Page 48 - Apple REIT 9 2008 Annual Report

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Unit Redemption Program
The Company may use proceeds received from the sale of Units pursuant to its Additional Share Option Pan and Dividend
Reinvestment Plan (which the Company plans to implement following the conclusion of its on-going best-efforts offering) to redeem
Units. The Unit Redemption Program will not begin until May 2009, which is the expiration of one year from the initial closing of the
offering. Beginning in May, shareholders may request redemption of Units for a purchase price equal to 92% of the price paid per Unit
if the Units have been owned less than three years or 100% of the price paid per Unit if the Units have been owned more than three
years. The maximum number of Units that may be redeemed in any given year will be three percent of the weighted average number
of Units outstanding during the 12-month period immediately prior to the date of redemption. The Company reserves the right to
change the purchase price of redemptions, reject any request for redemption, or otherwise amend the terms of, suspend, or terminate
the Unit Redemption Program.
Note 5
Stock Option Plan
During 2008, the Company adopted a non-employee directors’ stock option plan (the “Directors’ Plan”) to provide incentives to
attract and retain directors. The Directors’ Plan provides for an automatic grant of options to purchase a specified number of Units
to directors, who are not employees of the Company. A Compensation Committee (“Committee”) was established to administer the
Directors’ Plan. The Committee is responsible for granting Options and for establishing the exercise price of Options. Under the
Directors Plan, the number of Units authorized for issuance is equal to 45,000 plus 1.8% of the number of Units sold in excess of
the minimum offering of 9,523,810 Units. This plan currently relates to the initial public offering of 182,251,082 Units. Therefore,
the maximum number of Units authorized under the Directors’ Plan is currently 611,815 based on the number of Units issued as of
December 31, 2008.
The Directors’ Plan generally provides, among other things, that options be granted at exercise prices not lower than the market
value of the Units on the date of grant. The options are 100% vested upon issuance and are exercisable six months after the date of
grant and will expire 10 years from the date of grant. During 2008, the Company granted options to purchase 31,744 Units under the
Directors’ Plan and recorded approximately $26,000 in compensation expense. All of the options issued have an exercise price of $11
per Unit. Activity in the Company Directors’ Plan during 2008 is summarized in the following table:
2008
Outstanding, beginning of year: ....................... —
Granted .................................................. 31,744
Exercised ............................................... —
Expired or canceled . ............................. —
Outstanding, end of year: ................................. 31,744
Exercisable, end of year: .................................. 31,744
The weighted-average exercise price: .............. $ 11.00
Note 6
Management and Franchise Agreements
Each of the Company’s hotels are operated and managed, under separate management agreements, by affiliates of one of the
following companies: Dimension Development Two, LLC (“Dimension”), McKibbon Hotel Group, Inc. (“McKibbon”), Gateway
Hospitality Group, Inc. (“Gateway”), LBAM-Investor Group, L.L.C. (“LBA”), Texas Western Management Partners, L.P. (“Western”)
and Vista Host, Inc. (“Vista”). The agreements provide for initial terms of 1-5 years. Fees associated with the agreements generally
include the payment of base management fees, incentive management fees, accounting fees, and other fees for centralized services
which are allocated among all of the hotels that receive the benefit of such services. Base management fees are calculated as a
percentage of gross revenues. Incentive management fees are calculated as a percentage of operating profit in excess of a priority
return to the Company, as defined in the management agreements. The Company has the option to terminate the management
agreements if specified performance thresholds are not satisfied. For the year ended December 31, 2008 the Company incurred
approximately $441,000 in management fee expense.