Page 23 - Apple REIT 9 2008 Annual Report

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PART II
Item 5. Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
On-Going Best-Efforts Offering
The Company is currently conducting an on-going best-efforts offering. The Company registered its Units on Registration
Statement Form S-11 (File No. 333-147414) filed on April 23, 2008 and was declared effective by the Securities and Exchange
Commission on April 25, 2008. The Company began its best-efforts offering of Units the same day the registration statement was
declared effective. Each Unit consists of one common share and one Series A preferred share. The minimum offering of 9,523,810
Units at $10.50 per Unit was sold as of May 14, 2008, with proceeds, net of commissions and marketing expenses totaling $90
million. The Offering is continuing as of the date of filing this annual report on Form 10-K. The managing underwriter is David Lerner
Associates, Inc. and all of the Units are being sold for the Company’s account. The Company will offer Units until April 25, 2010,
unless the offering is extended, or terminated if all of the Units are sold before then.
Common Shares
There is currently no established public market in which the Company’s common shares are traded. As of December 31, 2008
there were 41 million Units outstanding. The per share estimated market value shall be deemed to be the offering price of the shares,
which is currently $11.00 per share. This market valuation is supported by the fact that the Company is currently selling shares to
the public at a price of $11.00 per share through its on-going best-efforts offering. As of December 31, 2008 the Units were held by
approximately 11,600 beneficial shareholders.
Unit Redemption Program
The Company may use proceeds received from the sale of Units pursuant to its Additional Share Option Plan and Dividend
Reinvestment Plan (which the Company plans to implement following the conclusion of its on-going best-efforts offering) to redeem
Units. The Unit Redemption Program will not begin until May 2009, which is the expiration of one year from the initial closing of the
offering. Beginning in May, shareholders may request redemption of Units for a purchase price equal to 92% of the price paid per Unit
if the Units have been owned less than three years or 100% of the price paid per Unit if the Units have been owned more than three
years. The maximum number of Units that may be redeemed in any given year will be three percent of the weighted average number
of Units outstanding during the 12-month period immediately prior to the date of redemption. The Company reserves the right to
change the purchase price of redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate
the Unit Redemption Program.
Series A Preferred Shares
The Series A preferred shares have no voting rights and no conversion rights. In addition, the Series A preferred shares are not
separately tradable from the common shares to which they relate. The Series A preferred shares do not have any distribution rights
except a priority distribution upon the sale of the Company’s assets. The priority distribution (“Priority Distribution”) will be equal to
$11.00 per Series A preferred share, and will be paid before any distribution will be made to the holders of any other shares. Upon the
Priority Distribution the Series A preferred shares will have no other distribution rights.
Series B Convertible Preferred Shares
The Company currently has 480,000 Series B convertible preferred shares issued and outstanding, all owned by Glade M. Knight,
the Company’s Chairman and Chief Executive Officer. There are no dividends payable on the Series B convertible preferred shares.
Holders of more than two-thirds of the Series B convertible preferred shares must approve any proposed amendment to the Articles
of Incorporation that would adversely affect the Series B convertible preferred shares. Upon liquidation, each holder of the Series
B convertible preferred shares is entitled to a priority liquidation payment. However the priority liquidation payment of the holder
of the Series B convertible preferred shares is junior to the holders of the Series A preferred shares distribution rights. The holder
of a Series B convertible preferred share is entitled to a liquidation payment of $11 per number of common shares into which each
Series B convertible preferred share would convert. In the event that the liquidation of the Company’s assets results in proceeds that
exceed the distribution rights of the Series A preferred shares and the Series B convertible preferred shares, the remaining proceeds
will be distributed between the common shares and the Series B convertible preferred shares, on an as converted basis. The Series B
convertible preferred shares are convertible into common shares of the Company upon and for 180 days following the occurrence of
any of the following events: (1) substantially all of the Company’s assets, stock or business is sold or transferred through exchange,
merger, consolidation, lease, share exchange, sale or otherwise, other than a sale of assets in liquidation, dissolution or winding up of
the Company’s business; or (2) the termination or expiration without renewal of the advisory agreement with A9A or if the company
ceases to use ASRG to provide property acquisition and disposition services; or (3) the Company’s common shares are listed on any
securities exchange or quotation system or in any established market.