Preferred Apartment Advisors, LLC Atlanta, Georgia 30339
Preferred
Apartment Advisors, LLC
0000
Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx,
Xxxxxxx 00000
(000)
000-0000
July 29,
2010
Xxxxxxxx
Opportunity Fund, LLC
0000
Xxxxxxxxxx Xxxx., Xxxxx 000
Xxxxxxx,
XX 00000
Ladies
and Gentlemen:
Xxxxxxxx
Opportunity Fund, LLC, a Georgia limited
liability company (the “Investor”) and
Preferred Apartment Advisors, LLC (the “Manager”) are
entering into this letter agreement (this “Agreement”), dated
July 29, 2010 (the “Effective Date”), in
connection with the execution of the Subscription Agreement dated as of the
Effective Date (the “Subscription
Agreement”), among Preferred Apartment Communities, Inc. (the “Company”), the
Manager, Preferred Apartment Communities Operating Partnership, L.P. (“PAC LP”), and the
Investor.
1. Manager Revenue
Interest. From and
after the IPO Closing (as defined in the Subscription Agreement), the Investor
shall be entitled to receive from the Manager the Manager Revenue Interest (as
defined below). The Manager Revenue Interest shall be deemed issued
as part of an investment unit together with the shares of the Company’s Class A
Common Stock to be issued to the Investor pursuant to the Subscription
Agreement. In accordance therewith, the Investor’s purchase price for
such investment unit shall be allocated between the Manager Revenue Interest and
such shares of Class A Common Stock by relative fair market value as determined
by the Manager in good faith, which allocation shall be binding on the parties
for any applicable tax reporting. Once the allocation referred to
above has been made, the Investor will transfer to the Manager such number of
shares of the Company’s Class A Common Stock having a value (based on the per
share purchase price paid by the Investor for shares of the Company’s Class A
Common Stock under the Subscription Agreement) equal to the fair market value of
the Manager Revenue Interest as determined by the Manager in such
allocation.
“Manager Revenue
Interest” means 1.0% of the gross revenues of the Manager received,
directly or indirectly, from the Company and PAC LP or their controlled
affiliates (including subsidiaries and/or joint ventures) (except reimbursement
to the Manager of the Initial Costs (as defined below) paid by the Manager,
other reimbursement to the Manager of expenses of the Company and its
subsidiaries paid by the Manager, and any gross revenues related to property
management and leasing fees). The Manager Revenue Interest shall not
be subject to dilution as a result of any equity issuances or issuances of other
revenue or profit sharing interests by the Manager after the Effective
Date. The Manager Revenue Interest shall be treated as a partnership
interest for applicable tax purposes.
“Initial Costs” means
(a) legal and accounting fees and expenses related to the organization of the
Company, PAC LP and the Manager, as well as the private placement to the
Investor pursuant to the Subscription Agreement, (b) brokerage and advisory
services, (c) capital raising costs for sales of Class A Common Stock of the
Company, and (d) legal, financial and regulatory fees and expenses and other
expenses described in “Part II
— Information Not Required in Prospectus” of the IPO Registration
Statement (as defined in the Subscription Agreement).
2. Right of First
Offer.
(a) Except
as described below in this Section 2(a) and
subject to Sections
2(b) and 2(c), the Investor
shall not sell, convey or otherwise transfer the Manager Revenue Interest (or
portion thereof) without the prior consent of the Manager. Subject to
Section 2(c),
the Investor shall have the right to transfer all or a portion of the Manager
Revenue Interest to any of its Affiliates (as defined in the Subscription
Agreement) without the consent of the Manager, provided that the transferee
remains an Affiliate of the transferor at all times thereafter.
(b) If
the Investor desires to sell all or a portion of the Manager Revenue Interest
(the “Proposed Sale
Interest”) to a non-Affiliate for cash consideration (the “Proposed Sale”), the
Investor shall provide notice to the Manager to such effect and such notice
shall include from the Investor the purchase price for the Proposed Sale
Interest and the other material terms and conditions relative to the Proposed
Sale. The Manager shall have a period of 30 days following receipt of
such notice to elect to purchase the Proposed Sale Interest that is subject to
the Proposed Sale. If the Manager timely elects to purchase the
Proposed Sale Interest, it shall have 90 days from the date it gives its notice
to elect to purchase the Proposed Sale Interest to consummate the purchase at
the purchase price and on the other material terms and conditions of the
Proposed Sale.
If the Manager declines to purchase the
Proposed Sale Interest proposed for sale, fails to consummate such purchase
within the 90-day period referred to above, or fails to give notice of its
desire to purchase the Proposed Sale Interest proposed for sale within the
30-day period referred to above, then the Investor shall, for a period of 95
days (the “Selling
Period”) following the latest to occur of (i) receipt of the Manager’s
declination to purchase, (ii) the expiration of the 30-day period referred to
above, and (iii) the failure by the Manager to complete the purchase within the
90-day period referred to above, have the right to sell the Proposed Sale
Interest to any non-Affiliate(s) so long as the purchase price offered by any
such non-Affiliate(s) is equal to at least 90% of the purchase price offered to
the Manager in the Proposed Sale and the other material terms and conditions of
such sale are similar in all material respects to those offered to the Manager
in the Proposed Sale.
If the
Investor desires to sell the Proposed Sale Interest during the Selling Period
for an amount equal to less than 90% of the purchase price offered to the
Manager in the Proposed Sale (the “Different Purchase
Price”) and/or upon other material terms and conditions that differ in
any material respect from those offered to the Manager in the Proposed Sale,
then the Investor shall provide notice to the Manager to such effect (the “Different Terms
Notice”), following which the Manager will have 30 days to consummate
such sale of the Proposed Sale Interest pursuant to the Different Purchase Price
and/or such different other material terms and conditions. If the
Manager does not consummate such sale of the Proposed Sale Interest within 35
days after the receipt of the Different Terms Notice, then the Investor may sell
the Proposed Sale Interest to such non-Affiliate(s) pursuant to the Different
Purchase Price and/or such different other material terms and conditions,
provided that such sale to a non-Affiliate(s) occurs on or before the date that
is 40 days following the end of the Selling Period. If a sale of the
Proposed Sale Interest to a non-Affiliate(s) does not occur by the end of the
Selling Period (or if the Different Terms Notice shall have been given, by the
end of the 40-day period referred to in the immediately preceding sentence),
then the provisions of this Section 2(b) shall
apply to any subsequent proposed sale of all or any portion of the Manager
Revenue Interest to a non-Affiliate(s).
(c) As
a condition precedent to any transfer of the Manager Revenue Interest (or
portion thereof) pursuant to Section 2(a) or 2(b) to a third
party, the transferee must agree in writing to be bound by the terms and
conditions of this Agreement pursuant to a joinder agreement in form and
substance reasonably satisfactory to the Manager. Such joinder
agreement shall provide that the transferee will have the same rights and
obligations as to the transferred Manager Revenue Interest (or portion thereof)
as the transferring Investor hereunder.
3. Sale of
Manager. For so long as the Investor and any permitted
transferees thereof own the Manager Revenue Interest, the Investor and such
permitted transferees owning the Manager Revenue Interest shall be entitled to
receive their pro rata share (based on
their respective ownership of the Manager Revenue Interest) of 1% of the Gross
Sale Proceeds (as defined below) resulting from any sale of all or substantially
all, or the internalization of, the Manager, in one or a series of related
transactions, including pursuant to any merger or other business combination,
assets sale, or sale or other transfer of 50% or more of the equity interests in
the Manager to any Person other than Xxxx X. Xxxxxxxx, Xxxxxxx X. Xxxxxxxxxxx or
any of their respective Affiliates (a “Sale
Event”).
“Gross Sale Proceeds”
means the aggregate sale proceeds received by the Manager and/or its members in
connection with a Sale Event.
“Person” or “person” means an
individual, partnership, joint-stock company, corporation, limited liability
company, trust, unincorporated organization or other entity, or a government or
agency or political subdivision thereof.
4. Reports and
Payments.
(a) As
soon as practicable, and in any event no later than 45 days after the close of
each fiscal quarter of the Manager, the Manager shall provide the Investor with
internally prepared quarterly financial statements of the Manager prepared in
accordance with U.S. generally accepted accounting principles.
(b) Any time that the Manager
is required to make a payment hereunder, such payment shall be distributed
in cash to each Investor within 60 days following each fiscal quarter of
the Manager. To the extent such proceeds are not so paid when
due, the Manager will pay such proceeds out of first available
funds.
5. Redemption
Right. After the Effective Date, the Investor and the Manager
will negotiate in good faith to provide that the Manager Revenue Interest may be
purchased from the Investor and any permitted transferees thereof from and after
the first anniversary of the IPO Closing upon such terms and conditions as the
Investor and the Manager mutually agree in writing. For the avoidance
of doubt, the failure of the Investor and the Manager to come to such mutual
agreement shall not affect the validity or enforceability of this
Agreement.
6. Specific
Performance. Each party to this Agreement acknowledges that
each other party would be irreparably harmed by any breach of this Agreement by
it and that there may be no adequate remedy at law or in damages to compensate
such other party for any such breach. Accordingly, in addition to the
remedies available under applicable law, each party agrees that each other party
shall be entitled to specific performance by such party of its obligations under
this Agreement (including by means of an injunction) and each party further
agrees to waive any requirement for the security or posting of any bond or any
other collateral in connection with such remedy.
7. Severability. If
any provision of this Agreement, or the application thereof, is for any reason
declared by any court or other judicial or administrative body of competent
jurisdiction to be invalid or unenforceable, the remainder of this Agreement
shall remain in full force and effect.
8. Rules of
Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or ruling
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or
document.
9. Assignability. This
Agreement shall be binding upon, and shall be enforceable by and inure to the
benefit of, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns; provided, however, that this
Agreement may not be assigned by any party without the prior written consent of
the other parties, except that the Investor shall be deemed to have assigned its
rights and obligations under this Agreement to any Person to which it transfers
the Manager Revenue Interest (or portion thereof) pursuant to Section 2, to the
extent of Manager Revenue Interest (or portion thereof) so
transferred.
10. Further
Assurances. The parties hereto agree to execute such further
documents as reasonably requested in order to give effect to this Agreement and
to carry out the transactions contemplated hereby. In addition, at
the request of either party after the Effective Date, the Investor will become a
party to the then existing limited liability company agreement of the Manager
pursuant to an amendment thereof, which amendment shall be in form and substance
reasonably satisfactory to each party, in order to give effect to this Agreement
and to carry out the transactions contemplated hereby. If such
amendment to such limited liability company agreement is entered into, then this
Agreement shall thereupon cease to be of any further force and
effect.
11. Governing
Law. This
Agreement shall be governed by the internal laws of the State of Delaware,
without regard to the choice of laws provisions thereof.
12. Amendment; Waiver;
Termination. This Agreement may be amended, and the observance
of any term of this Agreement may be waived, with (and only with) the consent of
(a) the Manager, and (b) those persons then holding a majority of the Manager
Revenue Interest.
13. Counterparts. This
Agreement may be executed (including by facsimile or other electronic
transmission) with counterpart signature pages or in multiple
counterparts.
14. Notice. All
notices, demands, approvals, consents and other communications provided for or
permitted hereunder (each a “Notice”) shall be in
writing and shall be sent by (a) registered or certified first-class mail
(return receipt requested), (b) courier service, (c) personal delivery, or (d)
telecopier (provided that, in the case of this clause (d), such Notice also is
sent concurrently by another means specified above) as follows:
To the
Manager:
Preferred
Apartment Advisors, LLC
0000
Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx,
XX 00000
Phone:
(000) 000-0000
Facsimile:
(000) 000-0000
|
Attention:
|
Xxxxxxx
X. Xxxxxxxxxxx, Esq.
|
with a
copy (which shall not constitute Notice) to:
Proskauer
Rose LLP
0000
Xxxxxxxx
Xxx Xxxx,
XX 00000
Facsimile:
(000) 000-0000
|
Attention:
|
Xxxxx
X. Xxxx, Esq.
|
Xxxxx X.
Gerkis, Esq.
To WOF:
Xxxxxxxx
Opportunity Fund, LLC
c/x
Xxxxxxxx Realty Advisors, LLC
0000
Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx,
XX 00000
Phone:
(000) 000-0000
Facsimile:
(000) 000-0000
Attn: Xxxxxxx
X. Xxxxxxxxxxx, Esq.
with a
copy (which shall not constitute Notice) to:
Xxxxxxxx
Realty Advisors, LLC
One
Xxxxxxx Park
0000
Xxxxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx,
Xxxxxxx 00000
Phone:
(000) 000-0000
Facsimile:
(000) 000-0000
Attn: Xxxxxxx
X. Xxxxxx, Esq.
Each
Notice shall be deemed to have been duly given and effective upon actual
receipt. Any party may by Notice to the other parties given in
accordance with this Section 14 designate
another address or person for receipt of Notices hereunder. If
the address of a party has changed, then such party promptly shall by Notice to
the other parties given in accordance with this Section 14 designate
a new address for receipt of Notices hereunder. For the avoidance of
doubt, if a Notice given in accordance with this Section 14 to a party
is returned to the sender as being refused or undeliverable (or having a similar
status), then such Notice to such party shall be deemed to have been duly given
and effective on the date that such Notice was originally sent.
| Very truly yours, | |||
|
PREFERRED
APARTMENT ADVISORS, LLC
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|
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By:
|
/s/ Xxxx X. Xxxxxxxx | |
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Xxxx
X. Xxxxxxxx
|
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|
President
and Chief Executive Officer
|
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Acknowledged
and Agreed To
as of the
date first above written:
|
XXXXXXXX
OPPORTUNITY FUND, LLC
|
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By: Xxxxxxxx
Opportunity Fund Manager, LLC, Its Manager
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By:
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Xxxxxxxx
Realty Advisors, LLC, Its Manager
|
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By:
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/s/ Xxxx X. Xxxxxxxx | |||
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Xxxx X.
Xxxxxxxx
|
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Chief
Executive Officer
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[Signature
Page to Letter Agreement]
