Page 46 - Apple REIT 9 2008 Annual Report

36
Prior to the commencement of the Company’s best-efforts offering, the Company obtained an unsecured line of credit in a
principal amount of $400,000 to fund certain start-up costs and offering expenses. The lender was Wachovia Bank, N.A. The line of
credit bore interest at a variable rate based on the London Interbank Borrowing Rate (LIBOR). The line of credit was fully paid during
May 2008 with net proceeds from the Company’s best-efforts offering.
Note 4
Shareholders’ Equity
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. Each Unit consists of one common share and one Series A preferred share. The Company began its
best-efforts offering of Units the same day the registration statement was declared effective. 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.
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 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.