Jeffrey R. Sprain, Esq.
Jared A. Seff, Esq. PREFERRED APARTMENT COMMUNITIES, INC. 3284 Northside Parkway NW, Suite 150 Atlanta, Georgia 30327 Tel: (770) 818-4100 Fax: (770) 818-4105 |
Peter M. Fass, Esq.
James P. Gerkis, Esq. PROSKAUER ROSE LLP Eleven Times Square New York, New York 10036-8299 Tel: (212) 969-3000 Fax: (212) 969-2900 |
Title of Each Class of Securities
To Be Registered |
Proposed Maximum Aggregate Offering Price
(1)
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Amount of Registration Fee
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Series M Redeemable Preferred Stock, par value $0.01 per share
(2)
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$500,000,000
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$57,950.00
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Common Stock issuable upon redemption of the Series M Redeemable Preferred Stock
(3)(4)
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-
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-
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Total
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$500,000,000
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$57,950.00*
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(1)
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Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended, or the Securities Act.
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(2)
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We are registering hereunder 500,000 shares of Series M Redeemable Preferred Stock.
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(3)
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We also are registering hereunder 41,666,667 shares of Common Stock that may be issuable upon the redemption of the Series M Redeemable Preferred Stock, assuming a hypothetical share price of $12.00 per share. The shares of Common Stock issuable upon redemption of the Series M Redeemable Preferred Stock will be issued for no additional consideration, and therefore no registration fee is required pursuant to Rule 457(i) of the Securities Act.
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(4)
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Pursuant to Rule 416 of the Securities Act, such number of shares of Common Stock registered hereby also shall include an indeterminate number of shares of Common Stock that may be issued in connection with stock splits, stock dividends, recapitalizations or similar events or adjustments in the number of shares issuable as provided in the articles supplementary setting forth the rights, preferences and limitations of the Series M Redeemable Preferred Stock.
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The information in this prospectus is not complete and may be changed. No person may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
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Per mShare
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Maximum Offering
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Public offering price
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$
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1,000.00
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$
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500,000,000
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(1
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)
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Dealer manager fee
(2)(3)
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$
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30.00
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$
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15,000,000
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Proceeds, before expenses, to us
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$
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970.00
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$
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485,000,000
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(1)
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Initial gross proceeds.
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(2)
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The dealer manager fee will equal up to and including 3% of aggregate gross proceeds and is payable to our dealer manager. We or our affiliates also may provide permissible forms of non-cash compensation to registered representatives of our dealer manager and the participating broker-dealers. The value of such items will be considered underwriting compensation in connection with this offering, and the corresponding payments of our dealer manager fee will be reduced by the aggregate value of such items. The combined dealer manager fee and such non-cash compensation for this offering will not exceed 10% of the aggregate gross proceeds of this offering, which is referred to as FINRA’s 10% cap. Our dealer manager will repay to us any excess payments made to our dealer manager over FINRA’s 10% cap if this offering is abruptly terminated before reaching the maximum amount of offering proceeds.
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(3)
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We expect our dealer manager to authorize other broker-dealers that are members of FINRA, which we refer to as participating broker-dealers, to sell our mShares. Our dealer manager may reallow a portion of its dealer manager fee earned on the proceeds raised by a participating broker-dealer, to such participating broker-dealer as a non-accountable marketing or due diligence allowance. The amount of the reallowance to any participating broker-dealer will be determined by the dealer manager in its sole discretion.
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Page
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ABOUT THIS PROSPECTUS
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1
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MARKET AND INDUSTRY DATA AND FORECASTS
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2
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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2
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PROSPECTUS SUMMARY
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4
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RISK FACTORS
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14
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PREFERRED APARTMENT COMMUNITIES, INC.
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20
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USE OF PROCEEDS
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41
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RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
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43
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DESCRIPTION OF CAPITAL STOCK AND SECURITIES OFFERED
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44
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
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59
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PLAN OF DISTRIBUTION
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78
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LEGAL MATTERS
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82
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EXPERTS
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82
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WHERE YOU CAN FIND MORE INFORMATION ABOUT PREFERRED APARTMENT COMMUNITIES
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82
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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84
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actions and initiatives of the U.S. Government and changes to U.S. Government policies and the execution and impact of these actions, initiatives and policies;
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our ability to obtain and maintain financing arrangements, including through the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac;
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our ability to maintain our qualification as a real estate investment trust for U.S. federal income tax purposes, or REIT;
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weakness in the national, regional and local economies, which could adversely impact consumer spending and retail sales and in turn tenant demand for space and could lead to increased store closings;
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changes in market rental rates;
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changes in demographics (including the number of households and average household income) surrounding our shopping centers;
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adverse financial conditions for grocery anchors and other retail, service, medical or restaurant tenants;
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continued consolidation in the retail and grocery sector;
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excess amount of retail space in our markets;
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reduction in the demand by tenants to occupy our shopping centers as a result of reduced consumer demand for certain retail formats;
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the growth of online retailers and super-centers and warehouse club retailers, such as those operated by Wal-Mart and Costco, and their adverse effect on traditional grocery chains;
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our ability to aggregate a critical mass of grocery-anchored shopping centers or to spin-off, sell or distribute them;
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the impact of an increase in energy costs on consumers and its consequential effect on the number of shopping visits to our centers; and
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consequences of any armed conflict involving, or terrorist attack against, the United States.
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experienced management team with significant expertise in real estate and real estate-related debt investments and capital markets;
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access to a pipeline of investment opportunities;
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benefits from our relationship with our Manager and its affiliates; and
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dedicated asset management team.
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Acquiring Class “A” multifamily assets in performing and stable markets throughout the United States; these multifamily assets, we believe, will generate sustainable and growing cash flow from operations sufficient to allow us to cover the dividends that we expect to declare and pay, and, we believe, will have the potential for capital appreciation. These multifamily assets will generally be located in metropolitan statistical areas, or MSAs, with at least one million people, which we expect will generate job growth and where we believe new multifamily development of comparable properties is able to be absorbed at attractive rental rates.
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Acquiring Class “A” multifamily assets dedicated to student housing at universities around the United States. These assets will be located near the applicable campus. We will endeavor to acquire assets with demonstrated track records of occupancy and rental rates. The universities served by these assets should generally be larger schools typically demonstrating increasing enrollment and market trends that indicate new development is being or should be absorbed at attractive rental rates.
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Acquiring Class “A” multifamily assets that are intended to be financed with longer-term, assumable, fixed-rate debt typically provided by the Federal Housing Administration or FHA and Department of Housing and Urban Development or HUD programs.
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Acquiring Class “A” multifamily assets that present an opportunity to implement a value-add program whereby the properties can be upgraded or improved physically to better take advantage of the increased rental rates that we believe the relevant markets will command.
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Acquiring grocery-anchored shopping centers, subject to a limitation that non-multifamily real estate related investments may not exceed the 20% non-multifamily related asset cap. These assets are typically anchored by one of the market dominant or specialty grocers in the trade area. We will endeavor to acquire shopping centers with a track record of strong, increasing sales per square foot at the anchor store. We will also target on a select basis a specialty grocer, such as Whole Foods, Sprouts, Fresh Market, or Trader Joes, in a market where they have a high sales per square foot store.
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Acquiring Class "A" office assets, subject to a limitation that non-multifamily real estate related investments may not exceed the 20% non-multifamily related asset cap. We will endeavor to acquire well leased, high credit, low risk, Class "A" office buildings.
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Originating real estate loans secured by interests in multifamily properties, membership or partnership interests in multifamily properties, other multifamily related assets and, subject to the 20% non-multifamily related asset cap, non-multifamily related assets.
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It is our policy to acquire any of our target assets primarily for income, and only secondarily for possible capital gain. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily properties and, subject to the 20% non-multifamily related asset cap, non-multifamily related assets, and we may make real estate loans, provide deposit arrangements, or provide performance assurances, as may be necessary or appropriate, in connection with the construction of multifamily communities and other properties.
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We also may invest in real estate related debt, including, but not limited to, newly or previously originated first mortgage loans on multifamily properties and, subject to the 20% non-multifamily related asset cap, non-multifamily related assets that meet our investment criteria, which are performing or non-performing, newly or previously originated second position loans on multifamily properties and, subject to the 20% non-multifamily related asset cap, non-multifamily assets that meet our investment criteria (second or subsequent mortgages), which are performing or non-performing, and tranches of securitized loans (pools of collateralized mortgaged-backed securities) on multifamily properties and, subject to the 20% non-multifamily related asset cap, non-multifamily related assets that meet our investment criteria, which are performing or non-performing. In connection with our investments in second position loans, we may negotiate the inclusion of exclusive purchase options on the to-be-developed properties. These purchase options may include a fixed purchase price set at the time we enter into the loan, or a purchase price which is calculated as a certain discount from market capitalization rates determined at the date of exercise of such purchase option.
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Multifamily Property Management and Leasing Fee
(2)
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We will pay our Manager a monthly fee equal to 4% of the monthly gross revenues of our multifamily properties managed, for services in connection with the rental, leasing, operation and management of our multifamily properties and the supervision of any third parties that are engaged by our Manager to provide such services. Our Manager may subcontract the performance of its multifamily property management and leasing services duties to third parties or affiliates and pay all or a portion of its multifamily property management fee to such persons with whom it contracts for these services. Our Manager will be responsible for all fees payable to third parties or affiliates in connection with subcontracted property management and leasing duties. The property management and leasing fee will be payable monthly in arrears, based on the actual gross revenues for the prior month.
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Retail Management Fee
(2)
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We will pay our Manager a monthly fee equal to 4% of the gross revenues managed per month, for services in connection with the operation and management of our retail real estate assets and the supervision of any third parties that are engaged by our Manager to provide such services. Our Manager may subcontract the performance of its retail property management duties to third parties or affiliates and pay all or a portion of its retail management fee to such persons with whom it contracts for these services. Our Manager will be responsible for all fees payable to third parties or affiliates in connection with subcontracted retail property management duties. The retail management fee will be payable monthly in arrears, based on the actual gross revenues for the prior month.
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Retail Leasing Fees
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We will pay our Manager a commission with respect to a new lease for a retail real estate asset equal to the greater of (A) four dollars per square foot and (B) 4% of the aggregate base rental payments to be paid by tenant for the first ten years of the original lease term. In the event of co-broker participation in a new lease for a retail real estate asset, the leasing commission determined for a new lease, with respect to such lease, will be increased by 50% which increased commission amount will be shared between our Manager and such co-broker on a split basis mutually acceptable to our Manager and such co-broker, provided that our Manager's share shall not exceed 100% o the amount our Manager would have received without outside broker involvement, nor be less than 50% of the increased amount. We will pay a commission to our Manager with respect to a negotiated renewal of an existing lease for a retail real estate asset equal to the greater of (A) two dollars per square foot and (B) 2% of the aggregate base rental payments to be paid by tenant for the first ten years of the newly renewed term. In no event shall the retail leasing fees paid to our Manager exceed customary market rates. Our Manager may subcontract the performance of its retail leasing duties to third parties or affiliates and pay all or a portion of its retail leasing fee to such persons with whom it contracts for these services. Our Manager will be responsible for all fees payable to third parties or affiliates in connection with subcontracted retail leasing duties. The retail leasing fee will be payable upon the earlier to occur of rent commencement or tenant's opening for business.
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Office Management Fee
(2)
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We will pay our Manager a monthly fee equal to 4% of the gross revenues managed per month, for services in connection with the operation and management of our office real estate assets and the supervision of any third parties that are engaged by our Manager to provide such services. Our Manager may subcontract the performance of its office property management duties to third parties or affiliates and pay all or a portion of its office management fee to such persons with whom it contracts for these services. Our Manager will be responsible for all fees payable to third parties or affiliates in connection with subcontracted office property management duties. The office management fee will be payable monthly in arrears, based on the actual gross revenues for the prior month.
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(2) The total amount of the asset management, multifamily property management and leasing, retail management, office management and general and administrative fees and expenses paid or reimbursed to our Manager will be capped at 1.5% of total value of our assets (including cash and cash equivalents) based on the adjusted cost of our assets before reduction for depreciation, amortization, impairment charges and cumulative acquisition costs charged to expense in accordance with GAAP (adjusted cost will include the purchase price, acquisition expenses, capital expenditures and other customarily capitalized costs).
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(3) In addition to the general and administrative expenses fee, we may reimburse our Manager for certain costs and expenses it incurs in connection with the services it provides to us, including, but not limited to, personnel costs. See the note to our financial statements entitled "Related Party Transactions" included in our most recent Annual Report on Form 10-K, any subsequent Quarterly Reports on Form 10-Q and SEC reports on Form 8-K, which are incorporated, or deemed to be incorporated, by reference into this prospectus for details relating to these additional costs and expenses.
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The Offering
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Issuer
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Preferred Apartment Communities, Inc.
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mShares offered by us
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A maximum of 500,000 mShares will be offered through our dealer manager in this offering on a reasonable best efforts basis.
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Ranking
. Our mShares shall, with respect to the payment of dividends and rights upon liquidation, dissolution or winding up rank (a) senior to our common stock and (b) on a parity with our Series A Redeemable Preferred Stock. Investors in mShares should note that holders of common stock will receive additional distributions from the sale of a property (in excess of their capital attributable to the asset sold) before the holders of mShares receive a return of their capital.
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Stated Value
. Each mShare will have an initial "Stated Value" of $1,000, subject to appropriate adjustment in relation to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting our mShares, as set forth in the articles supplementary setting forth the rights, preferences and limitations of our mShares, or the Articles Supplementary.
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Dividends
. Holders of mShares are entitled to receive, when and as authorized by our Board of Directors and declared by us out of legally available funds, cumulative cash dividends on each mShare at an initial annual rate of five and three fourths percent (5.75%) of the Stated Value, which we refer to as the Dividend Rate. Beginning one year from the date of original issuance of each mShare, and on each one year anniversary thereafter for such mShare, the Dividend Rate shall increase by 0.25% per annum for such share; provided, however, that the Dividend Rate for any mShare shall not exceed seven and one half percent (7.5%) per annum. Dividends on each mShare will begin accruing on, and will be cumulative from, the date of issuance. We expect to continue to pay dividends on the mShares monthly, unless our results of operations, our general financial condition, general economic conditions, applicable provisions of Maryland law or other factors make it imprudent to do so. We also expect to continue to authorize and declare dividends on the mShares on a monthly basis payable on the 20th day of the month following the month for which the dividend was declared (or the next business day if the 20th day is not a business day). The timing and amount of such dividends will be determined by our Board of Directors, in its sole discretion, and may vary from time to time.
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Redemption at the Option of a Holder
. During the period beginning on the date of original issuance of the mShares to be redeemed and ending on the day immediately preceding the first anniversary of such original issuance, the holder will have the right to require the Company to redeem such mShares at a redemption price equal to the Stated Value, initially $1,000 per share, less a 2% redemption fee, plus any accrued but unpaid dividends.
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During the period beginning one year from the date of original issuance of the mShares to be redeemed and ending on the day immediately preceding the second anniversary of such original issuance, the holder will have the right to require the Company to redeem such mShares at a redemption price equal to the Stated Value, initially $1,000 per share, less a 1% redemption fee, plus any accrued but unpaid dividends.
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Beginning two years from the date of original issuance of the mShares to be redeemed, the holder will have the right to require the Company to redeem such mShares at a redemption price equal to 100% of the Stated Value, initially $1,000 per mShare, plus any accrued but unpaid dividends.
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If a holder of mShares, or a holder's estate upon death of a holder, causes the Company to redeem such mShares, we have the right, in our sole discretion, to pay the redemption price in cash or in equal value of our common stock, based on the volume weighted average price per share of our common stock for the 20 trading days prior to the redemption, in exchange for the mShares.
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Optional Redemption by the Company
. After ten years from the date of original issuance of the mShares to be redeemed, we will have the right (but not the obligation) to redeem such mShares at 100% of the Stated Value, initially $1,000 per share, plus any accrued but unpaid dividends. If we choose to redeem any mShares, we have the right, in our sole discretion, to pay the redemption price in cash or in equal value of our common stock, based on the volume weighted average price per share of our common stock for the 20 trading days prior to the redemption, in exchange for the mShares.
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Our obligation to redeem any of the mShares is limited to the extent that we do not have sufficient funds available to fund any such redemption or we are restricted by applicable law from making such redemption.
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Liquidation
. Upon any voluntary or involuntary liquidation, dissolution or winding-up of our affairs, before any distribution or payment shall be made to holders of our common stock or any other class or series of capital stock ranking junior to our mShares, the holders of mShares will be entitled to be paid out of our assets legally available for distribution to our stockholders, after payment or provision for our debts and other liabilities, a liquidation preference equal to the Stated Value per mShare, plus an amount equal to any accrued but unpaid dividends.
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Capital stock to be outstanding after this offering
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500,000 mShares, assuming the maximum offering of 500,000 mShares in this offering.
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24,681,281 shares of common stock
(1)
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2,489,408 shares of Series A Redeemable Preferred Stock, assuming the maximum offering of 1,500,000 Units in the $1.5 Billion Series A Offering (defined below), 900,000 Units in the First Follow-On Series A Offering (defined below) and the 89,408 Units issued in the Primary Series A Offering (defined below).
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Determination of Offering Price
The selling price of the mShares has been determined pursuant to discussions between us and our affiliated dealer manager, based upon the following primary factors: the economic conditions in and future prospects for the industry in which we compete; our prospects for future earnings; an assessment of our management; the present state of our development; the prevailing conditions of the equity securities markets at the time of this offering; the present state of the market for non-traded REIT securities; and current market valuations of public companies considered comparable to our Company. Because the offering price is not based upon any independent valuation, the offering price is not indicative of the proceeds that you would receive upon liquidation. However, for the purpose of allowing the dealer manager and the participating broker-dealers to comply with FINRA Rule 2310(b)(5) and to participate in the distribution of this offering of mShares, we have agreed that annually we will provide a per share estimate of the value of our mShares in the annual report to shareholders filed pursuant to Section 13(a) of the Securities Exchange Act of 1934. |
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Covered Security The term "covered security" applies to securities exempt from state registration because of their oversight by federal authorities and national-level regulatory bodies pursuant to Section 18 of the Securities Act of 1933, as amended, or the Securities Act. Generally, securities listed on national exchanges are the most common type of covered security exempt from state registration. A non-traded security also can be a covered security if it has a seniority greater than or equal to other securities from the same issuer that are listed on a national exchange, such as the NYSE. Our mShare is a covered security because it is senior to our common stock and therefore is exempt from state registration. |
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There are several advantages to both issuers and investors of a security being deemed a covered security. These include:
• More Investors — Covered securities can be purchased by a broader range of investors than can non-covered securities. Non-covered securities are subject to suitability requirements that vary from state to state. These so-called “Blue Sky" regulations often prohibit the sale of securities to certain investors and may prohibit the sale of securities altogether until a specific volume of sales have been achieved in other states.
• Issuance Costs — Covered securities may have lower issuance costs since they avoid the expense of dealing with the various regulations of each of the 50 states and Washington, D.C. This could save time and money and allows issuers of covered securities the flexibility to enter the real estate markets at a time of their choosing. All investors of the issuer would benefit from any lower issuance costs that may be achieved.
There are several disadvantages to investors of a security being deemed a covered security. These include:
• Lack of State Suitability Standards — Since there are no state investor eligibility requirements, there is no prohibition on the sale of the securities to certain investors, including investors that may not be suitable to purchase the securities.
• No State Review — Investors will not receive an additional level of review and possible protection afforded by the various state regulators.
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the election or removal of directors;
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the amendment of our charter, except that our Board of Directors may amend our charter without stockholder approval to:
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change our name;
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change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock;
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increase or decrease the aggregate number of shares of stock that we have the authority to issue;
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increase or decrease the number of shares of any class or series of stock that we have the authority to issue; and
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effect certain reverse stock splits;
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our liquidation and dissolution; and
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our being a party to a merger, consolidation, conversion, sale or other disposition of all or substantially all our assets or statutory share exchange.
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experienced management team with significant expertise in real estate and real estate-related debt investments and capital markets;
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access to a pipeline of investment opportunities;
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benefits from our relationship with our Manager and its affiliates; and
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•
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dedicated asset management team.
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acquiring Class "A" multifamily assets in performing and stable markets
throughout the United States; these properties, we believe, will generate sustainable and growing cash flow from operations sufficient to allow us to cover the dividends that we expect to declare and pay and which we believe will have the potential for capital appreciation. These multifamily assets will generally be located in metropolitan statistical areas, or MSAs, with at least one million people, which we expect will generate job growth and where we believe new multifamily development of comparable properties is able to be absorbed at attractive rental rates;
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acquiring Class “A” multifamily assets that are intended to be financed with longer-term, assumable, fixed-rate debt typically provided by FHA or HUD programs;
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acquiring Class “A” multifamily assets that present an opportunity to implement a value-add program whereby the properties can be upgraded or improved physically to better take advantage of the increased rental rates that we believe the relevant markets will command;
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originating real estate loans secured by interests in multifamily properties, membership or partnership interests in multifamily properties and other multifamily related assets;
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•
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it is our policy to acquire any of our target assets primarily for income, and only secondarily for possible capital gain. As part of our business strategy, we may enter into forward purchase contracts or purchase options for to-be-built multifamily communities and we may make real estate loans, provide deposit arrangements, or provide performance assurances, as may be necessary or appropriate, in connection with the construction of multifamily communities and other properties;
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we also may invest in real estate related debt, including, but not limited to, newly or previously originated first mortgage loans on multifamily properties that meet our investment criteria, which are performing or non-performing, newly or previously originated real estate loans on multifamily properties that meet our investment criteria (second or subsequent mortgages), which are performing or non-performing, and tranches of securitized loans (pools of collateralized mortgaged-backed securities) on multifamily properties that meet our investment criteria, which are performing or non-performing. In connection with our investments in real estate debt, we may negotiate the inclusion of exclusive purchase options on the to-be-developed properties. These purchase options may include a fixed purchase price set at the time we enter into the loan, or a purchase price which is calculated as a certain discount from market capitalization rates at the date of exercise of such purchase option; and
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taking advantage of the anticipated availability of financing from Freddie Mac, Fannie Mae and HUD that fits within our financing strategy as set forth in our most recent Annual Report on Form 10-K, any subsequent Quarterly Reports on Form 10-Q and SEC reports on Form 8-K.
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assets of varying age depending on the return profile and the specific strategy for each asset;
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assets in the top submarkets of each metropolitan statistical area (MSA) defined by highest rent per square foot, highest resident income level, highest property values for single family housing, etc.;
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properties that are modern in architecture and appearance with no functional obsolescence or design flaws;
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assets comprised of 200 - 600 units per property to allow increased operating efficiency, with target properties outside this profile evaluated and priced appropriately;
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multifamily properties which we believe will generate sustainable cash available for distribution sufficient to allow us to cover the dividends that we expect to declare and pay and which we believe will have the potential for capital appreciation;
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assets with target capitalization rates varying by market and asset type - in light of today’s interest rate environment, we believe core assets in the more stable markets could range between 5.0% and 6.0% and more opportunistic assets could have significantly higher stabilized capitalization rates;
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assets with exit capitalization rates forecasted based on market performance, interest rate assumptions, and asset strategy but that generally mirror entry capitalization rates (except on more opportunistic targets); and
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assets in urban infill areas and suburban markets.
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Core:
Core assets can best be described as being relatively new properties (less than ten years old) in major markets and top submarkets. These properties typically are in infill and close-in suburban locations with significant barriers to entry and little-to-no deferred maintenance issues or significant capital expenditures necessary to maintain market presence. The properties are typically well managed and maintained by the seller. Based on the current interest rate environment, we would expect capitalization rates to range from 5.0% to 6.0%;
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Value Add
: Value Add assets can best be described as slightly older assets (up to 25 years old) in major markets, but submarkets can be infill or suburban. Value Add assets typically have some deferred maintenance issues, capital expenditure needs and/or modest operational or occupancy deficiencies that may require more management intensive efforts than core assets. These operational deficiencies could include, but are not limited to, below market occupancy rates, unqualified or inexperienced management teams on site or at the corporate level, deferred maintenance and capital expenditure needs. Capital expenditure needs in value add assets should be no more than $10,000 to $20,000 per unit, depending on market conditions and material costs. The stabilized capitalization rates for Value Add assets are expected to be higher (6.0% to 8.0% currently) than core assets with higher expected returns; and
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Opportunistic
: Opportunistic assets can be older assets, but we would seek to avoid functional obsolescence in an asset due to defective construction and inherent flaws. Examples of functional obsolescence could include, but are not limited to, flat roofs in garden style apartments, floor plans that are significantly smaller than the market average and a high percentage of two bedroom/one bath units relative to the market. Defective construction or inherent flaws could include, but is not limited to, aluminum wiring in apartments for electricity, blu-poly piping and poor installation of mechanical systems or appliances. It is possible that we would acquire an asset with some of these flaws with the intention of correcting the issues or "updating" the asset. We would expect this type of asset to have serious physical or operational deficiencies that will require intensive efforts to correct either through management changes or renovation or a combination of both. Capital expenditure needs in Opportunistic assets will probably exceed $20,000 per unit, depending on market conditions and material costs. Capitalization rates for these assets could be 7.0% or higher due to the potentially serious operational deficiencies with an opportunistic asset. Current cap rates for Opportunistic assets may be difficult to determine and may vary widely.
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•
|
acquiring Class “A” multifamily assets dedicated to student housing at universities throughout the United States. These assets will be located near the applicable campus. We will endeavor to acquire assets with demonstrated track records of occupancy and rental rates. The universities served by these assets should generally be larger schools typically demonstrating increasing enrollment and market trends that indicate new development is being or should be absorbed at attractive rental rates; and
|
•
|
originating real estate loans secured by interests in student housing properties, membership or partnership interests in student housing properties and other student housing related assets.
|
•
|
acquiring grocery-anchored shopping centers, subject to a limitation that such other non-multifamily real estate related investments may not exceed the 20% non-multifamily related asset cap. These assets typically are anchored by one of the market dominant grocers in the trade area. We will endeavor to acquire shopping centers with a track record of strong and increasing sales per square foot at the anchor store;
|
•
|
acquiring grocery-anchored shopping centers which we believe will generate sustainable cash flow from operations sufficient to allow us to cover the dividends that we expect to declare and pay and which we believe will have the potential for capital appreciation;
|
•
|
originating real estate loans secured by interests in grocery-anchored shopping centers, not to exceed the 20% non-multifamily related asset cap, in other non-multifamily real estate related investments;
|
•
|
taking advantage of the expected moderate level of new retail development based on the continued trend from the last few years; and
|
•
|
taking advantage of the anticipated availability of financing from life insurance companies, banks and conduit lenders that fits within our financing strategy as set forth in our most recent Annual Report on Form 10-K, any subsequent Quarterly Reports on Form 10-Q and any SEC reports on Form 8-K.
|
•
|
are of varying age depending on the return profile and the specific strategy for each asset;
|
•
|
have target capitalization rates varying by market and asset type - in light of today’s interest rate environment, we believe core assets in the more stable markets could range between 5.0% and 7.5% and more opportunistic assets could have significantly higher stabilized capitalization rates;
|
•
|
have exit capitalization rates forecasted based on market performance, interest rate assumptions, and asset strategy but that generally mirror entry capitalization rates (except on more opportunistic targets);
|
•
|
are in suburban markets generally within the top 100 MSAs of the Sunbelt region;
|
•
|
have dominant grocery anchors that maintain a #1 or #2 market share and that have growing and high relative sales per square foot stores in such market; and
|
•
|
have specialty grocers such as Whole Foods, Fresh Market, Sprouts or Trader Joes' in a submarket where such specialty grocer has a solid sales history.
|
•
|
Core
: Core assets can best be described as being grocery-anchored properties strategically located in major markets with high sales per square foot and occupancy that generate steady cash flow. These properties are typically well maintained with little deferred maintenance. The stabilized capitalization rates for core properties range from 5.0% to 6.5%;
|
•
|
Core Plus
: Core Plus assets can best be described as being grocery-anchored properties strategically located in the top 100 MSAs that are not major markets and located in the top submarkets of those markets. Like the core assets, these properties have market leading grocery operators that have high sales per square foot and occupancy levels that generate steady cash flow. Core Plus assets also can be located in major markets, but will have additional upside to increase cash flow either through upcoming lease roll and/or modest lease up. This Core Plus category achieves higher overall returns than Core Assets. These properties are typically well maintained with little deferred maintenance. The stabilized capitalization rates for Core Plus properties range from 6.0% to 7.5%; and
|
•
|
Value Add
: Value Add assets can best be described as slightly older assets (up to 25 years old) in major markets, but submarkets can be infill or suburban. Value Add assets typically have some deferred maintenance issues, capital expenditure needs and/or modest operational or occupancy deficiencies that may require more management intensive efforts than core assets. These operational deficiencies could include, but are not limited to, below market occupancy rates, unqualified or inexperienced management teams on site or at the corporate level, deferred maintenance and capital expenditure needs. The stabilized capitalization rates for value add assets are expected to be higher (6.0% to 8.0% currently) than Core Assets with higher expected returns.
|
|
Maximum Offering
|
|||||
|
Amount
|
|
Percent
|
|||
Gross offering proceeds
|
$
|
500,000,000
|
|
|
100.00
|
%
|
Offering expenses:
|
|
|
|
|||
|
|
|
|
|
||
Dealer manager fee
(1)
|
$
|
15,000,000
|
|
|
3.00
|
%
|
Other offering expenses
(2)
|
$
|
7,500,000
|
|
|
1.50
|
%
|
Amount available for investment
(3)
|
$
|
477,500,000
|
|
|
95.50
|
%
|
|
|
|
|
|||
Cash down payment (equity)
|
$
|
456,851,351
|
|
|
91.37
|
%
|
Loan Coordination Fees
(4)
|
$
|
20,648,649
|
|
|
4.13
|
%
|
|
|
|
|
|||
Proceeds invested
|
$
|
477,500,000
|
|
|
95.50
|
%
|
Offering expenses
|
$
|
22,500,000
|
|
|
4.50
|
%
|
Total application of proceeds
|
$
|
500,000,000
|
|
|
100.00
|
%
|
(1)
|
Assumes a dealer manager fee of 3.0% of gross offering proceeds in the offering under this prospectus. See the "Plan of Distribution" section of this prospectus for a description of these fees. We or our affiliates also may provide permissible forms of non-cash compensation to registered representatives of our dealer manager and the participating broker-dealers, including gifts. In no event shall such gifts exceed an aggregate value of $100 per annum per participating salesperson, or be pre-conditioned on achievement of a sales target. The value of such items will be considered underwriting compensation in connection with this offering, and the corresponding payments of our dealer manager fee will be reduced by the aggregate value of such items. The aggregate combined dealer manager fee and such non-cash compensation for this offering will not exceed FINRA’s 10% cap.
|
(2)
|
Includes all expenses (other than the dealer manager fee) to be paid by us or on our behalf in connection with the qualification and registration of this offering and the marketing and distribution of the mShares, including, without limitation, expenses for printing and amending registration statements or supplementing prospectuses, mailing and distributing costs, all advertising and marketing expenses, charges of transfer agents, registrars and experts and fees, expenses and taxes related to the filing, registration and qualification, as necessary, of the sale of the mShares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees. We will reimburse our Manager and its affiliates for such offering expenses in an amount up to 1.5% of gross offering proceeds based on the aggregate proceeds of this offering. Our Manager and its affiliates will be responsible for any such offering expenses that exceed 1.5% of aggregate gross offering proceeds under this offering, without recourse against or reimbursement by us; however, upon approval by the conflicts committee of our Board of Directors, we may reimburse our Manager for any such expenses incurred above the 1.5% amount as permitted by FINRA. Subject to the foregoing, all organization and offering expenses, including the dealer manager fee, will be capped at 11.5% of the aggregate gross proceeds of this offering.
|
(3)
|
Although the net proceeds are expected to be used in connection with the acquisition of multifamily properties and other real estate-related investments, including grocery-anchored shopping centers, and the payment of fees and expenses related thereto, the proceeds are available for our other capital needs, whether related to the repayment of debt or otherwise. For purposes of this table, however, we have assumed that we will use all the net proceeds for acquisitions of real property and the payment of related fees and expenses. Until required in connection with the acquisition of real property or other capital needs, we intend to invest the net proceeds of this offering in a manner which will not adversely affect our ability to qualify, or maintain our qualification, as a REIT.
|
(4)
|
Loan coordination fees are paid to the Manager upon the closing of a property and are calculated as 1.6% of any assumed, new or supplemental debt incurred in connection with an acquired property, or 1.6% of 63% of the purchase price if the asset is not leveraged, and are governed by the Management Agreement. For purposes of this assumption, we assume 63.0% leverage on all acquisitions.
|
|
||||||||||||||||||||||||
Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
|
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Nine months ended September 30,
|
|
Year ended December 31,
|
||||||||||||||||||||
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
2011
|
||||||||||||
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net income (loss)
|
|
$
|
(5,860,631
|
)
|
|
$
|
(2,425,989
|
)
|
|
$
|
2,127,203
|
|
|
$
|
(4,205,492
|
)
|
|
$
|
(146,630
|
)
|
|
$
|
(8,495,424
|
)
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed charges
|
|
30,688,505
|
|
|
21,315,731
|
|
|
10,188,187
|
|
|
5,780,526
|
|
|
2,504,679
|
|
|
1,514,581
|
|
||||||
Less: Net (income) loss attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
non-controlling interests
|
|
175,045
|
|
|
25,321
|
|
|
(33,714
|
)
|
|
222,404
|
|
|
—
|
|
|
—
|
|
||||||
Total earnings
|
|
$
|
25,002,919
|
|
|
$
|
18,915,063
|
|
|
$
|
12,281,676
|
|
|
$
|
1,797,438
|
|
|
$
|
2,358,049
|
|
|
$
|
(6,980,843
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest expense
|
|
$
|
28,256,696
|
|
|
$
|
19,841,455
|
|
|
$
|
9,183,128
|
|
|
$
|
4,921,797
|
|
|
$
|
2,310,667
|
|
|
$
|
1,450,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Amortization of deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
related to mortgage indebtedness
|
|
2,431,809
|
|
|
1,474,276
|
|
|
1,005,059
|
|
|
858,729
|
|
|
194,012
|
|
|
64,480
|
|
||||||
Total fixed charges
|
|
30,688,505
|
|
|
21,315,731
|
|
|
10,188,187
|
|
|
5,780,526
|
|
|
2,504,679
|
|
|
1,514,581
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Preferred dividends
|
|
28,341,723
|
|
|
18,751,934
|
|
|
7,382,320
|
|
|
3,963,146
|
|
|
450,806
|
|
|
—
|
|
||||||
Total combined fixed charges and
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
preferred dividends
|
|
$
|
59,030,228
|
|
|
$
|
40,067,665
|
|
|
$
|
17,570,507
|
|
|
$
|
9,743,672
|
|
|
$
|
2,955,485
|
|
|
$
|
1,514,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Ratio of earnings to combined fixed charges and preferred dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
0.42
|
|
0.47
|
|
0.70
|
|
0.18
|
|
0.80
|
|
(A)
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
a merger, tender offer, or proxy contest;
|
•
|
the assumption of control by a holder of a large block of our securities; or
|
•
|
the removal of incumbent management.
|
•
|
senior to our common stock and any other class or series of our capital stock, the terms of which expressly provide that our Series A Redeemable Preferred Stock ranks senior to such class or series as to dividend rights or rights on our liquidation, winding-up and dissolution;
|
•
|
on parity with our mShares and any other class or series of our capital stock, the terms of which expressly provide that such class or series ranks on parity with our Series A Redeemable Preferred Stock as to dividend rights and rights on our liquidation, winding up and dissolution;
|
•
|
junior to each class or series of our capital stock, including capital stock issued in the future, the terms of which expressly provide that such class or series ranks senior to the Series A Redeemable Preferred Stock as to dividend rights or rights on our liquidation, winding up and dissolution; and
|
•
|
junior to all our existing and future debt obligations.
|
•
|
declare and pay or declare and set apart for payment dividends and we will not declare and make any other distribution of cash or other property (other than dividends or distributions paid in shares of stock ranking junior to the Series A Redeemable Preferred Stock as to the dividend rights or rights on our liquidation, winding-up or dissolution, and options, warrants or rights to purchase such shares), directly or indirectly, on or with respect to any shares of our common stock or any class or series of our stock ranking junior to or on parity with the Series A Redeemable Preferred Stock as to dividend rights or rights on our liquidation, winding-up or dissolution for any period; or
|
•
|
except by conversion into or exchange for shares of stock ranking junior to the Series A Redeemable Preferred Stock as to dividend rights or rights on our liquidation, winding-up or dissolution, or options, warrants or rights to purchase such shares, redeem, purchase or otherwise acquire (other than a redemption, purchase or other acquisition of common stock made for purposes of an employee incentive or benefit plan) for any consideration, or pay or make available any monies for a sinking fund for the redemption of, any common stock or any class or series of our stock ranking junior to or on parity with the
|
•
|
senior to our common stock and any other class or series of our capital stock, the terms of which expressly provide that our mShares rank senior to such class or series as to dividend rights or rights on our liquidation, winding-up and dissolution;
|
•
|
on parity with our Series A Redeemable Preferred Stock and any other class or series of our capital stock, the terms of which expressly provide that such class or series ranks on parity with our mShares as to dividend rights and rights on our liquidation, winding up and dissolution;
|
•
|
junior to each class or series of our capital stock, including capital stock issued in the future, the terms of which expressly provide that such class or series ranks senior to the mShares as to dividend rights or rights on our liquidation, winding up and dissolution; and
|
•
|
junior to all our existing and future debt obligations.
|
•
|
declare and pay or declare and set apart for payment dividends and we will not declare and make any other distribution of cash or other property (other than dividends or distributions paid in shares of stock ranking junior to the mShares as to the dividend rights or rights on our liquidation, winding-up or dissolution, and options, warrants or rights to purchase such shares), directly or indirectly, on or with respect to any shares of our common stock or any class or series of our stock ranking junior to or on parity with the mShares as to dividend rights or rights on our liquidation, winding-up or dissolution for any period; or
|
•
|
except by conversion into or exchange for shares of stock ranking junior to the mShares as to dividend rights or rights on our liquidation, winding-up or dissolution, or options, warrants or rights to purchase such shares, redeem, purchase or otherwise acquire (other than a redemption, purchase or other acquisition of common stock made for purposes of an employee incentive or benefit plan) for any consideration, or pay or make available any monies for a sinking fund for the redemption of, any common stock or any class or series of our stock ranking junior to or on parity with the mShares as to dividend rights or rights on our liquidation, winding-up or dissolution.
|
•
|
we cannot be "closely held" under Section 856(h) of the Code; that is, five or fewer individuals (as specially defined in the Code to include specified private foundations, employee benefit plans and trusts and charitable trusts and subject to certain constructive ownership rules) may not own, directly or indirectly, more than 50% in value of our outstanding shares during the last half of a taxable year, other than our first REIT taxable year; and
|
•
|
100 or more persons must beneficially own our shares during at least 335 days of a taxable year of twelve months or during a proportionate part of a shorter taxable year, other than our first REIT taxable year.
|
•
|
with respect to transfers only, result in our stock being beneficially owned by fewer than 100 persons, determined without reference to any rules of attribution;
|
•
|
result in our being "closely held" within the meaning of Section 856(h) of the Code (regardless of whether the ownership interest is held during the last half of a taxable year);
|
•
|
result in our owning, directly or indirectly, more than 9.8% of the ownership interests in any tenant or subtenant; or
|
•
|
otherwise result in our disqualification as a REIT.
|
•
|
the amount of time required for us to invest the funds received in any offering;
|
•
|
our operating and interest expenses;
|
•
|
the ability of tenants to meet their obligations under the leases associated with our properties;
|
•
|
the amount of distributions or dividends received by us from our indirect real estate investments;
|
•
|
our ability to keep our properties occupied;
|
•
|
our ability to maintain or increase rental rates when renewing or replacing current leases;
|
•
|
capital expenditures and reserves for such expenditures;
|
•
|
the issuance of additional shares; and
|
•
|
financings and refinancings.
|
•
|
any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or
|
•
|
an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding stock of the corporation.
|
•
|
80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
|
•
|
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
|
•
|
one-tenth or more but less than one-third;
|
•
|
one-third or more but less than a majority; or
|
•
|
a majority or more of all voting power.
|
•
|
a classified board;
|
•
|
a two-thirds vote requirement for removing a director;
|
•
|
a requirement that the number of directors be fixed only by vote of the directors;
|
•
|
a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred; and
|
•
|
a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
|
•
|
not later than 5:00 p.m., Eastern Time, on the 120th day nor earlier than 150 days prior to the first anniversary of the date of release of the proxy statement for the previous year’s annual meeting; or
|
•
|
if the date of the meeting is advanced or delayed by more than 30 days from the anniversary date, not earlier than 150 days prior to the annual meeting or not later than 5:00 p.m., Eastern Time, on the later of the 120th day prior to the annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made.
|
•
|
not earlier than 120 days prior to the special meeting; and
|
•
|
not later than 5:00 p.m., Eastern Time, on the later of either:
|
◦
|
ninety days prior to the special meeting; or
|
◦
|
ten days following the day of our first public announcement of the date of the special meeting and the nominees proposed by our Board of Directors to be elected at the meeting.
|
•
|
the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith, or (2) was the result of active and deliberate dishonesty;
|
•
|
the director or officer actually received an improper personal benefit in money, property or services; or
|
•
|
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
|
•
|
a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and
|
•
|
a written undertaking by the director or officer or on the director’s or officer’s behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct.
|
•
|
partnerships or entities treated as partnerships for U.S. federal income tax purposes and investors therein, S corporations or other pass-through entities;
|
•
|
persons that hold their common stock as part of a straddle, hedge, constructive sale or conversion transaction;
|
•
|
persons who acquired our shares of common stock through the exercise of an employee stock option or otherwise as compensation; and
|
•
|
without the deductions allowed by Code Sections 241 through 247 and 249 (relating generally to the deduction for dividends received);
|
•
|
excluding amounts equal to: the net income from foreclosure property and the net income derived from prohibited transactions;
|
•
|
deducting amounts equal to: the net loss from foreclosure property, the net loss derived from prohibited transactions, the tax imposed by Code Section 857(b)(5) upon a failure to meet the 95% or the 75% Gross Income Tests, the tax imposed by Code Section 856(c)(7)(C) upon a failure to meet the quarterly asset tests, the tax imposed by Code Section 856(g)(5) for otherwise avoiding REIT disqualification, and the tax imposed by Code Section 857(b)(7) on redetermined rents, redetermined deductions and excess interest;
|
•
|
deducting the amount of dividends paid under Code Section 561, computed without regard to the amount of the net income from foreclosure property (which is excluded from REIT taxable income); and
|
•
|
without regard to any change of annual accounting period pursuant to Code Section 443(b).
|
•
|
We will be taxed at normal corporate rates on any undistributed REIT taxable income or net capital gain;
|
•
|
If we fail to satisfy either the 95% Gross Income Test or the 75% Gross Income Test (each of which is described below), but our failure is due to reasonable cause and not willful neglect, and we therefore maintain our REIT qualification, we will be subject to a tax equal to the product of (a) the amount by which we failed the 75% or 95% Gross Income Test (whichever amount is greater) multiplied by (b) a fraction intended to reflect our profitability;
|
•
|
We will be subject to an excise tax if we fail to currently distribute sufficient income. In order to make the "required distribution" with respect to a calendar year, we must distribute the sum of (i) 85% of our REIT ordinary income for the calendar year, (ii) 95% of our REIT capital gain net income for the calendar year, and (iii) the excess, if any, of the grossed up required distribution (as defined in the Code) for the preceding calendar year over the distributed amount for that preceding calendar year. Any excise tax liability would be equal to 4% of the difference between the amount required to be distributed under this formula and the amount actually distributed and would not be deductible by us;
|
•
|
We may be subject to the corporate "alternative minimum tax" on our items of tax preference, including any deductions of net operating losses;
|
•
|
If we have net income from prohibited transactions such income would be subject to a 100% tax. See "— Prohibited Transactions";
|
•
|
We will be subject to U.S. federal income tax at the highest corporate rate on any non-qualifying income from foreclosure property, although we will not own any foreclosure property unless we make loans or accept purchase money notes secured by interests in real property and foreclose on the property following a default on the loan, or foreclose on property pursuant to a default on a lease;
|
•
|
If we fail to satisfy any of the REIT asset tests, as described below, other than a failure of the 5% or 10% REIT assets tests that does not exceed a statutory de minimis amount as described more fully below, but our failure is due to reasonable cause and not due to willful neglect and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the amount determined by multiplying the highest corporate tax rate (currently 35%) by the net income generated by the non-qualifying assets during the period in which we failed to satisfy the asset tests;
|
•
|
If we fail to satisfy any other provision of the Code that would result in our failure to continue to qualify as a REIT (other than a gross income or asset test requirement) and that violation is due to reasonable cause, we may retain our REIT qualification, but we will be required to pay a penalty of $50,000 for each such failure;
|
•
|
If we derive "excess inclusion income" from an interest in certain mortgage loan securitization structures ( i.e. , a "taxable mortgage pool" or a residual interest in a real estate mortgage investment conduit, or REMIC), we could be subject to corporate-level U.S. federal income tax at a 35% rate to the extent that such income is allocable to specified types of tax-exempt stockholders known as "disqualified organizations" that are not subject to unrelated business taxable income, or UBTI;
|
•
|
We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with rules relating to the composition of our stockholders. Such penalties generally would not be deductible by us;
|
•
|
If we acquire any asset from a corporation that is subject to full corporate-level U.S. federal income tax in a transaction in which our basis in the asset is determined by reference to the transferor corporation’s basis in the asset, and we recognize gain on the disposition of such an asset during the ten-year period beginning on the date we acquired such asset, then the excess of the fair market value as of the beginning of the applicable recognition period over our adjusted basis in such asset at the beginning of such recognition period will be subject to U.S. federal income tax at the highest regular corporate U.S. federal income tax rate. The results described in this paragraph assume that the non-REIT corporation will not elect, in lieu of this treatment, to be subject to an immediate tax when the asset is acquired by us;
|
•
|
A 100% tax may be imposed on transactions between us and a taxable REIT subsidiary, or TRS, that do not reflect arm’s-length terms;
|
•
|
The earnings of our subsidiaries that are C corporations other than qualified REIT subsidiaries, including any subsidiary we may elect to treat as a TRS, generally will be subject to U.S. federal corporate income tax; and
|
•
|
We may elect to retain and pay income tax on our net capital gain. In that case, a stockholder would include his, her or its proportionate share of our undistributed net capital gain (to the extent we make a timely designation of such gain to the stockholder) in his, her or its income as long-term capital gain, would be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for his, her or its proportionate share of the tax deemed to have been paid, and an adjustment would be made to increase the stockholder’s basis in our common stock. Stockholders that are U.S. corporations will also appropriately adjust their earnings and profits for the retained capital gain in accordance with Treasury Regulations to be promulgated.
|
(1)
|
that is managed by one or more trustees or directors;
|
(2)
|
the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;
|
(3)
|
that would be taxable as a domestic corporation but for its qualification as a REIT;
|
(4)
|
that is neither a financial institution nor an insurance company;
|
(5)
|
that meets the gross income, asset and annual distribution requirements;
|
(6)
|
the beneficial ownership of which is held by 100 or more persons on at least 335 days in each full taxable year, proportionately adjusted for a short taxable year;
|
(7)
|
generally in which, at any time during the last half of each taxable year, no more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include specified entities);
|
(8)
|
that makes an election to be taxable as a REIT for the current taxable year, or has made this election for a previous taxable year, which election has not been revoked or terminated, and satisfies all relevant filing and other administrative requirements established by the IRS that must be met to maintain qualification as a REIT; and
|
(9)
|
that uses a calendar year for U.S. federal income tax purposes.
|
•
|
"residual interests" in REMICs or taxable mortgage pools;
|
•
|
loans or mortgage-backed securities held as assets that are issued at a discount and require the accrual of taxable economic interest in advance of receipt in cash; and
|
•
|
loans on which the borrower is permitted to defer cash payments of interest, distressed loans on which we may be required to accrue taxable interest income even though the borrower is unable to make current servicing payments in cash, and debt securities purchased at a discount.
|
•
|
is a real estate asset under the 75% Asset Test;
|
•
|
generally has been held for at least two years;
|
•
|
has aggregate expenditures which are includable in the basis of the property not in excess of 30% of the net selling price;
|
•
|
in some cases, was held for production of rental income for at least two years;
|
•
|
in some cases, substantially all of the marketing and development expenditures were made through an independent contractor; and
|
•
|
when combined with other sales in the year, either does not cause the REIT to have made more than seven sales of property during the taxable year (excluding sales of foreclosure property or in connection with an involuntary conversion), occurs in a year when the REIT disposes of less than 10% of its assets (measured by U.S. federal income tax basis or fair market value, and ignoring involuntary dispositions and sales of foreclosure property), or occurs in a year when the REIT disposes of less than 20% of its assets as well as 10% or less of its assets based on a 3 year average (measured by U.S. federal income tax basis or fair market value, and ignoring involuntary dispositions and sales of foreclosure property).
|
•
|
cannot be offset by any net operating losses otherwise available to the stockholder;
|
•
|
is subject to tax as UBTI in the hands of most types of stockholders that are otherwise generally exempt from U.S. federal income tax; and
|
•
|
results in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction for any otherwise applicable income tax treaty or other exemption, to the extent allocable to most types of foreign stockholders.
|
•
|
an individual citizen or resident of the United States for U.S. federal income tax purposes;
|
•
|
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
|
•
|
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
|
•
|
a trust if (1) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect under current Treasury Regulations to be treated as a U.S. person.
|
(1)
|
the qualified dividend income received by us during such taxable year from C corporations (including any TRSs);
|
(2)
|
the excess of any "undistributed" REIT taxable income recognized during the immediately preceding year over the U.S. federal income tax paid by us with respect to such undistributed REIT taxable income; and
|
(3)
|
the excess of any income recognized during the immediately preceding year attributable to the sale of a built-in gain asset that was acquired in a carry-over basis transaction from a non REIT corporation or had appreciated at the time our REIT election became effective over the U.S. federal income tax paid by us with respect to such built-in gain.
|
•
|
the volume of sales estimated to be made by the participating broker-dealer; or
|
•
|
the participating broker-dealer’s agreement to provide one or more of the following services:
|
•
|
providing internal marketing support personnel and marketing communications vehicles to assist the dealer manager in our promotion;
|
•
|
responding to investors' inquiries concerning monthly statements, valuations, distribution rates, tax information, annual reports, redemption rights and procedures, our financial status, and the markets in which we have invested;
|
•
|
assisting investors with redemptions; or
|
•
|
providing other services requested by investors from time to time and maintaining the technology necessary to adequately service investors.
|
•
|
travel and entertainment expenses;
|
•
|
compensation of PCS’s employees in connection with wholesaling activities;
|
•
|
expenses incurred in coordinating broker-dealer seminars and meetings;
|
•
|
wholesaling expense reimbursements paid by PCS or its affiliates to other entities;
|
•
|
the national and regional sales conferences of our selected dealers;
|
•
|
training and education meetings for registered representatives of our participating broker-dealers; and
|
•
|
permissible forms of non-cash compensation to registered representatives of our selected dealers, such as logo apparel items and gifts that do not exceed an aggregate value of $100 per annum per registered representative and that are not pre-conditioned on achievement of a sales target (including, but not limited to, seasonal gifts).
|
•
|
the aggregate amount of the sale;
|
•
|
the price per share paid by the purchaser; and
|
•
|
a statement that other similar investors wishing to purchase at that volume of securities will pay the same price for that volume of securities.
|
Dealer manager fee (maximum)
|
|
$
|
15,000,000
|
|
Total
|
|
$
|
15,000,000
|
|
•
|
Our Annual Report on Form 10-K for the period ended December 31, 2015 filed with the SEC on March 14, 2016;
|
•
|
Our Quarterly Report on Form 10-Q for the period ended March 31, 2016 filed with the SEC on May 9, 2016;
|
•
|
Our Quarterly Report on Form 10-Q for the period ended June 30, 2016 filed with the SEC on August 9, 2016;
|
•
|
Our Quarterly Report on Form 10-Q for the period ended September 30, 2016 filed with the SEC on November 7, 2016;
|
•
|
Our Current Reports on Form 8-K and amendments thereto on Form 8-K/A, as applicable, filed with the SEC on April 3, 2013, April 4, 2013, July 12, 2013, September 17, 2014, December 4, 2014, January 2, 2015, March 30, 2015, March 2, 2016, May 5, 2016, May 25, 2016, June 6, 2016, July 15, 2016, July 15, 2016, July 18, 2016, August 9, 2016, August 10, 2016, October 5, 2016 and October 24, 2016;
|
•
|
The description of capital stock contained in our Form 8-A, filed December 3, 2010, including any amendments or reports filed for the purpose of updating the description; and
|
•
|
All documents filed by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this prospectus and before termination of this offering.
|
Securities and Exchange Commission Registration Fee
|
$
|
57,950
|
|
NYSE Listing Fee
|
16,000
|
|
|
Legal Fees and Expenses
|
500,000
|
|
|
Accounting Fees and Expenses
|
100,000
|
|
|
Printing Expenses
|
50,000
|
|
|
Transfer Agent, Escrow Fees and Mailing Costs
|
1,780,000
|
|
|
Advertising Fees and Expenses
|
678,000
|
|
|
Due diligence expenses
|
630,000
|
|
|
Miscellaneous Expenses
|
3,688,050
|
|
|
Total Expenses
|
7,500,000
|
|
•
|
the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith, or (2) was the result of active and deliberate dishonesty;
|
•
|
the director or officer actually received an improper personal benefit in money, property or services; or
|
•
|
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
|
By:
|
/s/ John A. Williams
John A. Williams Chief Executive Officer |
Signature
|
Title
|
Date
|
/s/ John A. Williams
John A. Williams |
Chief Executive Officer and Chairman of the Board (Principal Executive Officer)
|
November 9, 2016
|
/s/ Leonard A. Silverstein
Leonard A. Silverstein |
President, Chief Operating Officer and Director
|
November 9, 2016
|
/s/ Michael J. Cronin
Michael J. Cronin |
Executive Vice President, Chief Accounting Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)
|
November 9, 2016
|
/s/ Daniel M. DuPree
Daniel M. DuPree |
Chief Investment Officer and Vice Chairman of the Board
|
November 9, 2016
|
/s/ Steve Bartkoski
Steve Bartkowski |
Director
|
November 9, 2016
|
/s/ Gary B. Coursey
Gary B. Coursey |
Director
|
November 9, 2016
|
/s/ William J. Gresham, Jr.
William J. Gresham, Jr. |
Director
|
November 9, 2016
|
/s/ Howard A. McLure
Howard A. McLure |
Director
|
November 9, 2016
|
/s/ Timothy A. Peterson
Timothy A. Peterson |
Director
|
November 9, 2016
|
/s/ John M. Wiens
John M. Wiens |
Director
|
November 9, 2016
|
Exhibit No.
|
Document
|
1.1
+
|
Form of Dealer Manager Agreement
|
1.2
+
|
Form of Soliciting Dealer Agreement
|
3.1
(1)
|
Articles of Amendment and Restatement of Preferred Apartment Communities, Inc.
|
3.2
(2)
|
Third Amended and Restated Bylaws of Preferred Apartment Communities, Inc.
|
4.1
(3)
|
Sixth Amended and Restated Partnership Agreement, effective as of June 3, 2016, among Preferred Apartment Communities, Inc., Preferred Apartment Advisors, LLC and the other limited partners party thereto
|
4.2
+
|
Articles Supplementary for the mShares
|
4.3
+
|
Form of Subscription Agreement
|
5.1
+
|
Form of Opinion of Venable LLP
|
8.1
+
|
Form of Opinion of Proskauer Rose LLP
|
12.1
(4)
|
Statement Regarding Computation of Ratios
|
23.1
+
|
Consent of PricewaterhouseCoopers LLP
|
23.2
+
|
Consent of PricewaterhouseCoopers LLP
|
23.3
+
|
Consent of CohnReznick LLP
|
23.4
+
|
Consent of CohnReznick LLP
|
23.5
+
|
Consent of Moore, Colson & Company, P.C.
|
23.6
+
|
Consent of Insero & Co. CPAs, LLP
|
23.7
+
|
Consent of KPMG LLP
|
23.8
+
|
Consent of Deloitte & Touche LLP
|
23.9
+
|
Form of Consent of Venable LLP (included in Exhibit 5.1)
|
23.10
+
|
Form of Consent of Proskauer Rose LLP (included in Exhibit 8.1)
|
24.1
+
|
Power of Attorney
|
+
|
Filed herewith.
|
*
|
To be filed by amendment or as an exhibit to a report filed under the Securities Exchange Act of 1934, and incorporated herein by reference.
|
(1)
|
Previously filed with the Pre-effective Amendment No. 6 to Form S-11 Registration Statement (Registration No. 333-168407) filed by the Registrant with the Securities and Exchange Commission on March 4, 2011.
|
(2)
|
Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on January 28, 2013.
|
(3)
|
Previously filed with the Current Report on Form 8-K filed by the Registrant with the Securities and Exchange Commission on June 6, 2016.
|
(4)
|
Previously filed with the Quarterly Report on Form 10-Q filed by the Registrant with the Securities and Exchange Commission on November 7, 2016.
|
RE:
|
PREFERRED APARTMENT COMMUNITIES, INC.
|
1.
|
Representations And Warranties Of The Company.
The Company hereby represents, warrants and agrees, as of the date of this Agreement and on each Effective Date (as defined below) as follows:
|
(a)
|
Registration Statement and Prospectus
. In connection with the Offering, the Company has prepared and filed with the Securities and Exchange Commission (the “Commission”) a registration statement (File No. 333- ) on Form S-3 for the registration of the mShares under the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations of the Commission promulgated thereunder (the “Securities Act Rules and Regulations”); and one or more amendments to such registration statement have been or may be so prepared and filed. The registration statement on Form S-3 and the prospectus contained therein, as finally amended at the date the registration statement is declared effective by the Commission (the “Effective Date”) are respectively hereinafter referred to as the “Registration Statement” and the “Prospectus,” except that:
|
(i)
|
if the Company files a post-effective amendment to such registration statement, then the term “Registration Statement” shall, from and after the declaration of the effectiveness of such post-effective amendment by the Commission, refer to such registration statement as amended by such post-effective amendment, and the term “Prospectus” shall refer to the amended prospectus then on file with the Commission; and
|
(ii)
|
if the prospectus filed by the Company pursuant to either Rule 424(b) or 424(c) of the Securities Act Rules and Regulations shall differ from the prospectus on file at the time
|
(b)
|
Compliance With the Securities Act.
During the term of this Agreement:
|
(i)
|
the Registration Statement, the Prospectus and any amendments or supplements thereto have complied, and will comply, in all material respects with the Securities Act, the Securities Act Rules and Regulations, the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder (the “Exchange Act Rules and Regulations”);
|
(ii)
|
the Registration Statement does not, and any amendment thereto will not, in each case as of the applicable Effective Date, include any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and the Prospectus does not, and any amendment or supplement thereto will not, as of the applicable filing date, include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that the foregoing provisions of this Section 1(b) will not extend to any statements contained in or omitted from the Registration Statement or the Prospectus that are based upon written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or Prospectus; and
|
(iii)
|
the documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they are hereafter filed with the Commission, will comply in all material respects with the requirements of the Exchange Act and the Exchange Act Rules and Regulations, and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective and as of the applicable Effective Date of each post-effective amendment to the Registration Statement, did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
|
(c)
|
Securities Matters.
There has not been:
|
(i)
|
any request by the Commission for any further amendment to the Registration Statement or the Prospectus or for any additional information;
|
(ii)
|
any issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or, to the Company’s knowledge, threat of any proceeding for that purpose; or
|
(iii)
|
any notification with respect to the suspension of the qualification of the mShares for sale in any jurisdiction or any initiation or, to the Company’s knowledge, threat of any proceeding for such purpose.
|
(d)
|
Corporate Status and Good Standing
. The Company is a corporation duly organized and validly existing under the laws of the State of Maryland and is in good standing with the State Department of Assessments and Taxation of Maryland, with all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.
|
(e)
|
Authorization of Agreement.
This Agreement is duly and validly authorized, executed and delivered by or on behalf of the Company and constitutes a valid and binding agreement of the Company enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of the United States, any state or any political subdivision thereof which affect creditors’ rights generally or by equitable principles relating to the availability of remedies or except to the extent that the enforceability of the indemnity and contribution provisions contained in this Agreement may be limited under applicable securities laws.
|
(f)
|
Absence of Conflict or Default.
The execution and delivery of this Agreement and the performance of this Agreement, the consummation of the transactions contemplated herein and the fulfillment of the terms hereof, do not and will not conflict with, or result in a breach of any of the terms and provisions of, or constitute a default under:
|
(i)
|
the Company’s or any of its subsidiaries’ charter, bylaws, or other organizational documents, as the case may be;
|
(ii)
|
any indenture, mortgage, deed of trust, voting trust agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their properties is bound except, for purposes of this clause (ii) only, for such conflicts, breaches or defaults that do not result in and could not reasonably be expected to result in, individually or in the aggregate, a Company MAE (as defined below in this Section 1(f)); or
|
(iii)
|
any statute, rule or regulation or order of any court or other governmental agency or body having jurisdiction over the Company, any of its subsidiaries or any of their properties, except for such conflicts, breaches or defaults that do not result in and would not reasonably be expected to result in, individually or in the aggregate, a Company MAE (as defined in this Section 1(f)).
|
(g)
|
Actions or Proceedings.
As of the initial Effective Date, there are no actions, suits or proceedings against, or investigations of, the Company or its subsidiaries pending or, to the knowledge of the Company, threatened, before any court, arbitrator, administrative agency or other tribunal:
|
(i)
|
asserting the invalidity of this Agreement;
|
(ii)
|
seeking to prevent the issuance of the mShares or the consummation of any of the transactions contemplated by this Agreement;
|
(iii)
|
that would reasonably be expected to materially and adversely affect the performance by the Company of its obligations under or the validity or enforceability of, this Agreement or the mShares;
|
(iv)
|
that would reasonably be expected to result in a Company MAE, or
|
(v)
|
seeking to affect adversely the federal income tax attributes of the mShares except as described in the Prospectus.
|
(h)
|
Escrow Agreement.
The Company will enter into an escrow agreement (the “Escrow Agreement”) with the Dealer Manager and UMB Bank, N.A. (the “Escrow Agent”), substantially in the form included as an exhibit to the Registration Statement.
|
(i)
|
Sales Literature.
Any supplemental sales literature or advertisement (including, without limitation any “broker-dealer use only” or institutional material), regardless of how labeled or described, used in addition to the Prospectus in connection with the Offering which previously has been, or hereafter is, furnished or approved by the Company (collectively, “Approved Sales Literature”), shall, to the extent required, be filed with and approved by the appropriate securities agencies and bodies, provided that the Dealer Manager will make all FINRA filings, to the extent
|
(j)
|
Authorization of mShares.
The mShares have been duly authorized and, when issued and sold as contemplated by the Prospectus and upon payment therefor as provided in this Agreement and the Prospectus, will be validly issued, fully paid and nonassessable and will conform in all material aspects to the description thereof contained in the Prospectus. The common stock that may be issuable upon redemption of the mShares have been duly authorized.
|
(k)
|
Taxes.
Any taxes, fees and other governmental charges in connection with the execution and delivery of this Agreement or the execution, delivery and sale of the mShares have been or will be paid when due.
|
(l)
|
Investment Company.
The Company is not, and neither the offer or sale of the mShares nor any of the activities of the Company will cause the Company to be, an “investment company” or under the control of an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.
|
(m)
|
Tax Returns.
The Company has filed or will file all material federal, state and foreign income tax returns required to be filed by or on behalf of the Company on or before the due dates therefor (taking into account all extensions of time to file) and has paid or provided for the payment of all such material taxes, except those being contested in good faith, indicated by such tax returns and all assessments received by the Company to the extent that such taxes or assessments have become due.
|
(n)
|
REIT Qualifications.
The Company made a timely election to be subject to tax as a REIT pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”) beginning with its taxable year ended December 31, 2011. The Company has been organized and operated in conformity with the requirements for qualification and taxation as a REIT. The Company’s current and proposed method of operation as described in the Registration Statement and the Prospectus will enable it to continue to meet the requirements for qualification and taxation as a REIT under the Code.
|
(o)
|
Independent Registered Public Accounting Firm.
The accountants who have certified certain financial statements appearing in the Prospectus are an independent registered public accounting firm within the meaning of the Securities Act and the Securities Act Rules and Regulations. Such accountants have not been engaged by the Company to perform any “prohibited activities” (as defined in Section 10A of the Exchange Act).
|
(p)
|
Preparation of the Financial Statements.
The financial statements filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the consolidated financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. Such financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. No other financial statements or supporting schedules are required to be included in the Registration Statement or any applicable Prospectus.
|
(q)
|
Material Adverse Change.
Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated therein or contemplated thereby, there has not occurred a Company MAE, whether or not arising in the ordinary course of business.
|
(r)
|
Government Permits.
The Company and its subsidiaries possess such certificates, authorities or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, other than those the failure to possess or own would not result in, individually or in the aggregate, a Company MAE. Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Company MAE.
|
(s)
|
Manager; Management Agreement.
|
(i)
|
The Manager is a limited liability company duly formed and validly existing under the laws of the State of Delaware.
|
(ii)
|
The Management Agreement has been duly and validly authorized, executed and delivered by or on behalf of the Manager and the Company and constitutes a valid and binding agreement of the Manager and the Company enforceable in accordance with its terms (except as such enforceability may be limited by bankruptcy, insolvency,
|
(iii)
|
The execution and delivery of the Management Agreement did not, and the performance thereunder by the Manager do not and will not conflict with, or result in a breach of any of the terms and provisions of, or constitute a default under: (a) the Manager’s or any of its subsidiaries’ charter or by-laws, or other organizational documents, as applicable; (b) any indenture, mortgage, stockholders agreement, note, lease or other material agreement or instrument to which the Manager or any of its subsidiaries is a party or by which the Manager or any of its subsidiaries or any of their properties is bound except, for purposes of this clause (b) only, for such conflicts, breaches or defaults that could not reasonably be expected to have or result in, individually or in the aggregate, a material adverse effect on the financial condition, business affairs, properties, results of operations or business prospects of the Manager, or a Company MAE; or (c) any statute, rule or regulation or order of any court or other governmental agency or body having jurisdiction over the Manager or any of its subsidiaries or any of their respective properties. No consent, approval, authorization or order of any court or other governmental agency or body has been obtained nor is required for the performance of the Management Agreement by the Manager. The Manager is not in violation of its limited liability company agreement or other organizational documents, as applicable.
|
(iv)
|
There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Manager, threatened against or affecting the Manager.
|
(v)
|
The Manager possesses such certificates, authorities or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by it, other than those which the failure to possess or own would not reasonably be expected to have or result in, individually or in the aggregate, (A) a material adverse effect on the financial condition, business affairs, properties, results of operations or business prospects of the Manager, (B) a Company MAE, or (C) a material adverse effect on the performance of the services under the Management Agreement by the Manager, and the Manager has not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit.
|
(t)
|
Properties.
Except as otherwise disclosed in the Prospectus and except as would not result in, individually or in the aggregate, a Company MAE:
|
(i)
|
all properties and assets described in the Prospectus are owned with good and marketable title by the Company and its subsidiaries; and
|
(ii)
|
all liens, charges, encumbrances, claims or restrictions on or affecting any of the properties and assets of any of the Company or its subsidiaries which are required to be disclosed in the Prospectus are disclosed therein.
|
(u)
|
Hazardous Materials.
The Company does not have any knowledge of:
|
(i)
|
the unlawful presence of any hazardous substances, hazardous materials, toxic substances or waste materials (collectively, “Hazardous Materials”) on any of the properties owned by it or its subsidiaries or subject to mortgage loans owned by the Company or any of its subsidiaries; or
|
(ii)
|
any unlawful spills, releases, discharges or disposal of Hazardous Materials that have occurred or are presently occurring off such properties as a result of any construction on or operation and use of such properties, which presence or occurrence in the case of clauses (i) and (ii) would result in, individually or in the aggregate, a Company MAE.
|
1.
|
Representations and Warranties of the Dealer Manager.
The Dealer Manager represents and warrants to the Company as of the date of this Agreement and on each Effective Date that:
|
(a)
|
Organization Status.
The Dealer Manager is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Georgia, with all requisite power and authority to enter into this Agreement and to carry out its obligations hereunder.
|
(b)
|
Authorization of Agreement.
This Agreement has been duly authorized, executed and delivered by the Dealer Manager, and assuming due authorization, execution and delivery of this Agreement by the Company, will constitute a valid and legally binding agreement of the Dealer Manager enforceable against the Dealer Manager in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability and except that rights to indemnity and contribution hereunder may be limited by applicable law and public policy.
|
(c)
|
Absence of Conflict or Default.
The execution and delivery of this Agreement, the consummation of the transactions herein contemplated and compliance with the terms of this Agreement by the Dealer Manager will not conflict with or constitute a default under:
|
(i)
|
its organizational documents;
|
(ii)
|
any indenture, mortgage, deed of trust or lease to which the Dealer Manager is a party or by which it may be bound, or to which any of the property or assets of the Dealer Manager is subject; or
|
(iii)
|
any statute, rule, regulation, writ, injunction or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Dealer Manager or its assets, properties or operations, except in the case of clause (ii) or (iii) for such conflicts or defaults that would not individually or in the aggregate have a material adverse effect on the condition (financial or otherwise), business, properties or results of operations of the Dealer Manager.
|
(d)
|
Broker-Dealer Registration; FINRA Membership.
The Dealer Manager is, and during the term of this Agreement will be, duly registered as a broker-dealer pursuant to the provisions of the
|
2.
|
Offering and Sale of the mShares.
Upon the terms and subject to the conditions set forth in this Agreement, the Company hereby appoints the Dealer Manager as its agent and exclusive distributor to solicit and to retain the Soliciting Dealers (as defined in Section 3(a)) to solicit subscriptions for the mShares at the subscription price to be paid in cash. Upon the terms and subject to the conditions set forth in this Agreement, the Dealer Manager hereby accepts such agency and exclusive distributorship and agrees to use its best efforts to sell or cause to be sold the mShares in such quantities and to such persons in accordance with such terms as are set forth in this Agreement, the Prospectus and the Registration Statement.
|
(a)
|
Soliciting Dealers.
The mShares offered and sold through the Dealer Manager under this Agreement shall be offered and sold only by the Dealer Manager and other securities dealers the Dealer Manager may retain (collectively the “Soliciting Dealers”); provided, however, that:
|
(i)
|
the Dealer Manager reasonably believes that all Soliciting Dealers are registered with the Commission, members of FINRA and are duly licensed or registered by the regulatory authorities in the jurisdictions in which they will offer and sell mShares; and
|
(ii)
|
all such engagements are evidenced by written agreements, the terms and conditions of which substantially conform to the form of Soliciting Dealer Agreement substantially in the form of Exhibit A hereto (the “Soliciting Dealer Agreement”).
|
(b)
|
Subscription Documents.
Each person desiring to purchase mShares through the Dealer Manager, or any other Soliciting Dealer, will be required to complete and execute the subscription documents described in the Prospectus.
|
(c)
|
Completed Sale.
The Company will sell mShares using two closing services provided by the Depository Trust Company (“DTC”). The first service is DTC closing (“DTC Settlement”), and the second service is Direct Registration Service (“DRS Settlement”). A sale of a mShare shall be deemed by the Company to be completed if and only if (i) the Company has received payment of the full purchase price of each purchased mShare, from an investor who satisfies the minimum purchase requirements set forth in the Registration Statement as determined by the Soliciting Dealer, or the Dealer Manager, as applicable, in accordance with the provisions of this Agreement, (ii) the Company has accepted such subscription, and, if using DRS Settlement, a properly completed and executed Subscription Agreement, and (iii) such investor has been admitted as a stockholder of the Company. In addition, no sale of mShares shall be completed until after the date on which the subscriber receives a copy of the Prospectus. The Dealer Manager hereby acknowledges and agrees that the Company, in its sole and absolute discretion, may accept or reject any subscription, in whole or in part, for any reason whatsoever or no reason, and no Dealer Manager Fee will be paid to the Dealer Manager with respect to that portion of any subscription which is rejected. As used in this Agreement, “business day” means any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
|
(d)
|
Dealer-Manager Compensation.
|
(i)
|
[Reserved].
|
(ii)
|
Subject to the special circumstances described in or otherwise provided in the “Plan of Distribution” section of the Prospectus or this Section 3(d), as compensation for acting as the dealer manager, the Company will pay the Dealer Manager, a dealer manager fee in the amount of up to and including three percent (3.0%) of the selling price of each mShare for which a sale is completed from the mShares offered in the Offering (the “Dealer Manager Fee”).
|
(iii)
|
All Dealer Manager fees payable to the Dealer Manager will be paid at least within ten (10) business days after the investor subscribing for the mShare is admitted as a shareholder of the Company, in an amount equal to the sales commissions payable with respect to such mShares. The Dealer Manager acknowledges that no commissions, payments or amount will be paid to the Dealer Manager unless and until the gross proceeds of the mShares sold are disbursed to the Company in accordance with the terms of the Escrow Agreement as described in Section 1(h).
|
(iv)
|
In no event shall the total aggregate underwriting compensation payable to the Dealer Manager and any Soliciting Dealers participating in the Offering, including, but not limited to, the Dealer Manager Fee exceed ten percent (10.0%) of gross offering proceeds from the Offering in the aggregate.
|
(v)
|
Notwithstanding anything to the contrary contained herein, if the Company pays any fees to the Dealer Manager for sale by a Soliciting Dealer of one or more mShares and the subscription is rescinded as to one or more of the mShares covered by such subscription, then the Company shall decrease the next payment of selling commissions or other compensation otherwise payable to the Dealer Manager by the Company under this Agreement by an amount equal to the commission rate established in this Section 3(d), multiplied by the number of mShares as to which the subscription is rescinded. If no payment of selling commissions or other compensation is due to the Dealer Manager after such withdrawal occurs, then the Dealer Manager shall pay the amount specified in the preceding sentence to the Company within a reasonable period of time not to exceed thirty (30) days following receipt of notice by the Dealer Manager from the Company stating the amount owed as a result of rescinded subscriptions.
|
(e)
|
Reasonable Bona Fide Due Diligence Expenses.
In addition to any payments to the Dealer Manager pursuant to Section 3(d), the Company or the Manager shall reimburse the Dealer Manager or any Soliciting Dealer for reasonable bona fide due diligence expenses incurred by the Dealer Manager or any Soliciting Dealer to the extent permitted pursuant to the rules and regulations of FINRA, provided, however, that no due diligence expenses shall be reimbursed by the Company pursuant to this Section 3(e) which would cause the aggregate of all of the
|
(f)
|
Certain Advances to Dealer Manager
. The parties hereto acknowledge that prior to the initial Effective Date, the Company may have paid to the Dealer Manager advances of monies against out-of-pocket accountable expenses actually anticipated to be incurred by the Dealer Manager in connection with the Offering (other than reasonable bona fide due diligence expenses). Such advances, if any, shall be credited against the amount of the Dealer Manager Fee payable pursuant to Section 3(d) that is retained by the Dealer Manager and not re-allowed until the full amount of such advances is offset. Such advances are not intended to be in addition to the compensation set forth in Section 3(d), and any and all monies advanced that are not utilized for out-of-pocket accountable expenses actually incurred by the Dealer Manager in connection with the Offering (other than reasonable bona fide due diligence expenses) shall be reimbursed by the Dealer Manager to the Company.
|
(g)
|
Company Expenses.
Subject to the limitations described above, the Company agrees to pay all costs and expenses incident to the Offering, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, including expenses, fees and taxes in connection with:
|
(i)
|
the registration fee, the preparation and filing of the Registration Statement (including without limitation financial statements, exhibits, schedules and consents), the Prospectus, and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Dealer Manager and to Soliciting Dealers (including costs of mailing and shipment);
|
(ii)
|
the preparation, issuance and delivery of certificates, if any, for the mShares, including any stock or other transfer taxes or duties payable upon the sale of the mShares;
|
(iii)
|
all fees and expenses of the Company’s legal counsel, independent public or certified public accountants and other advisors;
|
(iv)
|
the determination of the mShares eligibility for sale or an exemption under state law and the printing and furnishing of copies of blue sky surveys if any;
|
(v)
|
the filing fees in connection with filing for review by FINRA, if required, of all necessary documents and information relating to the Offering and the mShares;
|
(vi)
|
the fees and expenses of any transfer agent or registrar for the mShares and miscellaneous expenses referred to in the Registration Statement;
|
(vii)
|
all costs and expenses incident to the travel and accommodation of the Manager acting on behalf of the Company, in making road show presentations and presentations to Soliciting Dealers and other broker-dealers and financial advisors with respect to the offering of the mShares; and
|
(viii)
|
the performance of the Company’s other obligations hereunder.
|
3.
|
Conditions to the Dealer Manager’s Obligations.
The Dealer Manager’s obligations hereunder shall be subject to the following terms and conditions:
|
(a)
|
The representations and warranties on the part of the Company contained in this Agreement hereof shall be true and correct in all material respects and the Company shall have complied with its covenants, agreements and obligations contained in this Agreement in all material respects;
|
(b)
|
The Registration Statement shall have become effective and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the Commission and, to the best knowledge of the Company, no proceedings for that purpose shall have been instituted, threatened or contemplated by the Commission; and any request by the Commission for additional information (to be included in the Registration Statement or Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of the Dealer Manager.
|
(c)
|
The Registration Statement and the Prospectus, and any amendment or any supplement thereto, shall not contain any untrue statement of material fact, or omit to state a material fact that is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
|
4.
|
Covenants of the Company.
The Company covenants and agrees with the Dealer Manager as follows:
|
(a)
|
Registration Statement.
The Company will use its best efforts to cause the Registration Statement and any subsequent amendments thereto to become effective as promptly as possible and will furnish a copy of any proposed amendment or supplement of the Registration Statement or the Prospectus to the Dealer Manager. The Company will comply in all material respects with all federal and state securities laws, rules and regulations which are required to be complied with in order to permit the continuance of offers and sales of the mShares in accordance with the provisions hereof and of the Prospectus.
|
(b)
|
Commission Orders.
If the Commission shall issue any stop order or any other order preventing or suspending the use of the Prospectus, or shall institute any proceedings for that purpose, then the Company will promptly notify the Dealer Manager and use its best efforts to prevent the issuance of any such order and, if any such order is issued, to use its best efforts to obtain the removal thereof as promptly as possible.
|
(c)
|
Blue Sky Qualifications.
The Company will use its best efforts to qualify the mShares for offering and sale under the securities or blue sky laws of such jurisdictions as the Dealer Manager and the Company shall mutually agree upon and to make such applications, file such documents and furnish such information as may be reasonably required for that purpose. The Company will, at the Dealer Manager’s request, furnish the Dealer Manager with a copy of such papers filed by the Company in connection with any such qualification. The Company will promptly advise the
|
(d)
|
Amendments and Supplements.
If, at any time when a Prospectus relating to the mShares is required to be delivered under the Securities Act, any event shall have occurred to the knowledge of the Company, or the Company receives notice from the Dealer Manager that it believes such an event has occurred, as a result of which the Prospectus or any Approved Sales Literature as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Registration Statement or supplement the Prospectus relating to the mShares to comply with the Securities Act, then the Company will promptly notify the Dealer Manager thereof (unless the information shall have been received from the Dealer Manager) and will prepare and file with the Commission an amendment or supplement which will correct such statement or effect such compliance to the extent required, and shall make available to the Dealer Manager thereof sufficient copies for its own use and/or distribution to the Soliciting Dealers.
|
(e)
|
Requests from Commission.
The Company will promptly advise the Dealer Manager of any request made by the Commission or a state securities administrator for amending the Registration Statement, supplementing the Prospectus or for additional information.
|
(f)
|
Copies of Registration Statement.
The Company will furnish the Dealer Manager with one signed copy of the Registration Statement, including its exhibits, and such additional copies of the Registration Statement, without exhibits, and the Prospectus and all amendments and supplements thereto, which are finally approved by the Commission, as the Dealer Manager may reasonably request for sale of the mShares.
|
(g)
|
Qualification to Transact Business.
The Company will take all steps necessary to ensure that at all times the Company will validly exist as a Maryland corporation and will be qualified to do business in all jurisdictions in which the conduct of its business requires such qualification and where such qualification is required under local law.
|
(h)
|
Authority to Perform Agreements.
The Company undertakes to obtain all consents, approvals, authorizations or orders of any court or governmental agency or body which are required for the Company’s performance of this Agreement and under the Company’s Articles of Amendment and Restatement (as the same may be amended, supplemented or otherwise modified from time to time, the “Company’s Charter”) and the Company's by-laws, each in the form included as exhibits to the Registration Statement for the consummation of the transactions contemplated hereby and thereby, respectively, or the conducting by the Company of the business described in the Prospectus.
|
(i)
|
Sales Literature.
The Company will furnish to the Dealer Manager as promptly as shall be practicable upon request any Approved Sales Literature (provided that the use of said material has been first approved for use to the extent required by all appropriate regulatory agencies). Any supplemental sales literature or advertisement, regardless of how labeled or described, used in addition to the Prospectus in connection with the Offering which is furnished or approved by the Company (including, without limitation, Approved Sales Literature) shall, to the extent required,
|
(j)
|
Use of Proceeds.
The Company will apply the proceeds from the sale of the mShares as set forth in the Prospectus.
|
(k)
|
Customer Information.
The Dealer Manager and the Company shall, when applicable:
|
(i)
|
abide by and comply with (A) the privacy standards and requirements of the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”) and applicable regulations promulgated thereunder, (B) the privacy standards and requirements of any other applicable federal or state law, including but not limited to, the Fair Credit Reporting Act (“FCRA”), and (C) its own internal privacy policies and procedures, each as may be amended from time to time;
|
(ii)
|
refrain from the use or disclosure of nonpublic personal information (as defined under the GLB Act) of all customers who have opted out of such disclosures except as necessary to service the customers or as otherwise necessary or required by applicable law;
|
(iii)
|
except as expressly permitted under the FCRA, the Dealer Manager and the Company shall not disclose any information that would be considered a “consumer report” under the FCRA; and
|
(iv)
|
determine which customers have opted out of the disclosure of nonpublic personal information by periodically reviewing and, if necessary, retrieving an aggregated list of such customers from the Soliciting Dealers (the “List”) to identify customers that have exercised their opt-out rights. If either party uses or discloses nonpublic personal information of any customer for purposes other than servicing the customer, or as otherwise required by applicable law, that party will consult the List to determine whether the affected customer has exercised his or her opt-out rights. Each party understands that it is prohibited from using or disclosing any nonpublic personal information of any customer that is identified on the List as having opted out of such disclosures.
|
(l)
|
Dealer Manager’s Review of Proposed Amendments and Supplements.
Prior to amending or supplementing the Registration Statement, any preliminary prospectus or the Prospectus (including any amendment or supplement through incorporation of any report filed under the Exchange Act), the Company shall furnish to the Dealer Manager for review, a reasonable amount of time prior to the proposed time of filing or use thereof, a copy of each such proposed amendment or supplement, and the Company shall not file or use any such proposed amendment or supplement without the Dealer Manager’s consent, which consent shall not be unreasonably withheld or delayed.
|
(m)
|
Certain Payments.
Without the prior consent of the Dealer Manager, none of the Company, the Manager or any of their respective affiliates will make any payment (cash or non-cash) to any associated Person or registered representative of the Dealer Manager.
|
5.
|
Covenants of the Dealer Manager.
The Dealer Manager covenants and agrees with the Company as follows:
|
(a)
|
Compliance With Laws.
With respect to the Dealer Manager’s participation and the participation by each Soliciting Dealer in the offer and sale of the mShares (including, without limitation, any resales and transfers of mShares), the Dealer Manager agrees, and each Soliciting Dealer in its Soliciting Dealer Agreement will agree, to comply in all material respects with all applicable requirements of the Securities Act, the Securities Act Rules and Regulations, the Exchange Act, the Exchange Act Rules and Regulations and all other federal regulations applicable to the Offering, the sale of mShares and with all applicable state securities or blue sky laws, and the Rules of FINRA applicable to the Offering, from time to time in effect, specifically including, but not in any way limited to, NASD Conduct Rule 2340 (Customer Account Statements) and FINRA Rules 2040 (Payments to Unregistered Persons), 2111 (Suitability), 2310 (Direct Participation Programs), 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings), and 5141 (Sale of Securities in a Fixed Price Offering) therein. The Dealer Manager will not offer the mShares for sale in any jurisdiction unless and until it has been advised that the mShares are either registered in accordance with, or exempt from, the securities and other laws applicable thereto.
|
(b)
|
No Additional Information.
In offering the mShares for sale, the Dealer Manager shall not, and each Soliciting Dealer shall agree not to, give or provide any information or make any representation other than those contained in the Prospectus or the Approved Sales Literature.
|
(c)
|
Sales of mShares.
The Dealer Manager shall, and each Soliciting Dealer shall agree to, solicit purchases of the mShares only in the jurisdictions in which the Dealer Manager and such Soliciting Dealer are legally qualified to so act and in which the Dealer Manager and each Soliciting Dealer have been advised by the Company or counsel to the Company that such solicitations can be made.
|
(d)
|
Subscription Agreement.
The Dealer Manager will comply in all material respects with the subscription procedures and “Plan of Distribution” set forth in the Prospectus. Subscriptions using DRS Settlement will be submitted by the Dealer Manager and each Soliciting Dealer to the Company only on the subscription agreement, a form of which is included as an exhibit to the Registration Statement. The Dealer Manager understands and acknowledges, and each Soliciting Dealer shall acknowledge if using DRS Settlement, that the Subscription Agreement must be executed and initialed by the subscriber as provided for by the Subscription Agreement.
|
(e)
|
Suitability.
The Dealer Manager will offer mShares, and in its agreement with each Soliciting Dealer will require that the Soliciting Dealer offer mShares, only to persons that it has reasonable grounds to believe meet the financial qualifications set forth in the Prospectus or in any suitability letter or memorandum sent to it by the Company and will only make offers to persons in the states in which it is advised in writing by the Company that the mShares are qualified for sale or that such qualification is not required. In offering mShares, the Dealer Manager will comply, and in its agreements with the Soliciting Dealers, the Dealer Manager will require that the Soliciting Dealers comply, with the provisions of all applicable rules and regulations relating to suitability of investors, including applicable FINRA Rules.
|
(i)
|
the investor is or will be in a financial position appropriate to enable the investor to realize to a significant extent the benefits described in the Prospectus, including the tax benefits where they are a significant aspect of the Company;
|
(ii)
|
the investor has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; and
|
(iii)
|
an investment in the mShares offered in the Offering is otherwise suitable for the investor.
|
(f)
|
Soliciting Dealer Agreements.
All engagements of the Soliciting Dealers will be evidenced by a Soliciting Dealer Agreement.
|
(g)
|
Electronic Delivery.
If the Dealer Manager uses electronic delivery to distribute the Prospectus to any person, that it will comply with all applicable requirements of the Commission, the Blue Sky laws and/or FINRA and any other laws or regulations related to the electronic delivery of documents.
|
(h)
|
AML Compliance.
The Dealer Manager represents to the Company that it has established and implemented an anti-money laundering compliance program (“AML Program”) in accordance with Section 352 of the USA PATRIOT Act of 2001 (the “PATRIOT Act”) and FINRA Rule 3310, that complies with applicable anti-money laundering laws and regulations, including, but not limited to, the customer identification program requirements of Section 326 of the PATRIOT Act, and the suspicious activity reporting requirements of Section 356 of the PATRIOT Act, and the laws, regulations and Executive Orders administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury (collectively, “AML/OFAC Laws”). The Dealer Manager hereby covenants to remain in compliance with the AML/OFAC Laws and shall, upon request by the Company, provide a certification to the Company that, as of the date of such certification, its AML Program is compliant with the AML/OFAC Laws.
|
(i)
|
Customer Information.
The Dealer Manager will use its best efforts to provide the Company with any and all subscriber information that the Company requests in order for the Company to satisfy its obligations under the AML/OFAC Laws and comply with the requirements under Section 5(k) above.
|
(j)
|
Recordkeeping.
The Dealer Manager will comply, and will require each Soliciting Dealer to comply, with the record keeping requirements of the Exchange Act, including, but not limited to, Rules 17a-3 and 17a-4 promulgated under the Exchange Act, and shall maintain, for at least six years or for a period of time not less than that required in order to comply with all applicable federal, state and other regulatory requirements, whichever is later, such records with respect to each investor who purchases mShares, information used to determine that the investor meets the suitability standards imposed on the offer and sale of the mShares, the amount of mShares sold, and a representation of the investor that the investor is investing for the investor’s own account or, in lieu of such representation, information indicating that the investor for whose account the investment was made met the suitability standards.
|
(k)
|
Suspension or Termination of Offering.
The Dealer Manager agrees, and will require that each of the Soliciting Dealers agree, to suspend or terminate the offering and sale of the mShares upon request of the Company at any time and to resume the offering and sale of the mShares upon subsequent request of the Company.
|
6.
|
Indemnification.
|
(a)
|
Indemnified Parties Defined.
For the purposes of this Agreement, an “Indemnified Party” shall mean a person or entity entitled to indemnification under this Section 7, as well as such person’s or entity’s officers, directors, employees, members, partners, affiliates, agents and representatives,
|
(b)
|
Indemnification of the Dealer Manager and Soliciting Dealers.
The Company will indemnify, defend and hold harmless the Dealer Manager and the Soliciting Dealers, and their respective Indemnified Parties, from and against any losses, claims, expenses (including reasonable legal and other expenses incurred in investigating and defending such claims or liabilities), damages or liabilities, joint or several, to which any such Soliciting Dealers or the Dealer Manager, or their respective Indemnified Parties, may become subject under the Securities Act, the Securities Act Rules and Regulations, the Exchange Act, the Exchange Act Rules and Regulations or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) arise out of or are based upon:
|
(i)
|
in whole or in part, any material inaccuracy in a representation or warranty contained herein by the Company, any material breach of a covenant contained herein by the Company, or any material failure by the Company to perform its obligations hereunder or to comply with state or federal securities laws applicable to the Offering;
|
(ii)
|
any untrue statement or alleged untrue statement of a material fact contained (A) in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus, (B) in any Approved Sales Literature or (C) in any blue sky application or other document executed by the Company or on its behalf specifically for the purpose of qualifying any or all of the mShares for sale under the securities laws of any jurisdiction or based upon written information furnished by the Company under the securities laws thereof (any such application, document or information being hereinafter called a “Blue Sky Application”); or
|
(iii)
|
the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements therein not misleading or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading.
|
(c)
|
Dealer Manager Indemnification of the Company and the Manager.
The Dealer Manager will indemnify, defend and hold harmless the Company and the Manager and each of its Indemnified Parties and each person who has signed the Registration Statement, from and against any losses, claims, expenses (including the reasonable legal and other expenses incurred in investigating and defending any such claims or liabilities), damages or liabilities to which any of the aforesaid parties may become subject under the Securities Act, the Securities Act Rules and Regulations, the Exchange Act, the Exchange Act Rules and Regulations or otherwise, insofar as such losses, claims, expenses, damages (or actions in respect thereof) arise out of or are based upon:
|
(i)
|
in whole or in part, any material inaccuracy in a representation or warranty contained herein by the Dealer Manager or any material breach of a covenant contained herein by the Dealer Manager;
|
(ii)
|
any untrue statement or any alleged untrue statement of a material fact contained (A) in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus, (B) in any Approved Sales Literature, or (C) in any Blue Sky Application; or
|
(iii)
|
the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements therein not misleading, or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the Prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that in each case described in clauses (ii) and (iii) to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company by the Dealer Manager expressly for use in the Registration Statement or any such post-effective amendments thereof or the Prospectus or any such amendment thereof or supplement thereto;
|
(iv)
|
any use of sales literature, including “broker-dealer use only” materials, by the Dealer Manager that is not Approved Sales Literature; or
|
(v)
|
any untrue statement made by the Dealer Manager or omission by the Dealer Manager to state a fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading in connection with the Offering provided, however, this clause (v) shall not apply to any statements or omissions made in
|
(d)
|
Soliciting Dealer Indemnification of the Company.
By virtue of entering into the Soliciting Dealer Agreement, each Soliciting Dealer severally will agree to indemnify, defend and hold harmless the Company, the Dealer Manager, each of their respective Indemnified Parties, and each person who signs the Registration Statement, from and against any losses, claims, expenses, damages or liabilities to which the Company, the Dealer Manager, or any of their respective Indemnified Parties, or any person who signed the Registration Statement, may become subject, under the Securities Act or otherwise, as more fully described in the Soliciting Dealer Agreement.
|
(e)
|
Action Against Parties; Notification.
Promptly after receipt by any Indemnified Party under this Section 7 of notice of the commencement of any action, such Indemnified Party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7, promptly notify the indemnifying party of the commencement thereof; provided, however, that the failure to give such notice shall not relieve the indemnifying party of its obligations hereunder except to the extent it shall have been actually prejudiced by such failure. In case any such action is brought against any Indemnified Party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled, to the extent it may wish, jointly with any other indemnifying party similarly notified, to participate in the defense thereof, with separate counsel.
|
(f)
|
Reimbursement of Fees and Expenses.
An indemnifying party under this Section 7 of this Agreement shall be obligated to reimburse an Indemnified Party for reasonable legal and other expenses as follows:
|
(i)
|
In the case of the Company indemnifying the Dealer Manager, the advancement of funds to the Dealer Manager for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought shall be permissible only if all of the following conditions are satisfied: (A) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (B) the legal action is initiated by a third party who is not a mShare holder of the Company or the legal action is initiated by a mShare holder of the Company acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; and (C) the Dealer Manager undertakes to repay the advanced funds to the Company, together
|
(ii)
|
In any case of indemnification other than that described in Section 7(f)(i) above, the indemnifying party shall pay all legal fees and expenses reasonably incurred by the Indemnified Party in the defense of such claims or actions; provided, however, that the indemnifying party shall not be obligated to pay legal expenses and fees to more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions giving rise to such claims notwithstanding that such actions or claims are alleged or brought by one or more parties against more than one Indemnified Party. If such claims or actions are alleged or brought against more than one Indemnified Party, then the indemnifying party shall only be obliged to reimburse the expenses and fees of the one law firm (in addition to local counsel) that has been participating by a majority of the indemnified parties against which such action is finally brought; and if a majority of such indemnified parties is unable to agree on which law firm for which expenses or fees will be reimbursable by the indemnifying party, then payment shall be made to the first law firm of record representing an Indemnified Party against the action or claim. Such law firm shall be paid only to the extent of services performed by such law firm and no reimbursement shall be payable to such law firm on account of legal services performed by another law firm.
|
7.
|
Contribution.
|
(a)
|
If Indemnification is Unavailable.
If the indemnification provided for in Section 7 is for any reason unavailable to or insufficient to hold harmless an Indemnified Party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such Indemnified Party, as incurred:
|
(iv)
|
in such proportion as is appropriate to reflect the relative benefits received by the Company, the Dealer Manager and the Soliciting Dealer, respectively, from the proceeds received in Offering pursuant to this Agreement and the relevant Soliciting Dealer Agreement; or
|
(v)
|
if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Dealer Manager and the Soliciting Dealer, respectively, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
|
(b)
|
Relative Benefits.
The relative benefits received by the Company, the Dealer Manager and the Soliciting Dealer, respectively, in connection with the proceeds received in the Offering pursuant to this Agreement and the relevant Soliciting Dealer Agreement shall be deemed to be in the same respective proportion as the total net proceeds from the Offering pursuant to this Agreement and the relevant Soliciting Dealer Agreement (before deducting expenses), received by the Company, and the total selling commissions and dealer manager fees received by the Dealer Manager and the Soliciting Dealer, respectively, in each case as set forth on the cover of the Prospectus bear to the aggregate offering price of the mShares sold in the Offering as set forth on such cover.
|
(c)
|
Relative Fault.
The relative fault of the Company, the Dealer Manager and the Soliciting Dealer, respectively, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact related to information supplied by the Company, by the Dealer Manager or by the Soliciting Dealer, respectively, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
|
(d)
|
Pro Rata is Unreasonable.
The Company, the Dealer Manager and the Soliciting Dealer (by virtue of entering into the Soliciting Dealer Agreement) agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable contributions referred to above in this Section 8. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an Indemnified Party and referred to above in this Section 8 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission or alleged omission.
|
(e)
|
Limits.
Notwithstanding the provisions of this Section 8, the Dealer Manager and the Soliciting Dealer shall not be required to contribute any amount by which the total price at which the mShares sold in the Offering to the public by them exceeds the amount of any damages which the Dealer Manager and the Soliciting Dealer have otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission.
|
(f)
|
Fraudulent Misrepresentation.
No party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any party who was not guilty of such fraudulent misrepresentation.
|
(g)
|
Benefits of Contribution.
For the purposes of this Section 8, the Dealer Manager’s officers, directors, employees, members, partners, agents and representatives, and each person, if any, who controls the Dealer Manager within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution of the Dealer Manager, and each officers, directors, employees, members, partners, agents and representatives of the Company, each officer of the Company who signed the Registration Statement and each person, if any, who controls the Company, within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution of the Company. The Soliciting Dealers’ respective obligations to contribute pursuant to this Section 8 are several in proportion to the number of mShares sold by each Soliciting Dealer in the Offering and not joint.
|
8.
|
Termination of this Agreement.
|
(a)
|
Term; Expiration.
This Agreement shall become effective on the initial Effective Date and the obligations of the parties hereunder shall not commence until the initial Effective Date. This Agreement may be terminated by either party upon 60 calendar days’ written notice to the other party. This Agreement shall automatically expire on the termination date of the Offering as described in the Prospectus.
|
(b)
|
Delivery of Records Upon Expiration or Early Termination.
Upon the expiration or early termination of this Agreement for any reason, the Dealer Manager shall:
|
(i)
|
promptly forward any and all funds, if any, in its possession which were received from investors for the sale of mShares for deposit;
|
(ii)
|
to the extent not previously provided, provide to the Company a list of all investors who have subscribed for or purchased mShares and all broker-dealers with whom the Dealer Manager has entered into a Soliciting Dealer Agreement;
|
(iii)
|
notify Soliciting Dealers of such termination; and
|
(iv)
|
promptly deliver to the Company copies of any sales literature designed for use specifically for the Offering that it is then in the process of preparing. Upon expiration or earlier termination of this Agreement, the Company shall pay to the Dealer Manager all compensation to which the Dealer Manager is or becomes entitled under Section 3(d) at such time as such compensation becomes payable.
|
9.
|
Miscellaneous
|
(a)
|
Survival.
The following provisions of the Agreement shall survive the expiration or earlier termination of this Agreement: Section 3(d) (Dealer-Manager Compensation); Section 3(e) (Reasonable Bona Fide Due Diligence Expenses); Section 5(l) (Dealer-Manager’s Review of Proposed Amendments and Supplements); Section 6(h) (AML Compliance); Section 7 (Indemnification); Section 8 (Contribution); Section 9 (Termination of This Agreement) and this Section 10 (Miscellaneous). Notwithstanding anything else that may be to the contrary herein, the expiration or earlier termination of this Agreement shall not relieve a party for liability for any breach occurring prior to such expiration or earlier termination. In no event shall the Dealer Manager be entitled to payment of any compensation in connection with the Offering that is not completed according to this Agreement; provided, however, that the reimbursement of out-of-pocket accountable expenses actually incurred by the Dealer Manager or person associated with the Dealer Manager shall not be presumed to be unfair or unreasonable and shall be payable under normal circumstances.
|
(b)
|
Notices.
All notices or other communications required or permitted hereunder, except as herein otherwise specifically provided, shall be in writing and shall be deemed given or delivered: (i) when delivered personally or by commercial messenger; (ii) one business day following deposit with a recognized overnight courier service, provided such deposit occurs prior to the deadline imposed by such service for overnight delivery; (iii) when transmitted, if sent by facsimile copy, provided confirmation of receipt is received by sender and such notice is sent by an additional method provided hereunder; in each case above provided such communication is addressed to the intended recipient thereof as set forth below:
|
(c)
|
Successors and Assigns.
No party shall assign (voluntarily, by operation of law or otherwise) this Agreement or any right, interest or benefit under this Agreement without the prior written consent of each other party. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of, and be enforceable by, the parties hereto and their respective successors and assigns.
|
(d)
|
Invalid Provision.
The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.
|
(e)
|
Applicable Law.
This Agreement and any disputes relative to the interpretation or enforcement hereto shall be governed by and construed under the internal laws, as opposed to the conflicts of laws provisions, of the State of New York.
|
(f)
|
Waiver.
EACH OF THE PARTIES HERETO WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THIS AGREEMENT. The parties hereto each hereby irrevocably submits to the exclusive jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in the Borough of Manhattan, New York City, in respect of the interpretation and enforcement of the terms of this Agreement, and in respect of the transactions contemplated hereby, and each hereby waives, and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties
|
(g)
|
Attorneys’ Fees.
If a dispute arises concerning the performance, meaning or interpretation of any provision of this Agreement or any document executed in connection with this Agreement, then the prevailing party in such dispute shall be awarded any and all costs and expenses incurred by the prevailing party in enforcing, defending or establishing its rights hereunder or thereunder, including, without limitation, court costs and attorneys and expert witness fees. In addition to the foregoing award of costs and fees, the prevailing party also shall be entitled to recover its attorneys’ fees incurred in any post-judgment proceedings to collect or enforce any judgment.
|
(h)
|
No Partnership.
Nothing in this Agreement shall be construed or interpreted to constitute the Dealer Manager or the Soliciting Dealer as being in association with or in partnership with the Company or one another, and instead, this Agreement only shall constitute the Soliciting Dealer as a broker authorized by the Company to sell and to manage the sale by others of the mShares according to the terms set forth in the Registration Statement, the Prospectus or this Agreement. Nothing herein contained shall render the Dealer Manager or the Company liable for the obligations of any of the Soliciting Dealers or one another.
|
(i)
|
Third Party Beneficiaries.
Except for the persons and entities referred to in Section 7 (Indemnification) and Section 8 (Contribution), there shall be no third party beneficiaries of this Agreement, and no provision of this Agreement is intended to be for the benefit of any person or entity not a party to this Agreement, and no third party shall be deemed to be a beneficiary of any provision of this Agreement. Except for the persons and entities referred to in Section 7 and Section 8, no third party shall by virtue of any provision of this Agreement have a right of action or an enforceable remedy against any party to this Agreement. Each of the persons and entities referred to in Section 7 and Section 8 shall be a third party beneficiary of this Agreement.
|
(j)
|
Entire Agreement.
This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
|
(k)
|
Nonwaiver.
The failure of any party to insist upon or enforce strict performance by any other party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such party’s right to assert or rely upon any such provision or right in that or any other instance; rather, such provision or right shall be and remain in full force and effect.
|
(l)
|
Access to Information.
The Company may authorize the Company’s transfer agent to provide information to the Dealer Manager and each Soliciting Dealer regarding recordholder information about the clients of such Soliciting Dealer who have invested with the Company on an on-going basis for so long as such Soliciting Dealer has a relationship with such clients. The Dealer Manager shall require in the Soliciting Dealer Agreement that Soliciting Dealers not disclose any password for a restricted website or portion of website provided to such Soliciting Dealer in connection with the Offering and not disclose to any person, other than an officer, director,
|
(m)
|
Counterparts.
This Agreement may be executed (including by facsimile transmission) with counterpart signature pages or in counterpart copies, each of which shall be deemed an original but all of which together shall constitute one and the same instrument comprising this Agreement.
|
(n)
|
Absence of Fiduciary Relationships.
The parties acknowledge and agree that:
|
(i)
|
the Dealer Manager’s responsibility to the Company is solely contractual in nature; and
|
(ii)
|
the Dealer Manager does not owe the Company, any of its affiliates or any other person or entity any fiduciary (or other similar) duty as a result of this Agreement or any of the transactions contemplated hereby.
|
RE:
|
PREFERRED APARTMENT COMMUNITIES, INC.
|
1.
|
Registration Statement
.
|
(a)
|
Registration Statement and Prospectus.
A registration statement on Form S-3 (File No. 333-[___]), including a preliminary prospectus, has been prepared by the Company and was initially filed with the Securities and Exchange Commission (the “Commission”) on [___], 2016, in accordance with the applicable requirements of the Securities Act of 1933, as amended (the “Securities Act”), and the applicable rules and regulations of the Commission promulgated thereunder (the “Securities Act Rules and Regulations”) for the registration of the mShares. The Company has prepared and filed such amendments thereto and such amended prospectus as may have been required to the date hereof, and will file such additional amendments and supplements thereto as may hereafter be required. The registration statement on Form S-3 and the prospectus contained therein, as finally amended at the date the registration statement is declared effective by the Commission (the “Effective Date”) are respectively hereinafter referred to as the “Registration Statement” and the “Prospectus”, except that:
|
(i)
|
if the Company files a post-effective amendment to such registration statement, then the term “Registration Statement” shall, from and after the declaration of the effectiveness of such post-effective amendment by the Commission, refer to such registration statement as amended by such post-effective amendment, and the term “Prospectus” shall refer to the amended prospectus then on file with the Commission; and
|
(ii)
|
if the prospectus filed by the Company pursuant to either Rule 424(b) or 424(c) of the Securities Act Rules and Regulations shall differ from the prospectus on file at the time the Registration Statement or the most recent post-effective amendment thereto, if any, shall have become effective, then the term “Prospectus” shall refer to such prospectus filed pursuant to either Rule 424(b) or 424(c), as the case may be, from and after the date
|
2.
|
Compliance with Applicable Rules and Regulations; License and Association Membership
.
|
3.
|
Limitation of Offer; Investor Suitability
.
|
(a)
|
Soliciting Dealer will not offer mShares and will not permit any of its registered representatives to offer mShares in any jurisdiction unless both Soliciting Dealer and such registered representative are duly licensed to transact securities business in such jurisdiction. In offering mShares, Soliciting Dealer shall comply with the provisions of the FINRA Rules.
|
(b)
|
In offering the sale of mShares to any person, Soliciting Dealer will have reasonable grounds to believe (based on such information obtained from the investor concerning the investor’s age, investment objectives, other investments, financial situation, needs or any other information known by Soliciting Dealer after due inquiry) that: (A) such person is in a financial position appropriate to enable such person to realize to a significant extent the benefits described in the Prospectus, including the tax benefits where they are a significant aspect of the Company; (B) the investor has a fair market net worth sufficient to sustain the risks inherent in the program, including loss of investment and lack of liquidity; (C) the purchase of the mShares is otherwise suitable for such person.
Soliciting Dealer further will use its best efforts to determine the suitability and appropriateness of an investment in the mShares of each proposed investor solicited by a person associated with Soliciting Dealer by reviewing documents and records disclosing the basis upon which the determination as to suitability was reached as to each proposed investor,
|
4.
|
Delivery of Prospectus and Approved Sales Literature.
|
(a)
|
Delivery of Prospectus and Approved Sales Literature.
Soliciting Dealer will:
|
(i)
|
deliver a Prospectus, as then supplemented or amended, to each person who subscribes for mShares prior to the tender of such person’s subscription agreement (the “Subscription Agreement”), if such DRS Settlement, or prior to submitting orders, if using DTC Settlement;
|
(ii)
|
promptly comply with the written request of any person for a copy of the Prospectus, as then supplemented or amended, during the period between the initial Effective Date and the termination of the Offering;
|
(iii)
|
deliver to any person, in accordance with applicable law or as prescribed by any state securities administrator, a copy of any prescribed document included within or incorporated by reference in the Registration Statement and any supplements thereto during the course of the Offering;
|
(iv)
|
not use any sales materials in connection with the solicitation of purchasers of the mShares except Approved Sales Literature;
|
(v)
|
to the extent the Company provides Approved Sales Literature, not use such materials unless accompanied or preceded by the Prospectus, as then currently in effect, and as may be amended or supplemented in the future; and
|
(vi)
|
not give or provide any information or make any representation or warranty other than information or representations contained in the Prospectus or the Approved Sales Literature. Soliciting Dealer will not publish, circulate or otherwise use any other advertisement or solicitation material in connection with the Offering without the Dealer Manager’s express prior written approval. As used in this Agreement, “Approved Sales Literature” has the meaning set forth in the Dealer Manager Agreement, but excludes material or writing marked “broker-dealer use only” or otherwise bearing a legend denoting that it is not to be used in connection with the offer or sale of mShares.
|
(b)
|
Agency is Not Created.
Nothing contained in this Agreement shall be deemed or construed to make Soliciting Dealer an employee, agent, representative or partner of the Dealer Manager or the Company, and Soliciting Dealer is not authorized to act for the Dealer Manager or the Company.
|
(c)
|
Documents Must Be Accompanied or Preceded by a Prospectus.
Soliciting Dealer will not send or provide amendments or supplements to the Prospectus or any Approved Sales Literature to any investor unless it has previously sent or provided a Prospectus and all amendments and supplements thereto to that investor or has simultaneously sent or provided a Prospectus and all amendments and supplements thereto with such Prospectus amendment or supplement or Approved Sales Literature.
|
(d)
|
Broker-Dealer Use Only Material.
Soliciting Dealer will not show to or provide any investor or reproduce any material or writing which is supplied to it by the Dealer Manager and marked “broker-dealer use only,” institutional communication, or otherwise bearing a legend denoting that it is not to be used in connection with the offer or sale of mShares to members of the public.
|
(e)
|
Copies of Prospectuses and Approved Sales Literature.
The Dealer Manager will supply Soliciting Dealer with reasonable quantities of the Prospectus (including any supplements thereto), as well as any Approved Sales Literature, for delivery to investors.
|
(f)
|
Prospectus Delivery Requirement.
Soliciting Dealer shall furnish a copy of any revised preliminary Prospectus to each person to whom it has furnished a copy of any previous preliminary Prospectus, and further agrees that it will mail or otherwise deliver all preliminary and final Prospectuses required for compliance with the provisions of Rule 15c2-8 under the Exchange Act.
|
(g)
|
Reliance by Soliciting Dealer.
Soliciting Dealer agrees that it will rely upon no statement whatsoever, written or oral, other than the statements in the final Prospectus (as amended or supplemented from time to time) or in Approved Sales Literature. Soliciting Dealer is not authorized by the Dealer Manager nor the Company to give any information or to make any representation not contained in the final Prospectus (as amended or supplemented from time to time) or in Approved Sales Literature in connection with the sale of the mShares.
|
5.
|
Submission of Orders; Right to Reject Orders.
|
(a)
|
With respect to Soliciting Dealer’s participation in any resales or transfers of the mShares, Soliciting Dealer agrees to comply with any applicable requirements set forth in Section 2.
|
(b)
|
If using DRS Settlement:
|
(i)
|
Payments for mShares shall be made by wire transfer to the Escrow Agent (as defined below) or checks payable to “UMB Bank, N.A., Escrow Agent for Preferred Apartment Communities, Inc.” Soliciting Dealer shall forward original checks for the purchase of mShares together with an original Subscription Agreement, completed, executed and initialed where indicated by the subscriber as provided for in the Subscription Agreement, to UMB Bank, N.A. (the “Escrow Agent”) at the address provided in the Subscription Agreement;
|
(ii)
|
When Soliciting Dealer’s internal supervisory procedures are conducted at the site at which the Subscription Agreement and check for the purchase of mShares were initially received by Soliciting Dealer from the subscriber Soliciting Dealer shall transmit the Subscription Agreement and check for the purchase of mShares to the Escrow Agent by the end of the next business day following receipt of the check and Subscription Agreement. When, pursuant to Soliciting Dealer’s internal supervisory procedures, Soliciting Dealer’s final internal supervisory procedures are conducted at a different location (the “Final Review Office”), Soliciting Dealer shall transmit the check for the purchase of mShares and Subscription Agreement to the Final Review Office by the end of the next business day following Soliciting Dealer’s receipt of the Subscription Agreement and check for the purchase of mShares. The Final Review Office will, by the end of the next business day following its receipt of the Subscription Agreement and check for the purchase of mShares, forward both the Subscription Agreement and check for the purchase of mShares to the Escrow Agent. If any Subscription Agreement solicited by Soliciting Dealer is rejected by the Company, then the Subscription Agreement and check will be returned to the rejected subscriber within ten business days from the date of rejection. As used in this Agreement, “business day” means any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close; and
|
(c)
|
If using DTC Settlement, the Soliciting Dealer will coordinate for payment in connection with their electronically placed orders.
|
(d)
|
All subscriptions and orders, whether initial or additional, are subject to acceptance by and shall become effective upon confirmation by the Company, which reserves the right to reject any subscription or order in its sole discretion for any or no reason. Subscriptions and orders not accompanied by the required instrument of payment for mShares may be rejected. Issuance and delivery of a mShare will be made only after a sale of a mShare is deemed by the Company to be completed in accordance with Section 3(c) of the Dealer Manager Agreement. If a subscription or order is rejected, cancelled or rescinded for any reason, then Soliciting Dealer will return to the Dealer Manager any Dealer Manager Fees or other fees theretofore paid with respect to such order. If Soliciting Dealer fails to so return any such Dealer Manager Fees or other fees, the Dealer Manager shall have the right to offset amounts owned against future Dealer Manager Fees or other fees due and otherwise payable to Soliciting Dealer (it being understood and agreed that such right
|
6.
|
Soliciting Dealer Compensation.
|
(a)
|
Reserved.
See Dealer Manager Agreement.
|
(b)
|
Dealer Manager’s Authority to Issue Confirmation.
It is understood and agreed that no compensation shall be payable with respect to particular mShares if the Dealer Manager or the Company rejects a proposed subscriber’s Subscription Agreement. Accordingly, Soliciting Dealer shall have no authority to issue a confirmation (pursuant to Exchange Act Rule 10b-10) to any subscriber; such authority residing solely in the Dealer Manager, as the Dealer Manager and processing broker-dealer.
|
(c)
|
Reallowance of Dealer Manager Fee.
The Dealer Manager may, in its sole discretion, re-allow any or all of the Dealer Manager Fee received by it to Soliciting Dealer for mShares sold by the Soliciting Dealer as a marketing fee. For purposes of this Section 6(c), mShares are “sold” for DRS Settlement only if an executed Subscription Agreement is accepted by the Company and the Company has thereafter distributed the Dealer Manager Fee to the Dealer Manager in connection with such transaction pursuant to the Dealer Manager Agreement. For purposes of this Section 6(c), mShares are “sold” for DTC Settlement only when electronically submitted orders are confirmed by the Dealer Manager.
|
(d)
|
Marketing Expenses.
Certain marketing expenses such as Soliciting Dealer conferences may be advanced to Soliciting Dealer and later deducted from the portion of the Dealer Manager Fee re-allowed to that Soliciting Dealer. Soliciting Dealer will repay any such advance to the extent not expended on marketing expenses. Any such advance shall be deducted from the maximum amount of the Dealer Manager Fee that may otherwise be re-allowable to Soliciting Dealer.
|
(e)
|
Limitations on Dealer Manager’s Liability for Commissions.
The Company will not be liable or responsible to any Soliciting Dealer for the payment of any portion of the Dealer Manager Fee or reallowance of any fees to Soliciting Dealer, it being the sole and exclusive responsibility of the Dealer Manager for the payment or reallowance of any fees to the Soliciting Dealer.
|
7.
|
Reserved mShares.
The number of mShares, if any, to be reserved for sale by each Soliciting Dealer may be decided by the mutual agreement, from time to time, of the Dealer Manager and the Company. The Dealer Manager reserves the right to notify Soliciting Dealer by United States mail or by other means of the number of mShares reserved for sale by Soliciting Dealer, if any. Such mShares will be reserved for sale by Soliciting Dealer until the time specified in the Dealer Manager’s notification to Soliciting Dealer. Sales of any reserved mShares after the time specified in the notification to Soliciting Dealer or any requests for additional mShares will be subject to rejection in whole or in part.
|
8.
|
Dealer Manager’s Authority.
Subject to the Dealer Manager Agreement, the Dealer Manager shall have full authority to take such action as it may deem advisable with respect to all matters pertaining to the Offering or arising thereunder. The Dealer Manager shall not be under any liability to Soliciting Dealer, except (i) for its own lack of good faith and (ii) for obligations expressly assumed by the Dealer Manager hereunder.
|
9.
|
Indemnification.
|
(a)
|
Incorporation of Indemnification Obligations Under the Dealer Manager Agreement.
Under the Dealer Manager Agreement, the Company has agreed to indemnify Soliciting Dealer and the Dealer Manager and each of their respective Indemnified Parties, in certain instances and against certain liabilities, including liabilities under the Securities Act in certain circumstances. Soliciting Dealer hereby agrees to indemnify the Company and each of its Indemnified Parties as provided in the Dealer Manager Agreement and to indemnify the Dealer Manager to the extent and in the manner that Soliciting Dealer agrees to indemnify the Company in the Dealer Manager Agreement.
|
(b)
|
Soliciting Dealer’s Hold Harmless Obligation.
In furtherance of, and not in limitation of the foregoing, Soliciting Dealer will indemnify, defend and hold harmless the Dealer Manager and the Company, and their officers, directors, employees, members, partners, affiliates, agents and representatives, and each person, if any, who controls such entity within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and each person who has signed the Registration Statement (“Indemnified Parties”), from and against any losses, claims, damages or liabilities to which any of the Indemnified Parties may become subject, under the Securities Act or the Exchange Act, or otherwise, insofar as such losses, claims and expenses (including the reasonable legal and other expenses incurred in investigating and defending any such claims or liabilities), damages or liabilities (or actions in respect thereof) arise out of or are based upon:
|
(i)
|
in whole or in part, any material inaccuracy in the representations or warranties contained in this Agreement or any material breach of a covenant contained herein by Soliciting Dealer;
|
(ii)
|
any untrue statement or any alleged untrue statement of a material fact contained in any Registration Statement or any post-effective amendment thereto or in the Prospectus or any amendment or supplement to the Prospectus; or in any Approved Sales Literature;
|
(iii)
|
the omission or alleged omission to state a material fact required to be stated in the Registration Statement or any post-effective amendment thereof to make the statements therein not misleading or the omission or alleged omission to state a material fact required to be stated in the Prospectus or any amendment or supplement to the Prospectus to make the statements therein, in light of the circumstances under which they were made, not misleading,
provided, however
, that in each case described in clauses (ii) and (iii) to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with written information furnished to the Company or the Dealer Manager by Soliciting Dealer specifically for use with reference to Soliciting Dealer in the preparation of the Registration Statement or any such post-effective amendments thereof or the Prospectus or any such amendment thereof or supplement thereto;
|
(iv)
|
any use of sales literature, including “broker dealer use only” or institutional materials, by Soliciting Dealer that is not Approved Sales Literature;
|
(v)
|
any untrue statement made by Soliciting Dealer or Soliciting Dealer’s representatives or agents or omission by Soliciting Dealer or Soliciting Dealer’s representatives or agents to state a fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading in connection with the offer and sale of the mShares in each case, other than statements or omissions made in conformity with the Registration Statement, Prospectus, Approved Sales Literature or any other materials or information furnished by or on behalf of the Company; or
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(vi)
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any failure by Soliciting Dealer to comply with applicable laws governing money laundry abatement and anti-terrorist financing efforts in connection with the Offering, including
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(c)
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Notice of Claim.
Promptly after receipt by any indemnified party under this Section 9 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9, promptly notify the indemnifying party of the commencement thereof;
provided, however
, the failure to give such notice shall not relieve the indemnifying party of its obligations hereunder except to the extent it shall have been prejudiced by such failure.
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(d)
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Reimbursement.
An indemnifying party under Section 9 of this Agreement shall be obligated to reimburse an indemnified party for reasonable legal and other expenses as follows: the indemnifying party shall pay all legal fees and expenses reasonably incurred by the indemnified party in the defense of such claims or actions; provided, however, that the indemnifying party shall not be obligated to pay legal expenses and fees to more than one law firm in connection with the defense of similar claims arising out of the same alleged acts or omissions giving rise to such claims notwithstanding that such actions or claims are alleged or brought by one or more parties against more than one indemnified party.
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10.
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Contribution.
If the indemnification provided for in Section 9 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, the contributions provisions set forth in Section 8 of the Dealer Manager Agreement shall be applicable.
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11.
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Company as Party to Agreement.
Each of the Company and the Manager shall be a third party beneficiary of Soliciting Dealer’s representations, warranties, covenants and agreements contained in Sections 9 and 10. No provision of Section 9 or Section 10 may be amended or waived without the prior written consent of the Company and the Manager. The Company shall have all enforcement rights in law and in equity with respect to those portions of this Agreement as to which it is third party beneficiary.
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12.
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Privacy Laws; Compliance.
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(a)
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Soliciting Dealer agrees to:
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(i)
|
abide by and comply with (A) the privacy standards and requirements of the Gramm-Leach-Bliley Act of 1999 (the “GLB Act”); (B) the privacy standards and requirements of any other applicable federal or state law; and (C) Soliciting Dealer’s own internal privacy policies and procedures, each as may be amended from time to time;
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(ii)
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refrain from the use or disclosure of nonpublic personal information (as defined under the GLB Act) of all customers, except as necessary to service the customers or as otherwise necessary or required by applicable law; and
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(iii)
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determine which customers have opted out of the disclosure of nonpublic personal information by periodically reviewing and, if necessary, retrieving an aggregated list of such customers (the “List”) as provided by each to identify customers that have exercised their opt-out rights.
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13.
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Anti-Money Laundering Compliance Programs.
Soliciting Dealer represents to the Dealer Manager and to the Company that it has established and implemented an anti-money laundering compliance program (“AML Program”) in accordance with Section 352 of the PATRIOT Act and FINRA Rule 3310, that complies with applicable anti-money laundering laws and regulations, including, but not limited to, the customer identification program requirements of Section 326 of the PATRIOT Act, and the suspicious activity reporting requirements of Section 356 of the PATRIOT Act, and the laws, regulations and Executive Orders administered by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury (collectively, “AML/OFAC Laws”). The Soliciting Dealer hereby covenants to remain in compliance with the AML/OFAC Laws and shall, upon request by the Dealer Manager and/or the Company, provide a certification to the Dealer Manager and/or the Company that, as of the date of such certification, its AML Program is compliant with the AML/OFAC Laws.
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14.
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Confidentiality.
Each party to this Agreement agrees to maintain all information received from the other party pursuant to this Agreement in confidence, and each party to this Agreement agrees not to use any such information for any purpose, or disclose any such information to any person or entity, except as permitted by this Agreement or applicable laws, rules and regulations. This Section 14 shall survive the termination or expiration of this Agreement.
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15.
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Non-Solicitation.
Subject to this Section 15, the Dealer Manager agrees that it will not (and the Dealer Manager will use reasonable good faith efforts to ensure that its employees and representatives do not) solicit business from any of Soliciting Dealer’s contacts or customers or knowingly recruit any of Soliciting Dealer’s independent registered representatives. Notwithstanding the foregoing, the Dealer Manager may solicit Soliciting Dealer’s contacts, customers or independent registered representatives but only to the extent that the Dealer Manager can demonstrate a relationship with such contacts, customers or independent registered representatives that was not derived through the efforts of Soliciting Dealer’s representatives who are engaged in selling efforts directly in connection with the Offering. This Section 15 shall survive the termination or expiration of this Agreement.
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16.
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Miscellaneous.
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(a)
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Ratification of Dealer Manager Agreement.
Soliciting Dealer hereby authorizes and ratifies the execution and delivery of the Dealer Manager Agreement by the Dealer Manager as Dealer Manager for itself and on behalf of all Soliciting Dealers (including Soliciting Dealer party hereto) and authorizes the Dealer Manager to agree to any variation of its terms or provisions and to execute and deliver any amendment, modification or supplement thereto. Soliciting Dealer hereby agrees to be bound by all provisions of the Dealer Manager Agreement relating to Soliciting
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(b)
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Termination.
This Agreement, except for the provisions of Sections 8 (Dealer Manager’s Authority), 9 (Indemnification), 10 (Contribution), 11 (Company as Party to Agreement), 12 (Privacy Laws; Compliance), 14 (Confidentiality), 15 (Non-Solicitation) and this Section 16 (Miscellaneous), may be terminated at any time by either party hereto by five days’ prior written notice to the other party and, in all events, this Agreement shall terminate on the termination date of the Dealer Manager Agreement, except for the provisions of Sections 8, 9, 10, 11, 12, 14, 15 and this Section 16.
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(c)
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Communications.
Any communications from Soliciting Dealer should be in writing addressed to the Dealer Manager at:
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(d)
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No Partnership.
Nothing herein contained shall constitute the Dealer Manager, Soliciting Dealer, the other Soliciting Dealers or any of them as an association, partnership, limited liability company, unincorporated business or other separate entity.
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(e)
|
Notice of Registration Statement Effectiveness.
If this Agreement is executed before the initial Effective Date, then the Dealer Manager will notify Soliciting Dealer in writing when the initial Effective Date has occurred. Soliciting Dealer agrees that Soliciting Dealer will not make any offers to sell the mShares or solicit purchasers for the mShares until Soliciting Dealer has received such written notice of the initial Effective Date from the Dealer Manager or the Company. This Agreement shall be effective for all sales by Soliciting Dealer on and after the initial Effective Date.
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(f)
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Transfer Agent.
The Company may authorize its transfer agent to provide information to the Dealer Manager and Soliciting Dealer regarding record holder information about the clients of Soliciting Dealer who have invested with the Company on an on-going basis for so long as Soliciting Dealer has a relationship with such client. Soliciting Dealer shall not disclose any password for a restricted website or portion of a website provided to Soliciting Dealer in connection with the Offering and shall not disclose to any person, other than an officer, director, employee or agent of Soliciting Dealer, any material downloaded from such restricted website or portion of a restricted website.
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(g)
|
Assignment.
Soliciting Dealer shall have no right to assign this Agreement or any of its rights hereunder or to delegate any of its obligations. Any purported assignment or delegation by Soliciting Dealer shall be null and void. The Dealer Manager shall have the right to assign any or all of its rights and obligations under this Agreement by written notice, and Soliciting Dealer shall
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(h)
|
Amendment.
This Agreement may be amended from time to time by consent of the parties hereto. Soliciting Dealer’s consent will be deemed to have been given to an amendment to this Agreement, and such amendment will be effective, five business days following written notice to Soliciting Dealer of such amendment if it does not notify the Dealer Manager in writing prior to the close of business on such fifth business day that Soliciting Dealer does not consent to such amendment. Notwithstanding the foregoing, Soliciting Dealer agrees that (i) it shall consent to any amendment, supplement or modification of the terms of this Agreement requested by FINRA, and (ii) any amendment, supplement or modification of the terms of this Agreement will be effective immediately and Soliciting Dealer’s consent will be deemed to have been given to any such amendment, supplement or modification by its sale of mShares or otherwise receiving and retaining an economic benefit for participating in the Offering as a Soliciting Dealer.
|
(i)
|
Counterparts.
This Agreement may be executed (including by facsimile transmission) with counterpart signature pages or in counterpart copies, each of which shall be deemed an original but all of which together shall constitute one and the same instrument comprising this Agreement.
|
(j)
|
Invalidity.
The invalidity or unenforceability of any provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted.
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(k)
|
Strict Performance.
The failure of any party to insist upon or enforce strict performance by any other party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such party’s right to assert or rely upon any such provision or right in that or any other instance; rather, such provision or right shall be and remain in full force and effect.
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Alabama
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Nebraska
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Alaska
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Nevada
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Arizona
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New Hampshire
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Arkansas
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New Jersey
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California
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New Mexico
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Colorado
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New York
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Connecticut
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North Carolina
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Delaware
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North Dakota
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District of Columbia
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Ohio
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Florida
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Oklahoma
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Georgia
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Oregon
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Hawaii
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Pennsylvania
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Idaho
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Puerto Rico
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Illinois
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Rhode Island
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Indiana
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South Carolina
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Iowa
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South Dakota
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Kansas
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Tennessee
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Kentucky
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Texas
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Louisiana
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Utah
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Maine
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Vermont
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Maryland
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Virgin Islands
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Massachusetts
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Virginia
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Michigan
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Washington
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Minnesota
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West Virginia
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Mississippi
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Wisconsin
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Missouri
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Wyoming
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Montana
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ATTEST:
By:
/s/ Jeffrey R. Sprain
Jeffrey R. Sprain
Secretary
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PREFERRED APARTMENT COMMUNITIES, INC.
By:
/s/ John A. Williams
(SEAL)
John A. Williams
President and Chief Executive Officer
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Re:
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Registration Statement on Form S-3 (File No. 333- )
|
(i)
|
commencing with the Company’s taxable year ended on December 31, 2011, the Company has been organized in conformity with the requirements for qualification as a REIT under the Code, and the Company’s actual method of operation through the date hereof has enabled it to meet and, assuming the Company’s election to be treated as a REIT is not either revoked or intentionally terminated, the Company’s proposed method of operation will enable it to continue to meet, the requirements for qualification and taxation as a REIT under the Code;
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(ii)
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the discussion in the Prospectus under the caption “Material U.S. Federal Income Tax Considerations,” to the extent it constitutes matters of law, summaries of legal matters or legal
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(iii)
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the Operating Partnership has been and will be taxed as a partnership or a disregarded entity and not an association or publicly traded partnership (within the meaning of Code Section 7704) subject to tax as a corporation, for U.S. federal income tax purposes beginning with its first taxable year.
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