Page 24 - Apple REIT 9 2008 Annual Report

14
Preferred Shares
The Company’s articles of incorporation authorize issuance of up to 30 million additional preferred shares. No preferred shares
other than the Series A preferred shares and the Series B convertible preferred shares (discussed above) have been issued. The
Company believes that the authorization to issue additional preferred shares benefits the Company and its shareholders by permitting
flexibility in financing additional growth, giving the Company additional financing options in corporate planning and in responding
to developments in business, including financing of additional acquisitions and other general corporate purposes. Having authorized
preferred shares available for issuance in the future gives the Company the ability to respond to future developments and allows
preferred shares to be issued without the expense and delay of a special shareholders’ meeting. At present, the Company has no
specific financing or acquisition plans involving the issuance of additional preferred shares and the Company does not propose to
fix the characteristics of any series of preferred shares in anticipation of issuing preferred shares other than the Series A preferred
shares and Series B convertible preferred shares discussed above. The Company cannot now predict whether or to what extent, if any,
additional preferred shares will be used or if so used what the characteristics of a particular series may be. The voting rights and rights
to distributions of the holders of common shares will be subject to the prior rights of the holders of any subsequently-issued preferred
shares. Unless otherwise required by applicable law or regulation, the preferred shares would be issuable without further authorization
by holders of the common shares and on such terms and for such consideration as may be determined by the Board of Directors. The
preferred shares could be issued in one or more series having varying voting rights, redemption and conversion features, distribution
(including liquidating distribution) rights and preferences, and other rights, including rights of approval of specified transactions. A
series of preferred shares could be given rights that are superior to rights of holders of common shares and a series having preferential
distribution rights could limit common share distributions and reduce the amount holders of common shares would otherwise receive
on dissolution.
Distribution Policy
To maintain its REIT status the Company is required to distribute at least 90% of its ordinary income. Distributions since the
initial capitalization through December 31, 2008 totaled approximately $13 million and were paid at a monthly rate of $0.073334
per common share beginning in June 2008. In May, 2008, the Company’s Board of Directors established a policy for an annualized
dividend rate of $0.88 per common share, payable in monthly distributions. The Company intends to continue paying dividends on a
monthly basis, consistent with the annualized dividend rate established by its Board of Directors. The Company’s Board of Directors,
upon the recommendation of the Audit Committee, may amend or establish a new annualized dividend rate and may change the timing
of when distributions are paid. The amount and frequency of future distributions will depend on the Company’s results of operations,
cash flow from operations, economic conditions, working capital requirements, cash requirements to fund investing and financing
activities, capital expenditure requirements, including improvements to and expansions of properties and the acquisition of additional
properties, as well as the distribution requirements under federal income tax provisions for qualification as a REIT.
Non-Employee Directors’ Stock Option Plan
The Company’s Board of Directors has adopted and the Company’s shareholders have approved a non-employee directors’
stock option plan (the “Directors’ Plan”) to provide incentives to attract and retain directors. The options issued under the Directors’
Plan convert upon exercise of the options to Units. Each Unit consists of one common share and one Series A preferred share of the
Company. The following is a summary of securities issued under the Directors’ Plan as of December 31, 2008:
Plan Category
Equity Compensation plans approved by security holders
Non-Employee Directors’ Stock Option Plan ....................... 31,744 $ 11.00 580,071
Number of securities
remaining available for
future issuance under
equity compensation
plans
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights