SUBSCRIPTION AGREEMENT
EXECUTION
COPY
THIS
SUBSCRIPTION AGREEMENT is made and entered into as of July 29, 2010 (this “Agreement”), among
Preferred Apartment Communities, Inc., a Maryland corporation (the “Company”), Preferred
Apartment Advisors, LLC, a Delaware limited liability company (the “Manager”), Preferred
Apartment Communities Operating Partnership, L.P., a Delaware limited
partnership (“PAC
LP”), and Xxxxxxxx Opportunity Fund, LLC, a Georgia limited liability
company (the “Investor”).
RECITALS
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A.
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The
Company proposes to undertake an initial public offering on a firm
commitment underwritten basis (the “IPO”) of its
Class A Common Stock, par value $0.01 per share (the “Class A Common
Stock”).
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B.
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The
Company proposes to register the resale of the Class A Common Stock issued
pursuant to this Agreement under the IPO Registration Statement (as
defined in Section 7.1).
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C.
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After
the IPO Registration Statement has been declared effective by the SEC (as
defined in Section 7.1),
the Company intends to offer publicly shares of its convertible preferred
stock (the “Convertible Preferred
Stock”).
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D.
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The
Investor desires to purchase Class A Common Stock in a private placement
transaction exempt from the registration requirements of the Securities
Act, pursuant to Section 4(2) of the Securities Act and Rule 506
of Regulation D (“Regulation D”)
promulgated thereunder by the SEC.
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E.
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Certain
capitalized and other defined terms used in this Agreement have the
respective meanings ascribed thereto in Section
7.1.
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NOW,
THEREFORE, for and in consideration of the foregoing premises and the mutual
undertakings set forth below, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
ARTICLE I
IRREVOCABLE
SUBSCRIPTION FOR SHARES
Section 1.1 Irrevocable Subscription for
Shares. Pursuant to the terms and subject to the satisfaction
or waiver of the conditions set forth in Article III, the
Investor hereby irrevocably subscribes for and will purchase, and the Company,
in reliance upon the representations, warranties and agreements of the Investor
contained herein, will issue and sell to the Investor, immediately prior to, or
concurrently with, the IPO Closing, that number of shares of Class A Common
Stock equal to the Stock Purchase Price divided by the IPO Share
Price. The Investor agrees to and understands the terms and
conditions upon which the Class A Common Stock is being offered. The
price per share of Class A Common Stock paid by the Investor will be the same
price per share as the price per share of Class A Common Stock in the IPO (the
“IPO Share
Price”). The aggregate purchase price for the shares of Class
A Common Stock to be purchased by the Investor is $5,000,000 (the “Stock Purchase
Price”).
ARTICLE II
CLOSING
CONDITIONS; CLOSING
Section 2.1 Conditions to the Company’s
Obligations. The obligations of the Company to effect the
closing of the purchase and sale of the Class A Common Stock (the “Closing”) on the
Closing Date shall be subject to the satisfaction (or waiver by the Company) of
the following conditions precedent:
(a) The
representations and warranties of the Investor contained in this Agreement shall
have been true and correct in all material respects on the date such
representations and warranties were made, and on and as of the Closing Date, as
if made on and as of such date;
(b) The
obligations of the Investor contained in this Agreement shall have been duly
performed in all material respects on or before the Closing Date, and the
Investor shall not have breached any of its covenants contained in this
Agreement in any material respect;
(c) Concurrently
with the Closing, the Investor shall have executed and delivered to the Company
the Closing Documents required to be delivered by the Investor pursuant to Section 2.4;
(d) The
Closing Documents required to be delivered by the Investor pursuant to Section 2.4 shall be
in full force and effect, and the Investor shall not be in default in any
material respect of its obligations thereunder; and
(e) No
preliminary or permanent injunction or other order issued by any court or other
governmental or regulatory authority, domestic or foreign, nor any statute,
rule, regulation, decree or executive order promulgated or enacted by any
governmental entity that declares this Agreement invalid or unenforceable in any
respect or which prevents the consummation of the transactions contemplated
hereby shall be in effect; and no action, suit or proceeding before any court or
regulatory authority, domestic or foreign, shall have been instituted or
threatened by any governmental entity or by any other Person (excluding any such
action instituted or threatened by or on behalf of the Company, PAC LP, the
Manager or any of their respective Affiliates), which seeks to prevent or delay
the consummation of the transactions contemplated by this Agreement or which
challenges the validity or enforceability of this Agreement.
Section 2.2 Conditions to the Investor’s
Obligations. The obligations of the Investor to effect the
Closing on the Closing Date shall be subject to the satisfaction (or waiver by
the Investor) of the following conditions precedent:
(a) The
representations and warranties of the Company, the Manager and PAC LP contained
in this Agreement shall have been true and correct in all material respects on
the date such representations and warranties were made, and on and as of the
Closing Date, as if made on and as of such date;
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(b) The
obligations of the Company, the Manager and PAC LP contained in this Agreement
shall have been duly performed in all material respects on or before the Closing
Date, and none of the Company, the Manager or PAC LP shall have breached any of
its covenants contained in this Agreement in any material respect;
(c) Concurrently
with the Closing, the Company, the Manager and PAC LP shall each have executed
and delivered to the Investor the Closing Documents required to be delivered by
the Company, the Manager or PAC LP, as applicable, pursuant to Section 2.4;
(d)
The Closing Documents required to be delivered by the Company, the Manager or
PAC LP, as applicable, pursuant to Section 2.4 shall be
in full force and effect, and none of the Company, the Manager and PAC LP shall
be in default in any material respect of its obligations thereunder;
and
(e) No
preliminary or permanent injunction or other order issued by any court or other
governmental or regulatory authority, domestic or foreign, nor any statute,
rule, regulation, decree or executive order promulgated or enacted by any
governmental entity that declares this Agreement invalid or unenforceable in any
respect or which prevents the consummation of the transactions contemplated
hereby shall be in effect; and no action, suit or proceeding before any court or
regulatory authority, domestic or foreign, shall have been instituted or
threatened by any governmental entity or by any other Person (excluding any such
action instituted or threatened by or on behalf of the Investor), which seeks to
prevent or delay the consummation of the transactions contemplated by this
Agreement or which challenges the validity or enforceability of this
Agreement;
(f) The
IPO Closing shall be occurring concurrently with the Closing (or the Closing
shall occur immediately prior to, but be conditioned upon the immediate
subsequent occurrence of, the IPO Closing); and
(g) The
shares of Class A Common Stock to be registered in the IPO shall have been
approved for listing on the American Stock Exchange, subject to official notice
of issuance.
Section 2.3 Closing Time and
Place. The date and time of the consummation of the Closing
(the “Closing
Date”) shall, subject to the satisfaction or waiver of the last of the
conditions to the Closing set forth in this Agreement (other than those
conditions which, by their nature, are to be satisfied on the Closing Date),
occur concurrently with (or immediately prior to, but conditioned upon the
immediate subsequent occurrence of) the IPO Closing, in the offices of Proskauer
Rose LLP, 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
Section 2.4 Closing
Deliveries. At the Closing, the Investor will pay the Stock
Purchase Price in cash by wire transfer of immediately available funds to an
account designated upon by the Company at least ten Business Days prior to the
Closing. At the Closing, the parties shall make, execute, acknowledge
and deliver, or cause to be made, executed, acknowledged and delivered through
one or more third parties as may be applicable, the following legal documents
and other items (collectively, the “Closing Documents”)
necessary to carry out the intention of this Agreement and the other
transactions contemplated to take place in connection therewith at the
Closing:
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(a) Share
certificates, evidence of delivery of uncertificated shares of Class A Common
Stock by book-entry or other evidence of the issuance of Class A Common Stock to
the Investor;
(b) The
Registration Rights Agreement between the Investor and the Company substantially
in the form attached hereto as Exhibit A (the
“Registration Rights
Agreement”);
(c) The
Investor shall have executed and delivered a letter to the Company setting forth
certain representations and undertakings related to the Investor’s ownership of
Class A Common Stock in a form reasonably acceptable to the board of directors
of the Company and which allows the board of directors of the Company to
reasonably conclude that the ownership waiver and Excepted Holder Limit (as
defined in the Company’s Charter) described in Section 2.4(d)
will not jeopardize the Company’s status as a REIT under the Code, and make the
other determinations required by the Charter in connection with granting such
waiver and Excepted Holder Limit;
(d) Based
on the shareholder representation letter described in Section 2.4(c), the
board of directors of the Company shall have granted an exception to the
Aggregate Share Ownership Limit set forth in the Charter, providing the Investor
requiring such an exception with an Excepted Holder Limit as is necessary for
the Investor to own shares of Class A Common Stock without a violation of the
Aggregate Share Ownership Limit set forth in the Charter; and
(e) If
requested by the Company, on the one hand, or the Investor, on the other hand,
each party hereto shall provide to the requesting party a certified copy of all
appropriate corporate resolutions or company actions authorizing the execution,
delivery and performance by such party of this Agreement, any related documents
and the documents listed in this Section
2.4.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF THE INVESTOR
The
Investor represents and warrants to the Company, PAC LP and the Manager as set
forth below in this Article III, which
representations and warranties are true and correct as of the date hereof and
will (except to the extent expressly relating to a specified date) be true and
correct as of the Closing Date:
Section 3.1 Organization;
Authority. The Investor has been duly organized and is validly
existing under the laws of the jurisdiction of its formation, and has all
requisite approvals, licenses, permits and corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, and, to the extent required under applicable law, is qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the character of its property make such qualification necessary,
except where the failure to be so qualified would not cause a material adverse
effect on the ability of the Investor to fulfill its obligations hereunder and
under the other transaction documents.
Section 3.2 Due
Authorization. The execution, delivery and performance of this
Agreement by the Investor have been duly and validly authorized by all necessary
action of the Investor. No other company action (including any
equityholder approval) is necessary to authorize such execution, delivery and
performance of this Agreement. This Agreement constitutes the legal,
valid and binding obligation of the Investor, enforceable against the Investor
in accordance with its terms, as such enforceability may be limited by
bankruptcy or the application of equitable principles.
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Section 3.3 Consents and
Approvals. Except as shall have been satisfied prior to the
Closing Date, no consent, waiver, approval or authorization of any third party
or governmental authority or agency is required to be obtained by the Investor
in connection with the execution, delivery and performance of the Agreement and
the transactions contemplated hereby.
Section 3.4 Non-Contravention. None
of the execution, delivery or performance of this Agreement by the Investor and
the consummation by the Investor of the transactions contemplated hereby
will: (a) result in a default (or an event that, with notice or
lapse of time or both would become a default) under, or give to any third party
any right of termination, cancellation, amendment or acceleration under, or
result in any loss of any material benefit under, any agreement, document or
instrument to which the Investor or any of its subsidiaries or any of its or
their properties or assets may be bound; (b) violate or conflict with any
judgment, order, decree, or law applicable to the Investor or any of its
subsidiaries or any of its or their properties or assets, except as to clauses
(a) and (b) for such events that do not cause a material adverse effect on the
ability of the Investor to fulfill its obligations hereunder and under the other
transaction documents; or (c) result in a breach of any of the terms, conditions
or provisions of any the organizational documents of the Investor.
Section 3.5 Investment
Purposes. The Investor acknowledges its understanding that the
offering and issuance of Class A Common Stock to be acquired by it pursuant to
this Agreement are intended to be exempt from registration under the Securities
Act and that the Company’s reliance on such exemption is predicated in part on
the accuracy and completeness of the representations and warranties of the
Investor contained in this Agreement. In furtherance thereof, the
Investor represents and warrants to the Company as follows:
(a) The
Investor is acquiring Common Stock hereunder solely for its own account and not
with a view to, or for offer or sale in connection with, any distribution
thereof. The Investor agrees and acknowledges that it will not,
directly or indirectly, Transfer any of the Class A Common Stock acquired
hereunder, unless (i) the Transfer is pursuant to an effective registration
statement under the Securities Act and qualification or other compliance under
applicable blue sky or state securities laws, or (ii) counsel for the
Investor (which counsel shall be reasonably acceptable to the Company) shall
have furnished the Company with an opinion, reasonably satisfactory in form and
substance to the Company, to the effect that no such registration is required
because of the availability of an exemption from registration under the
Securities Act;
(b) The
Investor is knowledgeable, sophisticated and experienced in business and
financial matters and fully understands the limitations on transfer imposed by
the Federal securities laws and as described in the Agreement. The
Investor is able to bear the economic risk of holding the Class A Common Stock
for an indefinite period and is able to afford the complete loss of its
investment in the Class A Common Stock; the Investor has received and reviewed
all information and documents about or pertaining to the Company, the business
and prospects of the Company and the issuance of the Class A Common Stock, as
the Investor has requested, and has been given the opportunity to obtain any
additional information or documents and to ask questions and receive answers
about such information and documents, the Class A Common Stock, the Company, the
Manager and the business and prospects of each of the Company and the
Manager. The Investor has reviewed with its legal counsel and tax
advisors the Charter and the By-laws.
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(c) The
Investor acknowledges that it has been advised that (i) the shares of Class
A Common Stock issued pursuant to this Agreement are “restricted securities”
(unless registered in accordance with applicable U.S. securities laws) under
applicable federal securities laws and may be disposed of only pursuant to an
effective registration statement or an exemption therefrom and the Investor
understands that the Company has no obligation to register the Investor’s Class
A Common Stock, except to the extent set forth in the Registration Rights
Agreement and the IPO Registration Statement; accordingly, the Investor may have
to bear indefinitely the economic risks of an investment in such Class A Common
Stock, (ii) a restrictive legend in the form hereafter set forth shall be
placed on the share certificates, and (iii) a notation shall be made in the
appropriate records of the Company indicating that the shares of Class A Common
Stock issued hereunder are subject to restrictions on transfer.
(d) The
Investor is an “accredited investor” (as such term is defined in Rule 501
(a) of Regulation D under the Securities Act). The Investor
has previously provided the Company with a duly executed Accredited Investor
Questionnaire. No event or circumstance has occurred since delivery
of the Investor’s Accredited Investor Questionnaire to make the statements
contained therein false or misleading in any material respect.
(e) Each
share certificate issued pursuant to this Agreement, unless registered in
accordance with applicable U.S. securities laws, shall bear the following
legend:
THE
SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS
TO THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR “BLUE SKY”
LAWS.
In
addition to the foregoing legend, each share certificate shall bear a legend
which generally provides the following:
THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL
AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE
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PURPOSE
OF THE COMPANY’S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”). SUBJECT TO
CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE COMPANY’S
CHARTER, (I) NO PERSON, OTHER THAN AN EXCEPTED HOLDER, SHALL BENEFICIALLY
OWN OR CONSTRUCTIVELY OWN SHARES IN EXCESS OF THE AGGREGATE SHARE OWNERSHIP
LIMIT. NO EXCEPTED HOLDER SHALL BENEFICIALLY OWN OR CONSTRUCTIVELY
OWN SHARES IN EXCESS OF THE EXCEPTED HOLDER LIMIT FOR SUCH EXCEPTED HOLDER, (II)
NO PERSON SHALL BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES TO THE EXTENT THAT
SUCH BENEFICIAL OR CONSTRUCTIVE OWNERSHIP OF SHARES WOULD RESULT IN THE
CORPORATION BEING “CLOSELY HELD” WITHIN THE MEANING OF SECTION 856(H) OF THE
CODE (WITHOUT REGARD TO WHETHER THE OWNERSHIP INTEREST IS HELD DURING THE LAST
HALF OF A TAXABLE YEAR), OR OTHERWISE FAILING TO QUALIFY AS A REIT (INCLUDING,
BUT NOT LIMITED TO, BENEFICIAL OWNERSHIP OR CONSTRUCTIVE OWNERSHIP THAT WOULD
RESULT IN THE CORPORATION ACTUALLY OWNING OR CONSTRUCTIVELY OWNING AN INTEREST
IN A TENANT THAT IS DESCRIBED IN SECTION 856(D)(2)(B) OF THE CODE IF THE INCOME
DERIVED BY THE CORPORATION FROM SUCH TENANT WOULD CAUSE THE CORPORATION TO FAIL
TO SATISFY ANY OF THE GROSS INCOME REQUIREMENTS OF SECTION 856(C) OF THE CODE),
AND (III) ANY TRANSFER OF SHARES THAT, IF EFFECTIVE, WOULD RESULT IN SHARES
BEING BENEFICIALLY OWNED BY LESS THAN 100 PERSONS (DETERMINED UNDER THE
PRINCIPLES OF SECTION 856(A)(5) OF THE CODE) SHALL BE VOID AB INITIO, AND THE
INTENDED TRANSFEREE SHALL ACQUIRE NO RIGHTS IN SUCH SHARES. IF ANY OF
THE RESTRICTIONS ON TRANSFER OR OWNERSHIP SET FORTH IN (I) THROUGH
(III) ABOVE ARE VIOLATED, THE SHARES OF CAPITAL STOCK REPRESENTED HEREBY
WILL BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE
OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE COMPANY MAY TAKE
OTHER ACTIONS, INCLUDING REDEEMING SHARES UPON THE TERMS AND CONDITIONS
SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE AND ABSOLUTE DISCRETION IF THE
BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE
OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED
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TRANSFERS
IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL
CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE
COMPANY, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH,
INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH
HOLDER OF CAPITAL STOCK OF THE COMPANY ON REQUEST AND WITHOUT
CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE SECRETARY OF
THE COMPANY AT ITS PRINCIPAL OFFICE.
Section 3.6 No
Brokers. The Investor has not employed or made any agreement
with any broker, finder or similar agent or any other Person which will result
in the obligation of the Company or any of its Affiliates to pay any finder’s
fee, brokerage fees or commissions or similar payment in connection with the
transactions contemplated by the Agreement.
Except as
set forth in this Article III, no
Investor makes any representation or warranty of any kind, express or implied,
and each of the Company, the Manager and PAC LP acknowledges that it has not
relied upon any other such representation or warranty.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Investor and the Manager as set forth
below in this Article
IV, which representations and warranties are true and correct as of the
date hereof and will (except to the extent expressly relating to a specified
date) be true and correct as of the Closing Date:
Section 4.1 Organization;
Authority. The Company has been duly incorporated and is
validly existing under the laws of the jurisdiction of its formation, and has
all requisite approvals, licenses, permits and corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby, and, to the extent required under applicable law, is qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the character of its property make such qualification necessary,
except where the failure to be so qualified would not result in a Material
Adverse Effect. The Company has made available (or caused to be made
available) to the Investor a true and complete copy of each of the Charter and
the By-laws, as amended through the date hereof.
Section 4.2 Subsidiaries. Each
subsidiary of the Company has been duly incorporated, is validly existing and in
good standing under the laws of the jurisdiction of its organization, has the
power and authority to own its properties and to conduct its business and is
duly registered, qualified and authorized to transact business and is in good
standing in each jurisdiction in which the conduct of its business or the nature
of its properties requires such registration, qualification or
authorization. All the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued, is fully
paid and non-assessable.
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Section 4.3 Due
Authorization. The execution, delivery and performance of this
Agreement by the Company have been duly and validly authorized by all necessary
corporate action of the Company. No other corporate action (including
stockholder approval) is necessary to authorize such execution, delivery and
performance of this Agreement. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, as such enforceability may be limited by bankruptcy
or the application of equitable principles. The Company has
authorized the issuance and delivery of the shares of Class A Common Stock to
the Investor in accordance with this Agreement.
Section 4.4 Consents and
Approvals. Except as required pursuant to federal and state
securities laws and for approvals by the American Stock Exchange, each in
connection with the IPO, no consent, waiver, approval or authorization of any
third party or governmental authority or agency is required to be obtained by
the Company in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been obtained or satisfied prior to the Closing Date or the IPO
Closing, as applicable.
Section 4.5 Non-Contravention. None
of the execution, delivery or performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby
will: (a) result in a default (or an event that, with notice or
lapse of time or both would become a default) under, or give to any third party
any right of termination, cancellation, amendment or acceleration under, or
result in any loss of any material benefit under, any agreement, document or
instrument to which the Company or any of its subsidiaries or any of its or
their properties or assets may be bound; (b) violate or conflict with any
judgment, order, decree, or law applicable to the Company or any of its
subsidiaries or any of its or their properties or assets, except as to clauses
(a) and (b) for such events that would not reasonably be expected to result in a
Material Adverse Effect; or (c) result in a breach of any of the terms,
conditions or provisions of the By-laws and Charter. No event has
occurred and no condition exists which, upon notice or the passage of time (or
both), would constitute a default in any material respect under any such
agreement, document or instrument to which the Company or any of its
subsidiaries or any of its or their properties or assets may be bound or in any
license, permit or authorization to which the Company or any subsidiary is a
party or by which any of them may be bound.
Section 4.6 REIT
Status. At the effective time of the IPO and the Closing Date,
the Company shall be organized so as to qualify as a REIT within the meaning of
Section 856 of the Code. At the effective time of the IPO and the
Closing Date, the Company shall have operated in a manner that will allow it to
qualify as a REIT for federal income tax purposes commencing with its taxable
year ending December 31, 2010.
Section 4.7 Investment
Company. The Company is not, and following the Closing will
not be, an “investment company” or an “affiliated person” of, or “promoter” or
“principal underwriter” for an investment company, within the meaning of the
Investment Company Act of 1940, as amended.
Section 4.8 Capitalization. As
of the date hereof, the authorized capital stock of the Company consists of (a)
400,033,333 shares of Class A Common Stock, (b) 33,333 shares of Class B Common
Stock, and (c) 15,000,000 shares of Preferred Stock. The Class A Common Stock,
the Class B Common Stock and the Preferred Stock are collectively referred to as
the “Company
Securities.” As of the date hereof, the issued and outstanding
securities of the Company consist solely of 3,333 shares of Class A Common
Stock, 33,333 shares of Class B Common Stock, and no shares of Preferred
Stock. As of the date hereof, all the issued and outstanding Company
Securities have been duly authorized and validly issued and are fully paid and
non-assessable, and are not subject to preemptive or similar rights created by
statute or any agreement to which the Company is a party or by which it is
bound. The Class A Common Stock issuable in accordance with the terms
of this Agreement will at the time of the Closing, be duly authorized, validly
issued, fully paid and nonassessable, and not subject to preemptive or similar
rights created by statute or any agreement to which the Company is a party or by
which it is bound.
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Section 4.9 No
Litigation. As of the date hereof, there is no action, suit,
arbitration or other legal, administrative or other governmental investigation,
inquiry or proceeding (whether federal, state, local or foreign) pending or, to
the Company’s knowledge, threatened against or affecting the Company or any
subsidiary or any of their respective properties, assets or businesses that, if
adversely determined (individually or in the aggregate) has had or would
reasonably be expected to have a material adverse effect on (a) the business,
properties, assets, liabilities, prospects, profits, financial condition or
results of operations (financial or otherwise) of the Company and its
subsidiaries (including PAC LP) taken as a whole, or (b) the ability of the
Company, the Manager or PAC LP to execute or deliver, or perform its obligations
under, this Agreement, the other documents executed pursuant to this Agreement
or to consummate the transactions contemplated hereby or thereby (either of (a)
or (b), a “Material
Adverse Effect”). As of the date hereof, neither the Company
nor any subsidiary of the Company is subject to any order, writ, judgment,
injunction, decree, determination or award of any court or of any governmental
agency or instrumentality (whether federal, state, local or
foreign).
Section 4.10 No Prior Business.
Since the date of its incorporation, the Company has not conducted any business,
nor has it incurred any material liabilities or obligations (direct or indirect,
present or contingent), in each case except in connection with its formation,
the proposed IPO, the proposed issuance of its preferred stock, the proposed
acquisition of real property and the transactions contemplated by this
Agreement.
Section 4.11 No
Broker. None of the Company, its Affiliates and any of their
respective officers, directors or employees, to the extent applicable, has
employed or made any agreement with any broker, finder or similar agent or any
other Person which will result in the obligation of the Company or any of its
Affiliates to pay any finder’s fee, brokerage fees or commissions or similar
payment in connection with transactions contemplated by the
Agreement.
Except as
set forth in this Article IV, the
Company does not make any representation or warranty of any kind, express or
implied, and the Investor acknowledges that it has not relied upon any other
such representation or warranty.
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ARTICLE V
REPRESENTATIONS
AND WARRANTIES OF THE MANAGER
The
Manager represents and warrants to the Company, PAC LP and
the Investor as set forth below in this Article V, which
representations and warranties are true and correct as of the date hereof and
will (except to the extent expressly relating to a specified date) be true and
correct as of the Closing Date:
Section 5.1 Organization;
Authority. The Manager is a limited liability company, duly
formed, validly existing and in good standing under the laws of the State of
Delaware with all requisite limited liability company power and authority and
all approvals, licenses, permits and authorizations necessary to carry out the
transactions contemplated by this Agreement and is in good standing in each
jurisdiction in which the nature of its business or the character of its
property make such qualification necessary. The Company has made
available to the Investor a true and complete copy of the Manager LLCA, as
amended through the date hereof.
Section 5.2 Due
Authorization. The execution, delivery and performance of this
Agreement by the Manager have been duly and validly authorized by all necessary
action of the Manager. No other limited liability company action
(including member approval) is necessary to authorize such execution, delivery
and performance of the this Agreement. This Agreement constitutes a
legal, valid and binding obligation of the Manager, enforceable against the
Manager in accordance with its terms, such enforceability may be limited by
bankruptcy or the application of equitable principles.
Section 5.3 Consents and
Approvals. No consent, waiver, approval or authorization of
any third party or governmental authority or agency is required to be obtained
by the Manager in connection with the execution, delivery and performance of
this Agreement and the transactions contemplated hereby, except any of the
foregoing that shall have been obtained or satisfied prior to the Closing Date
or the IPO Closing, as applicable.
Section 5.4 Non-Contravention. None
of the execution, delivery or performance of this Agreement by the Manager and
the consummation by the Manager of the subscription transactions contemplated
hereby will: (a) result in a default (or an event that, with
notice or lapse of time or both would become a default) under, or give to any
third party any right of termination, cancellation, amendment or acceleration
under, or result in any loss of any material benefit under, any agreement,
document or instrument to which the Company or any of its properties or assets
may be bound; (b) violate or conflict with any judgment, order, decree, or
law applicable to the Company or any of its properties or assets, except as to
clauses (a) and (b) for such events that would not reasonably be expected to
result in a Material Adverse Effect; or (c) result in a breach of any of the
terms, conditions or provisions of the Manager LLCA. No event has
occurred and no condition exists which, upon notice or the passage of time (or
both), would constitute a default in any material respect under any such
agreement, document or instrument to which the Manager or any of its
subsidiaries or any of its or their properties or assets may be bound or in any
license, permit or authorization to which the Manager or any subsidiary is a
party or by which any of them may be bound.
11
Section 5.5 No
Litigation. As of the date hereof, there is no action, suit,
arbitration or other legal, administrative or other governmental investigation,
inquiry or proceeding (whether federal, state, local or foreign) pending or, to
the Manager’s knowledge, threatened against or affecting the Manager or any
subsidiary or any of their respective properties, assets or businesses that, if
adversely determined, would have a material adverse effect on (i) the business,
properties, assets, liabilities, prospects, profits, financial condition or
results of operations (financial or otherwise) of the Manager, or (ii) the
ability of the Manager to execute or deliver, or perform its obligations under,
this Agreement and the other documents executed by it pursuant to this Agreement
or to consummate the transactions contemplated hereby or thereby. As
of the date hereof, neither the Manager nor any subsidiary of the Manager is
subject to any order, writ, judgment, injunction, decree, determination or award
of any court or of any governmental agency or instrumentality (whether federal,
state, local or foreign).
Section 5.6 No
Broker. None of the Manager, its Affiliates and any of their
respective officers, directors or employees, to the extent applicable, has
employed or made any agreement with any broker, finder or similar agent or any
other Person which will result in the obligation of the Manager or any of its
Affiliates to pay any finder’s fee, brokerage fees or commissions or similar
payment in connection with transactions contemplated by the
Agreement.
Except as
set forth in this Article V, the
Manager does not make any representation or warranty of any kind, express or
implied, and the Company, PAC LP and the Investor acknowledges that it has not
relied upon any other such representation or warranty.
ARTICLE VI
REPRESENTATIONS
AND WARRANTIES OF PAC LP
PAC LP
represents and warrants to the Investor, the Company and the Manager as set
forth below in this Article VI, which
representations and warranties are true and correct as of the date hereof and
will (except to the extent expressly relating to a specified date) be true and
correct as of the Closing Date:
Section 6.1 Organization;
Authority. PAC LP has been duly organized and is validly
existing under the laws of the jurisdiction of its formation, and has all
requisite approvals, licenses, permits and partnership power and authority to
enter into this Agreement and, to the extent required under applicable law, is
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business or the character of its property make such
qualification necessary. The Company has made available to the
Investor a true and complete copy of the limited partnership agreement of the
PAC LP, as amended through the date hereof.
Section 6.2 Due
Authorization. The execution, delivery and performance of this
Agreement by PAC LP have been duly and validly authorized by all necessary
partnership action of PAC LP. This Agreement constitutes the legal,
valid and binding obligation of PAC LP, enforceable against PAC LP in accordance
with its terms, as such enforceability may be limited by bankruptcy or the
application of equitable principles.
Section 6.3 Consents and
Approvals. No consent, waiver, approval or authorization of
any third party or governmental authority or agency is required to be obtained
by PAC LP in connection with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, except any of the foregoing
that shall have been obtained or satisfied prior to the Closing Date or the IPO
Closing, as applicable.
12
Section 6.4 Non-Contravention. None
of the execution, delivery or performance of this Agreement by PAC LP and the
consummation by PAC LP of the subscription transactions contemplated hereby
will: (a) result in a default (or an event that, with notice or lapse
of time or both would become a default) under or give to any third party any
right of termination, cancellation, amendment or acceleration under, or result
in any loss of any material benefit, pursuant to any material agreement,
document or instrument to which PAC LP or any of its subsidiaries or any of its
or their properties or assets may be bound; (b) violate or conflict with any
judgment, order, decree, or law applicable to PAC LP or any of its subsidiaries
or any of its or their properties or assets, except as to clauses (a) and (b)
for such events that would not reasonably be expected to result in a Material
Adverse Effect; or (c) result in a breach of any of the terms, conditions or
provisions of, the PAC LPA. No event has occurred and no condition
exists which, upon notice or the passage of time (or both), would constitute a
default in any material respect under any such agreement, document or instrument
to which PAC LP or any of its subsidiaries or any of its or their properties or
assets may be bound or in any license, permit or authorization to which PAC LP
or any subsidiary is a party or by which any of them may be bound.
Section 6.5 No
Litigation. As of the date hereof, there is no action, suit,
arbitration or other legal, administrative or other governmental investigation,
inquiry or proceeding (whether federal, state, local or foreign) pending or, to
PAC LP’s knowledge, threatened against or affecting PAC LP or any subsidiary or
any of their respective properties, assets or businesses that, if adversely
determined, would have a material adverse effect on (i) the business,
properties, assets, liabilities, prospects, profits, financial condition or
results of operations (financial or otherwise) of PAC LP, or (ii) the ability of
PAC LP to execute or deliver, or perform its obligations under, this Agreement
and the other documents executed by it pursuant to this Agreement or to
consummate the transactions contemplated hereby or thereby. As of the
date hereof, neither PAC LP nor any subsidiary of PAC LP is subject to any
order, writ, judgment, injunction, decree, determination or award of any court
or of any governmental agency or instrumentality (whether federal, state, local
or foreign).
Section 6.6 No
Broker. Neither PAC LP nor any of its officers, directors or
employees, to the extent applicable, has employed or made any agreement with any
broker, finder or similar agent or any other Person which will result in the
obligation of the Investor or any of its respective Affiliates to pay any
finder’s fee, brokerage fees or commissions or similar payment in connection
with transactions contemplated by the Agreement.
Except as
set forth in this Article VI, PAC
LP does not make any representation or warranty of any kind, express or implied,
the Company, the Manager and the Investor acknowledges that it has not relied
upon any other such representation or warranty.
13
ARTICLE VII
MISCELLANEOUS
Section 7.1 Defined
Terms. As used in this Agreement, the following terms shall
have the following meanings:
“Affiliate” means any
Person, directly or indirectly, controlling, controlled by or under common
control with such Person.
“Agreement” has the
meaning set forth in the Preamble.
“Beneficial
Owner” has the meaning set forth in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, and all correlative terms shall
have a correlative meaning.
“Business Day” means a
day other than a Saturday, Sunday, legal holiday or other day on which banks in
the State of New York are required or authorized to close.
“By-laws” means, as of
a specified date, the Amended and Restated By-laws of the Company as in
existence on such date.
“Charter” means, as of
a specified date, Articles of Restatement and Amendment of the Company as in
existence on such date.
“Class A Common Stock”
has the meaning set forth in the Recitals.
“Closing” has the
meaning set forth in Section 2.1
“Closing Date” has the
meaning set forth in Section
2.3.
“Closing Documents”
has the meaning set forth in Section
2.4.
“Code” means the
Internal Revenue Code of 1986, as amended
“Company” has the
meaning set forth in the Preamble.
“Company Securities”
has the meaning set forth in Section
4.8(a).
“Convertible Preferred
Stock” has the meaning set forth in the Recitals.
“include”, “includes”, “including” and “such as” are to be
construed as if followed by the phrase “without limitation”.
“Investor” has the
meaning set forth in the Preamble.
“IPO” has the meaning
set forth in the Recitals.
“IPO Closing” means
the date, time and place of the consummation of the IPO.
14
“IPO Registration
Statement” means the registration statement filed in connection with the
IPO.
“IPO Share Price” has
the meaning set forth in Section 1.1.
“Manager” has the
meaning set forth in the Preamble.
“Manager LLCA” means,
as of a specified date, the limited liability company agreement of the Manager
then in effect.
“Material Adverse
Effect” has the meaning set forth in Section
4.9.
“Notice” has the
meaning set forth in Section
7.14.
“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.
“PAC LP” has the
meaning set forth in the Preamble.
“PAC LPA” means, as of
a specified date, the limited partnership agreement of the PAC LP then in
effect.
“Registration Rights
Agreement” has the meaning set forth in Section
2.4(b)
“Regulation D” has the
meaning set forth in the Recitals.
“REIT” means a real
estate investment trust.
“SEC” means the
Securities and Exchange Commission.
“Securities Act” means
the Securities Act of 1933, as amended.
“Stock Purchase Price”
has the meaning set forth in Section
1.1(a).
“Transfer” means to
offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any
securities described in this Agreement.
Section 7.2 Information. The
Company may request from the Investor such additional information as the Company
reasonably may deem necessary to evaluate the eligibility of the Investor to
acquire the Class A Common Stock, and may request from time to time such
information as the Company reasonably may deem necessary to determine the
eligibility of the Investor to hold the Class A Common Stock, or to enable the
Company to determine the Company’s compliance with applicable regulatory
requirements or tax status, and the Investor shall provide such information as
may reasonably be requested.
Section 7.3 Further
Assurances. The Investor and the Company shall take such other
actions and execute such additional documents following the Closing as the other
may reasonably request in order to effect the transactions contemplated
hereby.
15
Section 7.4 Counterparts. This
Agreement may be executed (including by facsimile transmission or other
electronic signature) with counterpart signature pages or in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.5 Governing
Law. This Agreement shall be governed by the internal laws of
the State of New York, without regard to the choice of laws provisions
thereof.
Section 7.6 Amendment;
Waiver. Any amendment hereof shall be in writing and signed by
all parties hereto. No waiver of any provisions of this Agreement
shall be valid unless in writing and signed by the party against whom
enforcement is sought.
Section 7.7 Entire
Agreement. This Agreement (including any exhibits hereto)
constitutes the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, among the parties hereto with respect to
the subject matter hereof.
Section 7.8 Assignability. This
Agreement shall be binding upon, and shall be enforceable by and inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned (except by operation of
law) by any party without the prior written consent of the other party; provided, however, that a party
may assign this Agreement to any of its affiliates. No assignment
permitted hereunder shall relieve the assigning party from its obligations under
this Agreement.
Section 7.9 Titles. The
titles and captions of the Articles, Sections and paragraphs of this Agreement
are included for convenience of reference only and shall have no effect on the
construction or meaning of this Agreement.
Section 7.10 No Third Party
Beneficiaries. No provision of this Agreement is intended, nor
shall it be interpreted, to provide or create any third party beneficiary rights
or any other rights of any kind in any customer, Affiliate, stockholder,
partner, member, director, officer or employee of any party hereto or any other
Person.
Section 7.11 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.
Section 7.12 Reliance. Each
party to this Agreement acknowledges and agrees that it is not relying on tax or
legal advice or other advice from any other party to this Agreement, and that it
has or will consult with its own tax, legal and other advisors.
Section 7.13 Survival of
Representations. It is the express intention and agreement of
the parties hereto that the representations and warranties of the Investor, the
Company, PAC LP and the Manager set forth in this Agreement shall survive the
consummation of the transactions contemplated hereby for a period of one year
following the Closing, after which such representations and warranties will have
no further effect.
16
Section 7.14 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
Company:
Preferred
Apartment Communities, Inc.
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:
Proskauer
Rose LLP
0000
Xxxxxxxx
Xxx Xxxx,
XX 00000
Facsimile:
(000) 000-0000
Attention: Xxxxx
X. Xxxx, Esq.
Xxxxx
X. Gerkis, Esq.
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 PAC
LP:
Preferred
Apartment Communities Operating Partnership, L.P.
17
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 the
Investor:
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:
Proskauer
Rose LLP
0000
Xxxxxxxx
Xxx Xxxx,
XX 00000
Facsimile:
(000) 000-0000
Attention: Xxxxx
X. Xxxx, Esq.
Xxxxx X. Gerkis, 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 7.14
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
7.14 designate a new address for receipt of Notices
hereunder. For the avoidance of doubt, if a Notice given in
accordance with this Section 7.14 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.
[signature pages to
follow]
18
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first written above.
PREFERRED
APARTMENT COMMUNITIES, INC.
By: /s/ Xxxx X.
Xxxxxxxx
Xxxx X.
Xxxxxxxx
President
and Chief Executive Officer
PREFERRED
APARTMENT ADVISORS, LLC
By: /s/ Xxxx X.
Xxxxxxxx
Xxxx
X. Xxxxxxxx
President
and Chief Executive Officer
PREFERRED
APARTMENT COMMUNITIES OPERATING PARTNERSHIP, L.P.
By: Preferred
Apartment Communities, Inc.
Its General
Partner
By: /s/ Xxxx X.
Xxxxxxxx
Xxxx X. Xxxxxxxx
President and Chief Executive
Officer
XXXXXXXX
OPPORTUNITY FUND, LLC
By: Xxxxxxxx
Opportunity Fund Manager, LLC
Its
Manager
By: Xxxxxxxx
Realty Advisors, LLC
Its
Manager
By: /s/ Xxxx X.
Xxxxxxxx
Xxxx
X. Xxxxxxxx
Chief
Executive Officer
Signature
Page to Subscription Agreement
.
EXHIBIT
A
FORM OF
REGISTRATION RIGHTS AGREEMENT
