CONTRIBUTION AGREEMENT by and between CS Real Estate Holding LLC
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CONTRIBUTION AGREEMENT
by and between
CS Real Estate Holding LLC
a Texas limited liability company and
Lodging Fund REIT III OP, LP a Delaware limited partnership
Dated as of January 31, 2023
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TABLE OF CONTENTS
Page
| 1. | Defined Terms1 |
| 2. | Contribution; Total Consideration; Inspection and Title5 |
| 2.1 | Contribution of Property5 |
| 2.2 | Contribution of Assets6 |
| 2.3 | Inventory6 |
| 2.4 | Excluded Assets6 |
| 2.5 | Assumed Liabilities6 |
| 2.6 | Excluded Liabilities6 |
| 2.7 | Existing Loans and Creditors6 |
| 2.8 | Consideration and Exchange of Series T Limited Units7 |
| 2.9 | Treatment as Contribution7 |
| 2.10 | Allocation of Total Consideration7 |
| 2.11 | Terms of Series T Limited Units7 |
| 2.12 | Term of Agreement8 |
| 2.13 | Management Company8 |
| 2.14 | Risk of Loss8 |
| 2.15 | Escrow8 |
| 2.16 | Title8 |
| 2.17 | Due Diligence Period9 |
| 3. | Closing10 |
| 3.1 | Conditions Precedent10 |
| 3.2 | Time and Place11 |
| 3.3 | Closing Deliveries11 |
| 3.4 | Closing Costs13 |
| 4. | Representations and Warranties and Indemnities13 |
| 4.1 | Representations and Warranties of the Operating Partnership13 |
| 4.2 | Representations and Warranties of the Contributor14 |
| 5. | Indemnification20 |
| 5.1 | Survival of Representations and Warranties; Remedy for Breach20 |
| 5.2 | General Indemnification21 |
| 5.3 | Notice and Defense of Claims21 |
| 5.4 | Limitations on Indemnification Under Section 5.2.121 |
| 5.5 | Indemnification22 |
| 5.6 | Matters Excluded from Indemnification22 |
| 5.7 | Offset22 |
| 6. | Covenants22 |
| 6.1 | Covenants of the Contributor22 |
| 6.2 | Prorations23 |
| 6.3 | Tax Covenants25 |
| 6.4 | Capital Contribution25 |
| 7. | Termination25 |
| 7.1 | Termination25 |
| 7.2 | Default by the Operating Partnership26 |
| 7.3 | Default by the Contributor26 |
| 8. | Miscellaneous26 |
| 8.1 | Further Assurances26 |
| 8.2 | Counterparts26 |
| 8.3 | Governing Law26 |
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TABLE OF CONTENTS
(continued)
Page
| 8.4 | Amendment; Waiver27 |
| 8.5 | Entire Agreement27 |
| 8.6 | Assignability27 |
| 8.7 | Titles27 |
| 8.8 | Third Party Beneficiary27 |
| 8.9 | Severability27 |
| 8.10 | Reliance27 |
| 8.11 | Survival27 |
| 8.12 | Days27 |
| 8.13 | Calculating Time Periods27 |
| 8.14 | Incorporation of Exhibits27 |
| 8.15 | Notice27 |
| 8.16 | Force Majeure28 |
| 8.17 | Impracticability28 |
| 8.18 | Equitable Remedies28 |
EXHIBITS
| A | Legal Description of the Properties |
| B | Contribution and Assumption Agreement |
| C | Assignment of Warranties |
| D | Total Consideration |
| E | Non-Competition Agreement and Non-Solicitation Agreement |
| F | Confidentiality and Non-Disclosure Agreement |
2.2List of Contributed Assets, Assumed Agreements and Leases
| 2.4 | List of Excluded Assets |
| 2.5 | List of Assumed Liabilities; Permitted Liens |
| 2.6 | List of Excluded Liabilities |
2.10Allocation of Total Consideration
3.1.83-05 Audit APPENDICES
ADisclosure Schedule
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CONTRIBUTION AGREEMENT
This Contribution Agreement (this “Agreement”) is made and entered into as of January 31, 2023 (the “Effective Date”) by and between Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Operating Partnership”), and CS Real Estate Holding LLC, a Texas limited liability company (the “Contributor”).
RECITALS
NOW, THEREFORE, in consideration of the foregoing premises, and the mutual undertakings set forth below, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
| 1. | Defined Terms. |
The following terms have the meanings set forth below:
“Act” shall have the meaning as set forth in Section 4.2.9.
“Actions” mean all actions, litigations, complaints, charges, accusations, investigations, petitions, suits, arbitrations, mediations or other proceedings, whether civil or criminal, at law or in equity, or before any arbitrator or Governmental Entity.
“Adverse Change” shall have the meaning as set forth in Section 2.16.1.
“Adverse Change Review Period” shall have the meaning as set forth in Section 2.16.1. “Agreement” shall have the meaning as set forth in the Preamble.
“Amendment” shall have the meaning as set forth in Section 2.8. “Assumed Agreements” shall have the meaning as set forth in Section 2.2. “Assumed Liabilities” shall have the meaning as set forth in Section 2.5. “Basket” shall have the meaning as set forth in Section 5.4.
“Closing” shall have the meaning as set forth in Section 3.2. “Closing Agent” shall have the meaning as set forth in
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Section 2.14. “Closing Date” shall have the meaning as set forth in Section 3.2.
“Closing Documents” shall have the meaning as set forth in Section 3.3. “Code” shall mean the Internal Revenue Code of 1986, as amended.
“Common Limited Units” shall have the meaning set forth in the OP Agreement. “Company” shall mean Lodging Fund REIT III, Inc., a Maryland corporation. “Contributed Assets” shall have the meaning as set forth in Section 2.2. “Contributor” shall have the meaning as set forth in the Preamble.
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“Contributor Point of Contact” shall have the meaning as set forth in Section 2.16.3(d). “Contributor’s Breakage Fee” shall have the meaning as set forth in Section 7.3. “Contributor’s Cure Period” shall have the meaning as set forth in Section 2.15. “Deed” shall have the meaning as set forth in Section 3.3.2.
“Disclosure Schedule” means that disclosure schedule attached as Appendix A. “Due Diligence Documents” shall have the meaning as set forth in Section 2.16.1. “Due Diligence Period” shall have the meaning as set forth in Section 2.16.1. “Due Diligence Review” shall have the meaning as set forth in Section 2.16.3. “Xxxxxxx Money” shall have the meaning as set forth in Section 2.14.
“Environmental Law” means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders, demands, approvals, authorizations and similar items of any Governmental Entity and all applicable judicial, administrative and regulatory decrees, judgments and orders relating to the protection of human health or the environment as in effect on the Closing Date, including but not limited to those pertaining to reporting, licensing, permitting, investigation, removal and remediation of Hazardous Materials, including without limitation (i) the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251), the Safe Drinking Water Act (42 U.S.C. 300f et seq.), the Toxic Substances Control Act (15 U.S.C. 2601 et seq.), the Endangered Species Act (16 U.S.C. 1531 et seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. 11001 et seq.), and
(ii) applicable state and local statutory and regulatory laws, statutes and regulations pertaining to Hazardous Materials.
“Environmental Permits” means any and all licenses, certificates, permits, directives, requirements, registrations, government approvals, agreements, authorizations, and consents that are required under or are issued pursuant to any Environmental Laws.
“Effective Date” shall have the meaning as set forth in the Preamble. “Excluded Assets” shall have the meaning as set forth in Section 2.4. “Excluded Liabilities” shall have the
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meaning as set forth in Section 2.6. “Existing Loan” shall have the meaning as set forth in Section 2.7.1.
“Existing Loan Documents” shall have the meaning as set forth in Section 2.7.1.
“Fixtures and Personal Property” shall mean all fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, business supplies, software, tools, linens (in no event less than 3 par), inventories of standard supplies, services and amenities including without limitation paper goods, brochures, office supplies, unopened food and beverage inventory, chinaware, glassware, flatware, soap, gasoline, fuel oil, inventory held for sale, engineering, pool, maintenance and housekeeping supplies, TV, phone, and internet services, software and hardware, and other operation and guest supplies (each of which shall be maintained and transferred in accordance with brand standards), merchandise, goods, electronics, customer lists and records (including but not limited to customer, supplier, advertising, promotional material, sales, services, delivery and/or operations lists and records), goodwill, intellectual and/or proprietary information and property and applications therefor or licenses thereof and other items of personal property used in connection with the ownership, operation or maintenance of the Property, including all assets located off site from the Property but owned and used by the Contributor in connection with operation of the Property; excluding, however, all fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, business supplies, software, tools, linens, merchandise, goods,
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electronics and other items of personal property owned by tenants, subtenants, guests, invitees, employees, easement holders, service contractors and other Persons who own any such property located on the Property.
“Franchise Agreement” shall have the meaning as set forth in Section 3.1.12.
“Governmental Entity” means any governmental agency or quasi-governmental agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.
“Hazardous Material” means any substance:
| (f) | radon gas. |
“Indemnified Contributor Party” shall have the meaning as set forth in Section 5.5. “Indemnified OP Party” shall have the meaning as set forth in Section 5.5. “Indemnified Party” shall have the meaning as set forth in Section 5.2.1. “Independent Consideration” shall have the meaning as set forth in Section 2.14.
“Intangible Personal Property” shall mean all, right, title and interest relating to the Property in and to all intangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management, or occupancy of the Property, including without limitation: all trade names and trademarks associated with the ownership of the Property; the plans and specifications for the Improvements; warranties; guaranties; indemnities; claims against third parties; claims against tenants for tenant improvement reimbursements; all contract rights related to the construction, operation, ownership or management of the Property; certificates of occupancy; applications, permits, approvals and licenses; insurance proceeds and condemnation awards or claims thereto to be assigned to the Operating Partnership hereunder; all books and records relating to the Property; any existing computer software or programs; any franchise agreements which shall not be terminated at the Closing and are to be assigned to the Operating Partnership, if any; any records, files, lists, and other tangible assets that pertain to the
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Property, including lists and records pertaining to any one or more of the following: the Contributor’s customers, suppliers, advertising, promotional material, sales, services, delivery, and/or operations, except those items, if any, required to be retained by law, including accounting records and returns.
“Inventory Period” shall have the meaning as set forth in Section 2.3.1. “Key Personnel” shall have the meaning as set forth in Section 2.17.3(d).
“Knowledge” means with respect to any representation or warranty so indicated, the knowledge, of the Contributor Point of Contact and/or Key Personnel.
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“Leases” shall have the meaning as set forth in Section 4.2.21. “Lender” shall have the meaning as set forth in Section 2.7.1.
“Liens” means with respect to any real and personal property, all mortgages, pledges, liens, options, charges, security interests, mortgage deed, restrictions, prior assignments, encumbrances, covenants, encroachments, assessments, purchase rights, rights of others, licenses, easements, voting agreements, liabilities or claims of any kind or nature whatsoever, direct or indirect, including, without limitation, interests in or claims to revenues generated by such property.
“Losses” shall have the meaning as set forth in Section 5.2.1.
“Material Adverse Effect” shall have the meaning as set forth in Section 4.2.3.
“Maximum Per Property Total Consideration Adjustment” shall have the meaning as set forth in Section
2.13.
“Merchandise” shall have the meaning as set forth in Section 2.3.1. “Name” shall have the meaning as set forth in Section 4.2.19(c). “NDA” shall have the meaning as set forth in Section 6.1.8.
“Non-Competition Agreement and Non-Solicitation Agreement” shall have the meaning as set forth in
Section 6.1.7.
“Objections” shall have the meaning as set forth in Section 2.15. “OFAC” shall have the meaning as set forth in Section 4.2.32.
“Offering Documents” shall have the meaning as set forth in Section 2.16.2. “Offering Review Period” shall have the meaning as set forth in Section 2.16.2.
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“OP Agreement” shall mean the Amended and Restated Limited Partnership Agreement of Lodging Fund REIT III OP, LP, a Delaware limited partnership, as may be amended.
“Operating Partnership” shall have the meaning as set forth in the Preamble. “Other Taxes” means Taxes other than income Taxes.
“Permitted Liens” means:
“Person” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or governmental entity.
“PIP” shall have the meaning as set forth in Section 4.2.31.
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“Preliminary Title Report” means the preliminary commitment for title insurance committing to insure marketable fee simple title as of the date of the Closing, subject only to the Permitted Liens.
“Property” shall have the meaning as set forth in the Recitals.
“Property Deposits” shall have the meaning as set forth in Section 6.2.1(b)(i).
“Property Reports” means the property condition assessment reports, appraisals, zoning reports and other similar reports prepared for the Property.
“Proprietary Rights” shall have the meaning as set forth in Section 4.2.19(a). “REIT Shares” shall have the meaning set forth in the OP Agreement.
“Release” shall have the same meaning as the definition of “release” in the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) at 42 U.S.C. Section 9601(22), but not including the exclusions identified in that definition, at subparts (A) through (D).
“Satisfaction Notice” shall have the meaning as set forth in Section 2.16.1. “Series T Limited Units” shall have the meaning set forth in the OP Agreement. “Service Contracts” shall have the meaning as set forth in Section 4.2.23.
“Subscription Agreement” shall mean the Subscription Agreement to be entered into by Contributor with respect to the acquisition of the Series T Units.
“Tax” or “Taxes” means any federal, state, provincial, local or foreign income, gross receipts, license, payroll, employment-related, excise, goods and services, harmonized sales, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.
“Tax Return” means any return, declaration, report, claim for refund, or information return or statement related to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Tenants” shall have the meaning as set forth in Section 4.2.21. “Title Company” shall have the meaning as set
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forth in Section 2.15. “Title Policy” shall have the meaning as set forth in Section 3.1.6.
“Total Consideration” shall have the meaning as set forth in Section 2.8. “Transfer” shall have the meaning as set forth in Section 4.2.9(a).
| 2. | Contribution; Total Consideration; Inspection and Title. |
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| 2.7 | Existing Loans and Creditors. |
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and assignments of the foregoing, shall be referred to, collectively, as the “Existing Loan Documents.” Each Existing Loan shall be considered a Permitted Lien for purposes of this Agreement. The Operating Partnership shall cause the Existing Loans to be refinanced or repaid in connection with the Closing.
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making of requests for specific endorsements, said objections or requests (“Objections”) to be made in writing or deemed waived. If any Objections are so made, the Contributor shall within 5 days after receipt of the Operating Partnership’s Objections (the “Contributor’s Cure Period”) respond to the Operating Partnership in writing whether the Contributor shall cure such Objections or decline to cure any Objection. If the Contributor shall decide to make no efforts or shall be unwilling to cure, remove, or obtain insurable title over the Operating Partnership’s Objections, the Operating Partnership may, by the later of the end of the Due Diligence Period or within 5 days after the expiration of the Contributor’s Cure Period, by notice to the Contributor, either (a) waive its Objections and proceed to Closing,
(b) terminate this Agreement by notice to the Contributor and receive a full return of the Xxxxxxx Money or (c) cure the defect at Contributor’s expense and the cost would be credited at Closing.
| 2.17 | Due Diligence Period. |
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| 3. | Closing. |
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Any or all of the foregoing conditions may be waived by the Operating Partnership in its sole and absolute discretion.
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to take place in connection therewith, which Closing Documents and other items shall include, without limitation, the following:
| 3.3.1 | The Contribution and Assumption Agreement in the form attached hereto as Exhibit B; |
| 3.3.3 | The OP Agreement; |
| 3.3.4 | The Amendment evidencing the transfer of Series T Limited Units to the Contributor; |
| 3.3.10 | The Contributor shall deliver to the Operating Partnership possession of the Property; |
| 3.3.13 | Closing Statements detailing all prorations and adjustments; |
| 3.3.14 | A duly executed Non-Competition and Non-Solicitation Agreement; |
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| 3.4 | Closing Costs. Subject to Section 2.14, the Operating Partnership shall be responsible for |
(i) reassessments, (ii) escrow charges, (iii) the cost of any endorsements to the Owner’s Title Policy which the Operating Partnership shall require, (iv) all costs associated with any new Property Reports obtained by the Operating Partnership and (v) all costs relating to the issuance of the Franchise Agreement. The Contributor shall be responsible for (i) the cost of the Owner’s Title Policy (with extended coverage) obtained by the Operating Partnership, (ii) any documentary or other transfer taxes, (iii) any recording taxes or fees, (iv) all costs associated with an updated title commitment/search, (v) the cost of scheduling, ordering and providing the Operating Partnership an approved change of ownership PIP and (vi) any withholding taxes required to be paid and/or withheld in respect of the Contributor at Closing as a result of the Contributor’s tax status. Each party will pay its own attorneys’ fees for this transaction.
| 4. | Representations and Warranties and Indemnities. |
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(a) result in a default (or an event that, with notice or lapse of time or both would become a default) or give to any third party any right of termination, cancellation, amendment or acceleration under, or result in any loss of any material benefit, pursuant to any material agreement, document or instrument to which the Operating Partnership or any of its properties or assets may be bound, or (b) violate or conflict with any judgment, order, decree or law applicable to the
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Operating Partnership or any of its properties or assets; provided in the case of (a) and (b), unless any such default, violation or conflict would not have a material adverse effect on the Operating Partnership.
4.2
Representations and Warranties of the Contributor. The Contributor represents and warrants to the Operating Partnership, which representations and warranties are true and correct as of the Effective Date and will be true and correct as of the date of Closing:
| 4.2.5 | Ownership of the Property; Contributed Assets. |
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Units which the Contributor deems necessary or desirable to evaluate the merits and risks related to its investment in the Series T Limited Units and to conduct its own independent valuation of the Property.
| (c) | Holding Period. The Contributor acknowledges that it has been advised that |
(i) the Series T Limited Units must be held for 12 months and may have to be held indefinitely thereafter, and the Contributor must continue to bear the economic risk of the investment in the Series T Limited Units (and any Common Stock that might be exchanged therefor), unless they are subsequently registered under the Act or an exemption from such registration is available (it being understood that the Operating Partnership has no intention of so registering the Series T Limited Units) and (ii) a notation shall be made in the appropriate records of the Operating Partnership indicating that the Series T Limited Units are subject to restrictions on transfer.
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limitation, those currently relating to fire safety, conservation, parking, the Occupational Safety and Health Act, the Americans with Disabilities Act, zoning and building laws) whether federal, state or local, foreign. The Contributor presently possesses and will continue to possess at the Closing Date all governmental licenses, permits, certificates of inspection, other authorizations, filings, and registrations which are necessary for a hotel to be operated at the Property. The Contributor has not received written notice of any violation of any laws, ordinances or regulations from any governmental or regulatory authority with respect to the Property that has not been corrected.
| 4.2.17 | Real Property. |
| 4.2.19 | Trademarks and Tradenames; Proprietary Rights. |
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(i) Aggieland Boutique Hotel (the “Name”) or (ii) any part or portion of the Name, either alone or in combination with one or more other words. After the Closing Date, the Contributor agrees that it will not use the Name directly or indirectly, either alone or in combination with one or more other words, in or in connection with any business, activities, or operations that the Contributor directly or indirectly may carry on or conduct.
| 4.2.20 | Condition of Property. |
2.2 contains a complete and accurate list of all Leases. The Contributor owns fee title to the Property and holds the lessor’s interest under such Leases; a true and complete copy of all such Leases have been made available to the Operating Partnership; the Contributor, as lessor under such Leases, has not received any notice that it is in default of any of its obligations under such Leases beyond any applicable grace period which has not been cured. To the Contributor’s Knowledge, all material obligations of the lessor under the Leases that have accrued to the Effective Date have been performed or satisfied. To the Contributor’s Knowledge, no tenants under any of the Leases is presently the subject of any voluntary or involuntary bankruptcy or insolvency proceedings. The Contributor shall terminate all Leases prior to the Closing.
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employed by any of the Property and transactions contemplated by the Agreement will not result in any liability with respect to labor and employment matters but agrees to cause the following:
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amounts for projects similar to the Property in the markets in which the Property is located but in an amount of no less than full replacement cost of the improvements and general liability insurance in a per occurrence amount of no less than $1,000,000 and aggregate claims amount of no less than $3,000,000 for each policy and shall maintain such coverage in full force and effect until the Closing, and in all cases substantially in compliance with the existing financing arrangements. To the Contributor’s Knowledge, each of such policies is in full force and effect, and all premiums due and payable thereunder have been fully paid when due. No written notice of cancellation, default or non-renewal has been received or to the Contributor’s Knowledge threatened with respect thereto. There are no outstanding claims on the Contributor’s insurance policies relating to the Property or any portion thereof.
| 5. | Indemnification. |
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| 5.2 | General Indemnification. |
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Losses arising out of a breach of representations or warranties contained in Sections 4.2.1, 4.2.2, 4.2.7, 4.2.8 and
4.2.10 shall not be subject to the Basket and shall be recoverable from the first dollar of Losses.
(ii) all fees, costs and expenses of the Contributor in connection with the transactions contemplated by this Agreement.
| 6. | Covenants. |
| 6.1 | Covenants of the Contributor. |
For avoidance of doubt, the transfer and acquisition of the stock, membership of rights of Contributor by PHMI prior to Closing pursuant to the provisions and requirements of Section 3.1.14 hereof shall not be deemed a violation or breach of this Section 6.1.
| (a) | Enter into any material transaction not in the ordinary course of business with |
respect to any Property;
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| (b) | Except as otherwise disclosed in the Disclosure Schedule, mortgage, pledge or |
encumber (other than by Permitted Liens) the Property or any assets related to the Property or the Contributed Assets, except (i) liens for taxes not delinquent or being disputed by the Contributor in good faith and by appropriate proceeding in the ordinary course of the Contributor’s business, and (ii) mechanics’ liens being disputed by the Contributor in good faith and by appropriate proceeding in the ordinary course of the Contributor’s business;
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| 6.2 | Prorations. |
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entire day on which the Closing Date occurs and being entitled to receive all revenue of the Property, and being obligated to pay all expenses of the Property, with respect to such day.
| (a) | Such prorated items shall include the following: |
| (iv) | all amounts payable with respect to Assumed Liabilities in effect as of |
the Closing;
| (v) | credit shall be given to the Contributor for interest accounts, impound |
accounts, escrow accounts and other reserves included within the Existing Loans, which shall be re-financed or paid by the Operating Partnership at the Closing;
apply:
| (b) | Notwithstanding anything contained in this Section 6.2.1, the following shall |
| (i) | The Operating Partnership shall be entitled to a credit against the |
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Contributor’s Total Consideration to be delivered for the total sum of all deposits with respect to the Assumed Liabilities (not including interest accounts, impound accounts, escrow accounts and other reserves included within the Existing Loans, which shall be addressed in accordance with Section 6.2.1(a)(v) above) (the “Property Deposits”) to the extent not paid over to the Operating Partnership, and the Operating Partnership shall assume at the Closing the obligation under the Assumed Liabilities with respect to all Property Deposits credited or paid over to the Operating Partnership;
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the Operating Partnership for the purpose of making such refund payments with the remaining portion of such refunds retained by or delivered to, as the case may be, the Contributor. The Operating Partnership shall pay all supplemental taxes resulting from the change in ownership and reassessment occurring as the result of the Closing pursuant to this Agreement;
(iii) conducting or defending any proceeding in respect of taxes, or (iv) performing tax diligence, including with respect to the impact of this transaction on the Company’s tax status as a REIT. The Contributor shall promptly notify the Operating Partnership in writing upon receipt by the Contributor or any of their respective affiliates of notice of any pending or threatened federal, state, local or foreign tax audits or assessments relating to the income, properties or operations of the Contributor. The Operating Partnership may participate at its own expense in the prosecution of any claim or audit with respect to taxes attributable to any taxable period ending on or before the Closing Date. The Contributor shall retain all tax returns, schedules and work papers, and all material records and other documents relating thereto, until the expiration of the statute of limitations (and, to the extent notified by any party, any extensions thereof) of the taxable years to which such tax returns and other documents relate and until the final determination of any tax in respect of such years.
| 7. | Termination. |
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| 7.1.1 | The Contributor fails to comply with any of the Contributor’s obligations hereunder; |
| 7.1.2 | A default exists in any material financial obligation of the Contributor; |
| 7.1.4 | There shall be a material action, suit or proceeding pending or threatened against the |
Contributor;
| 7.1.5 | The Title Company shall refuse to provide written confirmation it will issue an owner’s |
title insurance policy reflecting only Permitted Liens, endorsements or affirmative insurance requested by the Operating Partnership during the Due Diligence Period; and
| 8. | Miscellaneous. |
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To the Contributor:
CS Real Estate Holding, LLC Attn: Xxxxx Xxxxx
00 Xxxxxxx Xxxx
Xxxxxxxx, GA 30736
Fax: (706)
With copy to:
Xxxxx & Xxxxx Attorneys at Law, LLC Attn: C. Xxxx Xxxxx
0000 Xxxxxxxxx Xxxxxx
Ringgold, GA 30736
Fax: (000) 000-0000
To the Operating Partnership:
Lodging Fund REIT III OP, LP Attn: Xxxxxx Xxxxxxxx
0000 00xx Xxxxxx X, Xxxxx 000
Fargo, ND 58103
Fax: (000) 000-0000
With copy to:
Xxxxxxxxx Xxxxxx PLLC Attn: Xxxxx Xxxxxx
000 Xxxxxx Xxxxxx XX, Xxxxx 0000 Xxxxx Xxxxxx, XX 00000
Fax: (000) 000-0000
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[signature page follows]
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above.
IN WITNESS WHEREOF, the parties have executed this Contribution Agreement as of the date first written
OPERATING PARTNERSHIP:
Lodging Fund REIT III OP, LP a Delaware limited partnership
Its:General Partner
By: Xxxxxx X. Xxxxxxxxxx Its: Chief Operating Officer
By:Lodging Fund REIT III, Inc.
/s/ Xxxxxx X. Xxxxxxxxxx
CONTRIBUTOR:
CS Real Estate Holding LLC
a Texas limited liability company
By:/s/ Xxxxx Xxxxx Name:Xxxxx Xxxxx
Title:Managing Member
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Exhibit A
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EXHIBIT B TO
CONTRIBUTION AGREEMENT CONTRIBUTION AND ASSUMPTION AGREEMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby
acknowledged, the undersigned hereby assigns, transfers and conveys to Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Operating Partnership”), its entire legal and beneficial right, title and interest (other than any Excluded Assets) in, to all of the Contributed Assets and the Assumed Agreements, as listed on Schedule 2.2 of the Agreement, together with all amendments, waivers, supplements and other modifications of and to such agreements, contracts, licenses and other instruments through the date hereof, in each case to the fullest extent assignment thereof is permitted by applicable law,
TO HAVE AND TO HOLD the same unto the Operating Partnership, its successors and assigns, forever.
Upon the execution and delivery hereof, the Operating Partnership absolutely and unconditionally accepts the foregoing assignment of each Contributed Asset and Assumed Agreement and assumes all Assumed Liabilities in respect of the Assumed Agreements, and agrees to be bound by the terms, conditions and covenants thereof, and to perform all duties and obligations of the Contributor thereunder from and after the date hereof.
The Contributor for itself, its successors and assigns hereby covenants and agrees that, at any time and from time to time after the date hereof upon the written request of the Operating Partnership, the Contributor will, without further consideration, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, each and all of such further acts, deeds, assignments, transfers, conveyances and assurances as may reasonably be required by the Operating Partnership in order to assign, transfer, set over, convey, assure and confirm unto and vest in the Operating Partnership, its successors and assigns, title to the Assumed Agreements (other than the Excluded Assets) granted, transferred, conveyed and delivered by this Agreement.
Capitalized terms used herein, but not defined have the meanings ascribed to them in the Contribution Agreement, dated as of [ ], 2023, between the Operating Partnership and the Contributor.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered the Agreement as of the date first above written.
CONTRIBUTOR:
CS Real Estate Holding LLC
a Texas limited liability company
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By: Name: Xxxxx Xxxxx
Title: Managing Member
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ACKNOWLEDGEMENT
STATE OF )
) ss.: COUNTY OF )
On , before me, the undersigned, a Notary Public in and for said State, personally appeared, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and executed before me the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
Notary Public(SEAL)
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EXHIBIT D TO
CONTRIBUTION AGREEMENT TOTAL CONSIDERATION
Total Consideration pursuant to Section 2.8 of the Agreement shall be $18,500,000, consisting of:
$10,000,000 via refinance of Contributor’s current financing as of the Effective Date
$5,000,000 in Series T Limited Units, equivalent to 500,000 Series T Limited Units
$3,500,000 in cash at Closing,. Accordingly, the Series T Value will be reduced at the time of re-valuation and conversion on a dollar for dollar basis for any cash infused at Closing. Any decision to use this available amount of cash is at the discretion of the Operating Partnership for Closing.
Operating Partnership shall reimburse the Contributor for a design fee of $50,000 at closing, such payment is not additional consideration but a reimburse related to the PIP.
Distributions pursuant to Section 2.11 of the Agreement shall be:
Base Year NOI is equal to $1,755,752
Distribution Amount | Condition |
1% | If NOI is equal to or greater than 70% but less than 80% of Base Year NOI |
2% | If NOI is equal to or greater than 80% but less than 90% of Base Year NOI |
3% | If NOI is equal to or greater than 90% but less than 100% of Base Year NOI |
4% | If NOI is equal to or greater than 100% but less than 110% of Base Year NOI |
5% | If NOI is equal to or greater than 110% but less than 120% of Base Year NOI |
6% | If NOI is equal to or greater 120% of Base Year NOI |
The number of Common Limited Units in the Operating Partnership shall be determined based on the formula below, which shall constitute the Series T Value. The Series T Value shall be determined upon (i) 36 months after the Closing Date or (ii) the sale of (a) the Property or (b) substantially all of the Operating Partnership’s assets.
The Applicable Cap Rate when applied to the then current trailing 12 month net operating income of the Contributed Asset, less amounts incurred or accrued by the Partnership for (i) any funds advanced as cash at closing (ii) reasonable contribution towards closing costs, (iii) the Original Loan Balance, (iv) loan assumption or origination fees and related expenses, (v) if applicable, costs of prepayment or defeasance and related expenses, (vi) PIP and capital expenditures, (vii) operating cash infused by the General Partner and/or Partnership, (viii) any shortfall of the 10% minimum cumulative yield on General Partner’s invested capital, and (ix) any other unrealized or unreimbursed costs of operating the Contributed Asset.
Applicable Cap Rate shall mean: 9.5%
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“12 month net operating income of the Contributed Asset” shall mean: (a) the Gross Revenue of the Property, minus
(b) Operating Expenses for the Property, for the current trailing twelve (12)-month period.
“Gross Revenue” shall include the following amounts recorded in accordance with generally accepted accounting principles consistently applied:
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“Operating Expenses” shall mean: all of the ordinary and normal expenses of operation of the Property, determined on an annualized accrual basis, including annualized property taxes and property assessed clean energy (“PACE”) loan payments, insurance premiums (or taxes and/or insurance impounds, if taxes and/or insurance are impounded by Lender), reserve account equal to 4 percent (4%) of Gross Revenue for furniture, fixtures and equipment reserves, franchise fees and royalties, telephone and internet expenses, administrative and general expenses, management fees, utilities, repair and maintenance, salaries and wages, and advertising and marketing expenses; provided, however, that Operating Expenses will not include:
| a. | depreciation and amortization; |
| b. | non-cash items; |
| c. | all capital items or expenditures, including construction costs and professional fees and other expenses relating thereto and any amortization thereof; |
| d. | costs of repair or restoration after a casualty or condemnation; |
| e. | debt service payments made to lenders; |
| f. | income or franchise taxes; and |
| g. | extraordinary one-time expenses that are not reasonably expected to be incurred in future periods. |
“Net Cash Flow” means the Property Net Operating Income (including any FF&E Reserves) less Principal and Interest, less any distributions provided on T-Unit Equity, less Borrower’s Fund Level Expenses attributable to Property.
“Combined Yield” defined as the sum of Xxxxxxxx’s 10% annual returns plus Borrower’s share of Distributable Cash, divided by all of Borrower’s invested capital, annualized.
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EXHIBIT E TO
CONTRIBUTION AGREEMENT
NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT
This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this “Agreement”) is dated as of
, 2023 (the “Effective Date”), between Lodging Fund REIT III OP, LP a Delaware limited partnership with an address of 0000 00xx Xxxxxx Xxxxx, Xxxxx 000, Xxxxx, Xxxxx Xxxxxx 00000 (“Operating Partnership”), CS Real Estate Holding LLC, a Texas limited liability company with an address of 00 Xxxxxxx Xxxx, Xxxxxxxx, XX 00000 (“Contributor”), and Xxxxx Xxxxx, its managing member and Xxxxxxx Xxxxx, operating officers of the Contributor (the “Interested Parties”). The Contributor and Interested Parties are collectively referred to herein as the “Restricted Parties.”
R E C I T A L S:
| A. | The Operating Partnership and Contributor have entered into a Contribution Agreement, dated as of |
, 2023, (the “Contribution Agreement”), pursuant to which the Contributor has agreed to contribute property to the Operating Partnership, such property located at 0000 Xxxxx Xxx. S, College Station, TX 77840 (the “Hotel”).
A G R E E M E N T
For valuable consideration, the parties agree to the following covenants and agreements set forth in this Agreement and in the Contribution Agreement:
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| 1.3 | Confidential Information. |
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(b) solicit, recruit, or encourage any employee or independent contractor of the Hotel or Operating Partnership to leave his or her employment, (c) hire, employ or cause to be hired, or establish a business with, any person who was employed at the Hotel, within the 12-month period preceding the Closing Date, (d) solicit any business clients of the Hotel or encourage them to terminate any contracts, and (e) interfere with or encourage any adjustments to long term negotiated rate clientele. In addition, any attempt by any Restricted Party to induce others to terminate any contracts, employment, or independent contractor relationship with Operating Partnership or the Hotel, or any effort by any Restricted Party to interfere with any of the relationships between each of the Operating Partnership and the Hotel and any of their business clients, employees, or independent contractors, would be harmful and damaging to the Operating Partnership. For purposes of this Section 1.3, an “employee” will include any person who is a common law employee or who is an independent contractor providing personal services.
| 1.7 | Remedies. |
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Partnership will be entitled to obtain equitable relief by temporary restraining order, preliminary and permanent injunction or otherwise from any court of competent jurisdiction (without the requirement of posting a bond or other security), including, without limitation, injunctive relief to prevent the Restricted Parties’ failure to comply with the terms and conditions of Section 1 of this Agreement. Such right and remedy will be in addition to, and not in lieu of, any other rights and remedies available to Operating Partnership at law or in equity, including the right to seek monetary damages.
If to the Restricted Parties:
CS Real Estate Holding, LLC Attn: Xxxxx Xxxxx
00 Xxxxxxx Xxxx
Xxxxxxxx, GA 30736
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Fax: (706)
Email:
With copy to:
Xxxxx & Xxxxx Attorneys at Law, LLC Attn: C. Xxxx Xxxxx
0000 Xxxxxxxxx Xxxxxx
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Ringgold, GA 30736
Fax: (000) 000-0000
Email:
If to Operating Partnership:
Lodging Fund REIT III OP, LP Attn: Xxxxxx Xxxxxxxx
0000 00xx Xxxxxx X, Xxxxx 000
Fargo, ND 58103
Fax: (000) 000-0000
Email: xxxxxxxxx@xxxxxxxxxxxx.xxx
With copy to:
Xxxxxxxxx Xxxxxx PLLC Attn: Xxxxx Xxxxxx
000 Xxxxxx Xxxxxx XX, Xxxxx 0000 Xxxxx Xxxxxx, XX 00000
Fax: (000) 000-0000
Email: xxxxxxx@xxxxxxxxx-xxxxxx.xxx
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[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
OPERATING PARTNERSHIP:
Lodging Fund REIT III OP, LP a Delaware limited partnership
By:Lodging Fund REIT III, Inc. Its: General Partner
By: Name: Xxxxxx X. Xxxxxxxxxx
Title: Chief Operating Officer
CONTRIBUTOR:
CS Real Estate Holding LLC
a Texas limited liability company
By: Name:Xxxxx Xxxxx
Title:Managing Member RESTRICTED PARTIES:
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Xxxxx Xxxxx
Xxxxxxx Xxxxx
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EXHIBIT F TO
CONTRIBUTION AGREEMENT CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT
THIS AGREEMENT is made and entered into as of January 31, 2023, 2023 by and between Lodging Fund
REIT III OP, LP (individually and collectively with its subsidiaries, owners and affiliates, the “Partnership”) and CS Real Estate Holding LLC (“Contributor”) (the Partnership and Contributor individually, a “Party” and collectively, the “Parties”).
The Parties intend to exchange Confidential Information to one another in connection with the possibility of engaging in the transaction described in the Contribution Agreement (the “Transaction”).
In consideration of the promises exchanged herein, the Parties hereto agree that the following terms and conditions shall apply when one Party discloses "Confidential Information" to the other Party:
| 1. | DEFINITION OF “CONFIDENTIAL INFORMATION”. As used in this Agreement, the term “Confidential Information” means all information relating to or used in the Partnership’s business, regardless of whether it is marked “confidential” or otherwise. Confidential Information includes, but is not limited to, all business processes and procedures, systems, methods of doing business, data, reports, specifications, formulae, proposals, strategies, business plans and analyses, financial information and projections, investment strategy, marketing, advertising, promotions, market research, plans, information about past, present or potential investors, information about past, present or potential vendors, information about existing or future technology, and proprietary software or models. Without limiting the foregoing, the term “Confidential Information” expressly includes: the Partnership’s investment strategies, including without limitation the possibility of entering into an umbrella real estate investment trust (“UPREIT”) transaction; and potential details related to the Transaction, including without limitation potential Transaction terms, provisions, and pricing. The foregoing notwithstanding, the term “Confidential Information” does not include information that: |
| a) | Is or becomes known to the public through no fault of the receiving Party; |
| b) | The receiving Party already rightfully possessed before the disclosing Party disclosed it to the receiving Party; |
| c) | Is subsequently disclosed to the receiving Party by a third-party who is not under obligation of confidentiality to the disclosing Party; or |
| d) | The receiving Party develops independently without using Confidential Information. |
| 2. | NON-DISCLOSURE OBLIGATIONS. Neither Party shall not disclose Confidential Information of the other Party to any of its officers, directors, employees, contractors or agents or to any third-party without the disclosing Party’s written consent, except that (a) the receiving Party may disclose such information to its officers, directors, employees, contractors, and agents whose duties justify their need to know such Confidential Information, and who have been clearly informed of their obligation to maintain the confidential status of such Confidential Information, and in the case of contractors or agents, who have signed a written document acknowledging the obligation to maintain the confidential status of Confidential Information, and shall cause them to comply fully with these obligations; and (b) the receiving Party may disclose Confidential |
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| Information to the extent required by applicable federal, state or local law, regulation, court order, or other legal process, provided such Party has given the disclosing Party prior written notice of such required disclosure and, to the extent reasonably possible, has given the disclosing Party an opportunity to contest such required disclosure at the disclosing Party’s expense. |
| 3. | PROTECTION OF CONFIDENTIAL INFORMATION. The receiving Party shall use the same care to prevent the unauthorized use or disclosure of the Confidential Information as such Party uses with respect to its own confidential information of a similar nature, which shall not in any case be less than the care a |
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reasonable business person would use under similar circumstances. Without limiting the foregoing, the receiving Party shall take reasonable action by instruction, agreement or otherwise with respect to such Party’s employees or other persons permitted access to Confidential Information to cause them to comply fully with the receiving Party’s obligations hereunder.
| 4. | PERMITTED USE OF CONFIDENTIAL INFORMATION. The receiving Party may not use the Confidential Information directly or indirectly for any purpose other than the purpose for which it was originally disclosed, or for any purposes which could be deemed to be adverse to or competitive with the disclosing Party’s business. Notwithstanding the foregoing and anything to the contrary in this Agreement, nothing contained herein shall impair Buyer’s right (or the right of any permitted assignee or Lodging Fund REIT III, Inc. (“Parent”)) to disclose information relating to this Agreement, the Contribution Agreement, or the Property (a) to any due diligence representatives and/or consultants that are engaged by, work for or are acting on behalf of, any securities dealers, investment advisors and/or broker-dealers evaluating Buyer, its permitted assignees or Parent, (b) in connection with any filings with governmental agencies (including the Securities and Exchange Commission) by Parent, (c) to any broker-dealers or investment advisors in Parent’s selling group and any of Parent’s investors, including pursuant to the confidential offering memorandum used in connection with Xxxxxx’s ongoing private offering, and (d) to the public as long as such information does not specifically disclose the identity of the Contributor or the Property if such disclosure occurs before the end of the Due Diligence Period. |
| 5. | DESTRUCTION OF CONFIDENTIAL INFORMATION. Upon the written request of the disclosing Party, the receiving Party shall cease using and arrange for the destruction of all copies of any Confidential Information then in the receiving Party’s possession or under such Party’s control. The receiving Party agrees to dispose of the Confidential Information in such a manner that the information cannot be read or reconstructed after destruction. Upon the written request of the disclosing Party, the receiving Party shall certify in writing that it has complied with the obligations set forth in this paragraph. |
| 6. | INFORMATION SECURITY. (a) The receiving Party shall take appropriate measures designed to protect the security, confidentiality, and integrity of Confidential Information; (b) the receiving Party shall restrict access to Confidential Information to those officers, directors, employees, contractors, agents or other third parties whose access the disclosing Party deems appropriate; (c) Confidential Information shall continue to be subject to the terms of this Agreement indefinitely; and (d) the disclosing Party shall have the right to review the receiving Party’s operations and procedures to ensure compliance with the foregoing requirements. The receiving Party agrees to indemnify the disclosing Party for all reasonable fees, costs, charges, and expenses resulting from any unauthorized access to Confidential Information. |
| 7. | OWNERSHIP OF CONFIDENTIAL INFORMATION. The disclosing Party shall retain all right, title and interest in and to its own Confidential Information. Neither this Agreement nor any disclosure of Confidential Information shall be deemed to grant the receiving Party any license or other intellectual property right. |
| 8. | DISCLAIMERS. The receiving Party acknowledges and agrees that the disclosing Party provides Confidential Information disclosed hereunder on an “AS IS” basis, without warranties of any kind, except as specified in Section 7 above. Without limiting the foregoing, the disclosing Party does not represent or warrant that Confidential Information is accurate, complete or current. The disclosure of Confidential Information containing business plans is for planning purposes only. The disclosing Party may change or cancel its plans at any time at such Party's sole discretion. The receiving Party further acknowledges and understands that disclosure of Confidential Information is not a representation that the parties will enter into any type of business relationship. |
| 9. | INJUNCTIVE RELIEF. The receiving Party acknowledges that the unauthorized use or disclosure by such Party of Confidential Information would cause immediate and irreparable damage that could not be fully |
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| remedied by monetary damages. The receiving Party therefore agrees that the disclosing Party may specifically enforce this Agreement and shall be entitled to injunctive or other equitable relief to prevent unauthorized use or disclosure without the necessity of proving actual damage. |
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| 10. | TERMINATION. This Agreement shall remain in full force and effect until the earlier of (i) the Parties’ execution of a binding agreement superseding this Agreement, or (ii) a date two years after the conclusion of business discussions between the Parties. |
| 11. | SEVERABILITY. If any provision of this Agreement is held invalid, illegal or unenforceable the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired. |
| 12. | GENERAL. This Agreement supplements the LOI, and to the extent inconsistent, supersedes any other non- disclosure or confidentiality agreement between the Parties. The Parties may not amend this Agreement except in a writing that each party signs. The terms of such an amendment shall apply as of the effective date of the amendment, unless the amendment specifies otherwise. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns. The laws of the State of North Dakota shall govern this Agreement. No provision of this Agreement may be waived, except pursuant to a writing executed by the party against whom the waiver is sought to be enforced. No failure or delay in exercising any right or remedy or requiring the satisfaction of any condition under this Agreement operates as a waiver or estoppel of any right, remedy or condition. All remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available at law, in equity or otherwise. |
LODGING FUND REIT III OP, LP
on behalf of itself an
d its subsidiaries, owners and affiliates
By: Name: Xxxxxx X. Xxxxxxxxxx
Title: Chief Operating Officer
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CS REAL ESTATE HOLDING LLC
a Texas limited liability company
By: Name: Xxxxx Xxxxx
Title: Managing Member
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EXHIBIT G TO
CONTRIBUTION AGREEMENT TAX INFORMATION
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Schedule 2.2
List of Contributed Assets, Assumed Agreements and Leases
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Schedule 2.4
List of Excluded Assets
| 1. | Contributor’s cash, cash equivalents and investments not relating to the operation of the Property. |
| 2. | Any Fixtures and Personal Property that contains hazardous materials that the Operating Partnership requires to be removed. |
| 3. | Any management agreement pertaining to the Property, which management agreements must be terminated at Closing. |
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Schedule 2.5
List of Assumed Liabilities; Permitted Liens
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Schedule 2.6
List of Excluded Liabilities
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Schedule 2.10 Allocation of Total Consideration
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Schedule 3.1.8
3-05 Audit
Contributor acknowledges that under either Rule 3-05 or Rule 3-14 of Regulation S-X, the Operating Partnership is required to provide certain information in connection with reports the Company is required to file with the Securities and Exchange Commission.
Accordingly, Contributor agrees to:
In connection with the foregoing, the Operating Partnership will give the Contributor no less than 10 business days’ prior written notice of the Operating Partnership’s plans to inspect and audit such books and records, and the Contributor’s obligation to perform herein shall extend beyond the Closing.
Notwithstanding the foregoing, the Contributor will not be required to (a) prepare or compile any materials,
(b) incur any third-party costs or expenses in connection with the Rule 3-05 or 3-14 Audit, (c) provide any books, records or materials that could reasonably be expected to be books, records or materials in the possession or control of the tenant parties, (d) provide any books, records or materials that are not within the possession or control of the Contributor, or (e) make any representations or warranties with respect to such information beyond a customary management representation letter signed by the Contributor reasonably requested by any accounting firm engaged by the Operating Partnership to deliver its auditors report with respect to the Rule 3-05 or Rule 3-14 Audit. The Operating Partnership acknowledges and agrees that the foregoing accounting and financial materials to be provided by the Contributor does not include any information or materials related to the period prior to the date the Contributor acquired the Property and the Contributed Assets and is to be limited solely to information regarding the Property and the Contributed Assets after they were placed into operation by the Contributor. The Contributor acknowledges that the Rule 3-05 or Rule 3-14 Audit may require the Operating Partnership to perform a Rule 3-05 or 3-14 Audit both after the Effective Date and after the Closing Date and the Contributor agrees that the Contributor’s obligations under this Schedule 3.1.8 are material terms of this Agreement, and breach of this Schedule 3.1.8 will constitute a default under the terms of this Agreement. The Contributor further agrees, that the Operating Partnership’s sole and absolute remedy in the event of default is that of specific performance.
