation.

 

  5. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the Series A Cumulative Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $10.00 per share (the “Liquidation Preference”) in cash or property at its fair market value as determined by the Board of Directors of the Corporation, plus an amount equal to any accrued and unpaid dividends to the date of payment, but without interest, before any distribution of assets is made to holders of the Corporation’s Common Stock or any other class or series of capital stock of the Corporation that ranks junior to the Series A Cumulative Preferred Stock as to liquidation rights. The Corporation will promptly provide to the holders of the Series A Cumulative Preferred Stock written notice of any event triggering the right to receive such Liquidation Preference. After payment of the full amount of the Liquidation

 

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Preference, plus any accrued and unpaid dividends to which they are entitled, the holders of the Series A Cumulative Preferred Stock will have no right or claim to any of the remaining assets of the Corporation. The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation, trust or entity with or into the Corporation, the sale, lease or conveyance of all or substantially all of the property or business of the Corporation or a statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation, unless a liquidation, dissolution or winding up of the Corporation is effected in connection with, or as a step in a series of transactions by which, a consolidation or merger of the Corporation is effected.

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of capital stock of the Corporation or otherwise is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of capital stock of the Corporation whose preferential rights upon distribution are superior to those receiving the distribution.

(b) If upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of Series A Cumulative Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series A Cumulative Preferred Stock and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series A Cumulative Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Series A Cumulative Preferred Stock and any Parity Shares, the holders of Common Stock shall be entitled to receive any and all assets remaining to be paid or distributed, and the holders of the Series A Cumulative Preferred Stock and any Parity Shares shall not be entitled to share therein.

 

  6. Redemption.

(a) The Corporation may, at its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A Cumulative Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price equal to the Liquidation Preference per share, plus all accrued and unpaid dividends thereon to the date fixed for redemption (the “Redemption Date”), without interest. No Series A Cumulative Preferred Stock may be redeemed except with assets legally available for the payment of the redemption price.

Holders of Series A Cumulative Preferred Stock to be redeemed shall surrender such Series A Cumulative Preferred Stock at the place designated in such notice and shall be entitled to the redemption price and any accrued and unpaid dividends payable upon such redemption following such surrender. If notice of redemption of any of the Series A Cumulative Preferred Stock has been given and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Corporation in trust for the pro rata benefit of the holders of any Series A Cumulative

 

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Preferred Stock so called for redemption, then from and after the Redemption Date dividends will cease to accrue on such Series A Cumulative Preferred Stock, such Series A Cumulative Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. If less than all of the outstanding Series A Cumulative Preferred Stock is to be redeemed, the Series A Cumulative Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation.

(b) Unless full cumulative dividends on all Series A Cumulative Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no Series A Cumulative Preferred Stock shall be redeemed unless all outstanding Series A Cumulative Preferred Stock is simultaneously redeemed and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any Series A Cumulative Preferred Stock (except by exchange for any other class or series of capital stock of the Corporation ranking junior to the Series A Cumulative Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase by the Corporation of any Series A Cumulative Preferred Stock in accordance with Article IX hereof, or the purchase or acquisition of Series A Cumulative Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A Cumulative Preferred Stock. So long as no dividends are in arrears, the Corporation shall be entitled at any time and from time to time to repurchase any Series A Cumulative Preferred Stock in open-market transactions duly authorized by the Board of Directors of the Corporation and effected in compliance with applicable laws.

(c) Notice of redemption of the Series A Cumulative Preferred Stock shall be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the Redemption Date. A similar notice shall be mailed by the Corporation by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the Redemption Date, addressed to each holder of record of the Series A Cumulative Preferred Stock to be redeemed at such holder’s address as the same appears on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series A Cumulative Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the Redemption Date; (ii) the redemption price; (iii) the number of shares of Series A Cumulative Preferred Stock to be redeemed; and (iv) the place or places where the Series A Cumulative Preferred Stock is to be surrendered for payment of the redemption price.

(d) Immediately prior to any redemption of Series A Cumulative Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the Redemption Date, unless a Redemption Date falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series A Cumulative Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

 

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(e) The Series A Cumulative Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption provisions, except as provided under Article IX hereof.

(f) Subject to applicable law and the limitation on purchases when dividends on the Series A Cumulative Preferred Stock are in arrears, the Corporation may, at any time and from time to time, purchase any Series A Cumulative Preferred Stock in the open market, by tender or by private agreement.

(g) All Series A Cumulative Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Stock, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Stock in accordance with the applicable provisions of these Articles of Incorporation.

 

  7. Voting Rights.

(a) Holders of the Series A Cumulative Preferred Stock will not have any voting rights, except as set forth below.

(b) Whenever dividends on any Series A Cumulative Preferred Stock shall be in arrears for six consecutive months or nine months, whether or not consecutive, in any twelve month period (a “Preferred Dividend Default”), the number of directors then constituting the Board of Directors of the Corporation shall increase by two (if not already increased by reason of a similar arrearage with respect to any Parity Preferred (as hereinafter defined)). The holders of such Series A Cumulative Preferred Stock (voting separately as a class with all other classes or series of Preferred Stock ranking on a parity with the Series A Cumulative Preferred Stock as to dividends or upon liquidation and upon which like voting rights have been conferred and are exercisable (“Parity Preferred”)) will be entitled to vote separately as a class, in order to fill the vacancies thereby created, for the election of a total of two additional directors of the Corporation (the “Preferred Stock Directors”) at a special meeting called by the holders of record of at least 20% of the Series A Cumulative Preferred Stock or the holders of record of at least 20% of any series of Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders) or at the next annual meeting of shareholders, and at each subsequent annual meeting at which a Preferred Stock Director is to be elected until up to twelve months after all dividends accumulated on such Series A Cumulative Preferred Stock and Parity Preferred for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. In the event the directors of the Corporation are divided into classes, each such vacancy shall be apportioned among the classes of directors to prevent stacking in any one class and to ensure that the number of directors in each of the classes of directors are as equal as possible. Within twelve months after all accumulated dividends and the dividend for the then current dividend period on the Series A Cumulative Preferred Stock shall have been paid in full or declared and set aside for payment in full, the holders thereof shall be divested of the foregoing voting rights (subject to revesting in the event of each and every Preferred Dividend Default) and, if all accumulated dividends and the dividend for the then current dividend period have been paid in full or set aside for payment in full on the Series A Cumulative Preferred Stock and all series of Parity Preferred upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Stock Director so

 

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elected shall terminate within twelve months thereafter and the number of directors then constituting the Board of Directors of the Corporation shall decrease accordingly. Any Preferred Stock Director may be removed at any time with or without cause by, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series A Cumulative Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Stock Director may be filled by written consent of the Preferred Stock Director remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding shares of Series A Cumulative Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). The Preferred Stock Directors shall each be entitled to one vote per director on any matter.

(c) So long as any shares of Series A Cumulative Preferred Stock remain outstanding, the Corporation will not, without the affirmative vote or consent of the holders of Series A Cumulative Preferred Stock entitled to cast a majority of the votes entitled to be cast by the holders of the Series A Cumulative Preferred Stock, given in person or by proxy, either in writing or at a meeting (voting separately as a class):

(i) amend, alter or repeal the provisions of these Articles of Incorporation, whether by merger, consolidation or otherwise (an “Event”), so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Cumulative Preferred Stock or the holders thereof; or

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking senior to the Series A Cumulative Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, or reclassify any shares of capital stock into any such shares;

provided, however, that with respect to the occurrence of any Event set forth above, so long as the Series A Cumulative Preferred Stock (or any equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in any merger or consolidation to which the Corporation became a party) remains outstanding with the terms thereof materially unchanged, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series A Cumulative Preferred Stock; and provided, further, that (i) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other class or series of Preferred Stock, (ii) any increase in the amount of the authorized shares of such series, in each case ranking on a parity with or junior to the Series A Cumulative Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or (iii) any merger or consolidation in which the Corporation is not the surviving entity if, as a result of the merger or consolidation, the holders of Series A Cumulative Preferred Stock receive cash in the amount of the Liquidation Preference in exchange for each of their shares of Series A Cumulative Preferred Stock, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

 

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(d) With respect to the exercise of the above described voting rights, each share of Series A Cumulative Preferred Stock shall have one vote per share, except that when any other class or series of capital stock shall have the right to vote with the Series A Cumulative Preferred Stock as a single class, then the Series A Cumulative Preferred Stock and such other class or series of capital stock shall each have one vote per $10.00 of liquidation preference.

(e) The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series A Cumulative Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

(f) Except as expressly stated in this Article X, the Series A Cumulative Preferred Stock shall not have any relative, participating, optional or other special voting rights and powers, and the consent of the holders thereof shall not be required for the taking of any corporate action, including but not limited to, any merger or consolidation involving the Corporation or a sale of all or substantially all of the assets of the Corporation, irrespective of the effect that such merger, consolidation or sale may have upon the rights, preferences or voting power of the holders of the Series A Cumulative Preferred Stock.

 

  8. Articles of Incorporation and Bylaws. The rights of all holders of the Series A Cumulative Preferred Stock and the terms of the Series A Cumulative Preferred Stock are subject to the provisions of these Articles of Incorporation and the Bylaws of the Corporation, including, without limitation, the restrictions on transfer and ownership contained in Article IX of these Articles of Incorporation.

 

B. Exclusion of Other Rights.

Except as may otherwise be required by law, the Series A Cumulative Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, other than those specifically set forth in Article X of these Articles of Incorporation (as such article may be amended from time to time) and in the other articles of these Articles of Incorporation. The Series A Cumulative Preferred Stock shall have no preemptive or subscription rights.

 

C. Headings of Subdivisions.

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

 

D. Severability of Provisions.

If any voting powers, preferences or relative, participating, optional and other special rights of the Series A Cumulative Preferred Stock or qualifications, limitations or restrictions thereof set forth in Article X of these Articles of Incorporation (as such article may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series A Cumulative Preferred Stock and qualifications, limitations and

 

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restrictions thereof set forth in Article X of these Articles of Incorporation (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences or relative, participating, optional or other special rights of Series A Cumulative Preferred Stock or qualifications, limitations and restrictions thereof shall be given such effect. None of the voting powers, preferences or relative participating, optional or other special rights of the Series A Cumulative Preferred Stock or qualifications, limitations or restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences or relative, participating, optional or other special right of Series A Cumulative Preferred Stock or qualifications, limitations or restrictions thereof unless so expressed herein.

XI.

ESTABLISHMENT OF SERIES B CUMULATIVE PREFERRED STOCK

Pursuant to Article III hereof, the Board of Directors has established the following Series of Preferred Stock.

 

A. Terms of the Series B Cumulative Preferred Stock.

 

  1. Designation and Number. A series of Preferred Stock, designated the “Series B Cumulative Preferred Stock”, is hereby established. The number of authorized shares of Series B Cumulative Preferred Stock shall be 800,000.

 

  2. Maturity. The Series B Cumulative Preferred Stock has no stated maturity and will not be subject to any sinking fund or, except in the event of a Change of Control (as defined below), mandatory redemption.

 

  3. Rank. The Series B Cumulative Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, rank (a) prior or senior to the Common Stock issued by the Corporation; (b) prior or senior to all classes or series of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank junior to the Series B Cumulative Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation, (c) on a parity with the Series A Cumulative Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation and with all classes or series of shares of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank on a parity with the Series B Cumulative Preferred Stock (the “Parity Shares”) and (d) junior to all existing and future indebtedness of the Corporation.

 

  4. Dividends.

(a) Holders of Series B Cumulative Preferred Stock shall be entitled to receive, when and as authorized by the Board of Directors of the Corporation, or a duly authorized committee thereof, and declared by the Corporation out of funds of the Corporation legally available for payment, preferential cumulative cash dividends at the rate of 10.0% per annum of the Liquidation Preference (as defined below) per share (equivalent to a fixed annual amount of $25.00 per share). Such dividends shall be cumulative from the date of original issue and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 (or, if not a Business Day (as defined below), the next succeeding Business Day, each a “Dividend Payment Date”) for the period ending on such Dividend Payment Date, commencing on the date of issue.

 

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“Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. The first dividend on Series B Cumulative Preferred Stock will be paid on June 30, 2008 with respect to the period beginning on the date of issue and ending on June 30, 2008 and will be less than a full quarter payment. Each share of Series B Cumulative Preferred Stock, $0.01 par value per share of the Corporation’s predecessor, Supertel Hospitality, Inc., a Virginia corporation, was converted into one share of Series B Cumulative Preferred Stock of the Corporation. For the avoidance of doubt, dividends previously paid by the Corporation’s predecessor, and dividends accrued but unpaid until time of such conversion, with respect to such predecessor’s Series B Cumulative Preferred Stock, $0.01 par value per share, are, respectively, payments of dividends and accrued but unpaid dividends in the amounts and for the same periods provided for herein with respect to the Series B Cumulative Preferred Stock of the Corporation. Any dividend payable on the Series B Cumulative Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year. Dividends will be payable in arrears to holders of record as they appear on the share records of the Corporation at the close of business on the applicable record date, which shall be the fifteenth day of March, June, September or December, as the case may be, immediately preceding the applicable Dividend Payment Date or such other date designated by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”).

(b) No dividends on Series B Cumulative Preferred Stock shall be authorized by the Board of Directors of the Corporation or declared or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation, including any agreement relating to its indebtedness, prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the Series B Cumulative Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series B Cumulative Preferred Stock will accumulate but will not bear interest. Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any other class or series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series B Cumulative Preferred Stock (other than a dividend payable in capital stock of the Corporation ranking junior to the Series B Cumulative Preferred Stock as to dividends and upon liquidation) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series B Cumulative Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series B Cumulative Preferred Stock and the shares of any other class or series of Preferred Stock ranking on a parity as to dividends with the Series B Cumulative Preferred Stock, all dividends declared upon the Series B Cumulative Preferred Stock and any other class or series of Preferred Stock ranking on a parity as to dividends with the Series B Cumulative Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series B Cumulative Preferred Stock and such other

 

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class or series of Preferred Stock, shall in all cases bear to each other the same ratio that accrued dividends per share on the Series B Cumulative Preferred Stock and such other class or series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.

(d) Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series B Cumulative Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than a dividend payable in capital stock of the Corporation ranking junior to the Series B Cumulative Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series B Cumulative Preferred Stock as to dividends or upon liquidation, nor shall the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series B Cumulative Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for any other class or series of capital stock of the Corporation ranking junior to the Series B Cumulative Preferred Stock as to dividends and upon liquidation or redemption for the purpose of preserving the Corporation’s qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”) or complying with the provisions of Article VIII hereof). Holders of Series B Cumulative Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series B Cumulative Preferred Stock as provided above. Any dividend payment made on the Series B Cumulative Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable. Accrued but unpaid dividends on the Series B Cumulative Preferred Stock will not bear interest.

 

  5. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the Series B Cumulative Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $25.00 per share (the “Liquidation Preference”) in cash, plus an amount equal to any accrued and unpaid dividends to the date of payment, but without interest, before any distribution of assets is made to holders of the Corporation’s Common Stock or any other class or series of capital stock of the Corporation that ranks junior to the Series B Cumulative Preferred Stock as to liquidation rights. The Corporation will promptly provide to the holders of the Series B Cumulative Preferred Stock written notice of any event triggering the right to receive such Liquidation Preference. The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation, trust or entity with or into the Corporation, the sale, lease or conveyance of all or substantially all of the property or business of the Corporation or a statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation.

 

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In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of capital stock of the Corporation or otherwise is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of capital stock of the Corporation whose preferential rights upon distribution are superior to those receiving the distribution.

(b) If upon any liquidation, dissolution or winding up of the Corporation, the available assets of the Corporation, or proceeds thereof, distributable among the holders of Series B Cumulative Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series B Cumulative Preferred Stock and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series B Cumulative Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Series B Cumulative Preferred Stock and any Parity Shares, the holders of the Series B Cumulative Preferred Stock shall have no right or claim to any of the remaining assets of the Corporation.

 

  6. Redemption.

(a) The Series B Cumulative Preferred Stock is not redeemable at the Corporation’s option prior to June 3, 2013 except upon a Change of Control or pursuant to the provisions of Article IX hereof. The Corporation, upon not less than 30 nor more than 60 days’ written notice, may at its option on or after June 3, 2013 redeem the Series B Cumulative Preferred Stock, in whole or in part, at any time or from time to time, and shall upon a Change of Control redeem each outstanding share of Series B Cumulative Preferred Stock, in all cases for cash at a redemption price equal to the Liquidation Preference per share, plus all accrued and unpaid dividends thereon to the date of redemption, without interest.

If notice of redemption of any of the Series B Cumulative Preferred Stock has been given and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Corporation in trust for the pro rata benefit of the holders of any Series B Cumulative Preferred Stock so called for redemption, then from and after the date of redemption dividends will cease to accrue on such Series B Cumulative Preferred Stock, such Series B Cumulative Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. If less than all of the outstanding Series B Cumulative Preferred Stock is to be redeemed, the Series B Cumulative Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method determined by the Corporation.

(b) Unless full cumulative dividends on all Series B Cumulative Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no Series B Cumulative Preferred Stock shall be

 

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redeemed unless all outstanding Series B Cumulative Preferred Stock is simultaneously redeemed and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any Series B Cumulative Preferred Stock (except by exchange for any other class or series of capital stock of the Corporation ranking junior to the Series B Cumulative Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase by the Corporation of any Series B Cumulative Preferred Stock in accordance with Article IX hereof, or the purchase or acquisition of Series B Cumulative Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series B Cumulative Preferred Stock. Subject to applicable law and the limitation on purchases when dividends on the Series B Cumulative Preferred Stock are in arrears, the Corporation shall be entitled at any time and from time to time to repurchase any Series B Cumulative Preferred Stock by tender, by private agreement and in open-market transactions duly authorized by the Board of Directors of the Corporation.

(c) Notice of redemption of the Series B Cumulative Preferred Stock shall be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the date of redemption. A similar notice shall be mailed by the Corporation by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the date of redemption, addressed to each holder of record of the Series B Cumulative Preferred Stock to be redeemed at such holder’s address as the same appears on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series B Cumulative Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the date of redemption; (ii) the redemption price; (iii) the number of shares of Series B Cumulative Preferred Stock to be redeemed; (iv) the place or places where the Series B Cumulative Preferred Stock is to be surrendered for payment of the redemption price; and (v) dividends will cease to accrue on the redemption date.

(d) Immediately prior to any redemption of Series B Cumulative Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the date of redemption, unless a date of redemption falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series B Cumulative Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

(e) All Series B Cumulative Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Stock, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Stock in accordance with the applicable provisions of these Articles of Incorporation.

(f) A “Change of Control” shall be deemed to have occurred at such time as (i) a “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the ultimate “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have beneficial ownership of all shares of Voting Stock that such person or group has the right to acquire regardless of when such

 

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right is first exercisable), directly or indirectly, of Voting Stock representing more than 35% of the total voting power of the total Voting Stock of the Corporation on a fully diluted basis; (ii) the date the Corporation sells, transfers or otherwise disposes of all or substantially all of the assets of the Corporation; and (iii) the date of the consummation of a merger or share exchange of the Corporation with another corporation where the shareholders of the Corporation immediately prior to the merger or share exchange would not beneficially own immediately after the merger or share exchange, shares entitling such shareholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect directors by a separate group vote) to which all shareholders of the corporation issuing cash or securities in the merger or share exchange would be entitled in the election of directors, or where members of the Board of Directors of the Corporation immediately prior to the merger or share exchange would not immediately after the merger or share exchange constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or share exchange. “Voting Stock” shall mean capital stock of any class or kind having the power to vote generally for the election of directors of the Corporation.

 

  7. Voting Rights.

(a) Holders of the Series B Cumulative Preferred Stock will not have any voting rights, except as set forth below.

(b) Whenever dividends on any Series B Cumulative Preferred Stock shall be in arrears for six or more quarterly periods, whether or not consecutive (a “Preferred Dividend Default”), the number of directors then constituting the Board of Directors of the Corporation shall increase by two (if not already increased by reason of a similar arrearage with respect to any Parity Preferred (as hereinafter defined)). The holders of such Series B Cumulative Preferred Stock (voting separately as a class with all other classes or series of Preferred Stock ranking on a parity with the Series B Cumulative Preferred Stock as to dividends or upon liquidation and upon which like voting rights have been conferred and are exercisable (“Parity Preferred”)) will be entitled to vote separately as a class, in order to fill the vacancies thereby created, for the election of a total of two additional directors of the Corporation (the “Preferred Stock Directors”) at a special meeting called by the holders of record of at least 20% of the Series B Cumulative Preferred Stock or the holders of record of at least 20% of any series of Parity Preferred so in arrears (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders) or at the next annual meeting of shareholders, and at each subsequent annual meeting at which a Preferred Stock Director is to be elected until up to twelve months after all dividends accumulated on such Series B Cumulative Preferred Stock and Parity Preferred for the past dividend periods and the dividend for the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. In the event the directors of the Corporation are divided into classes, each such vacancy shall be apportioned among the classes of directors to prevent stacking in any one class and to ensure that the number of directors in each of the classes of directors are as equal as possible. Within twelve months after all accumulated dividends and the dividend for the then current dividend period on the Series B Cumulative Preferred Stock shall have been paid in full or declared and set aside for payment in full, the holders thereof shall be divested of the foregoing voting rights (subject to revesting in the event of each and every Preferred Dividend Default) and, if all accumulated dividends and the dividend for the then current dividend period have been paid in full or set aside for payment in full on the Series B Cumulative Preferred Stock and all series of

 

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Parity Preferred upon which like voting rights have been conferred and are exercisable, the term of office of each Preferred Stock Director so elected shall terminate (within twelve months thereafter) and the number of directors then constituting the Board of Directors of the Corporation shall decrease accordingly. Any Preferred Stock Director may be removed at any time with or without cause by, and shall not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding Series B Cumulative Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). So long as a Preferred Dividend Default shall continue, any vacancy in the office of a Preferred Stock Director may be filled by written consent of the Preferred Stock Director remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding shares of Series B Cumulative Preferred Stock when they have the voting rights described above (voting separately as a class with all series of Parity Preferred upon which like voting rights have been conferred and are exercisable). The Preferred Stock Directors shall each be entitled to one vote per director on any matter.

(c) So long as any shares of Series B Cumulative Preferred Stock remain outstanding, the Corporation will not, without the affirmative vote or consent of the holders of Series B Cumulative Preferred Stock entitled to cast at least two-thirds of the votes entitled to be cast by the holders of the Series B Cumulative Preferred Stock, given in person or by proxy, either in writing or at a meeting (voting separately as a class):

(i) amend, alter, repeal or make other changes to the provisions of these Articles of Incorporation setting forth the terms of the Series B Cumulative Preferred Stock, whether by merger, consolidation or otherwise (an “Event”), so as to materially and adversely affect any right, preference, privilege or voting power of the Series B Cumulative Preferred Stock or the holders thereof; or

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking senior to the Series B Cumulative Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or otherwise, or reclassify any shares of capital stock into any such shares;

provided, however, that with respect to the occurrence of any Event set forth above, so long as the Series B Cumulative Preferred Stock (or any equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in any merger or consolidation to which the Corporation became a party) remains outstanding with the terms thereof materially unchanged, the occurrence of any such Event shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting power of holders of the Series B Cumulative Preferred Stock; and provided, further, that (i) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other class or series of Preferred Stock, (ii) any increase in the amount of the authorized shares of such series, in each case ranking on a parity with or junior to the Series B Cumulative Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or (iii) any merger or consolidation in which the Corporation is not the surviving entity if, as a result of the merger or consolidation, the holders of Series B Cumulative

 

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Preferred Stock receive cash in the amount of the Liquidation Preference in exchange for each of their shares of Series B Cumulative Preferred Stock, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

(d) With respect to the exercise of the above described voting rights, each share of Series B Cumulative Preferred Stock shall have one vote per share, except that when any other class or series of capital stock shall have the right to vote with the Series B Cumulative Preferred Stock as a single class, then the Series B Cumulative Preferred Stock and such other class or series of capital stock shall each have one vote per $10.00 of liquidation preference.

(e) The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series B Cumulative Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

 

  8. Articles of Incorporation and Bylaws.

The rights of all holders of the Series B Cumulative Preferred Stock and the terms of the Series B Cumulative Preferred Stock are subject to the provisions of these Articles of Incorporation and the Bylaws of the Corporation, including, without limitation, the restrictions on transfer and ownership contained in Article IX of these Articles of Incorporation.

 

B. Exclusion of Other Rights.

Except as may otherwise be required by applicable law, the Series B Cumulative Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, other than those specifically set forth in Article XI of these Articles of Incorporation (as such article may be amended from time to time) and in the other articles of these Articles of Incorporation. The Series B Cumulative Preferred Stock shall have no preemptive or subscription rights.

 

C. Headings of Subdivisions.

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

 

D. Severability of Provisions.

If any voting powers, preferences or relative, participating, optional and other special rights of the Series B Cumulative Preferred Stock or qualifications, limitations or restrictions thereof set forth in Article XI of these Articles of Incorporation (as such article may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series B Cumulative Preferred Stock and qualifications, limitations and restrictions thereof set forth in Article XI of these Articles of Incorporation (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences or relative, participating, optional or other special rights of Series B Cumulative Preferred Stock or qualifications, limitations and restrictions thereof shall be given such effect. None of the voting powers, preferences or relative participating, optional or other special rights

 

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of the Series B Cumulative Preferred Stock or qualifications, limitations or restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences or relative, participating, optional or other special right of Series B Cumulative Preferred Stock or qualifications, limitations or restrictions thereof unless so expressed herein.

XII.

ESTABLISHMENT OF SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK

Pursuant to Article III hereof, the Board of Directors has established the following Series of Preferred Stock.

 

A. Terms of the series c cumulative convertible preferred stock.

 

  1. Designation and Number . A series of Preferred Stock, designated the “Series C Cumulative Convertible Preferred Stock”, is hereby established (and are herein referred to as the “ Series C Preferred Stock ”). The number of authorized shares of Series C Preferred Stock shall be 3,000,000 (the “ Preferred Shares ”).

 

  2. Maturity. The Series C Preferred Stock has no stated maturity and will not be subject to any sinking fund, mandatory redemption, except as described below, forced conversion.

 

  3. Rank . The Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of Supertel Hospitality, Inc. (the “Corporation”), rank (a) prior or senior to the Common Stock issued by the Corporation; (b) prior or senior to all classes or series of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank junior to the Series C Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation, (c) on a parity with the Series A Cumulative Preferred Stock and Series B Cumulative Preferred Stock with respect to dividend rights or rights upon liquidation, dissolution or winding up of the Corporation and with all classes or series of shares of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank on a parity with the Series C Preferred Stock (the “ Parity Shares ”) and (d) junior to all existing and future indebtedness of the Corporation.

 

  4. Dividends .

(a) Holders of Series C Preferred Stock shall be entitled to receive, when and as authorized by the Board of Directors of the Corporation, or a duly authorized committee thereof, and declared by the Corporation out of funds of the Corporation legally available for payment, preferential cumulative cash dividends at the rate of 6.25% per annum of the face value per share (equivalent to a fixed annual amount of $0.625 per share). Such dividends shall be cumulative from the date of original issue and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 (or, if not a Business Day (as defined below), the next succeeding Business Day, each a “Dividend Payment Date”) for the period ending on such Dividend Payment Date, commencing on the date of issue. “Business Day” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. The first dividend on Series C Preferred Stock will be paid on March 31, 2012 with respect to the period beginning on the date of issue and ending on March 31, 2012 and will be less than a full quarter payment. Each

 

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share of Series C Cumulative Convertible Preferred Stock, $0.01 par value per share of the Corporation’s predecessor, Supertel Hospitality, Inc., a Virginia corporation, was converted into one share of Series C Preferred Stock of the Corporation. For the avoidance of doubt, dividends previously paid by the Corporation’s predecessor, and dividends accrued but unpaid until time of such conversion, with respect to such predecessor’s Series C Cumulative Convertible Preferred Stock, $0.01 par value per share, are, respectively, payments of dividends and accrued but unpaid dividends in the amounts and for the same periods provided for herein with respect to the Series C Preferred Stock of the Corporation. Any dividend payable on the Series C Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year. Dividends will be payable in arrears to holders of record as they appear on the share records of the Corporation at the close of business on the applicable record date, which shall be the fifteenth day of March, June, September or December, as the case may be, immediately preceding the applicable Dividend Payment Date or such other date designated by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”).

(b) No dividends on Series C Preferred Stock shall be authorized by the Board of Directors of the Corporation or declared or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation relating to the Corporation’s indebtedness prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the Series C Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series C Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly. Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any other class or series of Preferred Stock ranking, as to dividends, on a parity with or junior to the Series C Preferred Stock (other than a dividend payable in capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon liquidation) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series C Preferred Stock for all past dividend periods and the then current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series C Preferred Stock and the shares of any other class or series of Preferred Stock ranking on a parity as to dividends with the Series C Preferred Stock, all dividends declared upon the Series C Preferred Stock and any other class or series of Preferred Stock ranking on a parity as to dividends with the Series C Preferred Stock shall be declared pro rata so that the amount of dividends declared per share of Series C Preferred Stock and such other class or series of Preferred Stock, shall in all cases bear to each other the same ratio that accrued dividends per share on the Series C Preferred Stock and such other class or series of Preferred Stock (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.

 

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Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series C Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then current dividend period, no dividends (other than a dividend payable in capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon liquidation) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series C Preferred Stock as to dividends or upon liquidation, nor shall the Common Stock, or any other class or series of capital stock of the Corporation ranking junior to or on a parity with the Series C Preferred Stock as to dividends or upon liquidation be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for any other class or series of capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon liquidation or redemption for the purpose of preserving the Corporation’s qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “Code”) or complying with the provisions of Article VIII hereof). Holders of Series C Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series C Preferred Stock as provided above. Any dividend payment made on the Series C Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable. As provided herein, accrued but unpaid dividends on the Series C Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly.

 

  5. Liquidation Preference.

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the Series C Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders a liquidation preference of $10.00 per share (the “Liquidation Preference”) in cash, plus an amount equal to any accrued and unpaid dividends to the date of payment, before any distribution of assets is made to holders of the Corporation’s Common Stock or any other class or series of capital stock of the Corporation that ranks junior to the Series C Preferred Stock as to liquidation rights. As provided herein, accrued but unpaid dividends on the Series C Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly. The Corporation will promptly provide to the holders of the Series C Preferred Stock written notice of any event triggering the right to receive such Liquidation Preference. The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation, trust or entity with or into the Corporation, the sale, lease or conveyance of all or substantially all of the property or business of the Corporation or a statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation.

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of capital stock of the Corporation or otherwise is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of capital stock of the Corporation whose preferential rights upon distribution are superior to those receiving the distribution.

 

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(b) If upon any liquidation, dissolution or winding up of the Corporation, the available assets of the Corporation, or proceeds thereof, distributable among the holders of Series C Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series C Preferred Stock and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series C Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Series C Preferred Stock and any Parity Shares, the holders of the Series C Preferred Stock shall have no right or claim to any of the remaining assets of the Corporation.

 

  6. Redemption.

(a) The Series C Preferred Stock is not redeemable at the Corporation’s option prior to January 31, 2017. After January 31, 2017, the Series C Preferred Stock is redeemable at the Corporation’s option if the VWAP (as defined below) of the Common Stock of the Corporation is less than the Conversion Price for any 30 Day Period (as defined below) after January 31, 2017 (a “Redemption Event”). The Corporation, upon not less than 30 nor more than 60 days’ written notice, may at its option at any time after a Redemption Event redeem the Series C Preferred Stock, in whole or in part, at any time or from time to time, redeem each outstanding share of Series C Preferred Stock, in all cases for cash at a redemption price equal to the Liquidation Preference per share, plus all accrued and unpaid dividends thereon to the date of redemption. As provided herein, accrued but unpaid dividends on the Series C Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly.

If notice of redemption of any of the Series C Preferred Stock has been given and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Corporation in trust for the pro rata benefit of the holders of any Series C Preferred Stock so called for redemption, then from and after the date of redemption dividends will cease to accrue on such Series C Preferred Stock, such Series C Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price. If less than all of the outstanding Series C Preferred Stock is to be redeemed, the Series C Preferred Stock to be redeemed shall be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method reasonably determined by the Corporation.

(b) Unless full cumulative dividends on all Series C Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no Series C Preferred Stock shall be redeemed unless all outstanding Series C Preferred Stock is simultaneously redeemed and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any Series C Preferred Stock (except by exchange for any other class or series of capital stock of the Corporation ranking junior to the Series C Preferred Stock as to dividends and upon liquidation); provided, however, that the foregoing shall not prevent the purchase by the Corporation of any Series C Preferred Stock in accordance with Article IX hereof, or the

 

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purchase or acquisition of Series C Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series C Preferred Stock. Subject to applicable law and the limitation on purchases when dividends on the Series C Preferred Stock are in arrears, the Corporation shall be entitled at any time and from time to time to repurchase any Series C Preferred Stock by tender, by private agreement and in open-market transactions duly authorized by the Board of Directors of the Corporation.

(c) Notice of redemption by the Corporation of the Series C Preferred Stock shall be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the date of redemption. A similar notice shall be mailed by the Corporation by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the date of redemption, addressed to each holder of record of the Series C Preferred Stock to be redeemed at such holder’s address as the same appears on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series C Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the date of redemption; (ii) the redemption price; (iii) the number of shares of Series C Preferred Stock to be redeemed; (iv) the place or places where the Series C Preferred Stock is to be surrendered for payment of the redemption price; and (v) dividends will cease to accrue on the redemption date.

(d) Immediately prior to any redemption of Series C Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the date of redemption, unless a date of redemption falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series C Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

(e) All Series C Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Stock, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Stock in accordance with the applicable provisions of these Articles of Incorporation.

(f) “30 Day Period” shall mean any 30 consecutive calendar days. “VWAP” means, for any 30 Day Period (i) the volume weighted average price of the Common Stock for such period on the Nasdaq Stock Market LLC, or if such securities are not listed or admitted for trading on the Nasdaq Stock Market LLC, on the principal national securities exchange on which such securities are listed or admitted as reported by Bloomberg L.P. (based on a trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)), (ii) if not listed or admitted for trading on any national securities exchange, the volume weighted average price of the Common Stock for such period in the applicable securities market in which the securities are traded, or (iii) if the Common Stock is not then listed or quoted for trading on any securities market the average fair market value of a share of Common Stock for such period as determined by an independent appraiser selected in good faith by the Company, the fees and expenses of which shall be paid by the Company and which determination shall be final, conclusive and binding.

 

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  7. Voting Rights.

(a) Except as otherwise provided herein, the Holders of Series C Preferred Stock shall not have any voting rights. The Holders of Series C Preferred Stock shall be entitled to vote their Series C Preferred Stock as a single class with the holders of the Common Stock on all matters submitted to such holders for vote or consent. For each such vote or consent, the voting power of the Series C Preferred Stock shall be equal to the lesser of (i) .78625 vote per share of Series C Preferred Stock or (ii) an amount of votes per share of Series C Preferred Stock such that the vote of all shares of Series C Preferred Stock in the aggregate equal 34% of the combined voting power all of the Voting Stock entitled to vote or consent, minus an amount equal to the number of votes represented by the other shares of Voting Stock Beneficially Owned by Real Estate Strategies L.P., a Bermuda Limited Partnership (“ RES ” or the “ Purchaser ”) and its Affiliates and Subsidiaries, as such terms are defined under certain Purchase Agreement dated as of November 16, 2011 by and among the Purchaser and the predecessor of the Corporation. The foregoing voting rights decline in proportion to the amount of Series C Preferred Stock converted to common shares. “Voting Stock” shall mean capital stock of any class or kind having the power to vote generally for the election of directors of the Corporation.

(b) So long as any shares of Series C Preferred Stock remain outstanding, the Corporation will not, without the affirmative vote or consent of the holders of Series C Preferred Stock be entitled to cast at least a majority of the votes entitled to be cast by the holders of the Series C Preferred Stock, given in person or by proxy, either in writing or at a meeting (voting separately as a class):

(i) amend, alter, repeal or make other changes to the provisions of these Articles of Incorporation setting forth the terms of the Series C Preferred Stock, whether by merger, consolidation or otherwise (an “Event”), so as to adversely affect any right, preference, privilege or voting power of the Series C Preferred Stock or the holders thereof; or

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking senior or pari passu to the Series C Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or otherwise, or reclassify any shares of capital stock into any such shares;

provided , however , that with respect to the occurrence of any Event, so long as the Series C Preferred Stock (or any equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in any merger or consolidation to which the Corporation became a party) remains outstanding with the terms thereof materially unchanged, the occurrence of any such Event shall not be deemed to adversely affect such rights, preferences, privileges or voting power of holders of the Series C Preferred Stock; and provided, further, that (i) any increase in the amount of the authorized Preferred Stock or the creation or issuance of any other class or series of Preferred Stock, (ii) any increase in the amount of the authorized shares of such series, in each case ranking on a parity with or junior to the Series C Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up or (iii) any merger or consolidation in which the Corporation is not the surviving entity

 

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if, as a result of the merger or consolidation, the holders of Series C Preferred Stock receive cash in the amount of the Liquidation Preference plus accrued and unpaid dividends in exchange for each of their shares of Series C Preferred Stock, shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

With respect solely to the exercise of the above described voting rights in this Section 7(b), each share of Series C Preferred Stock shall have one vote per share, except that when any other class or series of capital stock shall have the right to vote with the Series C Preferred Stock as a single class, then the Series C Preferred Stock and such other class or series of capital stock shall each have one vote per $10.00 of liquidation preference.

The foregoing voting provisions in this Section 7(b) will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series C Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

(c) So long as the Purchaser and/or its Affiliates has the right to designate two or more directors to the Board of Directors of the Corporation pursuant to the Directors Designation Agreement dated January 31, 2012, by and among the predecessor of the Corporation, the Purchaser and IRSA Inversiones y Representaciones Sociedad Anónima, an Argentine sociedad anónima (“IRSA”), the following matters shall require the approval of the Purchaser and/or IRSA:

(i) the merger, consolidation, liquidation or sale of substantially all of the assets of the Corporation;

(ii) the sale, issuance or potential issuance in an offering by the Corporation of Common Stock (or securities convertible into or exercisable Common Stock) equal to 20% or more of the Common Stock or 20% or more of the Voting Stock outstanding before the issuance; or

(iii) any transaction in which the Corporation is to be a participant and the amount involved exceeds $120,000 other than employment compensation and in which any of the Corporation’s directors or executive officers or any member of their immediate family will have a material interest, exclusive of interests arising solely from the ownership of a class of equity securities of the Corporation and all holders of that class of equity securities receive the same benefit on a pro rata basis.

 

  8. Conversion.

(a) Subject to the Beneficial Ownership Limitation (as set forth below) each share of Series C Preferred Stock shall be convertible, at any time and from time to time from and after the Date of Issuance at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Liquidation Preference of such share of Series C Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Corporation with a conversion notice (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series C Preferred Stock to be converted, the number of shares of Series C Preferred Stock

 

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owned prior to the conversion at issue, the number of shares of Series C Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. To effect conversions of shares of Series C Preferred Stock, a Holder shall surrender the certificate(s) representing the shares of Series C Preferred Stock to be converted to the Corporation together with the delivery of the Notice of Conversion, unless such shares are held in uncertificated form. Shares of Series C Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled.

(b) The conversion price for the Series C Preferred Stock shall equal $1.60, subject to adjustment herein (the “ Conversion Price ”) .

(c) Promptly after each Conversion Date, the Corporation shall deliver, or cause to be delivered, to the converting Holder a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of the Series C Preferred Stock.

(d) No fractional Common Stock shall be issued upon conversion of Series C Preferred Stock. All Common Stock (including fractions thereof) issuable upon conversion of Series C Preferred Stock shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the exercise would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional shares, pay cash equal to the product of such fraction multiplied by the fair market value per share of Common Stock on the Conversion Date (as reported by the NASDAQ or any other national securities exchange on which the Common Stock are then listed for trading, or if none, the most recently reported “over the counter” trade price or if none, as determined in good faith by the Board of Directors of the Company).

(e) The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series C Preferred, free from all liens and preemptive rights. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall use its best efforts to list the Common Stock required to be delivered upon conversion of the Series C Preferred Stock, prior to such delivery, upon any national securities exchange upon which the Common Stock is listed at the time of such delivery.

(f) The issuance of certificates for shares of the Common Stock on conversion of the Series C Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

 

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(g) The Corporation shall not effect any conversion of the Series C Preferred Stock, and a Holder shall not have the right to convert any portion of the Series C Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates) would beneficially own Voting Stock in excess of the Beneficial Ownership Limitation. For purposes of this Section 8(g), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder (except that a person or group shall be deemed to have beneficial ownership of shares of Voting Stock that such person or group has the right to acquire regardless of when such right is first exercisable), it being acknowledged by such Holder that the Holder does not have the right to acquire Common Stock in excess of the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph. For purposes of this Section 8(g), a Holder may rely on the number of outstanding shares of Voting Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Voting Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall promptly confirm orally and in writing to such Holder the number of votes represented by the Voting Stock then outstanding. In any case, the voting power of outstanding shares of Voting Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its Affiliates since the date as of which such number of outstanding shares of Voting Stock was reported. The “ Beneficial Ownership Limitation ” shall be 34.0% of the total number of votes represented by the Voting Stock outstanding immediately after giving effect to the issuance of shares of Common Stock otherwise issuable upon conversion of Preferred Stock pursuant to the applicable Notice of Conversion. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 8(g) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to any successor holder of Series C Preferred Stock.

 

  9. Certain Adjustments.

(a) If the Corporation, at any time while this Series C Preferred Stock is outstanding: (i) pays a stock dividend or makes a distribution to holders of any class or series of capital stock of the Corporation in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of this Series C Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a greater number of shares, (iii) combines its outstanding shares of Common Stock into a smaller number of shares, or (iv) issues any shares of its capital stock by reclassification of the Common Stock, or (v) undertakes any transaction similar to or having the effect of the foregoing transactions, then the

 

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Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 9(a) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(b) If the Corporation sells or issues any Common Stock or grants any option or right to purchase Common Stock at an effective price per share that is lower than $1.60 per share (the “Base Conversion Price”), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock, option or right are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 9(b) in respect of an Exempt Issuance. “Exempt Issuance” means the issuance of (a) shares of Common Stock to employees, officers, directors or consultants of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Corporation or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any securities issued and outstanding on the date of the establishment of the Series C Preferred Stock, (c) securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock, (d) securities issued pursuant to acquisitions approved by a number of the members of the Board of Directors equal to one more than a majority of the members of the Board of Directors and (e) securities issued upon the exercise of warrants to purchase Common Stock which were issued concurrently with the issuance of the Series C Preferred Stock to the original Holder or Holders.

(c) If at any time the Corporation issues any rights, options or warrants pro rata to all holders of Common Stock to purchase Common Stock (or securities convertible into or exchangeable for Common Stock) (the “Purchase Rights”), then each Holder shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the issuance of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the issuance of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent and such Purchase Right to such extent shall be held in abeyance, for a period not to exceed 71 days, for the Holder until such time during such 71 day period, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

(d) If the Corporation, at any time while this Series C Preferred Stock is outstanding, distributes to all holders of Common Stock (and not to the Holders) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 9(c)), then in each such case the Conversion Price shall be

 

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adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of shareholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors of the Corporation in good faith. In either case the adjustments shall be described in a statement delivered to the Holders describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

(e) Whenever the Conversion Price is adjusted pursuant to any provision of this Section 9, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

(f) Minimum Adjustment . Notwithstanding anything herein to the contrary, no adjustment of the Conversion Price shall be made pursuant to this Section 9 in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more.

(g) If the Conversion Price is adjusted pursuant to Section 9(a), then the vote per share of the Series C Preferred Stock shall be further adjusted, to a vote per share determined by multiplying the vote per share of the Series C Preferred Stock then in effect for Section 7(a)(i), by a fraction of which the denominator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event causing adjustment of the Conversion Price pursuant to Section 9(a), and of which the numerator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 9(g) shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

 

  10. Articles of Incorporation and Bylaws.

The rights of all holders of the Series C Preferred Stock and the terms of the Series C Preferred Stock are subject to the provisions of these Articles of Incorporation and the Bylaws of the Corporation, including, without limitation, the restrictions on transfer and ownership contained in Article IX of these Articles of Incorporation.

 

B. Exclusion of other rights.

Except as may otherwise be required by applicable law, the Series C Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, other than those specifically set forth in Article XII of these Articles of Incorporation (as such article may be amended from time to time) and in the other articles of these Articles of Incorporation. The Series C Preferred Stock shall have no preemptive or subscription rights.

 

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C. Headings of subdivisions.

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

 

D. Severability of provisions.

If any voting powers, preferences or relative, participating, optional and other special rights of the Series C Preferred Stock or qualifications, limitations or restrictions thereof set forth in Article XII of these Articles of Incorporation (as such article may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series C Preferred Stock and qualifications, limitations and restrictions thereof set forth in Article XII of these Articles of Incorporation (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences or relative, participating, optional or other special rights of Series C Preferred Stock or qualifications, limitations and restrictions thereof shall be given such effect. None of the voting powers, preferences or relative participating, optional or other special rights of the Series C Preferred Stock or qualifications, limitations or restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences or relative, participating, optional or other special right of Series C Preferred Stock or qualifications, limitations or restrictions thereof unless so expressed herein.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Corporation has caused these Articles of Incorporation to be signed in its name and on its behalf by its President and Chief Executive Officer and attested to by its Senior Vice President and Chief Financial Officer on this 17 th day of November, 2014.

 

ATTEST:    SUPERTEL HOSPITALITY, INC.
By:    /s/ Corrine L. Scarpello    By:    /s/ Kelly A. Walters
   Name:    Corrine L. Scarpello          Name:    Kelly A. Walters
   Title:    Senior Vice President and Chief Financial Officer          Title:    President and Chief Executive Officer

 

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ARTICLES SUPPLEMENTARY

OF

CONDOR HOSPITALITY TRUST, INC.

Condor Hospitality Trust, Inc., a Maryland corporation (the “ Corporation ”), hereby certifies to the State Department of Assessments and Taxation of Maryland as follows:

FIRST: Under a power contained in Article III of the Amended and Restated Articles of Incorporation, as amended, of the Corporation (the “ Articles ”) and pursuant to Section 2-208 of the Maryland General Corporation Law, the Board of Directors of the Corporation (the “ Board ”), by duly adopted resolutions, classified and established 6,700,000 shares of authorized but unissued Preferred Stock, $.01 par value per share, of the Corporation as shares of Series D Cumulative Convertible Preferred Stock, with the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption (which, upon any restatement of the Articles, may be made a part of the Articles, with any necessary or appropriate changes to the numeration or lettering of the sections or subsections hereof). Capitalized terms used but not defined herein shall have the meanings given to them in the Articles.

 

A. Terms of the Series D Cumulative Convertible Preferred Stock .

1. Designation and Number . A series of Preferred Stock, designated the “Series D Cumulative Convertible Preferred Stock”, is hereby established (and is herein referred to as the “ Series D Preferred Stock ”). The number of authorized shares of Series D Preferred Stock shall be 6,700,000.

2. Maturity. The Series D Preferred Stock has no stated maturity and will not be subject to any sinking fund, mandatory redemption or, except as described in Section 9(d) below, forced conversion.

3. Rank . The Series D Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, rank (a) prior or senior to the Common Stock issued by the Corporation; (b) prior or senior to all classes or series of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank junior to the Series D Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation (together with the Common Stock, collectively, “ Junior Shares ”), (c) on a parity with the Series A Cumulative Preferred Stock, the Series B Cumulative Preferred Stock and the Series C Cumulative Convertible Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation and with all classes or series of shares of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank on a parity with the Series D Preferred Stock (collectively, “ Parity Shares ”) and (d) junior to all existing and future indebtedness of the Corporation.

4. Dividends .

(a) Holders of Series D Preferred Stock shall be entitled to receive, when and as authorized by the Board, or a duly authorized committee thereof, and declared by the Corporation out of funds of the Corporation legally available for payment, preferential cumulative


cash dividends at the rate of 6.25% per annum of the face value per share (equivalent to a fixed annual amount of $0.625 per share), subject to increase as provided in Section 6 below. Such dividends shall be cumulative from the date of original issue and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 (or, if not a Business Day (as defined below), the next succeeding Business Day, each a “ Dividend Payment Date ”) for the period ending on such Dividend Payment Date, commencing on the date of issue. “ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. The first dividend on the Series D Preferred Stock will be paid on June 30, 2016 with respect to the period beginning on the date of issue and ending on June 30, 2016 and will be greater than a full quarter payment. Any dividend payable on the Series D Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year. Dividends will be payable in arrears to holders of record as they appear on the share records of the Corporation at the close of business on the applicable record date, which shall be the 15th day of March, June, September or December, as the case may be, immediately preceding the applicable Dividend Payment Date or such other date designated by the Board for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “ Dividend Record Date ”).

(b) No dividends on the Series D Preferred Stock shall be authorized by the Board or declared or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation relating to the Corporation’s indebtedness prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the Series D Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series D Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly (subject to increase as provided in Section 6 below). Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any Parity Shares or Junior Shares (other than a dividend payable in Junior Shares) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series D Preferred Stock for all past dividend periods and the then-current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series D Preferred Stock and any Parity Shares, all dividends declared upon the Series D Preferred Stock and such Parity Shares shall be declared pro rata so that the amount of dividends declared per share of Series D Preferred Stock and per Parity Share shall in all cases bear to each other the same ratio that accrued dividends per share on the Series D Preferred Stock and such Parity Shares (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.

Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series D Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then-current dividend period, no dividends (other than a dividend payable in Junior Shares) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any Parity Shares

 

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or Junior Shares, nor shall the Common Stock, any other Junior Shares or any Parity Shares be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for any other class or series of capital stock of the Corporation constituting Junior Shares and upon liquidation or redemption for the purpose of preserving the Corporation’s qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “ Code ”), or complying with the provisions of Article VIII of the Articles). Holders of Series D Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series D Preferred Stock as provided above. Any dividend payment made on the Series D Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable. As provided herein, accrued but unpaid dividends on the Series D Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly (subject to increase as provided in Section 6 below).

(d) Whenever the dividends on any Series D Preferred Stock share shall be in arrears for four consecutive quarters, then upon written notice delivered by one or more holders that hold in the aggregate not less than 40% of the outstanding Series D Preferred Stock, the Corporation shall (i) take all appropriate action reasonably within its means to maximize the assets legally available for paying such dividends and to monetize such assets (for example, but without limiting the generality of the foregoing, by selling or liquidating all of some of the Corporation’s assets or by selling the Corporation as a going concern), (ii) pay out of all such assets legally available (including any proceeds from any sale or liquidation of such assets) the maximum possible amount of such unpaid dividends, and (iii) thereafter, at any time and from time to time when additional assets of the Corporation (including any proceeds from any sale or liquidation of such assets) become legally available to pay such unpaid dividends, pay such remaining unpaid dividends until all dividends accumulated on the Series D Preferred Stock have been fully paid.

5. Liquidation Preference .

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the Series D Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders, before any distribution of assets is made to holders of the Corporation’s Common Stock or any other Junior Shares, a liquidation preference of $10.00 per share in cash (the “ Liquidation Preference ”), except as otherwise provided in Section 6 below, plus the sum of (i) an amount equal to any accrued and unpaid dividends to the date of payment and (ii) (A) $2.00 per share in cash, if the liquidation, dissolution or winding up occurs on or before March 16, 2019, (B) $3.00 per share in cash, if the liquidation, dissolution or winding up occurs from March 16, 2019 and on or before March 16, 2020, or (C) $4.00 per share in cash, if the liquidation, dissolution or winding up occurs after March 16, 2020. As provided herein, accrued but unpaid dividends on the Series D Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly (subject to increase as provided in Section 6 below). The Corporation will promptly provide to the holders of the Series D Preferred Stock written notice of any event triggering the right to receive such Liquidation Preference. The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation, trust or entity with or into the Corporation, the sale, lease or conveyance of all or substantially all of the property or business of the Corporation or a statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation.

 

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In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of capital stock of the Corporation or otherwise is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of capital stock of the Corporation whose preferential rights upon distribution are superior to those receiving the distribution.

(b) If upon any liquidation, dissolution or winding up of the Corporation, the available assets of the Corporation, or proceeds thereof, distributable among the holders of Series D Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series D Preferred Stock and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series D Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Series D Preferred Stock and any Parity Shares, the holders of the Series D Preferred Stock shall have no right or claim to any of the remaining assets of the Corporation.

6. Liquidation Special Distribution .

(a) Should a Qualified Offering set forth in Section 9(b) below not occur on or before the end of the 60 th month following the issuance of the Series D Preferred Stock, one or more holders that hold in the aggregate not less than 40% of the outstanding shares of the Series D Preferred Stock shall have the right, by delivering a written notice to the Corporation (a “ Special Liquidation Event Notice ”), to elect to have the Corporation fully liquidate in a commercially reasonable manner as determined by the Board to provide for liquidation distributions to the holders of the Series D Preferred Stock in an amount per share of Series D Preferred Stock equal to $14.00 in cash (the “ Liquidation Special Distribution ”), plus accrued and unpaid dividends (whether or not declared) on the Series D Preferred Stock through the date on which such liquidation distributions are made to the holders of the Series D Preferred Stock. If a Special Event Liquidation Notice has been delivered to the Corporation, then the dividend rate on the Series D Preferred Stock after the 60 th month following the issuance of the Series D Preferred Stock shall increase from 6.25% per annum to 12.5% per annum.

(b) The Corporation shall pay the Liquidation Special Distribution with respect to each outstanding share of Series D Preferred Stock on a date designated by the Board (“ Special Liquidation Distribution Payment Date ”), which Special Liquidation Distribution Payment Date shall not be more than 6 months following receipt by the Corporation of the Special Liquidation Event Notice. The Corporation will use its best efforts to sell all assets and settle all liabilities such that the remaining cash from the net proceeds will be paid out to all shareholders of the Corporation in accordance with the preference order set out in Section 5 above, which includes the holders of the Series D Preferred Stock and any Parity Shares with first priority, followed by holders of Common Stock and any other Junior Shares. Not less than 35 days prior to the Special Liquidation Distribution Payment Date, the Corporation shall deliver to each of the holders of the Series D Preferred Stock a written notice stating (i) the amount per share of Series D Preferred Stock that will be distributed on the Special Liquidation Distribution Payment Date and (ii) the amount per share of Common Stock the holders of Common Stock would receive assuming that all shares of the Series D Preferred Stock were converted to Common Stock on the date immediately prior to the Special Liquidation Distribution Payment Date.

 

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(c) Notwithstanding anything to the contrary herein, a holder of Series D Preferred Stock may exercise the conversion rights set forth in Section 9 below and as determined with the Liquidation Preference (and not the amount of the Liquidation Special Distribution) after a Special Liquidation Event Notice has been delivered provided that the conversion date occurs no later than one Business Day prior to the Special Liquidation Distribution Payment Date.

7. Redemption .

(a) The Corporation, upon not less than 30 nor more than 60 days’ prior written notice, may at its option at any time or from time to time subject to the requirements for the share price of the Common Stock and approval set forth below, redeem each outstanding share of Series D Preferred Stock, in all cases for cash at a redemption price equal to the Redemption Amount per share, plus all accrued and unpaid dividends thereon to the date of redemption (i) in whole, or (ii) in part, provided that (x) any partial redemptions are made pro rata (as nearly as practicable without creating factional shares) to all holders of Series D Preferred Stock, (y) any partial redemptions do not in the aggregate exceed $30,000,000 in Liquidation Preference, and (z) the Corporation shall not borrow funds, or delay making any capital expenditures or paying any operating expenses, for the purpose of making any such partial redemptions.

The “ Redemption Amount ” with respect to a share of Series D Preferred stock shall mean:

(i) 120% of the Liquidation Preference for redemption on or before March 16, 2019 ;

(ii) 130% of the Liquidation Preference for redemption from March 16, 2019 and prior to March 16, 2020; and

(iii) 140% of the Liquidation Preference for redemption on or after March 16, 2020.

Prior to receiving a Special Event Liquidation Notice, the Corporation may not call shares of Series D Preferred Stock for redemption pursuant to this Section 7 unless the closing sales price of the Common Stock equals or exceeds $1.60 per share on the trading day immediately preceding the date the notice of redemption is given. The closing sales price of the Common Stock shall be as reported by the Nasdaq Stock Market or any other national securities exchange on which the shares of Common Stock are then listed for trading, or if none, the most recently reported “over the counter” trade price or if none, as determined in good faith by the Board and set forth in a resolution adopted by no less than seven of the nine members of the Board. Further, a call for redemption pursuant to this Section 7 may only be made with the approval of no less than seven of the nine members of the Board if the closing sale price of the Common Stock is between and including $1.60 and $1.99 per share, and with the approval of no less than a majority of the members of the Board if the closing sale price of the Common Stock is $2.00 or higher per share. A call for redemption pursuant to this Section 7 made after the Corporation has received a Special Event Liquidation Notice shall require the approval of no less than a majority of the members of the Board. The foregoing prices per share of Common Stock shall be adjusted if the Conversion Price is adjusted pursuant to Section 10(a) below, in the same manner.

 

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If notice of redemption of any of the Series D Preferred Stock has been given by the Corporation pursuant to this Section 7(a) and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Corporation in trust for the pro rata benefit of the holders of any Series D Preferred Stock so called for redemption, then from and after the date of redemption dividends will cease to accrue on such Series D Preferred Stock, such Series D Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price and except that conversion rights will continue up to the date the redemption price is paid. A holder of Series D Preferred Stock shall continue to have all preferences, conversion and other rights, and voting powers set forth herein with respect to all shares of Series D Preferred Stock subject to a notice of redemption under this Section 7(a) until such time as the holder receives the redemption price for such shares, for the avoidance of doubt, a holder may exercise conversion rights with respect to any shares of the holder’s Series D Preferred Stock so called for redemption up to the date of the payment of the redemption price of such shares.

(b) Unless full cumulative dividends on all Series D Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then-current dividend period, no Series D Preferred Stock shall be redeemed unless all outstanding Series D Preferred Stock is simultaneously redeemed and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any Series D Preferred Stock (except by exchange for any Junior Shares); provided , however , that the foregoing shall not prevent the purchase by the Corporation of any Series D Preferred Stock in accordance with Article IX of the Articles, or the purchase or acquisition of Series D Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series D Preferred Stock. Subject to applicable law and the limitation on purchases when dividends on the Series D Preferred Stock are in arrears, the Corporation shall be entitled at any time and from time to time to repurchase any Series D Preferred Stock pro rata from the holders of the Series D Preferred Stock by tender or by private agreement transactions duly authorized by the Board.

(c) Notice of redemption by the Corporation of the Series D Preferred Stock shall be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the date of redemption. A similar notice shall be mailed by the Corporation by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the date of redemption, addressed to each holder of record of the Series D Preferred Stock to be redeemed at such holder’s address as the same appears on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series D Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the date of redemption; (ii) the redemption price; (iii) the number of shares of Series D Preferred Stock to be redeemed; (iv) the place or places where the Series D Preferred Stock is to be surrendered for payment of the redemption price; and (v) dividends will cease to accrue on the redemption date.

(d) Immediately prior to any redemption of Series D Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the date of redemption, unless a date of redemption falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series D Preferred Stock

 

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at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

(e) All Series D Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Stock, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Stock in accordance with the applicable provisions hereof and elsewhere in the Articles.

8. Voting Rights .

(a) Except as otherwise provided herein, the Holders of Series D Preferred Stock shall not have any voting rights. The Holders of Series D Preferred Stock shall be entitled to vote their Series D Preferred Stock as a single class with the holders of the Common Stock on all matters submitted to such holders for vote or consent. For each such vote or consent, each share of Series D Preferred Stock shall entitle the holder thereof to cast one vote for each whole vote (rounded to the nearest whole number) that such holder would be entitled to cast had such holder converted its Series D Preferred Stock into shares of Common Stock as of the date immediately prior to the record date for determining the shareholders of the Corporation eligible to vote on any such matter.

(b) So long as any shares of Series D Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of not less than 75% of the Series D Preferred Stock, given in person or by proxy, either in writing or at a meeting (voting separately as a class):

(i) amend, alter, repeal or make other changes to any provision hereof of any provision elsewhere in the Articles so as to adversely affect any right, preference, privilege or voting power of the Series D Preferred Stock or the holders thereof, including without limitation any amendment, alteration, repeal or other change effected in connection with a merger, consolidation or similar transaction (any such transaction, which for the avoidance of doubt does not include any liquidation, dissolution or winding up of the Corporation, an “ Event ”);

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking on a parity with, or senior to, the Series D Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation or otherwise, or reclassify any shares of capital stock into any such shares;

(iii) except for dividends or distributions of cash from the Corporation’s funds from operations and except as required to preserve the Corporation’s qualification as a real estate investment trust under the Code, declare or pay any dividends or other distributions on shares of Common Stock or any other Junior Shares;

(iv) except as required by Section 4(d) or 6 above, (A) merge, consolidate, liquidate, dissolve or wind up the Corporation or (B) sell, lease or convey all or substantially all of the assets of the Corporation;

 

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(v) except for a Qualified Offering, sell, issue or potentially issue in an offering by the Corporation of Common Stock (or securities convertible into or exercisable Common Stock) equal to 20% or more of the Common Stock or 20% or more of the Voting Stock outstanding before the issuance;

(vi) engage in any transaction in which the Corporation is to be a participant and the amount involved exceeds $120,000, other than employment compensation, and in which any of the Corporation’s directors or executive officers or any member of their immediate families will have a material interest, exclusive of interests arising solely from the ownership of a class of equity securities of the Corporation provided that all holders of such class of equity securities receive the same benefit on a pro rata basis;

(vii) redeem, or otherwise buy back (including in the open market, but excluding shares exchanged or withheld for the exercise price and/or taxes with respect to employee awards) any shares of common stock until all the shares of the Series D Preferred Stock converted, exchanged or redeemed; or

(viii) agree or commit to do any of the foregoing.

provided , however , that any Event in which the Series D Preferred Stock (or any equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in connection with such Event) remains outstanding after such Event with the same ranking, preferences, rights, voting powers and other terms as provided herein unchanged shall not be deemed to adversely affect the rights, preferences, privileges or voting power of holders of the Series D Preferred Stock for purposes of Section 8(b)(i) above and also will not be subject to Section 8(b)(iv) above; and provided , further , that any Event and any liquidation, dissolution or winding up of the Corporation in which the holders of Series D Preferred Stock receive cash in the amount of the Redemption Amount plus accrued and unpaid dividends in exchange for each of their shares of Series D Preferred Stock will not be subject to Section 8(b)(i) or 8(b)(iv) above.

With respect solely to the exercise of the above described voting rights in this Section 8(b), each share of Series D Preferred Stock shall have one vote per share.

The foregoing voting provisions in this Section 8(b) will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series D Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

9. Conversion .

(a) Each share of Series D Preferred Stock shall be convertible in accordance with the terms of this Section 9, at any time and from time to time from and after the date of issuance at the option of the holder thereof, into that number of shares of Common Stock determined by dividing the Liquidation Preference of such share of Series D Preferred Stock, plus the aggregate accrued or accumulated and unpaid dividends thereon through the Conversion Date (as defined below), by the Conversion Price in effect on the Conversion Date. A holder of the Series D Preferred Stock shall effect any such conversion by providing the Corporation with a written conversion notice (each, a “ Notice of Conversion ”). Each Notice of Conversion shall specify the number of shares of Series D Preferred Stock to be converted, the number of shares of Series D Preferred Stock owned prior to the conversion at issue, the number of shares of Series D Preferred Stock owned subsequent to the conversion at issue and

 

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the date on which such conversion is to be effective (such effective date, the “ Conversion Date ”); provided , however , that the Conversion Date may not be less than 30 days after the date on which the Notice of Conversion is delivered to the Corporation. If a Conversion Date is not specified, or is less than 30 days after delivery of the Notice of Conversion, the Notice of Conversion shall be effective on the 30 th day (or if such day is not a Business Day, the next Business Day) following delivery of the Notice of Conversion.

(b) Upon receipt of a Notice of Conversion, the Corporation shall promptly notify all other holders of Series D Preferred Stock, if any (each, a “ Non-converting Holder ”), that a Notice of Conversion has been delivered and provide each Non-converting Holder with a copy of such Notice of Conversion. The Board shall deliver a waiver of the Ownership Limit to a Non-converting Holder pursuant to Article IX(A)(7) of the Articles prior to the Conversion Date if (i) such Non-converting Holder provides the Board the representations and undertakings specified in Article IX(A)(7) of the Articles prior to the Conversion Date and (ii) the Board has received the opinion of counsel specified in Article IX(A)(7) of the Articles prior to the Conversion Date (which the Corporation shall use commercially reasonable efforts to obtain, at the Corporation’s expense). In the event a Non-converting Holder fails to provide such representations and undertakings, or the Corporation is unable to obtain such opinion of counsel notwithstanding commercially reasonable efforts to do so, the minimum number of shares of Series D Preferred Stock held by such Non-converting Holder shall automatically without any further action by such Non-converting Holder or the Corporation convert (along with the aggregate accrued or accumulated and unpaid dividends thereon) into an aggregate number of shares of Common Stock (including any fraction of a share) determined in accordance with this Section 9 on the Conversion Date, concurrently with the conversion of the shares specified in the Notice of Conversion.

(c) At the first annual meeting of shareholders following the issuance of the Series D Preferred Stock, the Corporation shall seek (and use commercially reasonable efforts to obtain) shareholder approval of an amendment to the Articles that, in connection with any conversion of the Series D Preferred Stock, eliminates the requirement that the Board obtain such representations and undertakings from a Person as are reasonably necessary to ascertain that no individual’s Beneficial Ownership or Constructive Ownership of shares of the Series D Preferred Stock will violate the Ownership Limit, so long as the Board is able to obtain the opinion of counsel specified in Article IX(A)(7) of the Articles. In the event such amendment is approved by the shareholders of the Corporation, the second and third sentences of Section 9(b) above shall deemed to be amended to eliminate the requirement for a Non-Converting Holder to deliver the representations and undertakings specified in Article IX(A)(7) of the Articles.

(d) Upon the closing of a Qualified Offering by the Corporation, all of the outstanding shares of Series D Preferred Stock (including any fraction of a share) shall automatically convert into an aggregate number of shares of Common Stock (including any fraction of a share) as is determined by (i) multiplying the outstanding number of shares (including any fraction of a share) of Series D Preferred Stock by the Liquidation Preference thereof, and then (ii) dividing the result by the Conversion Price then in effect. The date of the closing of a Qualified Offering shall be deemed a Conversion Date and such automatic conversion of all of the outstanding shares of Series D Preferred Stock shall be deemed to have been converted into shares of Common Stock in accordance with the terms hereof as of immediately prior to such closing.

All outstanding shares of Series D Preferred Stock shall be converted into the number of shares of Common Stock as provided in this Section 9(d) automatically upon closing

 

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of a Qualified Offering without any further action by the holders of such shares or the Corporation. As promptly as practicable following such Qualified Offering, the Corporation shall send each holder of shares of Series D Preferred Stock written notice of such event, along with the payment of any accrued and unpaid dividends with respect to such shares of Series D Preferred Stock through the Conversion Date. Upon receipt of such notice and any such payment, each holder shall surrender to the Corporation the certificate or certificates representing all shares of Series D Preferred Stock being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), unless such shares are held in uncertificated form, and upon receipt thereof by the Corporation such holder shall be issued a certificate or certificates representing the shares of Common Stock into which such shares of Series D Preferred Stock were converted.

Qualified Offering ” means (i) the sale of Common Stock in a single offering of at least $50,000,000 or (ii) the sale of Common Stock in up to three separate offerings totaling at least $75,000,000 in the aggregate, in each case at an offering price per share of Common Stock equal to at least the lesser of:

(i) $2.00 per share (appropriately adjusted in the same manner as the Conversion Price pursuant to Section 10 below) if the closing of the applicable Qualified Offering occurs on or before September 16, 2017;

(ii) the greater of (x) $2.00 per share (appropriately adjusted in the same manner as the Conversion Price pursuant to Section 10 below) or (y) 90% of “NAV” per share of Common Stock if the closing of the applicable Qualified Offering occurs after September 16, 2017; or

(iii) $1.60 (appropriately adjusted in the same manner as the Conversion Price pursuant to Section 10 below) or more upon any closing of any Qualified Offering, provided the Corporation immediately following the receipt of the net proceeds from the closing of such Qualified Offering makes a cash “ Make Whole Payment ” to each of the holders of Series D Preferred Stock, provided that , the Make Whole Payment shall not exceed the Issuance Market Value Difference.

Issuance Market Value Difference ” means an amount equal to (i) the Conversion Price, minus (ii) the closing consolidated bid price on March 15, 2016 as reported by Nasdaq, adjusted if the Conversion Price is adjusted pursuant to Section 10(a) below, in the same manner.

NAV ” means the net asset value of the Corporation per share of Common Stock, as net asset value is commonly determined by exchange listed funds and research analysts, immediately prior to the closing of the applicable Qualified Offering.

Upon notice that the Corporation intends to conduct a Qualified Offering, the holders of at least 75% of the shares of Series D Preferred Stock shall within 10 days thereafter, select an investment banking firm of national recognition, subject to the reasonable approval of the members of Board who were not designated for nomination to the Board by right of holders of Series D Preferred Stock. If the holders of at least 75% of the shares of the Series D Preferred Stock fail to select an investment banking firm of national recognition within such 10 days that is reasonably acceptable to the Board, then the Board shall select an investment banking firm of national recognition to calculate the NAV. The Corporation shall bear the fees and expenses of the investment banking firm. If required by the investment banking firm, the Corporation shall execute a retainer and engagement letter containing reasonable terms and

 

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conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Corporation in favor of such investment banking firm and its officers, directors, partners, employees, agents and affiliates.

Make Whole Payment ” means, with respect to each share of Common Stock into which an outstanding share of Series D Preferred Stock is converted as a result of a Qualified Offering, an amount per share of such Common Stock determined by the following formula:

1.3*(A - B) = Make Whole Payment

where

A = $2.00, if 90%NAV - $2.00 is a negative number

A = 90%NAV, if 90%NAV- $2.00 is a positive number

B = Adjusted NAV

If A-B is a negative number then the Make Whole Payment is $0.

Adjusted NAV ” means NAV adjusted for the effects of the applicable Qualified Offering, determined by the following formula: the quotient of (i) the sum of (A) NAV, multiplied by the number of shares of outstanding Common Stock assuming full conversion of Series D Preferred Stock, plus (B) the net offering proceeds from the Qualified Offering, divided by (ii) the number of shares of Common Stock outstanding after the Qualified Offering.

(e) To effect conversions of shares of Series D Preferred Stock, a Holder shall surrender the certificate(s) representing the shares of Series D Preferred Stock to be converted to the Corporation together with the delivery of the Notice of Conversion, if applicable, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers) unless such shares are held in uncertificated form. Shares of Series D Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled.

(f) The conversion price for each share of the Series D Preferred Stock shall equal $1.60, subject to adjustment as set forth in Section 10 below (the “ Conversion Price ”) .

(g) Promptly after each Conversion Date, the Corporation shall deliver, or cause to be delivered, to the converting Holder a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of the Series D Preferred Stock.

(h) No fractional Common Stock shall be issued upon conversion of Series D Preferred Stock. All Common Stock (including fractions thereof) issuable upon conversion of Series D Preferred Stock shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the exercise would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional shares, pay cash equal to the product of such fraction multiplied by the fair market value per share of Common Stock on the Conversion Date (as reported by the Nasdaq Stock Market or any other national securities exchange on which the Common Stock are then listed for trading, or if none, the most recently reported “over the counter” trade price or if none, as determined in good faith by the Board).

 

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(i) The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series D Preferred Stock, free from all liens and preemptive rights, a sufficient number of shares of Common Stock to effect the conversion of all then-outstanding shares of Series D Preferred Stock in accordance with the terms hereof. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall use its best efforts to list the Common Stock required to be delivered upon conversion of the Series D Preferred Stock, prior to such delivery, upon any national securities exchange upon which the Common Stock is listed at the time of such delivery.

(j) The issuance of certificates for shares of the Common Stock on conversion of the Series D Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

10. Certain Adjustments and Rights .

(a) If the Corporation, at any time while this Series D Preferred Stock is outstanding: (i) pays a stock dividend or makes a distribution to holders of any class or series of capital stock of the Corporation in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of this Series D Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a greater number of shares, (iii) combines its outstanding shares of Common Stock into a smaller number of shares, or (iv) issues any shares of its capital stock by reclassification of the Common Stock, or (v) undertakes any transaction similar to or having the effect of the foregoing transactions, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 10(a) (shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(b) The Corporation shall not sell or issue any Common Stock or grant any option or right to purchase Common Stock at an effective price per share that is lower than the Conversion Price. Notwithstanding the foregoing, this Section 10(b) shall not apply to an Exempt Issuance. “ Exempt Issuance ” means the issuance of (i) shares of Common Stock to employees, officers, directors or consultants of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board or a majority of the members of a committee of non-employee directors established for such purpose, (ii) securities upon the exercise or exchange of or conversion of any securities issued and outstanding on the date of the establishment of the Series D Preferred Stock, (iii) securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock, and (iv) securities issued pursuant to acquisitions approved by a number of the members of the Board equal to one more than a majority of the members of the Board.

 

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(c) If at any time the Corporation issues any rights, options or warrants pro rata to all holders of Common Stock to purchase Common Stock (or securities convertible into or exchangeable for Common Stock) (the “ Purchase Rights ”), then each holder of Series D Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder would have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of such holder’s Series D Preferred Stock immediately before the date on which a record is taken for the issuance of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the issuance of such Purchase Rights.

(d) Whenever the Conversion Price is adjusted pursuant to any provision of this Section 10, the Corporation shall promptly deliver to each holder of Series D Preferred Stock a written notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

(e) Notwithstanding anything herein to the contrary, no adjustment of the Conversion Price shall be made pursuant to this Section 10 in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more.

11. Articles of Incorporation and Bylaws .

The rights of all holders of the Series D Preferred Stock and the terms of the Series D Preferred Stock are subject to the provisions of the Articles and the Bylaws of the Corporation, including, without limitation, the restrictions on transfer and ownership contained in Article IX of the Articles.

 

B. Exclusion of Other Rights .

Except as may otherwise be required by applicable law, the Series D Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, other than those specifically set forth herein or elsewhere in the Articles. The Series D Preferred Stock shall have no preemptive or subscription rights.

 

C. Headings of Subdivisions .

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

 

D. Severability of Provisions .

If any voting power, preference or relative, participating, optional and other special right of the Series D Preferred Stock is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series D Preferred Stock and qualifications, limitations and restrictions thereof set forth herein which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences or relative, participating, optional or other special

 

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rights of Series D Preferred Stock or qualifications, limitations and restrictions thereof shall be given such effect. None of the voting powers, preferences or relative participating, optional or other special rights of the Series D Preferred Stock or qualifications, limitations or restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences or relative, participating, optional or other special right of Series D Preferred Stock or qualifications, limitations or restrictions thereof unless so expressed herein.

SECOND: The shares of Series D Cumulative Convertible Preferred Stock have been classified and established by the Board under the authority contained in the Articles.

THIRD: These Articles Supplementary have been approved by the Board in the manner and by the vote required by law.

FOURTH: The undersigned acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its Chief Executive Officer and attested to it by its Treasurer on this 16th day of March, 2016.

 

CONDOR HOSPITALITY TRUST, INC.
By:   /s/ J. William Blackham
  Name: J. William Blackham
  Title:   Chief Executive Officer
ATTEST:
By:   /s/ Patricia M. Morland
  Name: Patricia M. Morland
  Title:   Treasurer

 

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Exhibit 3.2

ARTICLES SUPPLEMENTARY

OF

CONDOR HOSPITALITY TRUST, INC.

Condor Hospitality Trust, Inc., a Maryland corporation (the “ Corporation ”), hereby certifies to the State Department of Assessments and Taxation of Maryland as follows:

FIRST: Under a power contained in Article III of the Amended and Restated Articles of Incorporation, as amended, of the Corporation (the “ Articles ”) and pursuant to Section 2-208 of the Maryland General Corporation Law, the Board of Directors of the Corporation (the “ Board ”), by duly adopted resolutions, classified and established 6,700,000 shares of authorized but unissued Preferred Stock, $.01 par value per share, of the Corporation as shares of Series D Cumulative Convertible Preferred Stock, with the following preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions of redemption (which, upon any restatement of the Articles, may be made a part of the Articles, with any necessary or appropriate changes to the numeration or lettering of the sections or subsections hereof). Capitalized terms used but not defined herein shall have the meanings given to them in the Articles.

 

A. Terms of the Series D Cumulative Convertible Preferred Stock .

1. Designation and Number . A series of Preferred Stock, designated the “Series D Cumulative Convertible Preferred Stock”, is hereby established (and is herein referred to as the “ Series D Preferred Stock ”). The number of authorized shares of Series D Preferred Stock shall be 6,700,000.

2. Maturity. The Series D Preferred Stock has no stated maturity and will not be subject to any sinking fund, mandatory redemption or, except as described in Section 9(d) below, forced conversion.

3. Rank . The Series D Preferred Stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation, rank (a) prior or senior to the Common Stock issued by the Corporation; (b) prior or senior to all classes or series of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank junior to the Series D Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation (together with the Common Stock, collectively, “ Junior Shares ”), (c) on a parity with the Series A Cumulative Preferred Stock, the Series B Cumulative Preferred Stock and the Series C Cumulative Convertible Preferred Stock with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Corporation and with all classes or series of shares of Preferred Stock issued by the Corporation, the terms of which specifically provide that such shares rank on a parity with the Series D Preferred Stock (collectively, “ Parity Shares ”) and (d) junior to all existing and future indebtedness of the Corporation.

4. Dividends .

(a) Holders of Series D Preferred Stock shall be entitled to receive, when and as authorized by the Board, or a duly authorized committee thereof, and declared by the Corporation out of funds of the Corporation legally available for payment, preferential cumulative cash dividends at the rate of 6.25% per annum of the face value per share (equivalent to a fixed annual amount of $0.625 per share), subject to increase as provided in Section 6 below. Such dividends shall be cumulative from the date of original issue and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 (or, if not a Business Day (as


defined below), the next succeeding Business Day, each a “ Dividend Payment Date ”) for the period ending on such Dividend Payment Date, commencing on the date of issue. “ Business Day ” shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required to close. The first dividend on the Series D Preferred Stock will be paid on June 30, 2016 with respect to the period beginning on the date of issue and ending on June 30, 2016 and will be greater than a full quarter payment. Any dividend payable on the Series D Preferred Stock for any partial dividend period will be computed on the basis of twelve 30-day months and a 360-day year. Dividends will be payable in arrears to holders of record as they appear on the share records of the Corporation at the close of business on the applicable record date, which shall be the 15th day of March, June, September or December, as the case may be, immediately preceding the applicable Dividend Payment Date or such other date designated by the Board for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date (each, a “ Dividend Record Date ”).

(b) No dividends on the Series D Preferred Stock shall be authorized by the Board or declared or paid or set apart for payment by the Corporation at such time as the terms and provisions of any agreement of the Corporation relating to the Corporation’s indebtedness prohibits such declaration, payment or setting apart for payment or provides that such declaration, payment or setting apart for payment would constitute a breach thereof or a default thereunder, or if such declaration or payment shall be restricted or prohibited by law.

(c) Notwithstanding the foregoing, dividends on the Series D Preferred Stock will accrue whether or not the Corporation has earnings, whether or not there are funds legally available for the payment of such dividends, whether or not such dividends are declared and whether or not such dividends are prohibited by agreement. Accrued but unpaid dividends on the Series D Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly (subject to increase as provided in Section 6 below). Except as set forth in the next sentence, no dividends will be declared or paid or set apart for payment on any Parity Shares or Junior Shares (other than a dividend payable in Junior Shares) for any period unless full cumulative dividends have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series D Preferred Stock for all past dividend periods and the then-current dividend period. When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series D Preferred Stock and any Parity Shares, all dividends declared upon the Series D Preferred Stock and such Parity Shares shall be declared pro rata so that the amount of dividends declared per share of Series D Preferred Stock and per Parity Share shall in all cases bear to each other the same ratio that accrued dividends per share on the Series D Preferred Stock and such Parity Shares (which shall not include any accrual in respect of unpaid dividends for prior dividend periods if such Preferred Stock does not have a cumulative dividend) bear to each other.

Except as provided in the immediately preceding paragraph, unless full cumulative dividends on the Series D Preferred Stock have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment for all past dividend periods and the then-current dividend period, no dividends (other than a dividend payable in Junior Shares) shall be declared or paid or set aside for payment nor shall any other distribution be declared or made upon the Common Stock, or any Parity Shares or Junior Shares, nor shall the Common Stock, any other Junior Shares or any Parity Shares be redeemed, purchased or otherwise acquired for any consideration (or any moneys be paid to or made available for a sinking fund for the redemption of any such shares) by the Corporation (except by conversion into or exchange for any other class or series of capital stock of the Corporation constituting Junior Shares and upon liquidation or redemption for the purpose of

 

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preserving the Corporation’s qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended (the “ Code ”), or complying with the provisions of Article VIII of the Articles). Holders of Series D Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends on the Series D Preferred Stock as provided above. Any dividend payment made on the Series D Preferred Stock shall first be credited against the earliest accrued but unpaid dividend due with respect to such shares which remains payable. As provided herein, accrued but unpaid dividends on the Series D Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly (subject to increase as provided in Section 6 below).

(d) Whenever the dividends on any Series D Preferred Stock share shall be in arrears for four consecutive quarters, then upon written notice delivered by one or more holders that hold in the aggregate not less than 40% of the outstanding Series D Preferred Stock, the Corporation shall (i) take all appropriate action reasonably within its means to maximize the assets legally available for paying such dividends and to monetize such assets (for example, but without limiting the generality of the foregoing, by selling or liquidating all of some of the Corporation’s assets or by selling the Corporation as a going concern), (ii) pay out of all such assets legally available (including any proceeds from any sale or liquidation of such assets) the maximum possible amount of such unpaid dividends, and (iii) thereafter, at any time and from time to time when additional assets of the Corporation (including any proceeds from any sale or liquidation of such assets) become legally available to pay such unpaid dividends, pay such remaining unpaid dividends until all dividends accumulated on the Series D Preferred Stock have been fully paid.

5. Liquidation Preference .

(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of the Series D Preferred Stock are entitled to be paid out of the assets of the Corporation legally available for distribution to its shareholders, before any distribution of assets is made to holders of the Corporation’s Common Stock or any other Junior Shares, a liquidation preference of $10.00 per share in cash (the “ Liquidation Preference ”), except as otherwise provided in Section 6 below, plus the sum of (i) an amount equal to any accrued and unpaid dividends to the date of payment and (ii) (A) $2.00 per share in cash, if the liquidation, dissolution or winding up occurs on or before March 16, 2019, (B) $3.00 per share in cash, if the liquidation, dissolution or winding up occurs from March 16, 2019 and on or before March 16, 2020, or (C) $4.00 per share in cash, if the liquidation, dissolution or winding up occurs after March 16, 2020. As provided herein, accrued but unpaid dividends on the Series D Preferred Stock will accumulate and will earn additional dividends at 6.25%, compounding quarterly (subject to increase as provided in Section 6 below). The Corporation will promptly provide to the holders of the Series D Preferred Stock written notice of any event triggering the right to receive such Liquidation Preference. The consolidation or merger of the Corporation with or into any other corporation, trust or entity or of any other corporation, trust or entity with or into the Corporation, the sale, lease or conveyance of all or substantially all of the property or business of the Corporation or a statutory share exchange, shall not be deemed to constitute a liquidation, dissolution or winding up of the Corporation.

In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of capital stock of the Corporation or otherwise is permitted under Maryland law, no effect shall be given to amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon distribution of holders of shares of capital stock of the Corporation whose preferential rights upon distribution are superior to those receiving the distribution.

 

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(b) If upon any liquidation, dissolution or winding up of the Corporation, the available assets of the Corporation, or proceeds thereof, distributable among the holders of Series D Preferred Stock shall be insufficient to pay in full the above described preferential amount and liquidating payments on any other class or series of Parity Shares, then such assets, or the proceeds thereof, shall be distributed among the holders of Series D Preferred Stock and any such other Parity Shares ratably in the same proportion as the respective amounts that would be payable on such Series D Preferred Stock and any such other Parity Shares if all amounts payable thereon were paid in full.

(c) Upon any liquidation, dissolution or winding up of the Corporation, after payment shall have been made in full to the holders of Series D Preferred Stock and any Parity Shares, the holders of the Series D Preferred Stock shall have no right or claim to any of the remaining assets of the Corporation.

6. Liquidation Special Distribution .

(a) Should a Qualified Offering set forth in Section 9(b) below not occur on or before the end of the 60 th month following the issuance of the Series D Preferred Stock, one or more holders that hold in the aggregate not less than 40% of the outstanding shares of the Series D Preferred Stock shall have the right, by delivering a written notice to the Corporation (a “ Special Liquidation Event Notice ”), to elect to have the Corporation fully liquidate in a commercially reasonable manner as determined by the Board to provide for liquidation distributions to the holders of the Series D Preferred Stock in an amount per share of Series D Preferred Stock equal to $14.00 in cash (the “ Liquidation Special Distribution ”), plus accrued and unpaid dividends (whether or not declared) on the Series D Preferred Stock through the date on which such liquidation distributions are made to the holders of the Series D Preferred Stock. If a Special Event Liquidation Notice has been delivered to the Corporation, then the dividend rate on the Series D Preferred Stock after the 60 th month following the issuance of the Series D Preferred Stock shall increase from 6.25% per annum to 12.5% per annum.

(b) The Corporation shall pay the Liquidation Special Distribution with respect to each outstanding share of Series D Preferred Stock on a date designated by the Board (“ Special Liquidation Distribution Payment Date ”), which Special Liquidation Distribution Payment Date shall not be more than 6 months following receipt by the Corporation of the Special Liquidation Event Notice. The Corporation will use its best efforts to sell all assets and settle all liabilities such that the remaining cash from the net proceeds will be paid out to all shareholders of the Corporation in accordance with the preference order set out in Section 5 above, which includes the holders of the Series D Preferred Stock and any Parity Shares with first priority, followed by holders of Common Stock and any other Junior Shares. Not less than 35 days prior to the Special Liquidation Distribution Payment Date, the Corporation shall deliver to each of the holders of the Series D Preferred Stock a written notice stating (i) the amount per share of Series D Preferred Stock that will be distributed on the Special Liquidation Distribution Payment Date and (ii) the amount per share of Common Stock the holders of Common Stock would receive assuming that all shares of the Series D Preferred Stock were converted to Common Stock on the date immediately prior to the Special Liquidation Distribution Payment Date.

(c) Notwithstanding anything to the contrary herein, a holder of Series D Preferred Stock may exercise the conversion rights set forth in Section 9 below and as determined with the Liquidation Preference (and not the amount of the Liquidation Special Distribution) after a Special Liquidation Event Notice has been delivered provided that the conversion date occurs no later than one Business Day prior to the Special Liquidation Distribution Payment Date.

 

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7. Redemption .

(a) The Corporation, upon not less than 30 nor more than 60 days’ prior written notice, may at its option at any time or from time to time subject to the requirements for the share price of the Common Stock and approval set forth below, redeem each outstanding share of Series D Preferred Stock, in all cases for cash at a redemption price equal to the Redemption Amount per share, plus all accrued and unpaid dividends thereon to the date of redemption (i) in whole, or (ii) in part, provided that (x) any partial redemptions are made pro rata (as nearly as practicable without creating factional shares) to all holders of Series D Preferred Stock, (y) any partial redemptions do not in the aggregate exceed $30,000,000 in Liquidation Preference, and (z) the Corporation shall not borrow funds, or delay making any capital expenditures or paying any operating expenses, for the purpose of making any such partial redemptions.

The “ Redemption Amount ” with respect to a share of Series D Preferred stock shall mean:

(i) 120% of the Liquidation Preference for redemption on or before March 16, 2019 ;

(ii) 130% of the Liquidation Preference for redemption from March 16, 2019 and prior to March 16, 2020; and

(iii) 140% of the Liquidation Preference for redemption on or after March 16, 2020.

Prior to receiving a Special Event Liquidation Notice, the Corporation may not call shares of Series D Preferred Stock for redemption pursuant to this Section 7 unless the closing sales price of the Common Stock equals or exceeds $1.60 per share on the trading day immediately preceding the date the notice of redemption is given. The closing sales price of the Common Stock shall be as reported by the Nasdaq Stock Market or any other national securities exchange on which the shares of Common Stock are then listed for trading, or if none, the most recently reported “over the counter” trade price or if none, as determined in good faith by the Board and set forth in a resolution adopted by no less than seven of the nine members of the Board. Further, a call for redemption pursuant to this Section 7 may only be made with the approval of no less than seven of the nine members of the Board if the closing sale price of the Common Stock is between and including $1.60 and $1.99 per share, and with the approval of no less than a majority of the members of the Board if the closing sale price of the Common Stock is $2.00 or higher per share. A call for redemption pursuant to this Section 7 made after the Corporation has received a Special Event Liquidation Notice shall require the approval of no less than a majority of the members of the Board. The foregoing prices per share of Common Stock shall be adjusted if the Conversion Price is adjusted pursuant to Section 10(a) below, in the same manner.

If notice of redemption of any of the Series D Preferred Stock has been given by the Corporation pursuant to this Section 7(a) and if the funds necessary for such redemption have been set aside, separate and apart from other funds, by the Corporation in trust for the pro rata benefit of the holders of any Series D Preferred Stock so called for redemption, then from and after the date of redemption dividends will cease to accrue on such Series D Preferred Stock, such Series D Preferred Stock shall no longer be deemed outstanding and all rights of the holders of such shares will terminate, except the right to receive the redemption price and except that conversion rights will continue up to the date the redemption price is paid. A holder of Series D Preferred Stock shall continue to have all preferences, conversion and other rights, and voting powers set forth herein with respect to all shares of Series D Preferred Stock subject

 

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to a notice of redemption under this Section 7(a) until such time as the holder receives the redemption price for such shares, for the avoidance of doubt, a holder may exercise conversion rights with respect to any shares of the holder’s Series D Preferred Stock so called for redemption up to the date of the payment of the redemption price of such shares.

(b) Unless full cumulative dividends on all Series D Preferred Stock shall have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods and the then-current dividend period, no Series D Preferred Stock shall be redeemed unless all outstanding Series D Preferred Stock is simultaneously redeemed and the Corporation shall not purchase or otherwise acquire, directly or indirectly, any Series D Preferred Stock (except by exchange for any Junior Shares); provided , however , that the foregoing shall not prevent the purchase by the Corporation of any Series D Preferred Stock in accordance with Article IX of the Articles, or the purchase or acquisition of Series D Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series D Preferred Stock. Subject to applicable law and the limitation on purchases when dividends on the Series D Preferred Stock are in arrears, the Corporation shall be entitled at any time and from time to time to repurchase any Series D Preferred Stock pro rata from the holders of the Series D Preferred Stock by tender or by private agreement transactions duly authorized by the Board.

(c) Notice of redemption by the Corporation of the Series D Preferred Stock shall be given by publication in a newspaper of general circulation in the City of New York, such publication to be made once a week for two successive weeks commencing not less than 30 nor more than 60 days prior to the date of redemption. A similar notice shall be mailed by the Corporation by first class mail, postage prepaid, not less than 30 nor more than 60 days prior to the date of redemption, addressed to each holder of record of the Series D Preferred Stock to be redeemed at such holder’s address as the same appears on the share records of the Corporation. No failure to give such notice or any defect therein or in the mailing thereof shall affect the validity of the proceedings for the redemption of any Series D Preferred Stock except as to the holder to whom notice was defective or not given. Each notice shall state: (i) the date of redemption; (ii) the redemption price; (iii) the number of shares of Series D Preferred Stock to be redeemed; (iv) the place or places where the Series D Preferred Stock is to be surrendered for payment of the redemption price; and (v) dividends will cease to accrue on the redemption date.

(d) Immediately prior to any redemption of Series D Preferred Stock, the Corporation shall pay, in cash, any accumulated and unpaid dividends through the date of redemption, unless a date of redemption falls after a Dividend Record Date and prior to the corresponding Dividend Payment Date, in which case each holder of Series D Preferred Stock at the close of business on such Dividend Record Date shall be entitled to the dividend payable on such shares on the corresponding Dividend Payment Date notwithstanding the redemption of such shares before such Dividend Payment Date.

(e) All Series D Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and reclassified as authorized but unissued Preferred Stock, without designation as to class or series, and may thereafter be reissued as any class or series of Preferred Stock in accordance with the applicable provisions hereof and elsewhere in the Articles.

8. Voting Rights .

(a) Except as otherwise provided herein, the Holders of Series D Preferred Stock shall not have any voting rights. The Holders of Series D Preferred Stock shall be entitled to vote their Series D Preferred Stock as a single class with the holders of the Common Stock

 

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on all matters submitted to such holders for vote or consent. For each such vote or consent, each share of Series D Preferred Stock shall entitle the holder thereof to cast one vote for each whole vote (rounded to the nearest whole number) that such holder would be entitled to cast had such holder converted its Series D Preferred Stock into shares of Common Stock as of the date immediately prior to the record date for determining the shareholders of the Corporation eligible to vote on any such matter.

(b) So long as any shares of Series D Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of not less than 75% of the Series D Preferred Stock, given in person or by proxy, either in writing or at a meeting (voting separately as a class):

(i) amend, alter, repeal or make other changes to any provision hereof of any provision elsewhere in the Articles so as to adversely affect any right, preference, privilege or voting power of the Series D Preferred Stock or the holders thereof, including without limitation any amendment, alteration, repeal or other change effected in connection with a merger, consolidation or similar transaction (any such transaction, which for the avoidance of doubt does not include any liquidation, dissolution or winding up of the Corporation, an “ Event ”);

(ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of capital stock or rights to subscribe to or acquire any class or series of capital stock or any class or series of capital stock convertible into any class or series of capital stock, in each case ranking on a parity with, or senior to, the Series D Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation or otherwise, or reclassify any shares of capital stock into any such shares;

(iii) except for dividends or distributions of cash from the Corporation’s funds from operations and except as required to preserve the Corporation’s qualification as a real estate investment trust under the Code, declare or pay any dividends or other distributions on shares of Common Stock or any other Junior Shares;

(iv) except as required by Section 4(d) or 6 above, (A) merge, consolidate, liquidate, dissolve or wind up the Corporation or (B) sell, lease or convey all or substantially all of the assets of the Corporation;

(v) except for a Qualified Offering, sell, issue or potentially issue in an offering by the Corporation of Common Stock (or securities convertible into or exercisable Common Stock) equal to 20% or more of the Common Stock or 20% or more of the Voting Stock outstanding before the issuance;

(vi) engage in any transaction in which the Corporation is to be a participant and the amount involved exceeds $120,000, other than employment compensation, and in which any of the Corporation’s directors or executive officers or any member of their immediate families will have a material interest, exclusive of interests arising solely from the ownership of a class of equity securities of the Corporation provided that all holders of such class of equity securities receive the same benefit on a pro rata basis;

(vii) redeem, or otherwise buy back (including in the open market, but excluding shares exchanged or withheld for the exercise price and/or taxes with respect to employee awards) any shares of common stock until all the shares of the Series D Preferred Stock converted, exchanged or redeemed; or

(viii) agree or commit to do any of the foregoing.

 

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provided , however , that any Event in which the Series D Preferred Stock (or any equivalent class or series of stock or shares issued by the surviving corporation, trust or other entity in connection with such Event) remains outstanding after such Event with the same ranking, preferences, rights, voting powers and other terms as provided herein unchanged shall not be deemed to adversely affect the rights, preferences, privileges or voting power of holders of the Series D Preferred Stock for purposes of Section 8(b)(i) above and also will not be subject to Section 8(b)(iv) above; and provided , further , that any Event and any liquidation, dissolution or winding up of the Corporation in which the holders of Series D Preferred Stock receive cash in the amount of the Redemption Amount plus accrued and unpaid dividends in exchange for each of their shares of Series D Preferred Stock will not be subject to Section 8(b)(i) or 8(b)(iv) above.

With respect solely to the exercise of the above described voting rights in this Section 8(b), each share of Series D Preferred Stock shall have one vote per share.

The foregoing voting provisions in this Section 8(b) will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be required shall be effected, all outstanding Series D Preferred Stock shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been deposited in trust to effect such redemption.

9. Conversion .

(a) Each share of Series D Preferred Stock shall be convertible in accordance with the terms of this Section 9, at any time and from time to time from and after the date of issuance at the option of the holder thereof, into that number of shares of Common Stock determined by dividing the Liquidation Preference of such share of Series D Preferred Stock, plus the aggregate accrued or accumulated and unpaid dividends thereon through the Conversion Date (as defined below), by the Conversion Price in effect on the Conversion Date. A holder of the Series D Preferred Stock shall effect any such conversion by providing the Corporation with a written conversion notice (each, a “ Notice of Conversion ”). Each Notice of Conversion shall specify the number of shares of Series D Preferred Stock to be converted, the number of shares of Series D Preferred Stock owned prior to the conversion at issue, the number of shares of Series D Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effective (such effective date, the “ Conversion Date ”); provided , however , that the Conversion Date may not be less than 30 days after the date on which the Notice of Conversion is delivered to the Corporation. If a Conversion Date is not specified, or is less than 30 days after delivery of the Notice of Conversion, the Notice of Conversion shall be effective on the 30 th day (or if such day is not a Business Day, the next Business Day) following delivery of the Notice of Conversion.

(b) Upon receipt of a Notice of Conversion, the Corporation shall promptly notify all other holders of Series D Preferred Stock, if any (each, a “ Non-converting Holder ”), that a Notice of Conversion has been delivered and provide each Non-converting Holder with a copy of such Notice of Conversion. The Board shall deliver a waiver of the Ownership Limit to a Non-converting Holder pursuant to Article IX(A)(7) of the Articles prior to the Conversion Date if (i) such Non-converting Holder provides the Board the representations and undertakings specified in Article IX(A)(7) of the Articles prior to the Conversion Date and (ii) the Board has received the opinion of counsel specified in Article IX(A)(7) of the Articles prior to the Conversion Date (which the Corporation shall use commercially reasonable efforts to obtain, at the Corporation’s expense). In the event a Non-converting Holder fails to provide such representations and undertakings, or the Corporation is unable to obtain such opinion of counsel notwithstanding commercially reasonable efforts to do so, the minimum number of shares of Series D Preferred Stock held by such Non-converting Holder shall automatically without any further action by such Non-converting Holder or the Corporation convert (along with the

 

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aggregate accrued or accumulated and unpaid dividends thereon) into an aggregate number of shares of Common Stock (including any fraction of a share) determined in accordance with this Section 9 on the Conversion Date, concurrently with the conversion of the shares specified in the Notice of Conversion.

(c) At the first annual meeting of shareholders following the issuance of the Series D Preferred Stock, the Corporation shall seek (and use commercially reasonable efforts to obtain) shareholder approval of an amendment to the Articles that, in connection with any conversion of the Series D Preferred Stock, eliminates the requirement that the Board obtain such representations and undertakings from a Person as are reasonably necessary to ascertain that no individual’s Beneficial Ownership or Constructive Ownership of shares of the Series D Preferred Stock will violate the Ownership Limit, so long as the Board is able to obtain the opinion of counsel specified in Article IX(A)(7) of the Articles. In the event such amendment is approved by the shareholders of the Corporation, the second and third sentences of Section 9(b) above shall deemed to be amended to eliminate the requirement for a Non-Converting Holder to deliver the representations and undertakings specified in Article IX(A)(7) of the Articles.

(d) Upon the closing of a Qualified Offering by the Corporation, all of the outstanding shares of Series D Preferred Stock (including any fraction of a share) shall automatically convert into an aggregate number of shares of Common Stock (including any fraction of a share) as is determined by (i) multiplying the outstanding number of shares (including any fraction of a share) of Series D Preferred Stock by the Liquidation Preference thereof, and then (ii) dividing the result by the Conversion Price then in effect. The date of the closing of a Qualified Offering shall be deemed a Conversion Date and such automatic conversion of all of the outstanding shares of Series D Preferred Stock shall be deemed to have been converted into shares of Common Stock in accordance with the terms hereof as of immediately prior to such closing.

All outstanding shares of Series D Preferred Stock shall be converted into the number of shares of Common Stock as provided in this Section 9(d) automatically upon closing of a Qualified Offering without any further action by the holders of such shares or the Corporation. As promptly as practicable following such Qualified Offering, the Corporation shall send each holder of shares of Series D Preferred Stock written notice of such event, along with the payment of any accrued and unpaid dividends with respect to such shares of Series D Preferred Stock through the Conversion Date. Upon receipt of such notice and any such payment, each holder shall surrender to the Corporation the certificate or certificates representing all shares of Series D Preferred Stock being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), unless such shares are held in uncertificated form, and upon receipt thereof by the Corporation such holder shall be issued a certificate or certificates representing the shares of Common Stock into which such shares of Series D Preferred Stock were converted.

Qualified Offering ” means (i) the sale of Common Stock in a single offering of at least $50,000,000 or (ii) the sale of Common Stock in up to three separate offerings totaling at least $75,000,000 in the aggregate, in each case at an offering price per share of Common Stock equal to at least the lesser of:

(i) $2.00 per share (appropriately adjusted in the same manner as the Conversion Price pursuant to Section 10 below) if the closing of the applicable Qualified Offering occurs on or before September 16, 2017;

(ii) the greater of (x) $2.00 per share (appropriately adjusted in the same manner as the Conversion Price pursuant to Section 10 below) or (y) 90% of “NAV” per share of Common Stock if the closing of the applicable Qualified Offering occurs after September 16, 2017; or

 

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(iii) $1.60 (appropriately adjusted in the same manner as the Conversion Price pursuant to Section 10 below) or more upon any closing of any Qualified Offering, provided the Corporation immediately following the receipt of the net proceeds from the closing of such Qualified Offering makes a cash “ Make Whole Payment ” to each of the holders of Series D Preferred Stock, provided that , the Make Whole Payment shall not exceed the Issuance Market Value Difference.

Issuance Market Value Difference ” means an amount equal to (i) the Conversion Price, minus (ii) the closing consolidated bid price on March 15, 2106 as reported by Nasdaq, adjusted if the Conversion Price is adjusted pursuant to Section 10(a) below, in the same manner.

NAV ” means the net asset value of the Corporation per share of Common Stock, as net asset value is commonly determined by exchange listed funds and research analysts, immediately prior to the closing of the applicable Qualified Offering.

Upon notice that the Corporation intends to conduct a Qualified Offering, the holders of at least 75% of the shares of Series D Preferred Stock shall within 10 days thereafter, select an investment banking firm of national recognition, subject to the reasonable approval of the members of Board who were not designated for nomination to the Board by right of holders of Series D Preferred Stock. If the holders of at least 75% of the shares of the Series D Preferred Stock fail to select an investment banking firm of national recognition within such 10 days that is reasonably acceptable to the Board, then the Board shall select an investment banking firm of national recognition to calculate the NAV. The Corporation shall bear the fees and expenses of the investment banking firm. If required by the investment banking firm, the Corporation shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Corporation in favor of such investment banking firm and its officers, directors, partners, employees, agents and affiliates.

Make Whole Payment ” means, with respect to each share of Common Stock into which an outstanding share of Series D Preferred Stock is converted as a result of a Qualified Offering, an amount per share of such Common Stock determined by the following formula:

1.3*(A - B) = Make Whole Payment

where

A = $2.00, if 90%NAV - $2.00 is a negative number

A = 90%NAV, if 90%NAV- $2.00 is a positive number

B = Adjusted NAV

If A-B is a negative number then the Make Whole Payment is $0.

Adjusted NAV ” means NAV adjusted for the effects of the applicable Qualified Offering, determined by the following formula: the quotient of (i) the sum of (A) NAV, multiplied by the number of shares of outstanding Common Stock assuming full conversion of Series D Preferred Stock, plus (B) the net offering proceeds from the Qualified Offering, divided by (ii) the number of shares of Common Stock outstanding after the Qualified Offering.

 

10


(e) To effect conversions of shares of Series D Preferred Stock, a Holder shall surrender the certificate(s) representing the shares of Series D Preferred Stock to be converted to the Corporation together with the delivery of the Notice of Conversion, if applicable, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers) unless such shares are held in uncertificated form. Shares of Series D Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled.

(f) The conversion price for each share of the Series D Preferred Stock shall equal $1.60, subject to adjustment as set forth in Section 10 below (the “ Conversion Price ”) .

(g) Promptly after each Conversion Date, the Corporation shall deliver, or cause to be delivered, to the converting Holder a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of the Series D Preferred Stock.

(h) No fractional Common Stock shall be issued upon conversion of Series D Preferred Stock. All Common Stock (including fractions thereof) issuable upon conversion of Series D Preferred Stock shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the exercise would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional shares, pay cash equal to the product of such fraction multiplied by the fair market value per share of Common Stock on the Conversion Date (as reported by the Nasdaq Stock Market or any other national securities exchange on which the Common Stock are then listed for trading, or if none, the most recently reported “over the counter” trade price or if none, as determined in good faith by the Board).

(i) The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series D Preferred Stock, free from all liens and preemptive rights, a sufficient number of shares of Common Stock to effect the conversion of all then-outstanding shares of Series D Preferred Stock in accordance with the terms hereof. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable. The Corporation shall use its best efforts to list the Common Stock required to be delivered upon conversion of the Series D Preferred Stock, prior to such delivery, upon any national securities exchange upon which the Common Stock is listed at the time of such delivery.

(j) The issuance of certificates for shares of the Common Stock on conversion of the Series D Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid.

10. Certain Adjustments and Rights .

(a) If the Corporation, at any time while this Series D Preferred Stock is outstanding: (i) pays a stock dividend or makes a distribution to holders of any class or series of capital stock of the Corporation in shares of Common Stock (which, for avoidance of doubt, shall

 

11


not include any shares of Common Stock issued by the Corporation upon conversion of this Series D Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a greater number of shares, (iii) combines its outstanding shares of Common Stock into a smaller number of shares, or (iv) issues any shares of its capital stock by reclassification of the Common Stock, or (v) undertakes any transaction similar to or having the effect of the foregoing transactions, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 10(a) (shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

(b) The Corporation shall not sell or issue any Common Stock or grant any option or right to purchase Common Stock at an effective price per share that is lower than the Conversion Price. Notwithstanding the foregoing, this Section 10(b) shall not apply to an Exempt Issuance. “ Exempt Issuance ” means the issuance of (i) shares of Common Stock to employees, officers, directors or consultants of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board or a majority of the members of a committee of non-employee directors established for such purpose, (ii) securities upon the exercise or exchange of or conversion of any securities issued and outstanding on the date of the establishment of the Series D Preferred Stock, (iii) securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock, and (iv) securities issued pursuant to acquisitions approved by a number of the members of the Board equal to one more than a majority of the members of the Board.

(c) If at any time the Corporation issues any rights, options or warrants pro rata to all holders of Common Stock to purchase Common Stock (or securities convertible into or exchangeable for Common Stock) (the “ Purchase Rights ”), then each holder of Series D Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder would have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of such holder’s Series D Preferred Stock immediately before the date on which a record is taken for the issuance of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the issuance of such Purchase Rights.

(d) Whenever the Conversion Price is adjusted pursuant to any provision of this Section 10, the Corporation shall promptly deliver to each holder of Series D Preferred Stock a written notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

(e) Notwithstanding anything herein to the contrary, no adjustment of the Conversion Price shall be made pursuant to this Section 10 in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more.

11. Articles of Incorporation and Bylaws .

The rights of all holders of the Series D Preferred Stock and the terms of the Series D Preferred Stock are subject to the provisions of the Articles and the Bylaws of the Corporation, including, without limitation, the restrictions on transfer and ownership contained in Article IX of the Articles.

 

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B. Exclusion of Other Rights .

Except as may otherwise be required by applicable law, the Series D Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, other than those specifically set forth herein or elsewhere in the Articles. The Series D Preferred Stock shall have no preemptive or subscription rights.

 

C. Headings of Subdivisions .

The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof.

 

D. Severability of Provisions .

If any voting power, preference or relative, participating, optional and other special right of the Series D Preferred Stock is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Series D Preferred Stock and qualifications, limitations and restrictions thereof set forth herein which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences or relative, participating, optional or other special rights of Series D Preferred Stock or qualifications, limitations and restrictions thereof shall be given such effect. None of the voting powers, preferences or relative participating, optional or other special rights of the Series D Preferred Stock or qualifications, limitations or restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences or relative, participating, optional or other special right of Series D Preferred Stock or qualifications, limitations or restrictions thereof unless so expressed herein.

SECOND: The shares of Series D Cumulative Convertible Preferred Stock have been classified and established by the Board under the authority contained in the Articles.

THIRD: These Articles Supplementary have been approved by the Board in the manner and by the vote required by law.

FOURTH: The undersigned acknowledges these Articles Supplementary to be the corporate act of the Corporation and, as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary to be signed in its name and on its behalf by its Chief Executive Officer and attested to it by its Treasurer on this 16th day of March, 2016.

 

CONDOR HOSPITALITY TRUST, INC.
By:   /s/ J. William Blackham
  Name: J. William Blackham
  Title:   Chief Executive Officer
ATTEST:
By:   /s/ Patricia M. Morland
  Name: Patricia M. Morland
  Title:   Treasurer

 

14

Exhibit 10.1

Execution Version

STOCK PURCHASE AGREEMENT

between

SREP III Flight – Investco, L.P.

“Purchaser”

and

Condor Hospitality Trust, Inc.

“Issuer”

Dated as of March 16, 2016


TABLE OF CONTENTS

 

             Page  
ARTICLE 1       PURCHASE AND SALE OF THE SHARES      1   
1.1       Purchase and Sale of the Shares      1   
1.2       Purchase Price      1   
1.3       Payment of Purchase Price      1   
1.4       Delivery of Shares      2   
1.5       Purchaser Exchange Act Filings      2   
ARTICLE 2       REPRESENTATIONS AND WARRANTIES OF ISSUER      2   
2.1       Listing      2   
2.2       SEC Reports      2   
2.3       No Material Adverse Change in Business      2   
2.4       Financial Statements      3   
2.5       Independent Accountants      3   
2.6       Good Standing of Issuer      3   
2.7       Subsidiaries      3   
2.8       Capitalization      4   
2.9       Shares      4   
2.10     Litigation      4   
2.11     No Conflicts      5   
2.12     Compliance with Laws; Permits and Orders      5   
2.13     Authorization      5   
2.14     REIT Status      6   
2.15     Investment Company Act      6   
2.16     Registration Rights      6   
2.17     No Stabilization or Manipulation      6   
2.18     Property      6   
2.19     Title Insurance      7   
2.20     Mortgages and Deeds of Trust      7   
2.21     Environmental Laws      7   
2.22     Internal Accounting and Other Controls      8   
2.23     Disclosure Controls      8   
2.24     Insolvency; Financial Covenants      8   
2.25     Absence of Labor Dispute      8   
2.26     Use of Proceeds      9   
2.27     No Finder’s Fees      9   
2.28     Insurance      9   
2.29     Absence of Undisclosed Liabilities      9   
2.30     Taxes      9   
2.31     No Registration      10   
2.32     Certain Information      10   
ARTICLE 3       REPRESENTATIONS AND WARRANTIES OF PURCHASER      10   
3.1       Authority      10   
3.2       Brokers and Finders      10   
3.3       Securities Act      11   
3.4       Beneficial Ownership of Common Stock      11   
3.5       Availability of Funds      11   
3.6       Securities Offering Exemption      11   
3.7       Legends      11   
ARTICLE 4       Deliveries      12   
4.1       Deliveries of Issuer      12   

 

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TABLE OF CONTENTS

(continued)

 

             Page  
4.2       Deliveries of Purchaser      13   
ARTICLE 5       CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS      13   
5.1       Confidentiality      13   
5.2       Public Announcements      13   
ARTICLE 6       GENERAL PROVISIONS      13   
6.1       Definitions      13   
6.2       Fees and Expenses      17   
6.3       Notices      17   
6.4       Assignment      18   
6.5       No Benefit to Others      18   
6.6       Headings and Gender; Construction; Interpretation      18   
6.7       Counterparts      19   
6.8       Integration of Agreement      19   
6.9       Waiver      19   
6.10     Governing Law      19   
6.11     Partial Invalidity      20   
6.12     Survival      20   
6.13     Specific Enforcement      20   
SCHEDULES   
Schedule 1     Significant Subsidiary List   

 

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STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “ Agreement ”) is made and entered into as of March 16, 2016, between SREP III Flight – Investco, L.P. (“ Purchaser ”) and Condor Hospitality Trust, Inc. (“ Issuer ”).

WHEREAS, Issuer desires to sell and Purchaser desires to purchase 3,000,000 shares (the “ Shares ”) of Issuer’s Series D Cumulative Convertible Preferred Stock, $0.01 par value per share (the “ Series D Stock ”), for the consideration and on the terms set forth in this Agreement, which Shares will be offered and sold to Purchaser in a private placement without being registered under the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission (the “ Commission ”) thereunder (collectively, the “ Securities Act ”), in reliance upon Section 4(a)(2) thereof, and/or Regulation D thereunder;

WHEREAS, promptly following the date hereof, Issuer will redeem for cash (the “ Redemption ”) all outstanding shares of Series A Stock and Series B Stock (each as defined herein) and will use a portion of the aggregate Purchase Price (as defined herein) from the sale of the Shares to effect the Redemption;

WHEREAS, on the date hereof, Issuer has entered into an agreement (the “ IRSA Exchange Agreement ”) with an affiliate of Inversiones y Representaciones Sociedad Anónima (“ IRSA ”), the sole holder of the outstanding 3,000,000 shares of Series C Stock (as defined herein), providing for the exchange (the “ IRSA Exchange ”), simultaneously with the issuance of the Shares to Purchaser, of such shares of Series C Stock for (i) 3,245,156 new shares of Series D Stock (the “ IRSA Exchange Shares ”), which includes 245,156 shares of Series D Stock issued on account of accrued and unpaid dividends on the Series C Stock, (ii) $1,484,211 in cash and (iii) a promissory note in the principal amount of $1,011,599 from the Issuer to IRSA (the “ IRSA Promissory Note ”) on account of the remaining accrued and unpaid dividends on the Series C Stock, such IRSA Exchange to occur on the date hereof; and

WHEREAS, certain capitalized terms used in this Agreement are defined in Section 6.1 of this Agreement.

NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE 1 PURCHASE AND SALE OF THE SHARES

1.1 Purchase and Sale of the Shares.

On and subject to the terms and conditions of this Agreement, on the date hereof, Issuer shall sell, and Purchaser shall purchase the Shares; and Issuer shall transfer and convey, and Purchaser shall purchase, the Shares free and clear of any and all Liens (other than those imposed by the Articles of Incorporation and federal and state Laws). Purchaser shall purchase the Shares in a single tranche of 3,000,000 shares.

1.2 Purchase Price.

The purchase price per share for the Shares shall be $10.00 (the “ Purchase Price ”).

1.3 Payment of Purchase Price.

On the date hereof, Purchaser shall pay or deliver:

(a) to the Escrow Agent (as defined herein) for deposit into the Escrow Account (as defined herein) an amount in cash equal to $20,147,000 (the “ Redemption Escrow Amount ”), by wire transfer in immediately available funds in U.S. dollars; and

(b) to the Issuer, an amount in cash equal to (1) the product of (a) the Purchase Price and (b) the number of Shares being purchased, minus (2) the Redemption Escrow Amount, by wire transfer in immediately available funds in U.S. dollars to an account designated in writing by Issuer. A Federal Reserve Reference Number shall be requested by Purchaser at the time of the transfers for the purpose of assisting Issuer and the Escrow Agent in confirming receipt of the transfers.

 

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1.4 Delivery of Shares.

On the date hereof, Issuer shall (a) irrevocably instruct its transfer agent to record the issuance of the Shares to Purchaser, within three (3) Business Days, following the date hereof, in book-entry form pursuant to the transfer agent’s regular procedures, free and clear of all restrictive and other notations or legends except as provided in Section 3.7 hereof, and (ii) deliver, to the extent not previously delivered, the items required to be delivered by Issuer set forth in Section 4.1.

1.5 Purchaser Exchange Act Filings

Purchaser acknowledges that it shall be responsible for any filings required by it or any member of the StepStone Group under Sections 13 or 16 of the Exchange Act in connection with the purchase or acquisition of any shares of Common Stock.

ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF ISSUER

Issuer hereby represents and warrants to Purchaser that:

2.1 Listing.

Issuer’s common stock, $0.01 par value per share (the “ Common Stock ”), is registered pursuant to Section 12(b) of the Exchange Act and is currently listed and quoted on the NASDAQ Global Market under the trading symbol “CDOR.” Issuer has been provided until May 9, 2016 to regain compliance with the listing qualifications required to continue the listing of the Common Stock on the NASDAQ Global Market. As of the date hereof, Issuer meets the listing qualifications required to transfer the listing of its Common Stock from the NASDAQ Global Market to the NASDAQ Capital Market and to continue its listing thereon, subject only to a potential requirement that Issuer commit a reverse stock split within approximately 180 days if necessary to achieve a minimum share trading price of the Common Stock of $1.00 per share. Except as set forth in the SEC Reports, Issuer is, and immediately after giving effect to the transactions contemplated by this Agreement and the Ancillary Agreements Issuer will continue to be, in compliance with the listing and maintenance requirements of the NASDAQ Stock Market.

2.2 SEC Reports.

(a) Except as set forth in the SEC Reports filed prior to the date hereof, Issuer has filed all reports required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the 12 months preceding the date hereof on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. Such reports required to be filed by Issuer under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, together with any materials filed or furnished by Issuer under the Exchange Act, whether or not any such reports were required, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ SEC Reports .”

(b) As of their respective dates (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing), the SEC Reports filed by Issuer complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed (or, if amended or superseded by a filing prior to the date hereof, then on the date of such filing) by Issuer, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

2.3 No Material Adverse Change in Business.

Since December 31, 2014 and except as otherwise disclosed in the SEC Reports: (a) there has not occurred any material adverse change or any development that is reasonably likely to have a material adverse effect on the condition (financial, tax or otherwise), results of operations, business, properties or assets (tangible and intangible) of Issuer and its Subsidiaries considered as one enterprise (other than changes or developments relating to (i) changes in general economic conditions in the United States, other than changes which adversely affect Issuer and

 

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its Subsidiaries to a materially greater extent than their competitors, (ii) the execution or the announcement of this Agreement, or the consummation of the transactions contemplated hereby, or (iii) changes in GAAP or the accounting rules or regulations of the Commission) (a “ Material Adverse Effect ”); (b) except for regular quarterly distributions on the Common Stock (whether payable in cash, shares of Common Stock or a combination thereof), and regular distributions declared, paid or made in accordance with the terms of any series of Preferred Stock (as defined herein), there has been no dividend or distribution of any kind declared, paid or made by Issuer on any class of its capital shares; (c) there has not been an announcement by Issuer of an allegation made by a Governmental Body of fraud or malfeasance on the part of an Executive Officer of Issuer, without regard to its impact on the results of operations, business, properties or assets of Issuer and its Subsidiaries; and (d) there has not been an announcement by Issuer of a breach of a covenant in any indebtedness of Issuer, or an announcement of the receipt by Issuer of a notice of default issued by any lender of such indebtedness set forth (2.3(a) through (d) together, a “ Material Adverse Change ”).

2.4 Financial Statements.

The consolidated financial statements and supporting schedules of Issuer included in the SEC Reports (in each case, other than any pro forma financial information and projections) present fairly, in all material respects, the financial position of Issuer and its consolidated Subsidiaries as of the dates indicated and the results of their operations for the periods specified; except as otherwise stated in the SEC Reports, said financial statements have been prepared in conformity with GAAP applied on a consistent basis; and the supporting schedules, if any, included in the SEC Reports present fairly in all material respects the information required to be stated therein. The statements of certain revenues and expenses of the properties acquired or proposed to be acquired, if any, included in the SEC Reports present fairly in all material respects the information set forth therein and have been prepared, in all material respects, in accordance with the applicable financial statement requirements of Regulation S-X under the Exchange Act with respect to real estate operations acquired or to be acquired. The pro forma financial statements and the other pro forma financial information (including the notes thereto), included in the SEC Reports present fairly, in all material respects, the information set forth therein, have been prepared, in all material respects, in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements and have been properly compiled on the basis described therein and the assumptions used in the preparation of such pro forma financial statements and other pro forma financial information (including the notes thereto), if any, are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. All disclosures contained in the SEC Reports regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G under the Exchange Act and Item 10 of Regulation S-K under the Securities Act, to the extent applicable. All material agreements to which Issuer is a party or to which the property or assets of Issuer are subject are included as part of or identified in the SEC Reports, to the extent such agreements are required to be included or identified pursuant to the rules and regulations of the Commission.

2.5 Independent Accountants.

KPMG LLP, which has expressed its opinion on the audited financial statements and related schedules included in the SEC Reports, is an independent registered public accounting firm within the meaning of the Securities Act.

2.6 Good Standing of Issuer.

Issuer has been duly organized and is validly existing and in good standing as a corporation under the Laws of the State of Maryland, with power and authority (corporate and other) to own, lease and operate its properties and to conduct its business as described in the SEC Reports; and Issuer is duly qualified to do business and is in good standing as a foreign corporation in all other jurisdictions where its ownership or leasing of properties or the conduct of its business requires such qualification, except where the failure to qualify and be in good standing could not reasonably be expected to have or result in a Material Adverse Effect.

2.7 Subsidiaries.

Each Subsidiary listed on Schedule 1 (“ Significant Subsidiary ”) has been duly incorporated or formed and is validly existing as a corporation, partnership or limited liability company in good standing under the Laws of the

 

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jurisdiction of its incorporation or formation; has corporate, partnership or limited liability company power and authority to own, lease and operate its properties and to conduct its business and is duly qualified as a foreign corporation, partnership or limited liability company to transact business; and is in good standing in each jurisdiction in which such qualification is required, except where the failure to qualify and be in good standing could not reasonably be expected to have or result in a Material Adverse Effect.

2.8 Capitalization.

(a) On the date hereof, the authorized capital stock of Issuer consists of (i) 200,000,000 shares of Common Stock, par value $0.01 per share, of which 4,937,050 shares are issued and outstanding and (A) 23,593,519 shares are reserved for issuance pursuant to convertible securities (other than the Series D Stock) and warrants and (B) 39,664,475 shares are reserved for issuance pursuant to the Series D Stock; (ii) 40,000,000 shares of Preferred Stock, par value $0.01 per share (“ Preferred Stock ”), which have been authorized and are issued and outstanding in three series as follows: (A) 2,500,000 shares of Series A Cumulative Preferred Stock, par value $0.01 per share (“ Series A Stock ”), of which 803,270 shares are outstanding with an aggregate liquidation preference of $8,032,700 and on account of which unpaid dividends of $1,612,618 have accrued; (B) 800,000 shares of Series B Cumulative Preferred Stock, par value $0.01 per share (“ Series B Stock ”), of which 332,500 shares are outstanding with an aggregate liquidation preference of $8,312,500 and on account of which unpaid dividends of $2,045,799 have accrued; (C) 3,000,000 shares of Series C Cumulative Convertible Preferred Stock, par value $0.01 per share (“ Series C Stock ”), of which 3,000,000 shares are outstanding and will be cancelled in the IRSA Exchange with an aggregate liquidation preference of $30,000,000 and on account of which unpaid dividends of $4,947,370 have accrued; and (D) 6,000,000 shares of Series D Stock, of which 3,000,000 shares will be issued pursuant to this Agreement and 3,245,156 shares will be issued in the IRSA Exchange pursuant to the IRSA Exchange Agreement.

(b) All of the issued and outstanding shares of capital stock of each class of Issuer on the date hereof have been duly authorized and validly issued and are fully paid and non-assessable. On the date hereof, other than shares of Common Stock reserved for issuance under Issuer’s equity compensation plans or arrangements for officers, directors and other Employees, outstanding convertible securities (including the Series D Stock) and warrants, and in connection with dividends declared on shares of Common Stock payable in shares of Common Stock, no shares of the capital stock of Issuer are reserved for issuance. On the date hereof, other than the Shares, the IRSA Exchange Shares and shares of Common Stock to be issued under Issuer’s equity compensation plans or arrangements for officers, directors and other Employees, or outstanding convertible securities and warrants, Issuer has no obligation to issue any additional shares of its capital stock, or securities convertible into or exchangeable for shares of its capital stock. None of the shares of capital stock of Issuer outstanding on the date hereof has been issued in violation of any preemptive rights of the current or past shareholders of Issuer. On the date hereof, other than as set forth above, no rights relating to the purchase of capital stock of any class or series of Issuer are issued or outstanding nor are there any agreements, written or oral, providing for the issuance of any rights relating to the capital stock of any class or series of Issuer. With the exception of accrued and unpaid dividends on shares of Preferred Stock on the date hereof, all dividends required to be paid on Issuer’s capital stock have been paid.

(c) All of the issued and outstanding capital stock, membership interests or partnership interests of Issuer’s Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned directly or indirectly by Issuer, free and clear of any Liens, except as set forth in the SEC Reports and except for such Liens that could not reasonably be expected to have or result in a Material Adverse Effect.

2.9 Shares.

The Shares have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered pursuant to this Agreement against payment of the consideration therefor specified herein, will be validly issued, fully paid and non-assessable and will be issued in compliance with federal and state securities Laws. None of the Shares will be issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of Issuer.

2.10 Litigation.

There is no Litigation before or by any court or other Governmental Body currently pending, or, to the knowledge of Issuer, threatened against or adversely affecting Issuer or its Subsidiaries, their business or any of their

 

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respective assets or properties, at law or in equity, which is required to be disclosed in the SEC Reports (other than as disclosed therein), or which could reasonably be expected to have or result in a Material Adverse Effect or would materially and adversely affect the consummation of this Agreement or the transactions contemplated herein.

2.11 No Conflicts.

Neither Issuer nor any of its Subsidiaries is in violation of its respective articles of incorporation or other organizational document, or its code of regulations or bylaws, as the case may be, or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its respective properties may be bound, where such defaults could reasonably be expected to have or result in a Material Adverse Effect; and the execution and delivery of this Agreement and the consummation of the issuance and sale of the Shares contemplated herein have been duly authorized by all necessary corporate action, and compliance by Issuer with its obligations hereunder will not conflict with or constitute a breach of, or default under (or constitute a default which with the passage of time or giving of notice, or both, would constitute an event of a default), or result in the creation or imposition of any Lien upon any properties or assets of Issuer or its Subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which Issuer or any of its Subsidiaries is a party or by which it may be bound or to which any of the properties or assets of Issuer or any of its Subsidiaries is subject, nor will such action result in any violation of the provisions of their respective articles of incorporation or other organizational document, or their respective code of regulations or bylaws, as the case may be, or, to the knowledge of Issuer, any Law or Order; and no Consent or Order of any court or Governmental Body is required for the consummation by Issuer of the issuance and sale of the Shares contemplated by this Agreement, except such as has been or will be obtained or as may be required under the Securities Act, the Exchange Act and state securities Laws in connection with the transactions contemplated hereby.

2.12 Compliance with Laws; Permits and Orders.

Neither Issuer nor any of its Subsidiaries is engaged in any activity or has omitted to take any action that is or creates a violation of any Law applicable to Issuer or such Subsidiary, except where such violation could not reasonably be expected to have or result in a Material Adverse Effect. Neither Issuer nor any of its Subsidiaries is subject to any Order which has had or could reasonably be expected to have or result in a Material Adverse Effect. Issuer and its Subsidiaries possess all Permits necessary for the lawful operation of their business as presently conducted and are in compliance with all such Permits and all applicable Laws and Orders where a failure to have such Permits or to so comply could reasonably be expected to have or result in a Material Adverse Effect. Neither Issuer nor any of its Subsidiaries has received any written notice of proceedings relating to the revocation or modification of any Permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could reasonably be expected to have or result in a Material Adverse Effect. To the knowledge of Issuer, no officer, director or Employee of Issuer or any of its Subsidiaries is subject to any Order that prohibits such officer, director or Employee from engaging in or continuing any conduct, activity, or practice relating to Issuer, its Subsidiaries or their respective businesses except where such prohibition could not reasonably be expected to have or result in a Material Adverse Effect. To the knowledge of Issuer, neither Issuer nor any of its Subsidiaries has at any time during the last five years (a) made any unlawful contribution to any political candidate, or failed to disclose fully any contribution in violation of Law or (b) made any payment to any federal, state or local governmental, regulatory or administrative officer or official, or other Person charged with similar public or quasi-public duties, other than payments required or permitted by the Laws of the United States or any jurisdiction thereof. Neither Issuer nor any of its Subsidiaries has received at any time any written notice or other written communication from any Governmental Body or any other Person regarding (a) any actual, alleged, possible, or potential violation of, or failure to comply with, any Law or (b) any actual, alleged, possible, or potential obligation on the part of Issuer or any of its Subsidiaries to undertake, or to bear all or any portion of any Liability related to, any non-environmental remedial action of any nature, where such violation or obligation could reasonably be expected to have or result in a Material Adverse Effect.

2.13 Authorization.

Issuer’s Board of Directors has approved this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby, including the Redemption. Issuer has the full right, power and authority to execute and deliver this Agreement and the Ancillary Agreements and to perform its obligations under

 

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this Agreement and the Ancillary Agreements, including the issuance and sale of the Shares pursuant to this Agreement, the issuance and sale of the IRSA Exchange Shares pursuant to the IRSA Exchange Agreement and the Redemption; and all corporate action required to be taken for the due and proper authorization, execution and delivery of this Agreement and the Ancillary Agreements has been duly and validly taken. No approval of Issuer’s shareholders is required to consummate the transactions contemplated by this Agreement and the Ancillary Agreements. This Agreement and the Ancillary Agreements represent valid and binding obligations of Issuer, enforceable against Issuer in accordance with their terms, except as enforceability may be limited by applicable equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting creditors’ rights generally, by the exercise of judicial discretion in accordance with equitable principles and by public policy to the extent that any provision relates to indemnification, contribution or exculpation.

2.14 REIT Status.

Issuer has been subject to taxation as a real estate investment trust (“ REIT ”) within the meaning of Sections 856 and 857 of the Code and has qualified as a REIT since its first taxable year through December 31, 2015, has been organized and operated since December 31, 2015 to the date of this representation as a REIT and intends to continue be organized and to operate in such a manner as to qualify as a REIT for its taxable year ending December 31, 2016, and has not taken or failed to take any action where such action or failure to take action could result in a challenge to its taxation or qualification as a REIT, and no such challenge is pending or threatened.

2.15 Investment Company Act.

Neither Issuer nor any of its Subsidiaries is, or will be immediately after the consummation of the issuance and sale of the Shares contemplated by this Agreement or the issuance and sale of the IRSA Exchange Shares contemplated by the IRSA Exchange Agreement, required to be registered as an investment company under the Investment Company Act of 1940, as amended.

2.16 Registration Rights.

There are no Persons with registration or other similar rights to have any equity or debt securities of Issuer or any affiliate (as defined in Rule 501(b) of Regulation D) registered for sale under a registration statement, except for rights contained in the Investor Rights Agreement and the IRSA Registration Rights Agreement.

2.17 No Stabilization or Manipulation.

None of Issuer or any of its Subsidiaries or, to Issuer’s knowledge, any of the officers and directors thereof acting on Issuer’s or such Subsidiaries’ behalf has taken, directly or indirectly, any action resulting in a violation of Regulation M under the Exchange Act or designed to cause or result in, or which has constituted or which reasonably might be expected to constitute, the stabilization or manipulation of the price of the Common Stock.

2.18 Property.

Except as described in the SEC Reports: (a) Issuer or its Subsidiaries have good and marketable title or leasehold interest, as the case may be, to the Portfolio Properties described in the SEC Reports as being owned by Issuer or its Subsidiaries (except with respect to properties described in the SEC Reports as being held by Issuer through joint ventures), in each case free and clear of all Liens and defects (collectively, “ Defects ”), except where such Defects could not reasonably be expected to have or result in a Material Adverse Effect; (b) the joint venture interest in each Portfolio Property described in the SEC Reports as being held by Issuer through a joint venture is owned free and clear of all Defects except for such Defects that could not reasonably be expected to have or result in a Material Adverse Effect; (c) all Liens on or affecting the Portfolio Properties of Issuer or its Subsidiaries are disclosed in the SEC Reports, except for any such interests that could not reasonably be expected to have or result in a Material Adverse Effect; (d) none of Issuer, its Subsidiaries or, to the knowledge of Issuer, any lessee of any of the Portfolio Properties is in default under any of the leases governing the Portfolio Properties, except such defaults that could not reasonably be expected to have or result in a Material Adverse Effect, and Issuer does not know of any event which, but for the passage of time or the giving of notice, or both, would constitute a default under any of such leases, except such defaults that could not reasonably be expected to have or result in a Material Adverse Effect; (e) assuming that the contracts are valid and binding obligations of the Third Parties party thereto, all contracts of

 

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Issuer and any Subsidiary relating to franchising or the provision of property management or similar services are enforceable by and in the name of Issuer or a Subsidiary, as the case may be, except as could not reasonably be expected to have or result in a Material Adverse Effect; (f) each of the Portfolio Properties complies with all applicable Law, except for such failures to comply that could not reasonably be expected to have or result in a Material Adverse Effect; and (g) neither Issuer nor any Subsidiary has any knowledge of any pending or threatened condemnation proceedings, zoning change or other proceeding or action that would in any manner affect the size of, use of, improvements on, construction or access to the Portfolio Properties, except such proceedings, changes, or actions that could not reasonably be expected to have or result in a Material Adverse Effect.

2.19 Title Insurance.

Issuer or its Subsidiaries have title insurance on each of the Portfolio Properties (except with respect to each property described in the SEC Reports as held by Issuer through a joint venture): (a) insuring that Issuer or the applicable Subsidiary has good and marketable title (or leasehold interest) to the applicable Portfolio Property, free and clear of all Defects other than such Defects as could not reasonably be expected to have or result in a Material Adverse Effect, and (b) in an amount as is commercially reasonable for such Portfolio Property and consistent with the types and amounts of insurance typically maintained by owners and operators of similar properties except, in each case, where the failure to have such title insurance could not reasonably be expected to have or result in a Material Adverse Effect. The joint venture owning each property described in SEC Reports as held by Issuer through a joint venture has title insurance on such property: (i) insuring that such joint venture has good and marketable title (or leasehold interest) to the applicable Portfolio Property, free and clear of all Defects other than such Defects as could not reasonably be expected to have or result in a Material Adverse Effect, and (ii) in an amount as is commercially reasonable for such Portfolio Property and consistent with the types and amounts of insurance typically maintained by owners and operators of similar properties, except in each case, where the failure to have such title insurance could not reasonably be expected to have or result in a Material Adverse Effect.

2.20 Mortgages and Deeds of Trust.

The notes secured by the mortgages and deeds of trust encumbering the Portfolio Properties (except with respect to each property described in the SEC Reports as held by Issuer through a joint venture) are not convertible, and said mortgages and deeds of trust are not cross-defaulted or cross-collateralized to any property that is not a Portfolio Property, except where such cross-default or cross-collateralization, if triggered, could not reasonably be expected to have or result in a Material Adverse Effect.

2.21 Environmental Laws.

Except as disclosed in writing to Purchaser, (a) with respect to the Portfolio Properties there (i) is, to Issuer’s knowledge, no unlawful presence of any Hazardous Materials in violation of Environmental Laws, and (ii) are, to Issuer’s knowledge, no spills, releases, discharges or disposals of Hazardous Materials in violation of Environmental Laws that have occurred or are presently occurring as a result of any construction on or operation and use of the Portfolio Properties, which presence or occurrence in (i) or (ii) above could reasonably be expected to have or result in a Material Adverse Effect; (b) in connection with the construction on or operation and use of the Portfolio Properties, Issuer represents that Issuer has no knowledge of (i) any failure to comply with all applicable Environmental Laws except where such failure could not reasonably be expected to have or result in a Material Adverse Effect, (ii) the receipt by Issuer or any Subsidiary of any written notice of a claim pursuant to any Environmental Law or under common law pertaining to Hazardous Materials on or originating from any Portfolio Property that could reasonably be expected to have or result in a Material Adverse Effect, (iii) the receipt by Issuer or any Subsidiary of any written notice from any Governmental Body claiming any violation of any Environmental Law that could reasonably be expected to have or result in a Material Adverse Effect, or (iv) the inclusion or proposed inclusion of any Portfolio Property on the National Priorities List issued pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601 et seq., by the EPA, on the Comprehensive Environmental Response, Compensation, and Liability Information System database maintained by the EPA, or on any similar list published by any Governmental Body of contaminated sites potentially requiring removal, remediation, or response action pursuant to any other Environmental Law, except where such inclusion could not reasonably be expected to have or result in a Material Adverse Effect; and (c) to Issuer’s knowledge, Issuer has received and is in compliance with all Environmental Permits in connection with Issuer’s operation and use of the Portfolio Properties, except where such noncompliance could not reasonably be expected to have or result in a Material Adverse Effect.

 

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2.22 Internal Accounting and Other Controls.

Issuer and its Subsidiaries maintain a system of internal accounting and other controls sufficient to provide reasonable assurances that (a) transactions are executed in accordance with management’s general or specific authorizations, (b) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets, (c) access to assets is permitted only in accordance with management’s general or specific authorization and (d) the recorded accounting for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Issuer has no material weaknesses in its internal control over financial reporting and, except as described in the SEC Reports, since the end of Issuer’s most recent audited fiscal year, there has been no change in Issuer’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Issuer’s internal control over financial reporting.

2.23 Disclosure Controls.

Issuer has established and maintains disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15 under the Exchange Act) in accordance with the rules and regulations under the Sarbanes-Oxley Act of 2002, the Securities Act and the Exchange Act.

2.24 Insolvency; Financial Covenants.

(a) After giving effect to the issuance and sale of the Shares contemplated by this Agreement and the issuance and sale of the IRSA Exchange Shares and the IRSA Promissory Note contemplated by the IRSA Exchange Agreement, neither Issuer nor any of its Subsidiaries will: (i) be insolvent (either because its financial condition is such that the sum of its debts is greater than the fair market value of its assets or because the fair saleable value of its assets is less than the amount required to pay its probable liabilities on its existing debts as they mature); (ii) have unreasonably small capital with which to engage in its business; or (iii) have incurred debts beyond its ability to pay as they become due. Issuer reasonably believes, based on discussions with representatives of KPMG LLP as of a recent date, that Issuer will receive an opinion from KPMG LLP with respect to its financial statements as of and for the year ending December 31, 2015 that will not contain any “going concern” determination, whereby the independent auditors expressed substantial doubt as to Issuer’s ability to continue to meet its obligations for the next 12 months.

(b) After giving effect to the transactions contemplated by this Agreement and the IRSA Exchange Agreement, neither Issuer nor any of its Subsidiaries is or will be in breach of any financial covenant contained in any indebtedness that could reasonably be expected to have or result in a Material Adverse Effect; nor does Issuer have knowledge of any existing condition, including the transactions contemplated by this Agreement, that will, with the passage of time, result in a default under any indebtedness.

2.25 Absence of Labor Dispute.

Except for matters which would not, individually or in the aggregate, have a Material Adverse Effect: (a) neither Issuer nor any of its Subsidiaries is engaged in any unfair labor practice; (b) there is (i) no unfair labor practice complaint pending or, to the best knowledge of Issuer, threatened against Issuer or any of its Subsidiaries before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under collective bargaining agreements is pending or threatened, (ii) no strike, labor dispute, slowdown or stoppage pending or, to the best knowledge of Issuer, threatened against Issuer or any of its Subsidiaries, and (iii) no union representation dispute currently existing concerning the employees of Issuer or any of its Subsidiaries or, to the best knowledge of Issuer, the employees of management companies that operate Issuer’s hotels (the “ Management Companies ”); and (c) to best knowledge of Issuer, (i) no union organizing activities are currently taking place concerning the employees of Issuer or any of its Subsidiaries and (ii) there has been no violation of any federal, state, local or foreign law relating to discrimination in the hiring, promotion or pay of employees, any applicable wage or hour laws or any provision of the Employee Retirement Income Security Act of 1974 or the rules and regulations promulgated thereunder concerning the employees of Issuer or any of its Subsidiaries or the Management Companies.

 

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2.26 Use of Proceeds.

Issuer shall use the proceeds received from the transactions contemplated herein for the purpose of effecting the Redemption. Any proceeds that remain following such redemptions shall be used to fund Issuer’s acquisition of new limited service hotel properties.

2.27 No Finder’s Fees.

Except as previously disclosed to Purchaser, Issuer has not incurred (directly or indirectly) nor shall it incur, directly or indirectly, any Liability for any broker’s, finder’s, financial advisor’s or other similar fee, charge or commission in connection with this Agreement, the IRSA Exchange Agreement or the transactions contemplated hereby or thereby.

2.28 Insurance.

Issuer and its Subsidiaries, their assets and properties and their Employees are insured under various policies of general liability and other forms of insurance, which policies are of the type and in the amounts customary and adequate for their business.

2.29 Absence of Undisclosed Liabilities.

Issuer and its Subsidiaries have no material Undisclosed Liabilities.

2.30 Taxes.

(a) All Tax Returns required to be filed by or on behalf of Issuer or any Subsidiary have been duly and timely filed with the appropriate Taxing Authority in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns are true, complete, and correct in all respects, except, other than with respect to federal income Tax Returns of Issuer, where such failure to file or failure to be true, complete, and correct could not reasonably be expected to have or result in a Material Adverse Effect. All Taxes payable by or on behalf of Issuer or any Subsidiary have been fully and timely paid (whether or not shown on any Tax Return), except where such failure to fully and/or timely pay could not reasonably be expected to have or result in a Material Adverse Effect. With respect to any period for which Tax Returns of or relating to Issuer or any of its Subsidiaries have not yet been filed or for which Taxes are not yet due or owing, Issuer has made due and sufficient accruals for such material Taxes on the face of the most recent balance sheet included in the financial statements of Issuer and on its Books and Records. All required estimated Tax payments sufficient to avoid any underpayment penalties have been made by or on behalf of Issuer and each Subsidiary, except where such failure to make such payments could not reasonably be expected to have or result in a Material Adverse Effect. Issuer has not incurred any Liability for Taxes under Section 857(b), 860(c), or 4981 of the Code. There are no Liens as a result of any unpaid Taxes upon any of the assets of Issuer or any of its Subsidiaries, except for such Liens as could not reasonably be expected to have or result in a Material Adverse Effect. Except as previously disclosed to Purchaser, neither Issuer nor any of its Subsidiaries is the subject of any audit, examination or other proceeding in respect of Taxes, and neither Issuer nor any of its Subsidiaries has received written notice that it is the subject of any audit, examination or other proceeding in respect of Taxes by any Taxing Authority. No deficiencies for any Taxes have been proposed, asserted or assessed against Issuer or any of its Subsidiaries, and no requests for waivers of the time to assess any such Taxes are pending, except where such deficiencies could not reasonably be expected to have or result in a Material Adverse Effect.

(b) Each of Issuer and its Subsidiaries has complied in all respects with all applicable Laws relating to the payment and withholding of Taxes and has duly and timely withheld and paid over to the appropriate Taxing Authority all amounts required to be so withheld and paid under all applicable Laws, except where such failure to comply, withhold or pay could not reasonably be expected to have or result in a Material Adverse Effect.

 

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(c) Issuer and its Subsidiaries have disclosed on their federal income Tax Returns all positions taken therein that could give rise to substantial understatement of federal income tax within the meaning of Section 6662 of the Code.

(d) Neither Issuer nor any of its Subsidiaries have participated in any reportable transaction, as defined in Treasury Regulation Section 1.6011-4(b)(1), or a transaction substantially similar to a reportable transaction, or any listed transaction as defined in Treasury Regulation Section 1.6011-4(b)(2).

(e) Neither the Issuer nor any of its Subsidiaries is subject to any private letter ruling of the IRS or comparable rulings of any Taxing Authority.

(f) The Issuer has not engaged in any transactions that would give rise to “redetermined rents” or “excess interest” or “redetermined deductions” or “redetermined TRS service income” described in Section 857(b)(7) of the Code.

(g) The Issuer has never paid any “preferential dividends” within the meaning of Section 562 of the Code.

(h) For purposes of this Section 2.30, any reference to Issuer or its Subsidiaries shall be deemed to include any Person which merged with or was liquidated into Issuer or any Subsidiary of Issuer.

2.31 No Registration.

(a) Assuming the accuracy of the representations and warranties of Purchaser contained in Article 3 hereof and Purchaser’s compliance with its agreements set forth herein, it is not necessary in connection with the offer, issuance, sale and delivery of the Shares in the manner contemplated by this Agreement to register the offer or sale of any of the Shares under the Securities Act.

(b) Assuming the accuracy of the representations and warranties of IRSA in the IRSA Exchange Agreement and its compliance with its agreements set forth therein, it is not necessary in connection with the offer, issuance, sale and delivery of the IRSA Exchange Shares and the IRSA Promissory Note in the manner contemplated by the IRSA Exchange Agreement to register the offer or sale of any of the IRSA Exchange Shares or the IRSA Promissory Note under the Securities Act.

2.32 Certain Information.

All information provided by Issuer to Purchaser or Purchaser’s representatives in connection with the transactions contemplated by this Agreement, regardless of when provided, is true and correct in all material respects.

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Issuer as follows:

3.1 Authority.

Purchaser has full power and authority to enter into this Agreement. This Agreement is a valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms, except as enforceability may be limited by applicable equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting creditors’ rights generally, and by the exercise of judicial discretion in accordance with equitable principles.

3.2 Brokers and Finders.

Neither Purchaser nor any other member of the StepStone Group has incurred any Liability to any party for any brokerage fees, agent’s commissions, or finder’s fees in connection with the transactions contemplated by this Agreement.

 

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3.3 Securities Act.

Purchaser is acquiring the Shares for its own account and not with a view towards their distribution within the meaning of Section 2(a)(11) of the Securities Act in any manner that would be in violation of the Securities Act; provided, however, that by making the representations herein, Purchaser does not agree to hold any of the Shares for any minimum or other specific term and reserves the right to dispose of the Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.

3.4 Beneficial Ownership of Common Stock.

As of the date hereof, neither Purchaser nor any other member of the StepStone Group is the Beneficial Owner of (a) any Common Stock or (b) any securities or other instruments representing the right to acquire Common Stock. Other than pursuant to the Investor Rights Agreement, neither Purchaser nor any other member of the StepStone Group has a formal or informal agreement, arrangement or understanding with any Person (other than Issuer) to acquire, dispose of or vote any securities of Issuer.

3.5 Availability of Funds.

Purchaser has available cash in an amount sufficient for Purchaser to pay the aggregate Purchase Price for the Shares and all fees, expenses and other amounts contemplated to be paid by Purchaser in connection with the transactions contemplated by this Agreement.

3.6 Securities Offering Exemption

(a) Purchaser is an “accredited investor” as defined in Rule 501(a)(3) under the Securities Act.

(b) Purchaser understands that the Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that Issuer is relying in part upon the truth and accuracy of, and Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of Purchaser to acquire the Shares without registration under the Securities Act.

(c) Purchaser understands that its investment in the Shares involves risk. Purchaser (a) is able to fully bear the economic risk of an investment in the Shares, (b) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the proposed investment in the Shares and (c) has had an opportunity to ask questions of and receive answers from the officers of Issuer concerning the financial condition and business of Issuer and others matters related to an investment in the Shares. Neither such inquiries nor any other due diligence investigations conducted by the Purchaser or its representatives shall modify, amend or affect Purchaser’s right to rely on Issuer’s representations and warranties contained in Article 2 above. Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Shares.

(d) Purchaser is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

3.7 Legends.

Purchaser understands that upon the original issuance thereof, and until such time as the same is no longer required under applicable requirements of the Securities Act or applicable state securities Laws or the Articles of Incorporation, any certificates or other instruments representing the Shares, and any certificates or other instruments issued in exchange therefor or in substitution thereof, shall bear customary legends referencing such restrictions on transferability and the legend set forth in Article IX, Section E of the Articles of Incorporation, and that Issuer shall make a notation on its records and give instructions to Issuer’s transfer agent in order to implement the restrictions on transfer set forth and described herein.

 

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ARTICLE 4 DELIVERIES

4.1 Deliveries of Issuer. In addition to evidence of issuance of the Shares contemplated by Section 1.4, on the date hereof, Issuer has delivered to Purchaser the following:

(a) copies of all authorizations, Orders or Consents of any Governmental Body required to consummate the issuance and sale of the Shares to Purchaser and the issuance and sale of the IRSA Exchange Shares and the IRSA Promissory Note to IRSA;

(b) a certificate of the Secretary or Assistant Secretary of Issuer containing a true and correct copy of the resolutions duly adopted by Issuer’s Board of Directors, approving and authorizing this Agreement, the IRSA Exchange and the Redemption, which certificate also certifies that such resolutions have not been rescinded, revoked, modified, or otherwise affected and remain in full force and effect;

(c) a certificate of incumbency of Issuer executed by the Secretary or Assistant Secretary of Issuer listing the officers of Issuer authorized to execute the Agreement and the Ancillary Agreements, which certificate also certifies as to the authority of each such officer to execute the agreements, documents, and instruments on behalf of Issuer in connection with the consummation of the transactions contemplated hereby and thereby;

(d) (i) a copy of the Articles of Incorporation of Issuer, certified as of a recent date by the Maryland Division of Assessments and Taxation, and a copy of the bylaws of Issuer, certified as of the date hereof by the Secretary or Assistant Secretary of Issuer; (ii) copies of the articles of incorporation or similar organizational document, as amended, of each Significant Subsidiary, certified as of a recent date by the Secretary of State of the state under the Laws of which the Significant Subsidiary is incorporated or organized, and copies of the code of regulations, bylaws, or similar operating document of each Significant Subsidiary, as amended, certified as of the date hereof by the Secretary or Assistant Secretary of the Significant Subsidiary; and (iii) certificates of status, good standing or existence with respect to Issuer and each Significant Subsidiary from the Secretary of State of the state under the Laws of which Issuer or such Significant Subsidiary is incorporated, organized, as applicable, and of each other state in which Issuer is qualified or registered to do business, dated as of a recent date.

(e) a copy of the waiver agreement, dated the date hereof (the “ Waiver Agreement ”), between Issuer and Purchaser, relating to the waiver by Issuer’s Board of Directors of the provisions of the Articles of Incorporation necessary to consummate the issuance and sale of the Shares pursuant to this Agreement, the IRSA Exchange Shares and the IRSA Promissory Note pursuant to the IRSA Exchange Agreement and the Redemption, duly executed by Issuer;

(f) the opinion of McGrath North Mullin & Kratz, PC LLO, counsel to Issuer, relating to specified corporate and legal matters;

(g) the opinion of McGrath North Mullin & Kratz, PC LLO, counsel to Issuer, that commencing with its first taxable year through the taxable year ended December 31, 2015, Issuer has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code and that Issuer’s organization (taking into account the issuance and sale of the Shares pursuant to this Agreement, the issuance and sale of the IRSA Exchange Shares pursuant to the IRSA Exchange Agreement and the Redemption) and present and proposed method of operation will enable it to continue to meet the requirements for qualification and taxation as a REIT for its taxable year ending December 31, 2016 and thereafter (with customary exceptions, assumptions and qualifications and based upon customary representations);

(h) a copy of the investor rights agreement, dated the date hereof (the “ Investor Rights Agreement ”), between Issuer and Purchaser, addressing the respective rights of Purchaser to representation on Issuer’s Board of Directors and to the registration of the resale of the shares of Common Stock into which the Shares are convertible under the Securities Act, duly executed by Issuer;

(i) a copy of the escrow agreement, dated the date hereof (the “ Escrow Agreement ”), among Issuer, Purchaser and Wells Fargo Bank, N.A., as escrow agent (the “ Escrow Agent ”), providing for deposit of the Redemption Escrow Amount into an account (the “ Escrow Account ”) maintained pursuant to the Escrow Agreement (as defined herein), with such amount to be released in connection with the satisfaction of Issuer’s obligations pursuant to the Redemption, duly executed by Issuer and the Escrow Agent;

 

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(j) evidence satisfactory to Purchaser that Issuer’s Board of Directors shall have approved the appointment of three directors identified by Purchaser and reasonably satisfactory to Issuer, to fill vacancies on Issue’s Board of Directors, and shall have expanded Issuer’s Board of Directors if necessary to create such vacancies, which appointments and expansion shall be effective on the date hereof;

(k) a copy of the IRSA Exchange Agreement duly executed by Issuer and IRSA, together with evidence satisfactory to Purchaser that the IRSA Exchange has been consummated in accordance with the terms of the IRSA Exchange Agreement; and

(l) duly executed notices of redemption relating to the Redemption of the Series A Stock and Series B Stock, respectively, which Redemption shall be effective no later than 34 days after the date hereof.

4.2 Deliveries of Purchaser. In addition to delivery of the aggregate Purchase Price to the Escrow Agent as contemplated by Section 1.3, on the date hereof, Purchaser has delivered to Issuer the following:

(a) a copy of the Investor Rights Agreement, duly executed by Purchaser;

(b) a copy of the Escrow Agreement, duly executed by Purchaser.

ARTICLE 5 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS

5.1 Confidentiality.

The Information has been disclosed to Purchaser solely for Purchaser’s use in completing its analysis incidental to this Agreement, and Purchaser agrees that its use of the Information shall be governed by the terms and conditions of the Confidentiality Agreement.

5.2 Public Announcements.

Issuer and Purchaser shall consult with each other before issuing any press releases or otherwise making any public statements or filings with any Governmental Body with respect to this Agreement or the transactions contemplated hereby, shall modify any portion thereof if the other Party reasonably objects thereto, and shall not issue any press releases or make any public statements or filings with any Governmental Body prior to such consultation, unless the same may be required by applicable Law or the rules and regulations of The NASDAQ Stock Market. For the avoidance of doubt, Issuer shall be required to consult with Purchaser before disclosing or describing this Agreement or transactions contemplated hereby in (a) filings with the Commission, including disclosures or descriptions contained in any Current Report on Form 8-K announcing the entry into this Agreement, or (b) scripted conference calls specifically designed to discuss this Agreement or the transactions contemplated hereby or analyst conference or meetings.

ARTICLE 6 GENERAL PROVISIONS

6.1 Definitions.

(a) The terms set forth below shall have the meanings ascribed thereto in the referenced sections:

 

Term

   Section

Agreement

   Initial Paragraph

Commission

   Recitals

Common Stock

   2.1

Defects

   2.18

Escrow Account

   4.1(i)

Escrow Agent

   4.1(i)

Escrow Agreement

   4.1(i)

Investor Rights Agreement

   4.1(h)

 

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Term

   Section

IRSA

   Recitals

IRSA Exchange

   Recitals

IRSA Exchange Agreement

   Recitals

IRSA Exchange Shares

   Recitals

Issuer

   Initial Paragraph

Management Companies

   2.25

Material Adverse Change

   2.3

Material Adverse Effect

   2.3

Preferred Stock

   2.8(a)

Purchase Price

   1.2

Purchaser

   Initial Paragraph

Redemption

   Recitals

Redemption Escrow Amount

   1.3(a)

REIT

   2.14

Securities Act

   Recitals

Series A Stock

   2.8(a)

Series B Stock

   2.8(a)

Series C Stock

   2.8(a)

Shares

   Recitals

Significant Subsidiary

   2.7

Waiver Agreement

   4.1(e)

(b) Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings:

(i) “ Ancillary Agreements ” means the Waiver Agreement, the Investor Rights Agreement, the Escrow Agreement and the IRSA Exchange Agreement.

(ii) “ Articles of Incorporation ” means Issuer’s Amended and Restated Articles of Incorporation, as amended July 15, 2015.

(iii) “ Beneficial Ownership ” shall have the meaning ascribed to it in Issuer’s Articles of Incorporation. The terms “ Beneficial Owner ,” “ Beneficially Own ,” and “ Beneficially Owned ” shall have the correlative meanings.

(iv) “ Books and Records ” means all existing data, databases, books, records, correspondence, business plans and projections, tenant and vendor lists, files and papers.

(v) “ Business Day ” means any day on which national banks are open for business in the City of New York.

(vi) “ Code ” means the Internal Revenue Code of 1986, as amended, together with the rules and regulations promulgated thereunder.

(vii) “ Confidentiality Agreement ” means the Master Confidentiality Agreement, dated September 29, 2015, between StepStone Group Real Estate LP and Issuer.

(viii) “ Consent ” means any consent, approval, authorization, clearance, exception, waiver or similar affirmation by any Person required pursuant to any contract, Law, Order or Permit.

(ix) “ Employees ” means all employees of Issuer or any Subsidiary of Issuer.

(x) “ Environmental Law ” means any and all statutes, codes, laws (including common law), ordinances, agency rules, regulations, and reporting or licensing requirements relating to pollution or protection of human health (with respect to exposure to Hazardous Materials) or the environment (including ambient air, surface water, ground water, land surface, or subsurface strata), or emissions,

 

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discharges, releases, or threatened releases of, or the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of, any Hazardous Material, including, (A) the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. §§9601 et seq. ; (B) the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, as amended, 42 U.S.C. §§6901 et seq.; (C) the Emergency Planning and Community Right to Know Act (42 U.S.C. §§11001 et seq.); (D) the Clean Air Act (42 U.S.C. §§ 7401 et seq.); (E) the Clean Water Act (33 U.S.C. §1251 et seq.); (F) the Toxic Substances Control Act (15 U.S.C. §2601 et seq.); (G) the Hazardous Materials Transportation Act (49 U.S.C. §§ 5101 et seq.); (H) the Safe Drinking Water Act (41 U.S.C. §300f et seq.); (I) any state, county, municipal or local Laws similar or analogous to the federal Laws listed in parts (A)-(H) of this subparagraph, (J) any amendments to the Laws listed in parts (A)-(I) of this subparagraph, and (K) any Laws or Orders adopted pursuant to or implementing the Laws listed in parts (A)-(J) of this subparagraph.

(xi) “ Environmental Permits ” means Permits, Licenses, approvals, Consents, Orders, and authorizations which are required under Environmental Laws in connection with Issuer’s operations and business or the ownership, use, or lease of Issuer’s assets or properties.

(xii) “ EPA ” means the United States Environmental Protection Agency.

(xiii) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

(xiv) “ Executive Officer ” means, with respect to Issuer, any “officer” (as such term is defined in Rule 16a-1(f) under the Exchange Act) of Issuer.

(xv) “ GAAP ” means generally accepted accounting principles as employed in the United States of America, applied consistently with prior periods and with Issuer’s historical practices and methods, provided that standards of materiality applicable to Issuer shall be employed without regard to standards of materiality used by Issuer in prior periods, and provided further, that Issuer’s historical practices and methods shall not be consistently applied to the extent they are not in accordance with GAAP.

(xvi) “ Governmental Body ” means any government or governmental entity or political subdivision thereof, whether federal, state, local or foreign, or any agency, instrumentality or authority thereof, or any court or arbitrator (public or private).

(xvii) “ Hazardous Materials ” means (A) any hazardous substance, hazardous material, hazardous waste, regulated substance, or toxic substance (as those terms are defined by any applicable Environmental Laws) and (B) any chemicals, pollutants, contaminants, petroleum, petroleum products, or oil, asbestos-containing materials and any polychlorinated biphenyls.

(xviii) “ Information ” means information or documentation owned by Issuer which information may include, but is not necessarily limited to, financial data, business plans, personnel information (to the extent permitted under applicable Law), drawings, samples, devices, trade secrets, technical information, results of research and other data in either oral or written form; provided, however, that “Information” does not include information which (A) is or becomes generally available to the public other than as a result of a disclosure by Purchaser or its representatives, (B) was lawfully within Purchaser’s possession prior to its being furnished to Purchaser by or on behalf of Issuer, provided further that the source of such information was not known by Purchaser to be bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to Issuer or any other Person with respect to such information, or (C) is developed by Purchaser after initial disclosure by Issuer.

(xix) “ IRS ” means the Internal Revenue Service of the United States of America.

(xx) “ IRSA Registration Rights Agreement ” means the Registration Rights Agreement, dated as of February 1, 2012, among Real Estate Strategies L.P., IRSA and Issuer.

(xxi) “ Law ” means any code, directive, law (including common law), ordinance, regulation, reporting or licensing requirement, rule, or statute, including those promulgated, interpreted, or enforced by any Governmental Body.

 

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(xxii) “ Liability ” means any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including costs of investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the Ordinary Course of Business) of any type, secured or unsecured whether accrued, absolute or contingent, direct or indirect, liquidated or unliquidated, matured or unmatured, known or unknown or otherwise.

(xxiii) “ License ” means any license, franchise, notice, permit, easement, right, certificate, authorization, or approval to which any Person is a party or that is or may be binding on any Person or its securities, property or business.

(xxiv) “ Lien ” means any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, lien, mortgage, pledge, reservation, restriction, right of way, security interest, title retention or other security arrangement, on, or with respect to any property or property interest.

(xxv) “ Litigation ” means any suit, action, administrative or other audit (other than regular audits of financial statements by outside auditors), proceeding, arbitration, cause of action, charge, claim, complaint, compliance review, criminal prosecution, grievance inquiry, hearing, inspection, investigation (governmental or otherwise), before any Governmental Body.

(xxvi) “ Order ” means any decree, injunction, judgment, order, ruling, writ, quasi-judicial decision or award or administrative decision or award of any federal, state, local, foreign or other court, arbitrator, mediator, tribunal, administrative agency or Governmental Body to which any Person is a party or that is or may be binding on any Person or its securities, assets or business.

(xxvii) “ Ordinary Course of Business ” means the following: an action taken by a Person shall be deemed to have been taken in the Ordinary Course of Business only if that action: (A) is consistent in nature, scope and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to-day operations of such Person; and (B) does not require authorization by the shareholders of such Person (or by any Person or group of Persons exercising similar authority).

(xxviii) “ Party ” means any party hereto and “ Parties ” means all parties hereto.

(xxix) “ Permit ” means any Governmental Body approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, assets, or business.

(xxx) “ Person ” means a natural person or any legal, commercial or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, limited liability partnership, trust, business association, group acting in concert, or any person acting in a representative capacity.

(xxxi) “ Portfolio Properties ” means the portfolio properties, including, without limitation, shopping centers, residential properties, office buildings and business centers (including, without limitation, centers owned through unconsolidated joint ventures and other than are otherwise consolidated by Issuer) and undeveloped land described in the SEC Reports as being owned by Issuer or its Subsidiaries.

(xxxii) “ StepStone Group ” means StepStone Group Real Estate LP and its controlled affiliates.

(xxxiii) “ Subsidiary ” of a Person means any business entity of which the Person either (A) owns or controls 50% or more of the outstanding equity securities, either directly or indirectly, (provided there shall not be included any such entity the equity securities of which are owned or controlled in a fiduciary capacity), (B) in the case of partnerships, serves as a general partner, (C) in the case of a limited liability company, serves as a managing member, or (D) otherwise has the ability to elect a majority of the directors, trustees, managing members or others thereof.

 

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(xxxiv) “ Tax ” means any federal, state, county, local, or foreign tax, charge, fee, levy, impost, duty, or other assessment, including income, gross receipts, excise, employment, sales, use, transfer, recording, License, payroll, franchise, severance, documentary, stamp, occupation, windfall profits, environmental, federal highway use, commercial rent, customs duty, capital stock, paid-up capital, profits, withholding, Social Security, single business and unemployment, disability, real property, personal property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposed or required to be withheld by any Governmental Body, including any interest, penalties, and additions imposed thereon or with respect thereto, and including Liability for the taxes of any other Person under Treas. Reg. 1.1502-6 (or any similar provision of state, local, or foreign Law) as a transferee or successor, by contract, or otherwise.

(xxxv) “ Tax Return ” means any return (including any informational return) report, statement, schedule, notice, form or other document or information filed with or submitted to, or required to be filed with or submitted to any Taxing Authority in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of compliance with any legal requirement relating to any Tax.

(xxxvi) “ Taxing Authority ” means the IRS and any other federal, state, local or foreign Governmental Body responsible for the administration of any Tax.

(xxxvii) “ Third Party ” means any Person other than a Party.

(xxxviii) “ Undisclosed Liabilities ” means any Liability that is not fully reflected or reserved against in Issuer’s financial statements.

6.2 Fees and Expenses.

Except as otherwise specifically provided below or elsewhere in this Agreement, regardless of whether the transactions contemplated by this Agreement are consummated, Issuer and Purchaser each shall pay their respective fees and expenses in connection with the transactions contemplated by this Agreement.

6.3 Notices.

All notices, requests, demands, and other communications hereunder shall be in writing (which shall include communications by e-mail) and shall be delivered (a) in person or by courier or overnight service, or (b) by e-mail with a copy delivered as provided in clause (a), as follows:

If to Issuer:

1800 West Pasewalk Ave., Suite 200

Norfolk, Nebraska 68701

Attention: Chief Executive Officer

Telephone: (402) 371-2520

E-mail: bblackham@trustcondor.com

with a copy (which shall not constitute notice) to:

1800 West Pasewalk Ave., Suite 200

Norfolk, Nebraska 68701

Attention: Chief Financial Officer

Telephone: (402) 371-2520

E-mail: jgantt@trustcondor.com

 

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Guy Lawson

McGrath North Mullin & Kratz, PC LLO

First National Tower, Suite 3700

1601 Dodge Street

Omaha, Nebraska 68102

Telephone: (402) 633-1402

E-mail: glawson@mcgrathnorth.com

If to Purchaser:

StepStone Group Real Estate LP

150 California Street, Suite 850

San Francisco, California 94111

Attention: Brendan MacDonald / Jason Ment

Telephone: (415) 318-7982

E-mail: bmacdonald@stepstoneglobal.com; JMent@stepstoneglobal.com

with a copy (which shall not constitute notice) to:

Jones Day

77 W. Wacker Dr.

Chicago, Illinois 60601

Attention: Brad Brasser

Telephone: (312) 269-4252

E-mail: bcbrasser@jonesday.com

or to such other address as the parties hereto may designate in writing to the other in accordance with this Section 6.3. Any Party may change the address to which notices are to be sent by giving written notice of such change of address to the other parties in the manner above provided for giving notice. If delivered personally or by courier, the date on which the notice, request, instruction or document is delivered shall be the date on which such delivery is made and if delivered by e-mail transmission or mail as aforesaid, the date on which such notice, request, instruction or document is received shall be the date of delivery.

6.4 Assignment

Any assignment under this Agreement by any of the Parties hereto shall be void, invalid and of no effect without the written consent of the other Party; provided, however, that Purchaser may assign its rights under this Agreement, in whole or in part, to any Person who is a member of the StepStone Group so long as the assignee(s) agree to be bound in writing by the terms and conditions of this Agreement; provided further that such assignment shall not prevent Issuer’s Board of Directors from issuing the waiver, does not cause Issuer to violate the 5/50 Rule or cause Issuer to not be “domestically controlled” as defined in the Foreign Investment in Real Property Tax Act of 1980, as amended, and the rules and regulations thereunder.

6.5 No Benefit to Others.

The representations, warranties, covenants, and agreements contained in this Agreement are for the sole benefit of the Parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns, and they shall not be construed as conferring any Third Party beneficiary or any other rights on any other Persons.

6.6 Headings and Gender; Construction; Interpretation.

(a) The table of contents and the captions and section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. All references in this Agreement to “Section” or “Article” shall be deemed to be references to a Section or Article of this Agreement.

 

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(b) Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the context requires. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed followed by the words “without limitation.”

(c) Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Purchaser or Issuer , whether under any rule of construction or otherwise. No Party to this Agreement shall be considered the draftsman. On the contrary, this Agreement has been reviewed, negotiated and accepted by all Parties and their attorneys and shall be construed and interpreted according to the ordinary meaning of the words so as fairly to accomplish the purposes and intentions of all the Parties.

6.7 Counterparts.

This Agreement may be executed in two (2) or more counterparts, all of which shall be considered one and the same Agreement, and shall become effective when one counterpart has been signed by each Party and delivered to the other Party hereto.

6.8 Integration of Agreement.

(a) This Agreement and the exhibits and the other agreements contemplated by this Agreement, constitutes the entire agreement between the Parties relating to the subject matter hereof and supersede all prior agreements, oral and written, between the Parties with respect to the subject matter hereof.

(b) Neither this Agreement, nor any provision hereof, may be changed, waived, discharged, supplemented, or terminated orally, but only by an agreement in writing signed by the Party against which the enforcement of such change, waiver, discharge or termination is sought. The failure or delay of any Party at any time or times to require performance of any provision of this Agreement shall in no manner affect its right to enforce that provision. No single or partial waiver by any Party of any condition of this Agreement, or the breach of any term of this Agreement or the inaccuracy or warranty of this Agreement, whether by conduct or otherwise, in any one or more instances shall be construed or deemed to be a further or continuing waiver of any such condition, breach or inaccuracy or a waiver of any other condition, breach or inaccuracy.

6.9 Waiver.

The rights and remedies of the Parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any Party in exercising any right, power, or privilege under this Agreement shall operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power or privilege shall preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power, privilege. To the maximum extent permitted by applicable Law, no claim or right arising out of this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other Party; (b) no waiver that may be given by a Party shall be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one Party shall be deemed to be a waiver of any obligation of such Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement.

6.10 Governing Law.

Regardless of any conflict of law or choice of law principles that might otherwise apply, the Parties agree that this Agreement shall be governed by and construed in all respects in accordance with the Laws of the State of New York. The Parties agree and acknowledge that the State of New York has a reasonable relationship to the Parties and/or this Agreement. As to any dispute or Litigation arising out of or relating in any way to this Agreement or the transaction at issue in this Agreement, the Parties hereby agree and consent to be subject to the jurisdiction of the United States District Court for the Southern District of New York. If jurisdiction is not present in federal court, then the Parties hereby agree and consent to the jurisdiction of the state courts of New York County, New York. Each Party hereby irrevocably waives, to the fullest extent permitted by Law, (a) any objection that it may now or hereafter have to laying venue of any Litigation brought in such court, (b) any claim that any Litigation brought in such court has been brought in an inconvenient forum, and (c) any defense that it may now or hereafter have based on lack of personal jurisdiction in such forum.

 

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6.11 Partial Invalidity.

Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but in case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable. To the extent the deemed deletion of the invalid, illegal or unenforceable provision or provisions is reasonably likely to have a material adverse effect on the ability of the Parties to consummate the transactions contemplated by this Agreement, the Parties shall endeavor in good faith to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as practicable to that of the invalid, illegal or unenforceable provisions.

6.12 Survival.

The representations, warranties, covenants and agreements made in this Agreement shall survive any investigation made by any party hereto and the closing of the transactions contemplated hereby.

6.13 Specific Enforcement.

The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. The Parties accordingly agree that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

CONDOR HOSPITALITY TRUST, INC.
By:  

/s/ J. William Blackham

Name:   J. William Blackham
Title:   President and CEO
SREP III FLIGHT – INVESTCO, L.P.
By:  

/s/ Jason Ment

Name:   Jason Ment
Title:   Partner and General Counsel

 

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Schedule I

Supertel Hospitality REIT Trust (MD)

Supertel Limited Partnership (VA)

SPPR-South Bend, LLC (DE)

CDOR San Spring, LLC (DE)

SPPR-Hotels, LLC (DE)

SPPR-Dowell, LLC (DE)

CDOR Jax Court, LLC (DE)

CDOR Atl Indy, LLC (DE)

TRS Leasing, Inc. (VA)

Exhibit 10.2

Execution Version

INVESTOR RIGHTS AGREEMENT

THIS INVESTOR RIGHTS AGREEMENT (this “ Agreement ”) is made and entered into as of the 16th day of March 2016, by and among SREP III Flight – Investco, L.P., a Delaware limited partnership ( “ Investor ”) and an affiliate of StepStone Group Real Estate LP (“ StepStone ”), StepStone and Condor Hospitality Trust, Inc., a Maryland corporation (the “ Company ”).

RECITALS

A. WHEREAS , on the date hereof, Investor and the Company entered into a Stock Purchase Agreement (the “ Stock Purchase Agreement ”), which provides for the purchase and sale of 3,000,000 shares (the “ Shares ”) of the Company’s Series D Cumulative Convertible Preferred Stock, $0.01 par value per share (the “ Series D Stock ”), which Series D Stock is convertible into the Company’s common stock, $0.01 par value per share (the “ Common Stock ”);

B. WHEREAS , in connection with the entry into the Stock Purchase Agreement, the Company will agree to appoint up to three director nominees selected by StepStone to the board of directors of the Company (the “ Board of Directors ”); and

C. WHEREAS , as an inducement to Investor to enter into the Stock Purchase Agreement and purchase the Shares pursuant to the Stock Purchase Agreement, Investor, StepStone and the Company hereby agree that this Agreement shall govern the respective rights of the parties specified herein, including the rights of StepStone to nominate directors to serve on the Board of Directors in accordance with the terms set forth below and the registration rights of Investor for the resale of the Shares under the Securities Act.

Unless otherwise provided, all capitalized terms shall have the meaning ascribed to them in Section 1.

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Definitions. For purposes of this Agreement:

(a) “ beneficially own ” shall have the meaning ascribed to such term under Rule 13d-3 of the Exchange Act. For the avoidance of doubt, references to Investor’s or the StepStone Group’s beneficial ownership of Common Stock in this Agreement shall include shares of Common Stock issuance upon conversion of the Series D Stock held by Investor or the StepStone Group, respectively.

(b) “ Commission ” means the United States Securities and Exchange Commission.

(c) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

(d) “ Form S-1 ” means such form under the Securities Act as in effect on the date hereof or any similar registration form under the Securities Act subsequently adopted by the Commission.

(e) “ Form S-3 ” means such form under the Securities Act as in effect on the date hereof or any similar registration form under the Securities Act subsequently adopted by the Commission that permits incorporation of substantial information by reference to other documents filed by the Company with the Commission.


(f) “ Governing Documents ” mean the Company’s bylaws, articles of incorporation or similar constituent documents, together with any other document which may set forth qualification requirements applicable to members of the Board of Directors or which may set forth items which require the approval of specified members or types of members of the Board of Directors, in all cases as the same may be amended from time to time.

(g) “ Holder ” means any holder of Registrable Securities.

(h) “ Independence Standards ” means the categorical independence standards set forth in the NASDAQ Stock Market listing standards, as applicable to the Company and as the same may be amended from time to time.

(i) “ Initial StepStone Directors ” mean Brendan MacDonald, Jeff Giller and Mark Linehan.

(j) “ Ownership Period ” means any period of time during which StepStone has the right to nominate at least one StepStone Director as described in Section 2(b).

(k) “ Registrable Securities ” means shares of Common Stock beneficially owned by the StepStone Group in an amount equal to the aggregate number of shares of Common Stock into which the Shares sold by the Company to Investor and its assignees pursuant to the Stock Purchase Agreement may be converted from time to time, plus any shares of Common Stock distributed to the StepStone Group by the Company as a dividend on the Shares or the shares of Common Stock into which the Shares have been converted.

(l) “ SEC Rule 144 ” means Rule 144 promulgated by the Commission under the Securities Act.

(m) “ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

(n) “ Shelf Registration ” means a registration on a Shelf Registration Statement under Rule 415 promulgated under the Securities Act.

(o) “ Shelf Registration Statement ” means a Form S-1 or Form S-3 effecting a Shelf Registration.

(p) “ StepStone Director ” and “ StepStone Directors ” mean the Initial StepStone Directors, and each of them individually, and any Qualified Replacement.

(q) “ StepStone Group ” means StepStone and its controlled affiliates.

(r) “ Qualified Replacement ” means any individual designated by StepStone that (i) meets the Independence Standards, but only if the failure to meet the Independence Standards would mean that the Company failed to have a majority of independent directors under the NASDAQ Stock Market listing standards and (ii) completes the normal and customary background check and similar processes customary for appointments of directors of NASDAQ Stock Market listed companies, including completion of customary questionnaires insofar as such questionnaires are required of all other members of the Board of Directors.

 

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(s) “ Waiver Agreement ” means the Waiver Agreement, dated March 16, 2016, by and among the Company, Investor and StepStone.

2. Board of Directors .

(a) The Company shall take, or cause to be taken, all actions necessary (i) to effect the resignations of Messrs. Dinkel, Walters and Whittemore (the “ Outgoing Directors ”) from the Board of Directors, and (ii) to elect or appoint (or cause to be elected or appointed) the Initial StepStone Directors to the Board of Directors to fill the vacancies created by the resignations of the Outgoing Directors. The resignations of the Outgoing Directors shall be effective not later than the closing of the transactions contemplated by the Stock Purchase Agreement (the “ Closing ” and such date, the “ Closing Date ”) and the election or appointment of the Initial StepStone Directors to the Board of Directors shall be effective at the Closing. The parties agree that the Initial StepStone Directors are deemed to have met all qualifications under Section 2(c) below and are deemed acceptable under Section 2(c). The Board of Directors shall consist of no more than nine members after such elections or appointments. The Company also agrees to permit the StepStone Directors, as of the date of their appointment or election, to participate as independent directors (if so qualified) in all decisions regarding transactions that require the approval of independent directors under applicable law or the Governing Documents, and to allow one or more StepStone Directors to attend meetings of any committee of the Board of Directors as non-voting observers if there are no StepStone Directors serving as a member of such committee.

StepStone may replace at any time any StepStone Director who resigns, is removed, or is otherwise unable to serve on the Board of Directors (including due to death, disability or otherwise) with a Qualified Replacement.

(b) At any time that and for so long as the StepStone Group collectively beneficially owns the percentage of outstanding shares of Common Stock set forth below, StepStone, on behalf of the members of the StepStone Group, shall have the right to nominate the number of StepStone Directors set forth below pursuant to this Section 2. For so long as StepStone has the right to nominate at least two directors pursuant to this Section 2(b), not less than one StepStone Director shall be appointed to each of the Company’s Investment Committee and Nominating Committee, Finance Committee and, if such StepStone Directors(s) are independent directors under the NASDAQ Stock Market listing standards and such standards require independence, the Compensation Committee. The election or appointment of the Initial StepStone Directors to the committees of the Board of Directors shall be effective not later than the close of business on Friday, March 25, 2016, and such committees shall take no action between the Closing and such election or appointment.

 

Ownership Percentage

   Number of Directors  

22% or more

     3   

Less than 22%

     2   

but 14% or more

  

Less than 14%

     1   

but 7% or more

  

 

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(c) The following procedures shall be followed with respect to the nomination of StepStone Directors pursuant to Section 2(b):

(i) For purposes of whether StepStone has a right to nominate one or more StepStone Directors pursuant to Section 2(b), the StepStone Group’s beneficial ownership of the outstanding shares of Common Stock, as applicable, shall be measured as of the record date for such meeting or written consent.

(ii) No later than April 1 of each year, StepStone shall identify to the Board of Directors its nominee(s) for StepStone Director(s) and provide the Company with any other information reasonably requested by the Board of Directors to evaluate the suitability of such nominee(s) for directorship (such notice a “ Designation Notice ”). With respect to any StepStone nominee, StepStone shall use its reasonable best efforts to ensure that any such nominee meets the Independence Standards.

(iii) Within ten (10) days of receiving a Designation Notice in accordance with Section 2(c)(ii), the Board of Directors or any authorized committee thereof shall have made a good faith and reasonable determination as to the suitability of nominee(s) for StepStone Director(s) and shall notify StepStone of its determination in writing.

(iv) With respect to each shareholder vote for the general election of directors of the Company held (whether by a meeting or written consent of the shareholders of the Company) during the Ownership Period, the Company, the Nominating Committee of the Board of Directors and the Board of Directors shall nominate and recommend for approval by the Company’s shareholders StepStone Directors (up to the number the Investor is entitled to designate pursuant to Section 2(b)) or, to the extent that a StepStone Director is unable to serve as a director of the Company (due to death, disability or incapacity), any Qualified Replacement for election as a director of the Company, and the Company shall also solicit proxies for StepStone Directors or Qualified Replacements to the same extent as it does for any of its other nominees to the Board of Directors; provided that (A) in the event that StepStone fails to send a timely Designation Notice in order for the Company to nominate a new StepStone Director, the StepStone Director then currently serving as a director shall be deemed to be the new StepStone Director and (B) to the extent that the Board of Directors reasonably determines, based upon NASDAQ Stock Market listing standards, that the proposed StepStone Director does not qualify as a Qualified Replacement, StepStone shall be permitted to propose additional individuals until such time that the Board of Directors determines that a proposed StepStone Director qualifies as a Qualified Replacement to serve as a director of the Company.

(v) With respect to each shareholder vote for the general election of directors of the Company held (whether by a meeting or written consent of the shareholders of the Company) during the Ownership Period, the Company, the Nominating Committee of the Board of Directors and the Board of Directors shall nominate and recommend for approval by the Company’s shareholders the current directors of the Board of Directors who remain on the Board of Directors following the election or appointment of the StepStone Directors, and upon their replacement for any cause, their successors as nominated by the Nominating Committee of the Board of Directors. StepStone agrees to vote for the election of the current directors of the Board of Directors who remain on the Board of Directors following the election or appointment of the StepStone Directors, and their successors as nominated by the Nominating Committee of the Board of Directors.

 

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(vi) The Company shall not, without the written consent of StepStone, amend, modify or alter the first sentence (which provides for certain voting commitments with respect to directors) in the second paragraph of Section 2.20 of the Directors Designation Agreement dated as of February 1, 2012 between the Company and Real Estate Strategies L.P. (“ RES ”).

(d) Each of the StepStone Directors, upon appointment or election to the Board of Directors, will be governed by the same protections and obligations as all other directors of the Company, including, without limitation, protections and obligations regarding customary liability insurance for directors and officers, confidentiality, conflicts of interests, fiduciary duties, trading and disclosure policies, director evaluation process, director code of ethics, director share ownership guidelines, stock trading and pre-approval policies, and other governance matters. The Company agrees that it shall promptly offer to enter into an indemnification agreement with each StepStone Director substantially similar to the indemnification agreements, if any, then in effect with the Company’s directors when each StepStone Director becomes a member of the Board of Directors; provided, that if the Company has not entered into customary indemnification agreements with its directors then the Company shall promptly offer to enter into an indemnification agreement with each StepStone Director on customary terms and conditions.

(e) Commencing on the election or appointment of StepStone Directors of the Company in accordance with this Agreement and thereafter for so long as at least one StepStone Director nominated by StepStone is serving as a member of the Board of Directors, StepStone will, and will cause each member the StepStone Group to: (i) with respect to the Company or its Common Stock or Series D Stock, not make, engage or in any way participate in, directly or indirectly, any “solicitation” (as such term is used in the proxy rules of the Commission) of proxies or consents (whether or not relating to the election or removal of directors), (ii) except as provided for in this Agreement, not seek, alone or in concert with others, election or appointment to, or representation on, or nominate or propose the nomination of any candidate to, the Board of Directors, (iii) not initiate, propose or otherwise “solicit” (as such term is used in the proxy rules of the Commission) shareholders of the Company for the approval of shareholder proposals made to the Company whether made pursuant to Rule 14a-8 under the Exchange Act or otherwise, or cause or encourage or attempt to cause or encourage any other person to initiate any such shareholder proposal, regardless of its purpose, and (iv) cause all shares of Common Stock or Series D Stock beneficially owned by Investor and the members of the StepStone Group as to which they are entitled to vote at any meeting of shareholders to be voted in favor of the election of each member of any slate of directors recommended by the Board of Directors that includes at all StepStone nominees nominated by StepStone pursuant to this Agreement with respect to such election; provided, that each of the StepStone Directors on the Board of Directors shall have voted in favor of such slate of director nominees.

(f) The Company agrees that it shall promptly offer to enter into indemnification agreements with Investor and StepStone, on similar terms as the agreements in effect with the Company’s existing directors as of the date hereof, indemnifying Investor and StepStone against a third-party claim of control person liability within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act; provided, that if the Company has not entered into customary indemnification agreements with its directors then the Company shall promptly offer to enter into an indemnification agreement with Investor and StepStone on customary terms and conditions indemnifying Investor and StepStone against a third-party claim of control person liability within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act.

(g) The Company hereby agrees that during the Ownership Period it shall: (i) unless otherwise consented to by the StepStone Director, provide each StepStone Director at least five

 

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(5) business days advance written notice to any meeting of the Board of Directors, notice which shall include the agenda proposed by the Chairman of the Board of Directors (and for any meeting of a committee of the Board of Directors if no member of such committee is an StepStone Director) and any documents or information to be addressed or discussed during such meeting; and (ii) furnish the StepStone Directors with such financial and operating data and other information with respect to the business, finance and properties of the Company as the Company prepares and compiles for members of its Board of Directors in the ordinary course.

3. Registration Rights . The Company covenants and agrees as follows:

(a) Request for Registration .

(i) If the Company shall receive a written request from one or more Holders (the Holders initiating such request, the “ Initiating Holders ”) that the Company effect the registration under the Securities Act of Registrable Securities with an anticipated aggregate offering price of at least $5,000,000, then the Company shall:

(A) within ten (10) days of the receipt thereof, give written notice of such request to all Holders;

(B) subject to the limitations of this Section 3(a), use its best efforts to effect a registration under the Securities Act of all of such Initiating Holders’ Registrable Securities as are specified in such request, together with all of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company as soon as practicable; and

(C) file, as promptly as reasonably practicable following receipt of such request of the Initiating Holders in all other cases, a registration statement under the Securities Act covering all the Registrable Securities that the Holders shall in writing request to be included in such registration and to use its best efforts to have such registration statement declared effective.

(ii) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 3(a) and the Company shall include such information in the written notice referred to in Section 3(a)(i)(A). In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All parties proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 3(d)(v)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by Holders of a majority of the Registrable Securities to be included in the underwriting and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 3(a), if, in the case of a registration requested pursuant to Section 3(a), the underwriter advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise the Company and all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated pro rata among all Holders thereof desiring to participate in such underwriting (proportionate to the number of Registrable Securities then held by each such Holder). No

 

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Registrable Securities requested by any Holder to be included in a registration pursuant to Section 3(a) shall be excluded from the underwriting unless all securities other than Registrable Securities are first excluded.

(iii) Notwithstanding the foregoing provisions of this Section 3(a), the Company shall not be obligated to effect, or take action to effect any registration pursuant to Section 3(a) after the Company has already effected two registrations initiated by the Holders pursuant to Section 3(a) in the immediately preceding twelve-month period; provided, however, that no registration of Registrable Securities that shall not have become and remained effective in accordance with Section 3(d) shall be deemed to be a registration for any purpose of this Section 3(a) unless such registration was withdrawn at the request of the Holders except under the circumstances described in the last clause of the first sentence of Section 3(f).

(iv) Notwithstanding the foregoing provisions of this Section 3(a), in the event that the Company is requested to file any registration statement pursuant to this Section 3(a), the Company shall not be obligated to effect the filing of such registration statement:

(A) during the six-month period following the effective date of any other registration statement on Form S-1 or S-3 pertaining to an underwritten public offering of securities for the account of the Company; or

(B) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 3(c) below; or

(C) if the Registrable Securities to be included in the registration statement could be sold without restriction under SEC Rule 144 within a ninety (90) day period and the Company is currently subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act; or

(D) if the Company shall furnish to the Holders requesting such registration statement a certificate signed by the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors (as evidenced by a written resolution of the Board of Directors), it would not be in the best interests of the Company and its shareholders generally for such registration statement to be filed or to remain effective as long as such registration statement would otherwise be required to remain effective, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request for registration from the applicable Initiating Holders; provided, however, that the Company may not utilize the right set forth in this Section 3(a)(iv)(D) more than once in any twelve-month period.

(b) Company Registration . If the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its capital stock or other equity securities (or securities convertible into equity securities) under the Securities Act in connection with the public offering of such securities (other than a registration on Form S-8 relating solely to the sale of securities to participants in a Company stock plan, a registration relating to a transaction described in Rule 145(a) of the Securities Act, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered or a registration on Form S-4), the Company shall, at such time, promptly give each Holder of any Registrable Securities written notice of such registration. Upon the written request of any such Holder, given within twenty (20) days after mailing of such notice by the Company, the Company shall,

 

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subject to the provisions of the following sentence of this Section 3(b), use its best efforts to cause a registration statement covering all of the Registrable Securities that each such Holder has requested to be registered to become effective under the Securities Act. The Company shall have the right, in its sole discretion, to terminate or withdraw, and shall otherwise be under no obligation to complete, any offering of its securities it proposes to make under this Section 3(b) and shall incur no liability to any Holder for its failure to do so, whether or not such Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be paid by the Company in accordance with Section 3(f).

(c) Shelf Registration.

(i) In case the Company shall receive from one or more Holders a written request or requests that the Company effect a Shelf Registration with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:

(A) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(B) use its best efforts to effect such registration as soon as practicable, and in any event to file within sixty (60) days of the receipt of such request a Shelf Registration Statement under the Securities Act covering all of the Registrable Securities which such Holders have requested to be registered and to use its best efforts to have such registration statement become effective, and to effect such qualification or compliance as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 3(c) if: (1) the aggregate market value of the Registrable Securities to be registered specified as of the date of such request is less than $1,000,000; (2) the Company shall furnish to the Holder or Holders requesting a registration statement pursuant to this Section 3(c) a certificate signed by the Company’s Chief Executive Officer stating that, in the good faith judgment of the Board of Directors (as evidenced by a written resolution of the Board of Directors), it would not be in the best interests of the Company and its shareholders generally for such registration statement to be filed, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of such Holder or Holders, provided that such right shall be exercised by the Company not more than once in any twelve-month period; or (3) during the period ending six months after the effective date of a registration statement filed pursuant to Section 3(a).

(ii) If the Holders intend to distribute any of the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 3(c) and the Company shall include such information in the written notice referred to in Section 3(c)(i)(A). The provisions of Section 3(a)(ii) shall be applicable to such request (with the substitution of Section 3(c) for references to Section 3(a)).

(d) Obligations of the Company . Whenever required under this Section 3 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably practicable:

 

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(i) prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of at least a majority of the Registrable Securities registered thereunder, keep such registration statement effective for (A) in the case of a registration required pursuant to Section 3(a), up to 120 days or until such earlier time at which the distribution of securities contemplated by such registration statement has been completed and (B) in the case of a registration required pursuant to Section 3(c), until such time at which all Registrable Securities registered thereunder have been sold (such period, the “ Effectiveness Period ”);

(ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement, and use its best efforts to cause each such amendment and supplement to become effective, as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during the Effectiveness Period;

(iii) furnish to the Holders, such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

(iv) use its best efforts to register or qualify the securities covered by such registration statement under such other securities or “blue sky” laws of such states and jurisdictions as shall be reasonably requested by the Holders, except that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, subject itself to taxation or file a general consent to service of process in any such state or jurisdiction unless already subject to such qualification, taxation or service;

(v) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;

(vi) notify each Holder covered by such registration statement, at any time when a prospectus relating thereto covered by such registration statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and promptly file such amendments and supplements which may be required pursuant to Section 3(d)(ii) on account of such event and use its best efforts to cause each such amendment and supplement to become effective;

(vii) use its best efforts to have furnished, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 3, if such securities are being sold through underwriters, to such underwriters on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 3: (A) an opinion or opinions, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given by company counsel to the underwriters in an underwritten public offering, addressed to the underwriters, if any, and (B) a “comfort” letter dated such date, from the independent certified public accountant of the

 

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Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any;

(viii) apply for listing and use its best efforts to list the Registrable Securities being registered on any national securities exchange on which a class of the Company’s equity securities is then listed;

(ix) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed;

(x) after such registration statement becomes effective, notify each selling Holder in writing of any request by the Commission that the Company amend or supplement such registration statement or prospectus;

(xi) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereto; and

(xii) without in any way limiting the types of registrations to which this Section 3 shall apply, in the event that the Company shall effect a Shelf Registration, the Company shall take all reasonable action, including, without limitation, the filing of post-effective amendments, to permit the Holders to include their Registrable Securities in such registration in accordance with the terms of this Section 3.

(e) Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 3 in respect of the Registrable Securities of any selling Holder that such selling Holder shall furnish to the Company such information regarding itself, the Registrable Securities and the intended method of disposition of such securities, as shall be reasonably requested by the Company in connection with registration of its Registrable Securities.

(f) Expenses of Demand Registration . All expenses other than underwriters’ or brokers’ discounts and commissions relating to Registrable Securities incurred in connection with each registration, filing or qualification pursuant to Section 3(a), including (without limitation) all registration, filing and qualification fees, printing and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders (up to a maximum amount of $50,000), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration begun pursuant to Section 3(a) if the registration request is subsequently withdrawn at any time at the request of the Holders of a majority of the Registrable Securities to be registered in such registration (in which case all participating Holders shall bear such expenses pro rata in accordance with the number of Registrable Securities that were to be registered thereunder by each such Holder), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 3(a); and provided, further, that if at the time of any withdrawal described in the foregoing clause the Holders have learned of a material adverse change in the condition, business or prospects of the Company (other than a change in market demand for its securities or in the market price thereof) from that known to the Holders requesting such registration at the time of their request that makes the proposed offering unreasonable in the good faith judgment of such Holders, then the Holders shall not be required to pay any of such expenses and the right to one demand registration pursuant to Section 3(a) shall not be forfeited. All underwriters’ and brokers’ discounts and commissions relating to Registrable Securities included in any registration effected pursuant to Section 3(a) will be borne and paid ratably by the Holders of such Registrable Securities on the basis of the number of Registrable Securities registered on their behalf.

 

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(g) Expenses of Company Registration and Shelf Registration . The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to any registration pursuant to Section 3(b) or Section 3(c) for each Holder including, without limitation, all registration, filing and qualification fees, printing and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders (up to a maximum amount of $25,000, if the registration is pursuant to Section 3(b) or is a Shelf Registration is on Form S-3 pursuant to Section 3(c), and $50,000, if the registration is a Shelf Registration is on Form S-1 pursuant to Section 3(c)). Underwriters’ and brokers’ discounts and commissions relating to Registrable Securities included in any registration effected pursuant to Section 3(b) or Section 3(c) will be borne and paid ratably by the Holders of such Registrable Securities on the basis of the number of Registrable Securities sold on their behalf.

(h) Underwriting Requirements in Company Registration; Market Stand-Off .

(i) In connection with any offering involving an underwriting of securities being issued by the Company, the Company shall not be required under Section 3(b) to include any of the Holders’ securities in such underwriting unless such Holders accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity, if any, as the underwriters determine, in their sole discretion, marketing factors allow. If the managing underwriter for the offering shall advise the Company in writing that the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities to be sold other than by the Company that marketing factors allow, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the managing underwriter believes marketing factors allow, with the securities so included to be reduced as follows: (a) all securities which shareholders other than the Company, the Holders and requesting holders pursuant to Section 2.2 of the Registration Rights Agreement dated as of February 1, 2012 (the “ IRSA Registration Rights Agreement ”) between the Company and RES (the “ Other Holders ”) seek to include in the offering shall first be excluded from the offering to the extent limitation on the number of shares included in the underwriting is required, and (b) if further limitation on the number of shares to be included in the underwriting is required, then the number of shares held by the Holders and Other Holders that may be included in the underwriting shall be reduced pro rata in accordance with the number of Registrable Securities held by each such Holder and registrable securities under the IRSA Registration Rights Agreement held by each such Other Holder, but in no event shall the amount of securities of the selling Holders and Other Holders included in the offering be reduced below 25% of the total amount of securities included in such offering.

(ii) In connection with the registration or offering of the Company’s securities, upon the reasonable request of the Company and the managing Underwriter of any underwritten offering of the Company’s securities, each Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, any Registrable Shares (other than those included in the registration) without prior written consent of the Company, or such Underwriters, as the case may be, for such period of time (not to exceed 180 days from the effective date of such registration or offering prior to July 31, 2017, and not to exceed 60 days from the effective date of such registration or offering thereafter) as the Company and the managing Underwriter may reasonably specify (the “ Stand-Off Period ”); provided, however, that:

 

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(A) all executive officers and directors of the Company then holding Common Stock of the Company shall enter into similar agreements for not less than the time period required of the Holders hereunder; and

(B) the Holders shall be allowed any concession or proportionate release allowed to any officer or director that entered into similar agreements.

(i) Suspension . Notwithstanding anything herein to the contrary, the Company may suspend the use of any registration statement filed hereunder and any related prospectus, if the Company shall have furnished to the Holders of Registrable Securities included on such registration statement a certificate signed by the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors (as evidenced by a written resolution of the Board of Directors), because of valid business reasons, including without limitation any proposal or plan of the Company or any of its subsidiaries to effect a merger, acquisition, disposition, financing, reorganization, recapitalization or other transaction, or because of required disclosure or filings with the Commission, it is in the best interests of the Company to suspend such use, and prior to suspending such use the Company provides the affected Holders with written notice of such suspension, which notice need not specify the nature of the event giving rise to such suspension (and, upon receipt of such notice, each Holder agrees not to sell any securities pursuant to the registration statement until such Holder is advised in writing that the related prospectus may be used, which notice the Company agrees to provide promptly following the lapse of the event or circumstances giving rise to such suspension); provided, however, that the Company may not utilize (A) the right set forth in this Section 3(i) for a period of more than forty-five (45) days or (B) the right set forth in this Section 3(i), together with the right set forth in Section 3(a)(iv)(D) and/or Section 3(c)(i)(B)(2), more than once in any twelve-month period. Each such Holder shall keep confidential any communications received by it from the Company regarding the suspension of the use of a registration statement and related prospectus (including the fact of the suspension), except as required by applicable law.

(j) Indemnification . In the event any Registrable Securities are included in a registration statement under this Section 3:

(i) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the officers, directors, partners, members, agents and employees of each Holder, legal counsel and accountants for each such Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter or other aforementioned person within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or any other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (each a “ Violation ”): (A) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, any issuer information (as defined in Rule 433 under the Securities Act) filed or required to be filed pursuant to Rule 433(d) under the Securities Act, (B) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made in the case of any prospectus, not misleading, or (C) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state or federal securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state or federal securities law. The Company will promptly reimburse each such Holder, officer, director, partner, member, agent, employee, legal counsel, accountants, underwriter or controlling person

 

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for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action, as incurred. The indemnity agreement contained in this Section 3(j)(i) shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld, conditioned or delayed), nor shall the Company be liable to a Holder in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon (A) a Violation that occurs in reliance upon and in conformity with written information furnished to the Company expressly for use in such registration by or on behalf of such Holder or (B) in the case of a sale directly by a Holder of Registrable Securities (including a sale of such Registrable Securities through any underwriter retained by such Holder engaging in a distribution solely on behalf of such Holder), an untrue statement or alleged untrue statement or omission or alleged omission that was contained in a preliminary prospectus and corrected in a final, amended or supplemented prospectus (including a free writing prospectus) delivered to such Holder or underwriter a reasonable period of time prior to the time of such sale, and such Holder or underwriter failed to deliver a copy of such final, amended or supplemented prospectus (including a free writing prospectus) at or prior to the time of sale of the Registrable Securities to the person asserting any such loss, claim, damage or liability in any case in which the delivery of such final, amended or supplemented prospectus (including a free writing prospectus) would have eliminated such loss, claim, damage or liability.

(ii) Each Holder that includes any Registrable Securities in any registration statement will furnish to the Company in writing such information as the Company reasonably requests for use in connection with any registration statement or prospectus and agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, each other selling Holder and each person, if any, who controls a selling Holder within the meaning of the Securities Act against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such director, officer, Holder or controlling person may become subject, under the Securities Act, the Exchange Act or any other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder expressly for use in such registration, and each such Holder will promptly reimburse any legal or other expenses reasonably and actually incurred by the Company or any such director, officer, Holder or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action, as incurred; provided, however, that the liability of any Holder hereunder shall be limited to the proceeds from the offering received by such Holder (net of any underwriting discounts, commissions or other selling expenses); and provided, further, that the indemnity agreement contained in this Section 3(j)(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld, conditioned or delayed), nor, in the case of a sale directly by the Company of its securities (including a sale of such securities through any underwriter retained by the Company to engage in a distribution solely on behalf of the Company), shall the Holder be liable to the Company in any case in which such untrue statement or alleged untrue statement or omission or alleged omission was contained in a preliminary prospectus and corrected in a final, amended or supplemented prospectus (including a free writing prospectus), and the Company or such underwriter failed to deliver a copy of such final, amended or supplemented prospectus (including a free writing prospectus) at or prior to the time of sale of the securities to the person asserting any such loss, claim, damage or liability and the delivery of such final, amended or supplemented prospectus (including a free writing prospectus) would have eliminated such loss, claim, damage or liability. The obligations of the Holders hereunder are several, not joint.

 

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(iii) Promptly after receipt by an indemnified party under this Section 3(j) of notice of the commencement of any action (including any governmental action) for which the party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 3(j), deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume and control the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests, as reasonably determined by either party, between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of liability to the indemnified party under this Section 3(j) to the extent, and only to the extent, of such prejudice.

(iv) In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (A) any indemnified party exercising rights under this Agreement, or any controlling person of any such indemnified party, makes a claim for indemnification pursuant to this Section 3(j) but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 3(j) provides for indemnification in such case, or (B) contribution under the Securities Act may be required on the part of any such indemnifying party or any such controlling person in circumstances for which indemnification is provided under this Section 3(j), then, and in each such case, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damages or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, liability, claim, damages or expense, as well as any other relevant equitable considerations; provided, however, that no contribution by any Holder, when combined with any other amounts paid by such Holder pursuant to this Section 3(j), shall exceed the aggregate net proceeds received by such Holder in the offering out of which such loss, liability, claim, damage or expense arose. The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding the foregoing, in no event shall such Holder’s liability pursuant to this Section 3(j)(iv), when combined with any amounts paid or payable by such Holder pursuant to Section 3(j)(ii), exceed proceeds received by such Holder from the offering out of which the loss, liability, claim, damage or expense arose (net of any underwriting discounts, commissions or other selling expenses).

 

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(v) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten offering, the obligations of the Company and the Holders under this Section 3(j) shall survive the sale, if any, of the Registrable Securities and the completion of any offering of Registrable Securities in a registration statement.

(k) Reports Under the Exchange Act . With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the Commission that may at any time permit a Holder to sell securities of the Company to the public without registration, and with a view to making it possible for Holders to have the resale of the Registrable Securities registered pursuant to a registration statement on Form S-3, the Company shall use its best efforts to:

(i) make and keep adequate public information available, as those terms are understood and defined in SEC Rule 144, for so long as the Company is subject to the periodic reporting requirements under Section 13 or Section 15(d) of the Exchange Act;

(ii) take such action as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities;

(iii) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(iv) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (A) a written statement by the Company as to its compliance with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or as to its qualification as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (B) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (C) such other documents as may be reasonably requested in availing any Holder of any rule or regulation of the Commission which permits the selling of any such securities without registration or pursuant to such form.

(l) Assignment of Registration Rights . The rights to cause the Company to register Registrable Securities pursuant to this Section 3 may be assigned by any Holder to a “permitted transferee” pursuant to this Section 3(l) and by such transferee to a subsequent permitted transferee, but only if such rights are transferred with all related obligations hereunder. A “permitted transferee” means any person or entity that acquires the Holder’s Shares that enters into a joinder the this Agreement.

(m) Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company relating to registration rights unless such agreement includes: (i) to the extent such agreement would allow such holder or prospective holder to include such securities in any registration statement filed under Section 3(a), 3(b) or 3(c) hereof, a provision that such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not reduce the amount of the Registrable Securities of the Holders that would otherwise be included; and (ii) a provision preventing such holder or prospective holder from making a demand for registration.

 

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(n) Termination of Registration Rights . The registration obligations of the Company pursuant to this Section 3 shall terminate with respect to any Holder on the first date upon which all of the remaining Registrable Securities then held or issuable to such Holder (together with any other member of such Holder’s Group) could be sold under SEC Rule 144 without restriction.

4. Preemptive Rights.

(a) Sale of New Securities . Each member of the StepStone Group shall have the right to purchase up to its pro rata share (based on its beneficial ownership of the Company, on a fully diluted basis) of all issuances of equity or securities convertible to or exchangeable for equity in the Company from the Closing Date to the fifth anniversary of this Agreement (or until the third anniversary of this Agreement if the StepStone Group’s aggregate beneficial ownership of Common Stock represents less than ten million (10,000,000) shares of Common Stock), if at any time or from time after the Closing Date, the Company makes any public or non-public offering of any equity securities (including Common Stock or preferred shares, options or debt that is convertible or exchangeable into equity securities or that include an equity component, such as an “equity” kicker, including any hybrid security) (any such security, a “ New Security ”) for cash (excluding the issuance or sale in the aggregate of up to 200,000 shares of Common Stock in any six month period through the standby equity distribution agreement with YA Global Master SPV Ltd., or any similar equity distribution arrangement executed prior to the day hereof and, for the avoidance of doubt, other than (i) pursuant to the granting of employee equity awards, in each case in the ordinary course of equity compensation awards or stock purchase plans or dividend reinvestment plans, or (ii) issuances for the purposes of consideration in acquisition transactions). Such member of the StepStone Group shall be afforded the opportunity to acquire from the Company for the same price and on the same terms as such New Securities are proposed to be offered to others, up to the amount of New Securities in the aggregate required to enable it to maintain its then proportionate Common Stock-equivalent interest, subject to the limitations on beneficial ownership set forth in the Waiver Agreement. The amount of New Securities that the StepStone Group shall be entitled to purchase in the aggregate, subject to the limitations on beneficial ownership set forth in the Waiver Agreement, shall be determined by multiplying (A) the total number of such offered shares of New Securities by (B) a fraction, the numerator of which is the number of Common Stock beneficially owned by the StepStone Group, and the denominator of which is the number of Common Stock then outstanding on an as-converted basis assuming conversion of all outstanding Series D Stock.

(b) Notice . In the event the Company proposes to offer New Securities, it shall give StepStone prior written notice of its intention, describing the price (or range of prices), anticipated amount of securities, timing and other terms upon which the Company proposes to offer the same, no later than ten (10) business days prior to the commencement of such offer or sale, as the case may be, or six (6) business days prior the commencement of such offer in the case of an underwritten public offering of Common Stock or preferred shares on an “overnight” or equivalent expedited offering (an “ Expedited Offering ”). StepStone shall have seven (7) business days (four (4) business days in the case of an Expedited Offering) from the date of receipt of such a notice to notify the Company in writing that it or another member of the StepStone Group intends to exercise such purchase rights and as to the amount of New Securities StepStone or another member of the StepStone Group desires to purchase. Such notice shall constitute a non-binding indication of interest to purchase the amount of New Securities so specified at the price and other terms set forth in the Company’s notice to it. The failure of StepStone to respond within such seven (7) business day period (or four (4) business day period in the case of an Expedited Offering) period shall be deemed to be a waiver of the rights under this Section 4 only with respect to the offering described in the applicable notice.

(c) Purchase Mechanism . If preemptive rights are exercised pursuant to this Section 4, the closing of the purchase of the New Securities with respect to which such right has been

 

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exercised shall take place (i) in the case of any public offering, simultaneously with the closing of such offering to other purchasers, or (ii) in the case of any private offering, upon the later to occur of the closing of such offering and thirty (30) calendar days after the giving of notice of such offering. Each of the Company and StepStone agrees to use its commercially reasonable efforts to secure any regulatory or other consents or shareholder approval, and to comply with any law or regulation necessary in connection with the offer, sale and purchase of, such New Securities.

(d) Failure of Purchase . In the event preemptive rights provided in this Section 4 are not exercised within the prescribed period or, if so exercised, the applicable member of the StepStone Group is unable to consummate such purchase within the time period specified in Section 4(c) above, the Company shall thereafter be entitled during the period of ninety (90) days following the conclusion of the applicable period to sell or enter into an agreement (pursuant to which the sale of the New Securities covered thereby shall be consummated, if at all, within thirty (30) days from the date of said agreement) to sell the New Securities not elected to be purchased pursuant to this Section 4 or that the StepStone Group is unable to purchase because of such failure to obtain any such consent or approval, at a price and upon terms no more favorable to the purchasers of such securities than were specified in the Company’s notice to StepStone. Notwithstanding the foregoing, if such sale is subject to the receipt of any regulatory or other consents, shareholder approval or the expiration of any waiting period, the time period during which such sale may be consummated shall be extended until the expiration of five (5) business days after all such approvals or consents have been obtained or waiting periods expired, but in no event shall such time period exceed 180 days from the date of the applicable agreement with respect to such sale. In the event the Company has not sold the New Securities or entered into an agreement to sell the New Securities within said ninety (90) day period (or sold and issued New Securities in accordance with the foregoing within thirty (30) days from the date of said agreement (as such period may be extended in the manner described above for a period not to exceed 180 days from the date of said agreement)), the Company shall not thereafter offer, issue or sell such New Securities without first offering such securities to the StepStone Group in the manner provided above.

5. StepStone Participation . StepStone’s participation in the Company’s financial and operating policy decisions will be through the StepStone Directors. For the avoidance of doubt, in addition to any approval required under the Governing Documents, the vote of a majority of the Board of Directors shall be required to (i) effect any acquisition of a hotel property or any other property or asset at a purchase price of $5,000,000 or more, or effect any disposition of a hotel property or any other property or asset at a sale price of $2,000,000 or more; provided, that if the acquisition or disposition involves consideration other than for cash, the purchase price shall be determined by the Board of Directors in its reasonable discretion; (ii) effect any merger, acquisition or sale of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, (iii) effect any financings (including refinancings) involving amounts of $2,000,000 or more; and (iv) approve any annual operating budget of the Company. As long as StepStone has the right to designate one or more StepStone Directors, the Company shall furnish StepStone with such financial and operating data and other information with respect to the business, finance and properties of the Company as the Company prepares and compiles for members of its Board of Directors in the ordinary course. In case StepStone has no StepStone Director, but the standstill provided in Section 2(e) above is still in place, then this Company undertaking shall also remain effective and those rights shall be afforded directly to StepStone.

6. Recapitalization or Exchange Affecting the Company’s Capital Stock . The provisions of this Agreement shall apply in accordance with its terms with respect to all of the shares of beneficial interest of the Company or any successor thereto (including a successor by merger or consolidation) or that may be issued in respect of, in exchange for, or in substitution of such shares, as applicable, and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations, and the like occurring after the date hereof.

 

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7. Miscellaneous .

(a) Successors and Assigns. Except as set forth in Section 3(l), any assignment of this Agreement or any of the rights or obligations under this Agreement by any of the parties hereto (whether by operation of law or otherwise) shall be void, invalid and of no effect without the prior written consent of the other parties hereto; provided, however, that the rights under this Agreement may be assigned (but only with all related obligations) by StepStone to one or more member(s) of the StepStone Group so long as the assignee(s) agree in writing to be bound by the terms and conditions of this Agreement; provided, further, that any such assignment shall not release, or be construed to release the assignor from its duties and obligations under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

(b) Termination . This Agreement shall terminate at such time as the StepStone Group beneficially holds less than 7.0% of the outstanding Common Stock of the Company; provided that such termination shall not relieve any party from liability for any breach of this Agreement prior to such termination.

(c) Governing Law . This Agreement and any controversy arising out of or relating to this Agreement shall be governed by and construed in accordance with the laws of the State of New York as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of New York, without regard to conflict of law principles that would result in the application of any law other than the law of the State of New York.

(d) Counterparts; Facsimile . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may also be executed and delivered by portable document format (pdf) and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(e) Titles and Subtitles . The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

(f) Notices . All notices, requests, demands, and other communications hereunder shall be in writing (which shall include communications by e-mail) and shall be delivered (a) in person or by courier or overnight service, or (b) by e-mail with a copy delivered as provided in clause (a), as follows:

If to the Company:

1800 West Pasewalk Ave., Suite 200

Norfolk, Nebraska 68701 Attention:

Chief Executive Officer

Telephone: (402) 371-2520

E-mail: bblackham@trustcondor.com

with a copy (which shall not constitute notice) to:

 

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1800 West Pasewalk Ave., Suite 200

Norfolk, Nebraska 68701

Attention: Chief Financial Officer

Telephone: (402) 371-2520

E-mail: jgantt@trustcondor.com

Guy Lawson

McGrath North Mullin & Kratz, PC LLO

First National Tower, Suite 3700

1601 Dodge Street Omaha, Nebraska 68102

Telephone: (402) 633-1402

E-mail: glawson@mcgrathnorth.com

If to Investor or StepStone:

StepStone Group Real Estate LP

150 California Street, Suite 850

San Francisco, California 94111

Attention: Brendan MacDonald / Jason Ment

Telephone: (415) 318-7982

E-mail: bmacdonald@stepstoneglobal.com; JMent@stepstoneglobal.com

with a copy (which shall not constitute notice) to:

Jones Day

77 W. Wacker Dr.

Chicago, Illinois 60601

Attention: Brad Brasser

Telephone: (312) 269-4252

E-mail: bcbrasser@jonesday.com

(g) Amendments and Waivers . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of all parties hereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.

(h) Severability . In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.

(i) Entire Agreement . This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof.

(j) Governing Documents . Subject to compliance with applicable laws, rules and regulations, the Company shall take or cause to be taken all lawful action necessary to ensure that, at all times during the Ownership Period, the Governing Documents are not inconsistent with the provisions of

 

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this Agreement. The Governing Documents shall continue to allow attendance at meetings of the Board of Directors and the committees of the Board of Directors through telephone conference or video conference.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

CONDOR HOSPITALITY TRUST, INC.
By:  

/s/ J. William Blackham

Name:   J. William Blackham
Title:   President and CEO
SREP III FLIGHT - INVESTCO, L.P.
By:  

/s/ Jason Ment

Name:   Jason Ment
Title:   Partner and General Counsel
STEPSTONE GROUP REAL ESTATE, LP
By:  

/s/ Jason Ment

Name:   Jason Ment
Title:   Partner and General Counsel

Exhibit 10.3

AGREEMENT

This Agreement (the “ Agreement ”) is dated as of March 16, 2016 , by and among Real Estate Strategies L.P., a Bermuda Limited Partnership (“ RES ), IRSA Inversiones y Representaciones Sociedad Anónima, an Argentine sociedad anónima (“ IRSA ”), and Condor Hospitality Trust, Inc., a corporation (the “ Company ” and, together with the RES and IRSA, the “Parties” and any of them individually, a “Party”).

WHEREAS , the Company is planning the sale of shares of a new series of preferred stock, the 6.25% Series D Convertible Cumulative Preferred Stock (the “ Series D Preferred Stock ”), in a $30 million private offering (the “ Private Offering ”);

WHEREAS, the Company is planning to redeem for cash all shares of its Series A preferred stock and Series B preferred stock and pay the accrued unpaid dividends thereon with proceeds from the Private Offering (the “ Redemption ”);

WHEREAS, pursuant to the terms of the 6.25% Series C convertible preferred stock (the “ Series C Preferred Stock ”), the consents of RES and IRSA are required for the Company to issue the Series D Preferred Stock in the Private Offering and conduct the Redemption;

WHEREAS, the conditions to completion of the Private Offering will include exchange of all of the Series C Preferred Stock for Series D Preferred Stock;

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

1. Consent to Exchange Offer and Redemption .

RES and IRSA hereby consent to the issuance of the Series D Preferred Stock by the Company pursuant to the Private Offering and to the Redemption.

2. Exchange and Redemption .

(a) Exchange . RES and IRSA agree, effective immediately prior to completion of the Private Offering, that they shall cause all of the shares of the Series C Preferred Stock to be exchanged for Series D Preferred Stock (the “ Exchange ”).

(i) Exchange Ratio . Each share of Series C Preferred Stock shall be exchanged for one share of Series D Preferred Stock. The Parties acknowledge that nothing herein adjusts the exercise price of the warrants currently held by RES.

(ii) Dividends . The Parties agree that in lieu of payment of dividends on the Series C Preferred Stock that are accrued and unpaid at the time of the Exchange, the Company shall at the time of the Exchange, (A) pay to RES an amount of cash equal to $1,484,211 and (B) issue to RES shares of Series D Preferred Stock and a promissory note to acquire Series D Preferred Stock in the amount of the accrued and unpaid dividends, valuing the Series D Preferred Stock at $10.00 per share, as follows:

(1) up to a number of Series D Preferred Stock such that RES and IRSA and their affiliates do not beneficially own in excess of 49% of the voting stock of the Company, and


(2) promissory note in the form approved by the Parties, convertible into a number of shares of Series D Preferred Stock that would have otherwise been issued on account of the remaining accrued and unpaid dividends but for the foregoing 49% limitation.”

(iii) Exemption . RES shall provide to the Company a certificate dated as of the closing date of the Exchange containing the representations and covenants from RES to permit, pursuant to Section (A)(7) of Article IX of the Articles of Incorporation of the Company, the Company’s Board of Directors to exempt RES and its affiliates from the Ownership Limit (as defined therein),

(b) Redemption . The Company will promptly send notice following the closing of the Private Offering to the holders of the Series A preferred stock and the Series B preferred stock that all of the shares will be mandatorily redeemed (including payment of accrued and unpaid dividends) in the Redemption in 30 days pursuant to the terms of such preferred stock, and the Company will set aside funds from the Private Offering in escrow to fund the Redemption.

3. Committee Assignments . As long as RES has the right to under the Director Designation Agreement dated February 2, 2012 to have appointed an “ Investor Designee ” (as that term is defined therein) to the Nominating Committee of the Company board of directors, then RES shall have the right to have appointed one Investor Designee to all current and future committees of the Company board of directors (provided the Investor Designee meets the independence requirements if so required under Nasdaq rules);

4. Investor Rights and Conversion Agreement. Section 3(a) of the Investor Rights and Conversion Agreement dated as February 1, 2012, by and between the Parties is hereby amended to change the dates of January 31, 2015 and January 31, 2018 there in to March 1, 2019 and March 1, 2022, respectively.

5. Registration Rights Agreement. The Registration Rights Agreement by and between the Parties is hereby amended as follows:

(a) Registration Expenses . Section 3.2 of the Registration Rights Agreement is amended to add the following sentence at the end: “In addition the Company shall bear the reasonable fees and disbursements of one counsel for Selling Holders up to a maximum amount $25,000 if the registration is pursuant to Section 2.2 Piggyback Rights and up to a maximum amount of $50,000 is the registration is pursuant to Section 2.1 Shelf Registration.

(b) Piggyback Cutback . The first sentence of Section 2.2(b) of the Registration Rights Agreement is hereby deleted. In addition, Section 2.2(b)(i) of the Registration Rights Agreement is deleted in its entirety and replaced with the following: “(i) First, for Holders and requesting holders under the Investor Rights Agreement (the “StepStone Investor Rights Agreement”) to be entered into between the Company, an affiliate of StepStone Group Real Estate LP (“StepStone”) and StepStone, for such Holders and requesting holders electing to participate in such Underwritten Offering, such number of Registrable Shares and registrable securities under the StepStone Investor Rights Agreement equal to twenty-five (25%) of the number of Common Stock able to be sold as determined by the managing underwriter, determined pro rata in accordance with the number of Registrable Shares held by such Holder and registrable securities held by such requesting holders”.

(c) Registration Suspension . Notwithstanding Section 2.1(d) of the Registration Rights Agreement, the suspension rights for the Company with respect to any registration statement or prospectus pursuant to the Registration Rights Agreement, such suspension rights may not be used more frequently or for greater periods than those set forth in Section 3(i) of the StepStone Investor Rights Agreement.

 

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(d) Market Standoff . The 60 day period set forth in Section 5.3 of the Registration Rights Agreement is increased to 180 days for effective dates of registrations or offerings occurring on or before July 31, 2017.

6. Miscellaneous .

(a) Amendment . No amendment or waiver of any provision of this Agreement will be effective with respect to any party unless made in writing and signed by an officer of a duly authorized representative of such party.

(b) Waivers . The conditions to each party’s obligations in the Agreement are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law. No waiver of any party to this Agreement will be effective unless it is in a writing signed by a duly authorized officer of the waiving party that makes express reference to the provision or provisions subject to such waiver.

(c) Counterparts and Facsimile . For the convenience of the parties hereto, this Agreement may be executed in any number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will together constitute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile and such facsimiles will be deemed as sufficient as if actual signature pages had been delivered.

(d) Governing Law and Forum . This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the principles of conflicts of laws. Each of the parties hereto hereby irrevocably consents, to the maximum extent permitted by law, that any action or proceeding relating to this Agreement or the transactions contemplated hereby shall be brought, at the option of the party instituting the action or proceeding, in any court of general jurisdiction in New York County, New York, in the United States District Court for the Southern District of New York or in any state or federal court sitting in the area currently comprising the Southern District of New York. Each of the parties hereto waives any objection that it may have to the conduct of any action or proceeding in any such court based on improper venue or forum non conveniens, waives personal service of any and all process upon it, and consents that all service of process may be made by mail or courier service directed to it at the address set forth herein and that service so made shall be deemed to be completed upon the earlier of actual receipt or ten days after the same shall have been posted or delivered to a nationally recognized courier service. Nothing contained in this shall affect the right of any party hereto to serve legal process in any other manner permitted by law.

(e) Notices . All notices or other communications required or permitted to be given by any party to any other party pursuant to the terms of this Agreement shall be in writing, unless otherwise specified in this Agreement, and if sent to the Investor, shall be delivered to Real Estate Strategies L.P. Clarendon House 2, Church Street, Hamilton HM CX, Bermuda, c/o IRSA Inversiones y Representaciones Sociedad Anónima, Bolívar 108 (C1066AAB), Buenos Aires, Argentina, fax no. +54 (11) 4323-7449, Attention: Eduardo S. Elsztain, with copies to and Zang, Bergel & Vines Abogados, Florida 537, 18th Floor, (C1005AAK), Buenos Aires, Argentina, fax no. +54 (11) 5166-7070, Attention: Pablo Vergara del Carril; or if sent to the Company or the Operating Partnership, shall be delivered to Condor Hospitality Trust, Inc., 1800 West Pasewalk Avenue, Suite 200, Norfolk, Nebraska 68701, fax no. (402) 371-4229 Attention: Chief Executive Officer, with a copy to McGrath North Mullin & Kratz, PC LLO, Suite 3700 First National Tower, 1601 Dodge Street, Omaha, Nebraska 68102, fax no. (402) 952-1802, Attention: Guy Lawson. Each party to this Agreement may change such address for notices by sending to the parties to this Agreement written notice of a new address for such purpose.

 

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(f) Captions . The section, paragraph and clause captions herein are for convenience of reference only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof.

(g) No Third Party Beneficiaries . Except for Stepstone Group Real Estate LP and its affiliates in their capacity as investors in the Private Offering, nothing contained in this Agreement, expressed or implied, is intended to confer upon any person or entity other than the parties hereto, any benefit right or remedies.

(h) Time of Essence . Time is of the essence in the performance of each and every term of this Agreement.

(i) Successors, Assigns and Transferees . This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties and their respective legal representatives, heirs, legatees, successors, and assigns and any other transferee.

(j) Assignment . This Agreement and the rights and obligations hereunder may not be assigned without the prior written consent of the parties hereto and any purported or attempted assignment or other transfer of rights or obligations under this Agreement without such consent shall be void and of no force or effect.

(k) Expenses; Attorney’s Fees . Each party will be solely responsible for its fees and expenses in connection with this Agreement, including the fees and expenses of their respective attorneys, accountants, investment bankers and consultants. In any action or proceeding brought to enforce any provision of this Agreement, the successful party shall be entitled to recover reasonable attorney’s fees and expenses in addition to any other available remedy.

(l) Authority . Each Party represents that (i) it has full entity power and authority to enter into this Agreement, (ii) the Agreement has been duly authorized, validly executed and delivered, and (iii) the Agreement constitutes the legal, valid, and binding agreement of the Party, enforceable in accordance with its terms.

(m) Severability . In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal, or unenforceable in any respect for any reason, the validity, legality, and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby.

(n) Entire Agreement . This Agreement constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties, both written and oral, between the parties, with respect to the subject matter hereof.

[SIGNATURES ON NEXT PAGE]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement, which may be executed in counterparts, all of which shall be considered one and the same, to be executed and delivered as of the date first above written.

 

REAL ESTATE STRATEGIES L.P.
By:  

JIWIN S.A.

General Partner

  By:  

/s/ Jose Luis Rinaldini

    Jose Luis Rinaldini, Attorney
By:  

/s/ Ezepuiel Sawicke

  Ezepuiel Sawicke

IRSA Inversiones y Representaciones

Sociedad Anónima

By:  

/s/ Gastón Lernoud

  Gastón Lernoud
By:   /s/ Ezepuiel Sawicke
  Ezepuiel Sawicke
CONDOR HOSPITALITY TRUST, INC.
By:  

/s/ J. William Blackham

  Name:   J. William Blackham
  Title:   President and Chief Executive Officer

 

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