Page 47 - 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).
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.