Page 31 - Apple REIT 9 2008 Annual Report

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Upon the occurrence of any conversion event, each Series B convertible preferred share may be converted into a number of
common shares based upon the gross proceeds raised through the date of conversion in the Company’s $2 billion offering according to
the following table:
Number of Common Shares
Gross Proceeds Raised from Sales of through Conversion of
Units through Date of Conversion One Series B Convertible Preferred Share
$400 million............................................................................................... 4.83721
$500 million............................................................................................... 6.11068
$600 million............................................................................................... 7.29150
$700 million............................................................................................... 8.49719
$800 million............................................................................................... 9.70287
$900 million............................................................................................... 10.90855
$ 1 billion............................................................................................... 12.11423
$ 1.1 billion............................................................................................... 13.31991
$ 1.2 billion............................................................................................... 14.52559
$ 1.3 billion............................................................................................... 15.73128
$ 1.4 billion............................................................................................... 16.93696
$ 1.5 billion............................................................................................... 18.14264
$ 1.6 billion............................................................................................... 19.34832
$ 1.7 billion............................................................................................... 20.55400
$ 1.8 billion............................................................................................... 21.75968
$ 1.9 billion............................................................................................... 22.96537
$ 2 billion............................................................................................... 24.17104
In the event that after raising gross proceeds of $2 billion, the Company raises additional gross proceeds in a subsequent public
offering, each Series B convertible preferred share may be converted into an additional number of common shares based on the
additional gross proceeds raised through the date of conversion in a subsequent public offering according to the following formula:
(X/100 million) x 1.20568, where X is the additional gross proceeds rounded down to the nearest 100 million.
No additional consideration is due upon the conversion of the Series B convertible preferred shares. The conversion into common
shares of the Series B convertible preferred shares will result in dilution of the shareholders’ interests.
Expense related to the issuance of 480,000 Series B convertible preferred shares to Mr. Knight will be recognized at such time
when the number of common shares to be issued for conversion of the Series B shares can be reasonably estimated and the event
triggering the conversion of the Series B shares to common shares occurs. The expense will be measured as the difference between the
fair value of the common stock for which the Series B shares can be converted and the amounts paid for the Series B shares. Although
the fair market value cannot be determined at this time, expense if the maximum offering is achieved could range from $0 to in excess
of $127 million (assumes $11 per unit fair market value). Based on equity raised through December 31, 2008, if a triggering event had
occurred, expense would have ranged from $0 to $25.5 million (assumes $11 per unit fair market value).
Liquidity and Capital Resources
The following is a summary of the Company’s significant contractual obligations as of December 31, 2008:
Amount of Commitments Expiring per Period
Less Than Over
(000’s) Total 1 Year 2-3 Years 4-5 Years 5 Years
Property Purchase Commitments............................................. $ 334,058 $ 281,958 $ 52,100 $ - $ -
Debt (including interest of $15.1 million)................................ 53,255 2,529 5,059 6,809 38,858
$ 387,313 $ 284,487 $ 57,159 $ 6,809 $ 38,858
The Company was initially capitalized on November 9, 2007, with its first investor closing on May 14, 2008. The Company’s
principal source of liquidity will be cash on hand, the proceeds of its on-going best-efforts offering and the cash flow generated from
properties the Company has or will acquire and any short term investments. In addition, the Company may borrow funds, subject to
the approval of the Company’s board of directors.