Page 30 - Apple REIT 9 2008 Annual Report

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The Company is party to an advisory agreement with Apple Nine Advisors, Inc. (“A9A”) to provide management of the Company
and its assets. An annual fee ranging from 0.1% to 0.25% of total equity proceeds received by the Company, in addition to certain
reimbursable expenses, are payable for these services. A9A has entered into an agreement with Apple REIT Six, Inc. (“AR6”) to
provide certain management services to the Company. The Company will reimburse A9A for the cost of the services provided by
AR6. A9A will in turn reimburse AR6. Total advisory fees and reimbursable expenses incurred by the Company under the advisory
agreement are included in general and administrative expenses and totaled approximately $766,000 for the year ended December 31,
2008 and $15,000 for the period November 9, 2007 (initial capitalization) through December 31, 2007.
ASRG and A9A are 100% owned by Glade M. Knight, Chairman and Chief Executive Officer of the Company.
Mr. Knight is also Chairman and Chief Executive Officer of Apple REIT Six, Inc., Apple REIT Seven, Inc. and Apple REIT Eight,
Inc., other REITS. Members of the Company’s Board of Directors are also on the Board of Directors of Apple REIT Six, Inc., Apple
REIT Seven, Inc. and Apple REIT Eight, Inc.
During the fourth quarter of 2008, the Company entered into a series of assignment of contracts with Apple REIT Eight,
Inc. (“AR8”) to become the purchaser under three purchase contracts. The purchase contracts are for four hotels which are under
construction: a Fairfield Inn & Suites and SpringHill Suites, both 200 room hotels located in Orlando, Florida, with a combined
purchase price of $54.8 million, a 119 room SpringHill Suites hotel in Baton Rouge, Louisiana with a purchase price of $15.1
million and a 124 room Hampton Inn & Suites hotel in Rochester, Minnesota with a purchase price of $14.1 million. Under the
terms and conditions of the contracts, AR8 assigned to the Company all of its rights and obligations under these purchase contracts.
No consideration or fees was paid to AR8 for the assignment of the purchase contracts except for the reimbursement payment of the
following: (i) initial deposits totaling $1.2 million made by AR8; and (ii) other costs totaling approximately $64,000 paid by AR8 to
third parties. These reimbursement payments did not constitute or result in a profit for AR8.
Series B Convertible Preferred Stock
The Company has issued 480,000 Series B convertible preferred shares to Glade M. Knight, Chairman and Chief Executive
Officer of the Company, in exchange for the payment by him of $0.10 per Series B convertible preferred share, or an aggregate of
$48,000. The Series B convertible preferred shares are convertible into common shares pursuant to the formula and on the terms and
conditions set forth below.
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 the Company’s liquidation, the holder of the Series B convertible preferred shares is entitled to a priority liquidation
payment before any distribution of liquidation proceeds to the holders of the common shares. 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
each Series B convertible preferred share would be convertible into according to the formula described below. 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.
Each holder of outstanding Series B convertible preferred shares shall have the right to convert any of such shares 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;
(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.