Exhibit 10.5

THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED
TO THE PRIOR PAYMENT OF ANY SENIOR INDEBTEDNESS FOR MONEY BORROWED OF THE
PARTNERSHIP (AS DEFINED HEREIN) AND OF LANDMARK APARTMENT TRUST OF AMERICA, INC.

LANDMARK APARTMENT TRUST OF AMERICA HOLDINGS, L.P.

Subordinated Promissory Note

 

$10,000,000     March 14, 2013 Original Principal Amount     Original Holder:
Elco Landmark     Residential Holdings II LLC

FOR VALUE RECEIVED, the undersigned, Landmark Apartment Trust of America
Holdings, L.P. (the “Partnership”), hereby promises to pay to Elco Landmark
Residential Holdings II LLC (“Payee,” and, together with any permitted
transferee then the duly endorsed and recorded holder hereof, the “Noteholder”),
the principal amount of $10,000,000 plus interest at the rate provided for in
this Subordinated Promissory Note (“Note”) from the date hereof on such
principal amount or such lesser amount as is then currently outstanding, in such
currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts, with principal and interest payable
on the dates and the manner as herein provided.

 

1. NOTE

This Note is issued pursuant to and in accordance with the Asset Purchase and
Contribution Agreement, dated as of March     , 2013 (the “Purchase Agreement”)
by and among the Partnership, Elco Landmark Residential Management LLC, Elco
Landmark Residential Holdings LLC and Payee. This Note, together with all other
subordinated notes which may be issued hereunder as a result of any transfer or
assignment permitted hereunder (and any notes issued in exchange thereof), are
collectively referred to herein as the “Notes.” Capitalized terms used in this
Note have the meanings ascribed thereto herein or as ascribed thereto in the
Purchase Agreement.

 

2. INTEREST PROVISIONS

From and after the date hereof, interest shall accrue on the unpaid principal
balance hereof until all unpaid principal and accrued interest are paid in full.
All accrued and unpaid interest shall be due and payable on the Maturity Date
(as defined below). The Partnership shall commence making monthly payments of
interest, in arrears, prior to the Maturity Date on the fifteenth day of the
month commencing on the first month in which the Partnership may make such
payments without violating the obligations of Landmark Apartment Trust of
America, Inc. (“LATA”) to the holders of its 9.75% Series A Cumulative
Non-Convertible Preferred Stock or the holders of its 9.75% Series B Cumulative
Non-Convertible Preferred Stock, and on the fifteenth day of each successive
month thereafter (each, an “Interest Payment Date”). Notwithstanding anything to
the contrary, however, the Partnership shall have the right and option,
exercisable in its sole discretion, and without the requirement to provide
notice to Noteholder, to defer the payment of any or all accrued and unpaid
interest until the Maturity Date and to pay such deferred accrued and unpaid
interest in arrears on or before the Maturity Date. Interest shall accrue on the
outstanding principal sum of this Note at a per annum rate equal to 3.00% (the
“Interest Rate”). Interest shall accrue on the basis of a 360-day year of twelve
(12) thirty (30) day months.

--------------------------------------------------------------------------------

In no event shall the amount of interest due or payable under this Note exceed
the maximum rate of interest allowed by applicable law and, in the event any
such payment is inadvertently paid by the Partnership or inadvertently received
by Noteholder, then such excess sum shall be credited as payment of principal,
unless the Partnership shall notify the Noteholder in writing that the
Partnership elects to have such excess sum returned to it forthwith. It is the
express intent of the parties hereto that the Partnership will not pay nor will
Noteholder receive, directly or indirectly, in any manner whatsoever, interest
in excess of that which may be lawfully paid by the Partnership under applicable
law. Unless otherwise stated herein, all payments made by the Partnership
hereunder will be applied: (i) first, to the payment in full of accrued and
unpaid interest and (ii) second, to the reduction of outstanding principal.

 

3. PAYMENT PROVISIONS

3.1 Payment of Note. Subject to Section 3.2, Section 3.3, and Section 3.6
hereof, on the Maturity Date, the Partnership will pay the principal amount of
this Note then owing, together with all accrued and unpaid interest thereon,
less an amount equal to the amount of any claims reasonably made (even if such
claims have not been finally resolved), in accordance with Section 3.02 or
Article IX of the Purchase Agreement, which shall not accelerate and shall
remain subject to the terms of this Note. From and after the Maturity Date,
interest shall continue to accrue on the unpaid principal balance, if any,
hereof until all unpaid principal and accrued interest are paid in full.
“Maturity Date” shall mean the earlier to occur of (i) five years from the date
hereof or (ii) the date of LATA’s first firm commitment underwritten public
offering after the date hereof in conjunction with which the common stock of
LATA is listed for trading on the New York Stock Exchange or The Nasdaq Stock
Market (“IPO”), each of (i) and (ii) being subject, however, to the provisions
of Section 3.2 hereof, and in the case of (ii) only, subject to the provisions
of Section 3.3 hereof.

3.2 Payment Adjustments.

(a) To the extent a Management Agreement is terminated because Seller or Payee,
as applicable, does not receive any required Lender Consent or JV Consent by the
first anniversary of the Closing Date, the Partnership may elect to assign such
Management Agreement back to a Person designated by Seller or Payee, as
applicable, in which event the Business Value will be reduced by reducing the
ELRM Business Value, if the Management Agreement was a Contributed Property
Management Agreement or by reducing the Payee Contribution Portion, if the
Management Agreement was conveyed by Payee, in each case by the then applicable
Management Agreement Value of such Management Agreement, and Restricted Units
delivered to Seller or Payee at Closing having such value will be cancelled by
the Partnership. If there are no Restricted Units that were delivered at Closing
to Seller or Payee still outstanding, then the reduction in Business Value shall
be to the Payee Sale Portion and the Management Agreement Value shall be reduced
from the then principal balance of this Note.

(b) To the extent a Management Agreement related to a Non-Contributed Property
is terminated because the Non-Contributed Property is sold to a party other than
the Partnership or its Affiliates during the period commencing on the Closing
Date through the date that is the fifth anniversary of the Closing Date, ELRH or
Payee, whichever has an ownership interest in such Non-Contributed Property,
shall notify the Partnership in writing and the Business Value will be reduced
by (1) reducing the ELRH II Contribution Portion by the then applicable
Management Agreement Value of the Management Agreement applicable to such
Non-Contributed Property, and Restricted Units delivered to Payee at Closing
having such value will be cancelled by the Partnership; (2) if there are no
Restricted Units that were delivered at Closing to Payee still

 

2

--------------------------------------------------------------------------------

outstanding, then the reduction in Business Value shall be to the ELRH II Sale
Portion and the Management Agreement Value shall be reduced from the then
principal balance of this Note issued in payment of the ELRH II Sale Portion;
and (3) if the Restricted Units issued to Payee at Closing are no longer
outstanding and this Note has been paid in full, by reducing the ELRM Business
Value by the then applicable Management Agreement Value of the Management
Agreement applicable to such Non-Contributed Property, and Restricted Units that
were delivered to ELRM at Closing having such value will be cancelled by Buyer.

3.3 Offset. The Partnership has the right to, at any time and from time to time
on or prior to the payment in full of this Note, offset against up to all of
indebtedness due hereunder any amounts for which Noteholder has agreed to
indemnify the Partnership pursuant, and subject to, Article IX of the Purchase
Agreement. Any such offset will be applied on a dollar for dollar basis as
specified by the Purchase Agreement (including application to the payment of
accrued and unpaid interest, the payment of interest that will accrue in the
future and/or the reduction of outstanding principal, or any combination of the
foregoing). The Partnership shall not exercise any right of offset against the
indebtedness due hereunder unless and until the Partnership has provided to
Payee a Notice of a Claim.

If this Note is transferred in accordance with the terms hereof, it will
continue to be subject to all of the provisions of this Note, including but not
limited to (a) the setoff provisions of this Section 3.3 (whether or not the
transferee is an Indemnifying Party under the Purchase Agreement) against all or
any part of any amounts due and owing under the Purchase Agreement by the Payee,
in each case in respect of indemnifiable and other claims subject to such offset
as finally determined pursuant to and in accordance with the terms and
conditions of Article IX of the Purchase Agreement, and (b) the provisions of
Section 3.2 hereof.

3.4 Method of Payment. All payments of principal and interest under this Note
shall be payable by wire transfer of immediately available funds to an account
designated with reasonable advance notice by such Noteholder or by check if
requested by the Noteholder.

3.5 Payment Date Not a Business Day. In the event the date for the payment of
any amount payable under this Note falls due on any day that is not a Business
Day (as defined below), the time for payment of such amount shall be extended to
the next succeeding Business Day and interest shall continue to accrue on any
principal amount so affected until the payment thereof on such extended due
date.

3.6 Subordination. Notwithstanding any provision of this Note to the contrary,
the Noteholder hereby agrees that this Note shall be subordinate in right of
payment and any other rights to any senior indebtedness for money borrowed of
the Partnership or LATA now or hereafter outstanding and owing to any bank or
similar entity-level debt.

Without limiting this Section 3.6, the Noteholder shall neither demand nor
receive from the Partnership (and the Partnership will not pay to the
Noteholder) all or any part of the indebtedness evidenced hereby, by way of
payment, prepayment, setoff, lawsuit or otherwise, nor will the Noteholder
accelerate the indebtedness evidenced hereby, or commence, or cause to commence,
prosecute or participate in any administrative, legal or equitable action
against the Partnership in connection with such indebtedness, until such time as
any bank or similar entity-level debt, in its sole and absolute discretion,
consents in writing to Noteholder’s exercise of any such remedy or action.

 

3

--------------------------------------------------------------------------------

3.7 Withholding. The Noteholder shall deliver to the Partnership, on or prior to
the date on which such Noteholder becomes a Noteholder hereunder, on or before
the date that any such form expires or becomes obsolete, after the occurrence of
any event requiring a change in the most recent form previously delivered
(including any transfer of this Note or any portion thereof pursuant to
Section 5), and from time to time thereafter if requested by the Partnership,
two properly completed original copies of Internal Revenue Services (“IRS”) Form
W-9 or the applicable Form W-8 (or any successor form), as applicable, to
confirm or establish that the Noteholder is not subject to any deduction,
withholding, or backup withholding of United Sates federal income tax with
respect to any payments to the Noteholder. Notwithstanding anything in this Note
to the contrary, the Partnership shall be entitled to deduct and withhold from
the payments otherwise payable to the Noteholder under this Note, such amounts
as are required to be deducted and withheld with respect to the making of such
payment under U.S. federal income tax laws or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by the Partnership,
such withheld amounts shall be treated for all purposes of this Note as having
been paid to the Noteholder in respect of which such deduction and withholding
was made.

 

4. DEFAULTS; REMEDIES

4.1 An “Event of Default” will exist if any of the following conditions or
events occurs and is continuing:

4.1.1 The Partnership (i) defaults in the payment, when due, of any principal
amount and such default is not remedied within five Business Days after the same
becomes due and payable, subject to the rights of the Partnership under
Section 3.1 hereof, or (ii) defaults in the payment of any portion of the
interest obligations under Section 2 hereof that is required to be paid in cash
when due and such default is not remedied within 5 Business Days after the same
becomes due and payable, subject to the right by the Partnership to defer
payment of interest under Section 2 hereof; or

4.1.2 The Partnership (i) files, or consents by answer or otherwise to the
filing against it of, a petition for relief or Reorganization (as defined
below), (ii) makes an assignment for the benefit of its creditors,
(iii) consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, (iv) is adjudicated as insolvent or to be
liquidated or (v) takes corporate action for the purpose of approving a
Reorganization with respect to the Partnership or any of the foregoing; or

4.1.3 A governmental authority enters an order appointing, without consent by
the Partnership, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for
Reorganization, or any such petition is filed against the Partnership and such
petition is not dismissed within 60 days.

For purposes of this Note, (i) “Reorganization” means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relative to the
Partnership or its assets, (ii) any liquidation, dissolution or other winding up
of the Partnership, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy; and (ii) “Business Day” means any day other
than a Saturday, a Sunday or a day in which commercial banks in New York are
required or authorized to be closed.

 

4

--------------------------------------------------------------------------------

4.2 Default Rate; Acceleration. Upon the occurrence of an Event of Default,
interest shall commence to accrue on the unpaid principal balance at the annual
rate (“Default Rate”) of twelve percent (12%). Notwithstanding anything to the
contrary set forth in this Section 4, all rights and remedies of the Noteholder
hereunder are subject in their entirety to Section 3.6 hereof. Upon the
occurrence of an IPO (and subject to the limitations in Section 3.1 and
Section 3.3 hereof) or upon the occurrence and during the continuation of any
Event of Default specified in Section 4.1.2 or Section 4.1.3 hereof, this Note
will automatically become due and payable. Upon the occurrence and during the
continuance of any Event of Default of the type specified in Section 4.1.1
hereof, the Noteholder may declare this Note immediately due and payable if such
Event of Default is not cured within the applicable time period set forth in
Section 4.1.1. Interest on the outstanding principal amount will accrue at the
Default Rate during any period in which an Event of Default exists.

 

5. TRANSFER AND REPLACEMENTS OF NOTES

5.1 Transfer. This Note may be transferred, pledged, distributed, hypothecated
or assigned by the Noteholder only with the prior written consent of the
Partnership, and thereafter upon its surrender to the Partnership for
registration of transfer, duly endorsed, accompanied by a duly executed written
instrument of transfer in a form reasonably satisfactory to the Partnership.
Thereupon, this Note shall be reissued to, and registered in the name of, the
transferee, or a new Note for like principal amount and interest shall be issued
to, and registered in the name of, the transferee. Interest and principal shall
be paid solely to the registered holder of this Note. Such payment shall
constitute full discharge of the Partnership’s obligation to pay such interest
and principal. Notwithstanding the foregoing, however, the Noteholder may
transfer this Note, without consent of the Partnership, to any direct or
indirect owners of Seller, ELRH or Payee, provided that such transferees shall
remain bound by the provisions of this Note and the Purchase Agreement,
including any offset provisions.

5.2 Replacement of Notes. Upon receipt by the Partnership of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Note, and in the case of loss, theft or destruction, a lost
note affidavit, or in the case of mutilation, upon surrender and cancellation
thereof, the Partnership shall, at its own expense, execute and deliver, in lieu
thereof, a new Note, dated and bearing interest from the date to which interest
has been paid on such lost, stolen, destroyed or mutilated Note or dated the
date of such lost, stolen, destroyed or mutilated Note if no interest has been
paid thereon.

 

6. MISCELLANEOUS

6.1 No forbearance. No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Note shall operate as a waiver, or as
acquiescence in any default, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any other right or remedy.

6.2 Waiver; Amendment. Any term, covenant, agreement or condition of this Note
may be amended or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), by the written
consent or waiver signed by the party against whom the waiver or amendment is to
be enforced.

6.3 Headings. The headings of the various paragraphs of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.

 

5

--------------------------------------------------------------------------------

6.4 Notices. All notices and other communications from the Partnership to the
Noteholder, or vice versa, shall be deemed delivered and effective pursuant to
the Purchase Agreement.

6.5 Governing Law. This Note and the obligations of the Partnership and the
rights of the Noteholder shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia, without giving effect to its
principles regarding conflicts of law.

6.6 Binding Agreement, Assignment. The terms and conditions of this Note shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the parties. Nothing in this Note, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Note, except as expressly provide in this
Note. This Note may not be assigned by any party hereto without the prior
written consent of the other party hereto, except as provided in Section 5.1
above.

6.7 Waivers. No delay or failure on the part of the Noteholder or Partnership in
the exercise of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by the Noteholder or Partnership of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other right or remedy. The Partnership hereby waives presentment and demand for
payment, notice of dishonor, protest and notice of protest of this Note.
PARTNERSHIP AND NOTEHOLDER EACH HEREBY IRREVOCABLY WAIVE ALL RIGHTS TO A TRIAL
BY JURY IN ANY COURT AND IN ANY SUIT, ACTION OR PROCEEDING OR IN ANY MATTER
ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THIS NOTE.

6.8 Severability. It is the desire and intent of the parties that the provisions
of this Note be enforced to the fullest extent permissible under the law and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Note would be held in any
jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Note or affecting the validity or
enforceability of such provision in any jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Note or affecting the validity or enforceability of such
provision in any other jurisdiction.

6.9 Counterparts. This Note may be executed in any number of counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

[Signatures follow on next page.]

 

6

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the undersigned have executed this Note as of the date first
written above.

 

PARTNERSHIP: Landmark Apartment Trust of America Holdings, L.P. By: Landmark
Apartment Trust of America, Inc., its General Partner By:  

/s/ Stanley J. Olander

Name:   Stanley J. Olander Title:   Chief Executive Officer

Address: c/o Landmark Apartment Trust of America

4901 Dickens Road, Suite 101

Richmond, Virginia 22320

Attention: Jay Olander

NOTEHOLDER: ELCO Landmark Residential Holdings II LLC By:  

/s/ Joseph G. Lubeck

Name:   Joseph G. Lubeck Title:   President

Address: c/o Landmark Residential

825 Parkway Street, Suite 4

Jupiter, Florida 33477

Attention: Joseph G. Lubeck

SIGNATURE PAGE TO SUBORDINATED PROMISSORY NOTE