Document:

Unassociated Document

 

SECOND AMENDED AND RESTATED MANAGEMENT AGREEMENT

among

 

Preferred Apartment Communities, Inc.,

 

Preferred Apartment Communities Operating Partnership, L.P.

 

and

 

Preferred Apartment Advisors, LLC

  

 

Dated as of February 28, 2011

 

 

  

  

  

TABLE OF CONTENTS

 

	  	  	
Page

	  	  	  
	
Section 1.

	
Definitions

	
1

	
Section 2.

	
Appointment and Duties of the Manager

	
6

	
Section 3.

	
Conduct Policies

	
12

	
Section 4.

	
Additional Activities of the Manager; Non-Solicitation; Restrictions

	
12

	
Section 5.

	
Bank Accounts

	
13

	
Section 6.

	
Records; Confidentiality

	
14

	
Section 7.

	
Compensation

	
15

	
Section 8.

	
Expenses of the Company

	
17

	
Section 9.

	
Limits of the Manager’s Responsibility; Indemnification

	
19

	
Section 10.

	
No Joint Venture

	
21

	
Section 11.

	
Term; Renewal; Termination Without Cause

	
21

	
Section 12.

	
Assignments

	
22

	
Section 13.

	
Termination for Cause

	
23

	
Section 14.

	
Action Upon Termination

	
24

	
Section 15.

	
Release of Money or Other Property Upon Written Request

	
24

	
Section 16.

	
Miscellaneous

	
25

  

  

  

SECOND AMENDED AND RESTATED MANAGEMENT AGREEMENT dated as of February 28, 2011, among Preferred Apartment Communities, Inc., a Maryland corporation (“PAC”), Preferred Apartment Communities Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), and Preferred Apartment Advisors, LLC, a Delaware limited liability company (the “Manager”).

 

WITNESSETH:

 

WHEREAS, the parties entered into the Management Agreement on November 19, 2010 (the “Original Agreement”) and amended and restated the Original Agreement on January 25, 2011 (the “Amended and Restated Agreement”); and

 

WHEREAS, the parties have agreed to make certain amendments and desire to amend and restate the Amended and Restated Agreement in its entirety;

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree that the Amended and Restated Agreement hereby is amended and restated in its entirety to read as follows:

 

	 	
Section 1.

	
Definitions.

 

(a)           The following terms shall have the respective meanings set forth below in this Section 1(a):

 

“Above-Market Rates” has the meaning set forth in Section 11(b).

 

“Acquisition Expenses” means any and all expenses, exclusive of Acquisition Fees, incurred by the Company, the Manager or any of their respective Affiliates in connection with the selection, evaluation, acquisition, origination, making or development of any Investment, whether or not acquired, including legal fees and expenses, travel and communications expenses, property inspection expenses, third party brokerage or finder’s fees, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, title insurance premiums and expenses, survey expenses, closing costs and the costs of performing due diligence.

 

“Acquisition Fee” means the fee payable to the Manager or its assignees pursuant to Section 7(a).

 

“Affiliate” means, with respect to a specified Person, (i) any Person directly or indirectly controlling, controlled by, or under common control with such specified Person, (ii) any general partner of such specified Person, and (iii) any Person for which such specified Person acts as a general partner.  For purposes of this definition, the terms “controlled”, “controlled by”, or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or
executor, or otherwise.

 

“Agreement” means this Second Amended and Restated Management Agreement, as amended or supplemented from time to time.

  

  

  

“AMEX” means NYSE Amex.

 

“Asset Management Fee” means the fee payable to the Manager pursuant to Section 7(b).

 

“Automatic Renewal Term” has the meaning set forth in Section 11(a).

 

“Bankruptcy Event” means, with respect to any Person, (i) the filing by such Person of a voluntary petition seeking liquidation, reorganization, arrangement or readjustment, in any form, of its debts under Title 11 of the United States Code or any other U.S. federal or state or foreign insolvency law, or such Person’s filing an answer consenting to or acquiescing in any such petition, (ii) the making by such Person of any assignment for the benefit of its creditors, (iii) the expiration of 60 days after the filing of an involuntary petition under Title 11 of the Unites States Code, an application for the appointment of a receiver for a material portion of the assets of such
Person, or an involuntary petition seeking liquidation, reorganization, arrangement or readjustment of its debts under any other U.S. federal or state or foreign insolvency law, provided that the same shall not have been vacated, set aside or stayed within such 60-day period, or (iv) the entry against such Person of a final and non-appealable order for relief under any bankruptcy, insolvency or similar law now or hereinafter in effect.

 

“Board” means the board of directors of PAC.  In every instance herein requiring approval of the Board or referring to policies or directions of the Board, for purposes of this Agreement, the Board shall be deemed to include any duly appointed and constituted committee of the Board with respect to each and every act that under the Governing Instruments or applicable law may be taken with the approval of a duly appointed and constituted committee of the Board, and references herein to the Board shall be deemed to include references to each such committee.

 

“Business Day” means any day except a Saturday, a Sunday or a day on which banking institutions in New York, New York or in Atlanta, Georgia are not required to be open.

 

“Cause Termination Notice” has the meaning set forth in Section 13(a).

 

“Change of Control” of an entity means a change in the direct or indirect (i) beneficial ownership of more than 50% of the combined voting power of such entity’s then outstanding equity interests, or (ii) power to direct or cause the direction of the management and policies of such entity, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or otherwise.

 

“Claim” has the meaning set forth in Section 9(c).

 

“Common Stock” means the common stock, par value $0.01 per share, of PAC.

 

“Closing Date” means the date of closing of the Initial Public Offering.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto.  Reference to any provision of the Code shall mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable regulations as in effect from time to time.

  

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“Company” means, collectively, PAC and the Operating Partnership.

 

“Company Entities” means, collectively, PAC, the Operating Partnership and each of their respective subsidiaries.

 

“Company Indemnified Party” has meaning set forth in Section 9(b).

 

“Competitive Real Estate Commission” means a real estate or brokerage commission for the purchase or sale of an asset which is reasonable, customary and competitive in light of the size, type and location of the asset.

 

“Conduct Policies” has the meaning set forth in Section 3.

 

“Confidential Information” has the meaning set forth in Section 6.

 

“Construction Fee, Development Fee and Landscaping Fee” means the fee payable to the Manager or its assignees pursuant to Section 7(e).

 

“Contract Sales Price” means the total consideration received by any of the Company Entities for the sale of an Investment, which total consideration shall include the amount of cash received, the fair market value of any property received and the amount of debt assumed by the purchaser to which a Company Entity is relieved of responsibility upon such disposition.

 

“Director” means a member of the Board.

 

“Disposition Fee on Sale of Assets” means the fee payable to the Manager or its assignees pursuant to Section 7(d).

 

“Effective Termination Date” has the meaning set forth in Section 11(b).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Fees Accrued Upon Termination” means the amounts payable to the Manager or its assignees equal to the aggregate of any earned but unpaid compensation and expense reimbursements accrued as of the date of termination if this Agreement is terminated (i) pursuant to a Change of Control of PAC, (ii) pursuant to a Termination Without Cause, (iii) by the Manager pursuant to Section 13(b), or (iv) based on a liquidation by the Company of all its assets.

 

“Financing Transaction” means any transaction with respect to any Investment involving any of the Company Entities incurring any mortgage or other indebtedness, including the entering into any line of credit, transaction involving the creation of any commercial mortgage-backed security and mezzanine financing.

  

3

  

“GAAP” means United States generally accepted accounting principles, consistently applied.

 

“General and Administrative Expenses Fee” means the fee payable to the Manager or its assignees pursuant to Section 8(b)(ii) in connection with the administration of the day-to-day operations and the performance and supervision of the performance of such other administrative functions necessary to the management of the Company.

 

“Governing Instruments” means, with regard to any entity, the articles of incorporation or certificate of incorporation and by-laws in the case of a corporation, the partnership agreement in the case of a general or limited partnership, the certificate of formation and operating or limited liability company agreement in the case of a limited liability company, the declaration of trust or other comparable trust instrument in the case of a trust, or similar governing documents in the case of another type of entity, in each case, as the same may be amended from time to time.

 

“Indemnified Party” has the meaning set forth in Section 9(b).

 

“Independent Director” means a member of the Board who is “independent” in accordance with PAC’s Governing Instruments and the rules of the AMEX or such other securities exchange on which the shares of Common Stock are listed.

 

“Initial Public Offering” means PAC’s sale of Common Stock to the public through one or more underwriters pursuant to the Registration Statement.

 

“Initial Term” has the meaning set forth in Section 11(a).

 

“Investment” means any investment by any Company Entity, directly or indirectly, in Real Estate Assets, Real Estate Related Loans or any other asset.

 

“Investment Committee” means the investment committee formed by the Board.

 

“Investment Company Act” means the Investment Company Act of 1940, as amended.

 

“Investment Guidelines” means the investment guidelines approved by the Board, a copy of which is attached hereto as Exhibit A, as the same may amended, restated, supplemented or waived pursuant to the approval of a majority of the entire Board (which must include a majority of the Independent Directors).

 

“Investment Transaction” means any purchase, acquisition, exchange, sale or disposition, merger or interest exchange that results in the acquisition or disposition of, or other transaction involving, an Investment.

 

“Joint Ventures” means the joint venture or partnership or other similar arrangements (other than between or among any Company Entity) in which a Company Entity is a co-venturer, member, partner or other equity holder, which are established to own Investments.

 

“Losses” has the meaning set forth in Section 9(a).

  

4

  

“Manager” has the meaning set forth at the head of this Agreement and shall include any successor in interest thereto.

 

“Manager Change of Control” means a Change of Control of the Manager; provided, however, that no Manager Change of Control shall result from (i) any public offering of equity interests of the Manager, or (ii) any assignment of this Agreement by the Manager as permitted hereby and in accordance with the terms hereof.

 

“Manager Indemnified Party” has the meaning set forth in Section 9(a).

 

“Manager Permitted Disclosure Parties” has the meaning set forth in Section 6(a).

 

“Notice of Proposal to Negotiate” has the meaning set forth in Section 11(c).

 

“Operating Partnership” has the meaning at the head of this Agreement.

 

“PAC” has the meaning at the head of this Agreement.

 

“Person” or “person” means any natural person, corporation, partnership, association, limited liability company, estate, trust or joint venture, any federal, state, county or municipal government or any bureau, department or agency thereof, or any other legal entity.

 

“Property Management and Leasing Fee” means the fee payable to the Manager or its assignees pursuant to Section 7(c).

 

“Real Estate Assets” means any investments by any Company Entity in unimproved or improved Real Property (including fee or leasehold interests, options and leases), directly, through one or more subsidiaries or through a Joint Venture.

 

“Real Estate Related Loans” means any investments in mortgage loans and other types of real estate related debt obligations, including mezzanine loans, bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans, loans on leasehold interests and participations in such loans, by any Company Entity, directly, through one or more subsidiaries or through a Joint Venture.

 

“Real Property” means real property owned from time to time by any Company Entity, directly, through one or more subsidiaries or through a Joint Venture, which consists of (i) land only, (ii) land, including the buildings located thereon, (iii) buildings only, or (iv) such Investments the Board or the Manager designates as Real Property to the extent such Investments could be classified as Real Property.

 

“Registration Statement” means PAC’s Registration Statement on Form S-11 (Registration No. 333-168407), as amended from time to time, pursuant to which it is conducting or has conducted the Initial Public Offering.

 

“Regulation FD” means Regulation FD as promulgated by the SEC.

 

“REIT” means a “real estate investment trust” as defined under the Code.

  

5

  

“SEC” means the United States Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Target Assets” means the types of assets described under “Business— Our Target Assets” in PAC’s prospectus included in the Registration Statement, subject to, and including any changes in, the Investment Guidelines.

 

“Termination Notice” has the meaning set forth in Section 11(b).

 

“Termination Without Cause” has the meaning set forth in Section 11(b).

 

(b)           As used herein, accounting terms relating to any Company Entity not defined in Section 1(a), and accounting terms partly defined in Section 1(a), to the extent not defined, shall have the respective meanings given to them under GAAP.

 

(c)           As used herein, “calendar quarters” shall mean the periods from January 1 to March 31, April 1 to June 30, July 1 to September 30 and October 1 to December 31 of the applicable year.

 

(d)           The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified.

 

(e)           The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

 

(f)           The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”

 

(g)           A reference to any gender shall be deemed to be a reference to all genders.

 

	 	
Section 2.

	
Appointment and Duties of the Manager.

 

(a)           PAC and the Operating Partnership hereby appoint the Manager to manage and administer the Investments and day-to-day operations of the Company Entities, subject at all times to the further terms and conditions set forth in this Agreement and to the oversight of, and such further limitations or parameters consistent with this Agreement as may be imposed from time to time by, the Board.  The Manager will use commercially reasonable efforts to perform each of its duties set forth herein, provided that funds are made available by the Company for such purposes as set forth in Section 8.  The Company shall not
appoint any other Person except the Manager to perform the duties and carry out the responsibilities of the Manager described herein, except as may otherwise be permitted by this Agreement and except to the extent that the Manager elects, in its sole and absolute discretion, subject to the terms of this Agreement, to cause the duties of the Manager as set forth herein to be provided by third parties.

  

6

  

(b)           The Manager, in its capacity as manager of the Investments and the day-to-day operations of the Company Entities, at all times will be subject to the oversight and direction of the Board, will act in a manner that is compliant with the provisions of the Governing Instruments of each Company Entity, will use commercially reasonable efforts to present to the Company potential investment opportunities and will perform its duties hereunder, including managing the Company’s business affairs in conformity with the Investment Guidelines and other policies that are determined and adopted by the Board.  PAC, the Operating Partnership and the Manager hereby acknowledge the adoption by the Board of the Investment Guidelines, including the
Company’s investment strategy with respect to Target Assets.  PAC, the Operating Partnership and the Manager hereby acknowledge and agree that, during the term of this Agreement, any proposed changes to the Company’s investment strategy that would modify or expand the Target Assets shall require a change in, or supplement to, the Investment Guidelines.  The Company shall notify the Manager promptly of any amended, restated, supplemented or waived Investment Guidelines, including any modification or revocation of the Manager’s authority set forth in the Investment Guidelines; provided, however, that such modification or revocation shall not be applicable to investment transactions to which the Manager has committed any Company Entity prior to the date of receipt by the Manager of such notification.

 

(c)           The Manager will be responsible for the day-to-day operations of the Company Entities (which, for purposes of the Manager’s responsibilities in this Agreement, includes their respective subsidiaries) and will perform (or cause to be performed), subject to the Board’s oversight, such services and activities relating to the Investments and the day-to-day operations of the Company Entities as may be appropriate, which may include:

 

(i)  (A) proposing modifications to the Investment Guidelines to the Board, (B) periodically reviewing the Company’s Investment portfolio for compliance with the Investment Guidelines and reporting its findings to the Board, (C) periodically reviewing and reporting to the Board regarding the diversification of the Company’s Investment portfolio and the financing strategies, and (D) conducting or overseeing the provision of the services and activities set forth in this Section 2;

 

(ii)  investigating, analyzing, selecting, conducting due diligence with respect to, negotiating the terms and conditions of (including negotiating the forms of definitive agreements), arranging financing for and recommending to the Board in accordance with procedures adopted by the Board possible Investment Transactions consistent with the Investment Guidelines;

 

(iii)  with respect to prospective Investment Transactions and Financing Transactions, conducting negotiations (including negotiation of definitive agreements) with sellers, purchasers, prospective merger partners, lenders and other financing sources and brokers and, if applicable, their respective agents and representatives and closing Investment Transactions and Financing Transactions on behalf of the Company;

 

(iv)  effecting any private placement of interests in the Operating Partnership, tenancy-in-common or other interests in Investments as may be approved by the Board;

  

7

  

(v)  delivering to, or maintaining on behalf of, the Company copies of all appraisals obtained in connection with the Investments in any Real Estate Assets as may be required to be obtained by the Board;

 

(vi)  negotiating and causing the Company to enter into, within the discretionary limits and authority granted by the Board, repurchase agreements, interest rate swap agreements, agreements relating to borrowings under programs established by the U.S. Government and other agreements and instruments required to conduct the business of the Company;

 

(vii)  engaging and supervising, at the expense of the Company, independent contractors that provide investment banking, securities brokerage, mortgage brokerage, real estate brokerage services, other financial services, due diligence services, underwriting review services, legal and accounting services, and all other services (including transfer agent and registrar services) as may be required relating to the Company’s operations, Investments, Investment Transactions or Financing Transactions;

 

(viii)  advising the Company on, preparing, negotiating and entering into, on behalf of the Company, applications and agreements relating to programs established by the U.S. Government;

 

(ix)  coordinating and managing operations of any joint venture or co-investment interests held by the Company and conducting all matters with the joint venture or co-investment partners;

 

(x)  providing executive and administrative personnel, office space and office services required in rendering services to the Company;

 

(xi)  entering into on behalf of the Company leases and service contracts in connection with the Investments and administering the day-to-day operations and performing and supervising the performance of such other administrative functions necessary to the Company’s management under oversight by the Board, including the collection of revenues and the payment of the Company’s debts and obligations and maintenance of appropriate computer services to perform such administrative functions;

 

(xii)  communicating on the Company’s behalf with the holders of any equity or debt securities of PAC or the Operating Partnership as required to satisfy the reporting and other requirements of any governmental body or agency or trading market and to maintain effective relations with such holders;

 

(xiii)  evaluating and recommending to the Board hedging strategies and engaging on the Company’s behalf in hedging activities within the discretionary limits and authority as granted by the Board, consistent with the Company’s qualification as a REIT and with the Investment Guidelines;

 

(xiv)  counseling the Board and the Company regarding the maintenance of PAC’s qualification as a REIT and monitoring compliance with the various REIT qualification tests and other rules set out in the Code and Treasury Regulations thereunder and using commercially reasonable efforts to cause PAC to qualify for taxation as a REIT;

  

8

  

(xv)  counseling the Board and the Company regarding the maintenance of PAC’s exemption from the status of an investment company required to register under the Investment Company Act, monitoring compliance with the requirements for maintaining such exemption and using commercially reasonable efforts to cause PAC to maintain such exemption from such status;

 

(xvi)  furnishing reports and statistical and economic research to the Board regarding the activities and services performed for the Company by the Manager, including reports with respect to potential conflicts of interest involving the Manager or any of its Affiliates;

 

(xvii)  monitoring the performance of the Investments and providing periodic reports with respect thereto to the Board, including comparative information with respect to such operating performance and budgeted or projected operating results;

 

(xviii)  investing and reinvesting any moneys and securities of the Company within the discretionary limits and authority as granted by the Board (including investing in short-term investments pending investment in other Investments, payment of fees, costs and expenses) and advising the Company with respect to its equity and debt capitalization and its financing strategies, and the payments of dividends or distributions to PAC’s stockholders and the Operating Partnership’s partners;

 

(xix)  causing the Company to retain qualified accountants and legal counsel, as applicable, to assist in developing appropriate accounting procedures and systems, internal controls and other compliance procedures and testing systems with respect to financial reporting obligations and compliance with the provisions of the Code applicable to REITs and, if applicable, taxable REIT subsidiaries, and to conduct quarterly compliance reviews with respect thereto;

 

(xx)  assisting the Company in qualifying to do business in all applicable jurisdictions and to obtain and maintain all appropriate licenses;

 

(xxi)  assisting the Company in complying with all laws and regulatory requirements applicable to the Company’s business activities, including preparing or causing to be prepared all financial statements required under applicable regulations and contractual undertakings and all reports and documents, if any, required under the Exchange Act, the Securities Act, state or foreign securities laws or by the AMEX;

 

(xxii)  assisting the Company in taking all necessary action to enable the Company to make required tax filings and reports, including soliciting information from stockholders to the extent required by the provisions of the Code applicable to REITs;

 

(xxiii)  handling and resolving all claims, disputes or controversies (including all litigation, arbitration, settlement or other proceedings or negotiations) in which the Company may be involved or to which the Company or the Company’s properties or assets may be subject arising out of the Company’s day-to-day operations (other than with the Manager or its Affiliates), subject to such limitations or parameters as may be imposed from time to time by the Board;

  

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(xxiv)  using commercially reasonable efforts to cause expenses incurred on behalf of the Company to be commercially reasonable or commercially customary and within any budgeted parameters or expense guidelines proposed by the Manager and approved by the Board from time to time;

 

(xxv)  advising the Board regarding the Company’s equity and debt financings, hedging activities and joint venture arrangements including (A) advising the Board on the appropriateness of the Company’s leverage ratio, levels of preferred and common equity financing, pricing of equity offerings, derivative positions and strategies and off-balance sheet arrangements, and (B) seeking to execute on the Company’s behalf Financing Transactions, equity offerings, hedging transactions and joint ventures and off-balance sheet transactions consistent with the Board’s directions and the Company’s financing policies as approved by the Board;

 

(xxvi)  providing portfolio management services to the Company;

 

(xxvii)  arranging marketing materials, advertising, industry group activities (such as conference participations and industry organization memberships) and other promotional efforts designed to promote the Company’s business; and

 

(xxviii)  performing such other services as may be required from time to time for management and other activities relating to the Company’s assets and business as the Board shall reasonably request or the Manager shall deem appropriate under the particular circumstances.

 

(d)           The Manager may retain, for and on behalf, and at the sole cost and expense, of the Company, such services of the Persons referred to in Section 8 as the Manager deems necessary or advisable in connection with the management and operations of the Company.  In performing its duties under this Section 2, the Manager shall be entitled to rely reasonably on qualified experts and professionals (including accountants, legal counsel and other professional service providers) hired by the Manager at the Company’s sole cost and expense.

 

(e)           The Manager shall refrain from any action that, in its sole judgment made in good faith, (i) is not in compliance with the Investment Guidelines, (ii) would adversely and materially affect the qualification of PAC as a REIT or the Operating Partnership as a partnership under the Code or the Company’s status as an entity excluded from investment company status under the Investment Company Act, or (iii) would conflict with or violate (A) any law, rule or regulation of any governmental body or agency having jurisdiction over any Company Entity, (B) any rule of any exchange on which the securities of the Company may be listed, or (C) any applicable Governing Instruments.  The Manager may proceed with taking an action described above if
further instructed to do so by the Board.  If the Manager is ordered to take any action by the Board, the Manager promptly shall notify the Board if it is the Manager’s judgment that such action would adversely and materially affect such qualification or status or conflict with or violate any such law, rule or regulation or Governing Instruments.  Notwithstanding the foregoing, neither the Manager nor any of its Affiliates shall be liable to any Company Entity, the Board, any of the stockholders, partners, members or other holders of equity interests of any Company Entity for any act or omission by the Manager or any of its Affiliates, except as provided in Section 9.

  

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(f)           The Manager shall notify the Board of all proposed Investment Transactions before they are completed.  The Manager shall seek and obtain Board approval of any Investment Transaction that does not meet the Investment Guidelines.  Subject to this Section 7(f), the Manager may execute without Board approval (but, in all cases, with advance notice to the Board) any Investment Transaction that fits within the Investment Guidelines.  If any transaction requires approval by the Independent Directors, the Manager will deliver to the Independent Directors all documents and other information reasonably required by them to evaluate properly the proposed transaction. 
With respect to Investment Transactions for which Board approval is not required but advance notice is required, the Manager shall provide to the Board a summary of its investment analysis with respect to the proposed Investment Transaction.  The Board may, at any time upon the giving of notice to the Manager, modify or revoke the authority set forth in this Section 2(f); provided, however, that such modification or revocation shall be effective upon receipt by the Manager and shall not be applicable to Investment Transactions to which the Manager has committed the Company prior to the date of receipt by the Manager of such notification.

 

(g)           The Company will take all actions reasonably required to permit and enable the Manager to carry out its duties and obligations under this Agreement, including all steps reasonably necessary to allow the Manager to file any registration statement or other filing required to be made under the Securities Act, Exchange Act, the AMEX’s Company Guide, the Code or other applicable law, rule or regulation on behalf of the Company in a timely manner.  The Company will use commercially reasonable efforts to make available to the Manager all resources, information and materials reasonably requested by the Manager to enable the Manager to satisfy its obligations hereunder, including its obligations to deliver financial statements and any other
information or reports with respect to the Company.

 

(h)           As frequently as the Manager may deem necessary or advisable, or at the direction of the Board, the Manager shall prepare (or, at the sole cost and expense of the Company, cause to be prepared) reports and other information relating to any proposed or consummated Investment.

 

(i)            The Manager shall prepare (or, at the sole cost and expense of the Company, cause to be prepared) all reports, financial or otherwise, reasonably required by the Board in order for the Company Entities to comply with their respective Governing Instruments or as otherwise reasonably requested by the Board, including an annual audit of PAC’s consolidated financial statements by a nationally recognized independent accounting firm.

 

(j)            The Manager shall prepare (or, at the sole cost and expense to the Company, cause to be prepared) regular reports for the Board to enable the Board to review the Company’s acquisitions, Investment portfolio composition and characteristics, credit quality, performance and compliance with the Investment Guidelines and policies approved by the Board.

  

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(k)           Officers, employees and agents of the Manager and its Affiliates may serve as directors, officers, agents, nominees or signatories for any Company Entity, to the extent permitted by their respective Governing Instruments, by any resolutions duly adopted by the Board, the Operating Partnership or such subsidiary.  When executing documents or otherwise acting in such capacities for any Company Entity, such Persons shall indicate in what capacity they are executing on behalf of such Company Entity.  Without limiting the foregoing, while this Agreement is in effect, the Manager will establish a management team, including a chief executive officer and president or similar positions, along with appropriate support personnel, to provide the
management services to be provided by the Manager to the Company Entities hereunder, who shall devote such of their time to the management of the Investments and consideration of the Investment Guidelines and policies as necessary and appropriate, commensurate with the level of activity of the Company from time to time.

 

(l)            The Manager, at its sole cost and expense, shall maintain reasonable and customary “errors and omissions” insurance coverage and other customary insurance coverage in respect to its obligations and activities under, or pursuant to, this Agreement, naming PAC and the Operating Partnership as additional insureds.

 

(m)          The Manager, at its sole cost and expense, shall provide such internal audit, compliance and control services as may be required for the Company to comply with applicable law (including the Securities Act and Exchange Act), regulation (including SEC regulations) and the rules and requirements of the AMEX and as otherwise reasonably requested by the Company or the Board from time to time.

 

(n)           The Manager, at its sole cost and expense, shall maintain any required registration of the Manager or any Affiliate with the Securities and Exchange Commission under the Investment Advisers Act of 1940, as amended, or with any state securities authority in any state in which the Manager or its Affiliate is required to be registered as an investment advisor under applicable state securities laws.

 

	 	
Section 3.

	
Conduct Policies.

 

The Manager acknowledges receipt of the Company’s Code of Business Conduct and Ethics and the Company’s Policy on Insider Trading (collectively, the “Conduct Policies”) and will use commercially reasonable efforts to require the Persons who provide services to the Company to comply with the Conduct Policies in the performance of such services hereunder or such comparable policies as shall in substance hold such Persons to at least the standards of conduct set forth in the Conduct Policies.

 

	 	
Section 4.

	
Additional Activities of the Manager; Non-Solicitation; Restrictions.

 

(a)           Subject to Section 4(c) and except as may be provided in the Investment Guidelines, nothing in this Agreement shall:  (i) prevent the Manager, any of its Affiliates or any of their respective officers, directors or employees, from engaging in other businesses or from rendering services of any kind to any other Person, whether or not the investment objectives or policies of any such other Person are similar to those of the Company; provided, however, that the Manager devotes sufficient resources to the Company’s business to
discharge its obligations to the Company under this Agreement; or (ii) in any way bind or restrict the Manager, any of its Affiliates or any of their respective officers, directors or employees from buying, selling or trading any securities or commodities for their own accounts or for the account of others for whom the Manager, any of its Affiliates or any of their respective officers, directors or employees may be acting.

  

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(b)           While information and recommendations supplied to the Company shall, in the Manager’s good faith judgment, be appropriate under the circumstances and in light of the investment objectives and policies of the Company, they may be different from the information and recommendations supplied by the Manager or any Affiliate of the Manager to others.  The Company shall be entitled to equitable treatment under the circumstances in receiving information, recommendations and any other services, but the Company recognizes that the Company is not entitled to receive preferential treatment as compared with the treatment given by the Manager or any Affiliate of the Manager to others.

 

(c)           The Manager shall report to the Board any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or could create a conflict of interest between the Manager’s obligations to the Company and its obligations to or its interest in any other Person.  If the Manager or any of its Affiliates sponsored any other investment program with similar investment objectives to the Company that has investment funds available at the same time as the Company, the Manager shall inform the Board of the method to be applied by the Manager in allocating investment opportunities among the Company and competing investment entities and shall provide regular updates to the Board of the investment opportunities provided by the
Manager to competing programs in order for the Board (including the Independent Directors) to evaluate that the Manager is allocating such opportunities in accordance with such method.

 

(d)           In the event of a Termination Without Cause of this Agreement by the Company pursuant to Section 11(b), for a period of two years from and after the date of such termination of this Agreement, the Company shall not (and shall cause each of the Company Entities to not), without the consent of the Manager, employ or otherwise retain (directly or indirectly any Company Entity) any Person who was employed as an executive by the Manager or any of its Affiliates on the date of such termination or any Person who shall have been employed as an executive by the Manager or any of its Affiliates at any time within the two-year period immediately preceding the date on which such Person is
scheduled to commence employment with or otherwise be retained by the Company or any other Company Entity.  The Company acknowledges and agrees that, in addition to any damages, the Manager shall be entitled to equitable relief for any violation of this Section 4(d) by PAC or the Operating Partnership (directly or indirectly through any of their respective subsidiaries), including injunctive relief.

 

	 	
Section 5.

	
Bank Accounts.

 

At the direction of the Board, the Manager may establish and maintain one or more bank accounts in the name of any Company Entity, and may collect and deposit into any such account or accounts, and disburse funds from any such account or accounts, under such policies, terms and conditions as the Company may establish and the Board may approve, provided that no funds shall be commingled with the funds of the Manager or its Affiliates.  The Manager shall from time to time render appropriate accountings of such collections and payments to the Board and, upon request, shall provide information regarding such account to the Company’s auditors.

  

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Section 6.

	
Records; Confidentiality.

 

(a)           The Manager shall maintain appropriate books of accounts and records relating to services performed hereunder, and such books of account and records shall be accessible for inspection by representatives of the Company Entities at any time during normal business hours.  The Manager shall keep confidential any and all non-public information, written or oral, obtained by it in connection with the services rendered hereunder (“Confidential Information”) and shall not use Confidential Information except in furtherance of its duties under this Agreement or disclose Confidential Information, in whole or in part, to any
Person other than (i) to its Affiliates and the officers, directors, employees, agents, representatives or advisors of the Manager or any of its Affiliates who need to know such Confidential Information for the purpose of rendering services hereunder, (ii) to appraisers, financing sources and others in the ordinary course of the Company’s business ((i) and (ii) collectively, “Manager Permitted Disclosure Parties”), (iii) in connection with any governmental or regulatory filings of the Company, or filings with the AMEX or other applicable securities exchange or market, (iv) in presentations or other disclosures to the Company’s investors (subject to compliance with Regulation FD), (iv) to governmental officials having jurisdiction over the Company, (v) as requested by law or legal process to which the Manager or any Person to whom disclosure is permitted hereunder is a party, or (vi) with the consent
of the Company.  The Manager will inform each of its Manager Permitted Disclosure Parties of the non-public nature of the Confidential Information and to obtain agreement from such Persons to treat such Confidential Information in accordance with the terms hereof.

 

(b)           Nothing herein shall prevent any Manager Permitted Disclosure Party from disclosing Confidential Information (i) upon the order of any court or administrative agency, (ii) upon the request or demand of, or pursuant to any law or regulation to, any regulatory agency or authority, (iii) to the extent reasonably required in connection with the exercise of any remedy hereunder, or (iv) to its legal counsel or independent auditors; provided, however, that with respect to clauses (i) and (ii), it is agreed that, so long as not legally prohibited, the Manager will provide PAC with prompt written notice of such order, request
or demand so that PAC may seek, at its sole expense, an appropriate protective order and/or waive any Manager Permitted Disclosure Party’s compliance with the provisions of this Agreement.  If, failing the entry of a protective order or the receipt of a waiver hereunder, the Manager is required to disclose Confidential Information, the Manager Permitted Disclosure Party may disclose only that portion of such information that is legally required without liability hereunder; provided, however, that the Manager Permitted Disclosure Party agrees to exercise commercially reasonable efforts to obtain reliable assurance that confidential treatment will be accorded such information.

 

(c)           Notwithstanding anything herein to the contrary, the following types of Confidential Information shall be deemed to be excluded from provisions hereof:  (i) any Confidential Information that is available to the public from a source other than the Manager or its Affiliates, (ii) any Confidential Information that is released in writing by any of the Company Entities to the public (except to the extent exempt under, and in compliance with, Regulation FD) or to persons who are not under similar obligation of confidentiality to any of the Company Entities; and (iii) any Confidential Information that is obtained by the Manager from a third party which, to the Manager’s knowledge, does not constitute a breach by such third party
of an obligation of confidence with respect to the Confidential Information disclosed.

  

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(d)           The provisions of this Section 6 shall survive the expiration or earlier termination of this Agreement for a period of two years thereafter, provided that the parties will maintain trade secrets of the other party identified in writing as trade secrets, and which in fact constitute trade secrets, for a period of no longer than five years thereafter.

 

	 	
Section 7.

	
Compensation.

 

(a)           Acquisition Fee.  The Company shall pay an Acquisition Fee to the Manager or its assignees as compensation for services rendered in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of Investments.  The total Acquisition Fee payable to the Manager or its assignees shall equal 1.0% of the purchase price of Real Estate Assets and 1.0% of the amount advanced for Real Estate Related Loans or other Investments (other than Real Estate Assets), along with reimbursement of Acquisition Expenses actually incurred by the Manager or any of its Affiliates; provided, however, that no Acquisition Fee will be payable until the Closing Date, although it may accrue before the Closing Date.  The purchase price of Real Estate Assets shall equal the amount paid or allocated to the acquisition (by purchase, investment or exchange) of the Real Estate Assets inclusive of expenses related thereto and the amount of debt assumed in connection with such Investment or to which such Investment may be subject following such acquisition, but exclusive of Acquisition Fees.  The purchase price allocable for an Investment held through a Joint Venture shall equal the product of (i) the purchase price of, or the amount advanced for, the Investment, as applicable, determined as stated above, and (ii) the direct or indirect ownership percentage in the Joint Venture held directly or indirectly by any Company Entity.  For purposes of this paragraph, “ownership percentage” shall be the percentage of capital stock, membership interests, partnership interests or other equity interests held by any Company Entity, without regard to classification of such equity interests.  The Company shall pay to the Manager or its assignees the Acquisition Fee promptly upon the closing of the Investment, subject to the proviso set forth above.

 

(b)           Asset Management Fee.  The Company shall pay a monthly Asset Management Fee to the Manager or its assignees as compensation for services rendered in connection with the management of the Investments.  The Asset Management Fee shall be payable monthly in cash or shares of PAC’s Common Stock, at the option of the Manager, and shall be equal to one-twelfth of 0.50% of the total value of the Company’s assets (including cash or cash equivalents) held as of the last day of the immediately preceding month, based on the adjusted cost of the Company’s assets before reduction for depreciation, amortization, impairment charges and cumulative acquisition costs charged
to expense in accordance with GAAP (adjusted cost of Real Estate Assets and Real Estate Related Loans will include the purchase price, Acquisition Expenses, capital expenditures and other customarily capitalized costs) and as adjusted for appropriate closing dates for individual asset acquisitions.  The Asset Management Fee will be appropriately pro rated for any partial month.

  

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(c)           Property Management and Leasing Fee.  The Company shall pay a Property Management and Leasing Fee to the Manager or its assignees as compensation for services rendered in connection with the rental, leasing, operation and management of the Company’s Real Estate Assets and the supervision of any non-Affiliates that are engaged by the Manager to provide such services in an amount equal to 4.0% of the gross revenues of properties managed per month.  The Manager may subcontract the performance of its property management and leasing services duties to third parties (including its Affiliates) and pay all or a portion of the Property Management and Leasing Fee to such
persons with whom it contracts for these services. The Manager will be responsible for all fees payable to third parties (including its 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.

 

(d)           Disposition Fee on Sale of Assets.  In connection with a sale or other disposition of an Investment (except for such Investments that are traded on a national securities exchange) in which the Manager or any Affiliate of the Manager provides a substantial amount of services, as determined by a majority of the Independent Directors, the Company shall pay to the Manager or its assignees a Disposition Fee on Sale of Assets up to the lesser of (i) one-half of a Competitive Real Estate Commission and (ii) 1.0% of the Contract Sales Price of such Investment; provided, however, that in no event may the Disposition Fee on Sale of Assets paid to the Manager, its Affiliates and non-Affiliates exceed the lesser of 6.0% of the Contract Sales Price and a Competitive Real Estate Commission.  If the sale or disposition involves the receipt of publicly traded securities or operating partnership units that may be redeemed for or converted into publicly traded securities, then the Disposition Fee on Sale of Assets shall be receivable upon the receipt of such consideration, notwithstanding the fact that such consideration may at that time be publicly traded or valued by reference to a publicly traded security.

 

(e)           Construction Fee, Development Fee and Landscaping Fee.  The Company shall pay a Construction Fee, Development Fee and/or Landscaping Fee to the Manager or its assignees as compensation for services rendered in connection with the construction, development or landscaping of the Real Estate Assets and the supervision of any non-Affiliates that are engaged by then Manager to provide such services in an amount equal to the customary and competitive market rates in light of the size, type and location of the Real Estate Assets.

 

(f)           Exclusion of Certain Transactions.  If any Company Entity shall propose to enter into any transaction in which the Manager, any Affiliate of the Manager or any of the Manager’s directors or officers has a direct or indirect interest, then such transaction shall be approved by a majority of the Board not otherwise interested in such transaction, including a majority of the Independent Directors.

 

(g)           Limitation on Total Asset Management Fees, Property Management and Leasing Fees and General and Administrative Expenses Fee.  The total amount of the Asset Management Fees, Property Management and Leasing Fees and General and Administrative Expenses Fee payable in connection with the Company’s investments paid or reimbursed to the Manager shall not exceed 1.50% of the total value of the Company’s assets (including cash and cash equivalents) based on the adjusted cost of the Company’s assets before reduction for depreciation, amortization, impairment charges and cumulative acquisition costs charged to expense in accordance with GAAP (adjusted cost will include
the gross contract purchase price, Acquisition Expenses, capital expenditures and other customarily capitalized costs).

  

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(h)           General and Administrative Expenses Fee.  The Company shall pay a General and Administrative Expenses Fee in an amount equal to 2.0% of the gross revenues of the Company per month.

 

	 	
Section 8.

	
Expenses of the Company.

 

(a)           The Manager shall be responsible for the expenses related to any and all personnel of the Manager and its Affiliates who provide services to the Company pursuant to this Agreement (including each of the officers and directors of the Company who are also directors, officers, employees or agents of the Manager or any of its Affiliates), including salaries, bonus and other wages, payroll taxes, the cost of employee benefit plans of such personnel, and costs of insurance with respect to such personnel.  For the avoidance of doubt, any equity incentive plan of PAC or the Operating Partnership in which any person referred to above participates shall be excluded from the operation of this 
Section 8(a).

 

(b)           The Company shall pay (or cause to be paid) all the costs and expenses of each Company Entity and shall reimburse the Manager or its Affiliates for expenses of the Manager and its Affiliates incurred on behalf of any Company Entity, excepting only those expenses that are specifically the responsibility of the Manager pursuant to Section 8(a) and subject to Section 7(g).  Without limiting the generality of the foregoing, it is specifically agreed that the following costs and expenses of the Company Entities shall be paid (or caused to be paid) by the Company and shall not be paid by the Manager or
Affiliates of the Manager:

 

(i)  Acquisition Expenses incurred in connection with the selection and acquisition of Investments;

 

(ii)  General and Administrative Expenses Fee;

 

(iii)  expenses in connection with the issuance of securities of the Company, any Financing Transaction and other costs incident to the acquisition, disposition and financing of the Investments;

 

(iv)  costs of legal, tax, accounting, consulting, auditing and other similar services rendered to the Company by providers retained by the Manager, or, if provided by the Manager’s personnel, in amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s-length basis;

 

(v)  the compensation and expenses of the Directors and the cost of liability insurance to indemnify the Company and its officers and the Directors;

  

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(vi)  expenses connected with communications to holders of the securities of any Company Entity and other bookkeeping and clerical work necessary in maintaining relations with holders of such securities and in complying with the continuous reporting and other requirements of governmental bodies or agencies, including all costs of preparing and filing required reports with the SEC, the costs payable by the Company to any transfer agent and registrar in connection with the listing and/or trading of the Company’s securities on any exchange, the fees payable by the Company to any such exchange in connection with its listing, costs of preparing, printing and mailing PAC’s annual report to its stockholders or the Operating Partnership’s partners, as applicable, and proxy materials with
respect to any meeting of PAC’s stockholders or the Operating Partnership’s partners, as applicable;

 

(vii)  costs associated with any computer software or hardware, electronic equipment or purchased information technology services from third-party vendors that is used for the Company Entities;

 

(viii)  expenses incurred by managers, officers, personnel and agents of the Manager for travel on the Company’s behalf and other out-of-pocket expenses incurred by managers, officers, personnel and agents of the Manager in connection with the purchase, financing, refinancing, sale or other disposition of an Investment or in connection with any Financing Transaction;

 

(ix)  costs and expenses incurred with respect to market information systems and publications, research publications and materials, and settlement, clearing and custodial fees and expenses;

 

(x)  the costs of maintaining compliance with all federal, state and local rules and regulations or any other regulatory agency;

 

(xi)  all taxes and license fees;

 

(xii)  all insurance costs incurred in connection with the operation of the Company’s business except for the costs attributable to the insurance that the Manager elects to carry for itself and its personnel;

 

(xiii)  costs and expenses incurred in contracting with third parties;

 

(xiv)  all other costs and expenses relating to the Company’s business and investment operations, including the costs and expenses of owning, protecting, maintaining, developing and disposing of Investments, including appraisal, reporting, audit and legal fees;

 

(xv)  expenses relating to any office(s) or office facilities, including disaster backup recovery sites and facilities, maintained for the Company Entities or the Investments of the Company separate from the office or offices of the Manager;

 

(xvi)  expenses connected with the payments of interest, dividends or distributions in cash or any other form authorized or caused to be made by the Board, the Operating Partnership or other governing body to or on account of holders of the securities of any Company Entity, including in connection with any dividend reinvestment plan;

  

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(xvii)  any judgment or settlement of pending or threatened proceedings (whether civil, criminal or otherwise) against any Company Entity, or against any trustee, director, partner, member or officer of such Company Entity in his capacity as such for which such Company Entity is required to indemnify such trustee, director, partner, member or officer pursuant to the applicable Governing Instruments or any agreement or other instrument or by any court or governmental agency; and

 

(xviii)  all other expenses actually incurred by the Manager (except as otherwise specified herein) which are reasonably necessary or advisable for the performance by the Manager of its duties and functions under this Agreement.

 

(c)           Costs and expenses incurred by the Manager on behalf of the Company shall be reimbursed monthly to the Manager.  The Manager shall prepare a written statement in reasonable detail documenting the costs and expenses of the Company and those incurred by the Manager on behalf of the Company during each month, and shall deliver such written statement to the Company within 30 days after the end of each month.  The Company shall pay all amounts payable to the Manager pursuant to this Section 8(c) within five Business Days after the receipt of the written statement without demand, deduction, offset or delay.  Cost and expense reimbursement to the Manager shall be subject
to adjustment at the end of each calendar year in connection with the annual audit of the Company.  The provisions of this Section 8 shall survive the expiration or earlier termination of this Agreement to the extent such expenses have previously been incurred or are incurred in connection with such expiration or termination.

 

	 	
Section 9.

	
Limits of the Manager’s Responsibility; Indemnification.

 

(a)           The Manager, its Affiliates and their respective directors, officers, employees, partners, members, stockholders, other equity holders agents and representatives (each, a “Manager Indemnified Party”), will not be liable to any Company Entity or any of the stockholders, partners, members or other holders equity interests of any Company Entity for any acts or omissions by any Manager Indemnified Party performed in accordance with and pursuant to this Agreement, except by reason of any act or omission constituting bad faith, willful misconduct or gross negligence on the part of such Manager Indemnified Party.  The Company shall, to the fullest lawful extent, reimburse,
indemnify and hold harmless each Manager Indemnified Party, of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including reasonable attorneys’ fees and costs of investigation) (collectively “Losses”) in respect of or arising from any acts or omissions of such Manager Indemnified Party performed in good faith under this Agreement and not constituting bad faith, willful misconduct or gross negligence on the part of such Manager Indemnified Party.  In addition, the Company shall advance funds to a Manager Indemnified Party for legal fees and other costs and expenses incurred as a result of any claim, suit, action or proceeding for which indemnification is being sought, provided that such Manager Indemnified Party undertakes to repay the advanced funds to the Company, together with the applicable legal rate of interest thereon, in cases in which
such Manager Indemnified Party is found pursuant to a final and non-appealable order or judgment to not be entitled to indemnification.

  

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(b)           The Manager shall, to the fullest lawful extent, reimburse, indemnify and hold harmless the Company (each, a “Company Indemnified Party”) of and from any and all Losses in respect of or arising from (i) any acts or omissions of the Manager constituting bad faith, willful misconduct or gross negligence on the part of the Manager, or (ii) any claims by the Manager’s employees relating to the terms and conditions of their employment by the Manager.  The Manager assumes no responsibility under this Agreement other than to render in good faith the services specifically designated as to be provided by the Manager hereunder and shall not be responsible for any action of the
Board in following or declining to follow any advice or recommendations of the Manager, including as set forth in the Investment Guidelines.  A Manager Indemnified Party and a Company Indemnified Party are each sometimes hereinafter referred to as an “Indemnified Party.”

 

(c)           In case any such claim, suit, action or proceeding (a “Claim”) is brought against any Indemnified Party in respect of which indemnification may be sought by such Indemnified Party pursuant hereto, the Indemnified Party shall give prompt written notice thereof to the indemnifying party, which notice shall include all documents and information in the possession of or under the control of such Indemnified Party reasonably necessary for the evaluation and/or defense of such Claim and shall specifically state that indemnification for such Claim is being sought under this Section 9; provided, however, that the failure of the Indemnified Party to so notify the indemnifying party shall not limit or affect such Indemnified Party’s rights except to the extent that the indemnifying party is actually prejudiced thereby.  Upon receipt of such notice of Claim (together with such documents and information from such Indemnified Party), the indemnifying party shall, at its sole cost and expense, in good faith defend any such Claim with counsel reasonably satisfactory to such Indemnified Party, which counsel may, without limiting the rights of such Indemnified Party pursuant to the next succeeding sentence of this Section, also represent the indemnifying party in such investigation, action or proceeding.  In the alternative, such Indemnified Party may elect to conduct the defense of the Claim, if (i) such Indemnified Party reasonably determines that the conduct
of its defense by the indemnifying party could be materially prejudicial to its interests, (ii) the indemnifying party refuses to assume such defense (or fails to give written notice to the Indemnified Party within ten days of receipt of a notice of Claim that the indemnifying party assumes such defense), or (iii) the indemnifying party shall have failed, in such Indemnified Party’s reasonable judgment, to defend the Claim in good faith.  The indemnifying party may settle any Claim against such Indemnified Party without such Indemnified Party’s consent, provided (A) such settlement is without any Losses whatsoever to such Indemnified Party, (B) the settlement does not include or require any admission of liability or culpability by such Indemnified Party, (C) the indemnifying party obtains an effective written release of liability for such Indemnified Party from the party to the Claim with whom such settlement is being made, which release must be reasonably acceptable
to such Indemnified Party, and a dismissal with prejudice with respect to all claims made by the party against such Indemnified Party in connection with such Claim, and (D) such settlement does not provide for any equitable relief.  The applicable Indemnified Party shall reasonably cooperate with the indemnifying party, at the indemnifying party’s sole cost and expense, in connection with the defense or settlement of any Claim in accordance with the terms hereof.  If such Indemnified Party is entitled pursuant to this Section 9 to elect to defend such Claim by counsel of its own choosing and so elects, then the indemnifying party shall be responsible for any good faith settlement of such Claim entered into by such Indemnified Party.  Except as provided in the immediately preceding sentence, no Indemnified Party may pay or settle any Claim and seek reimbursement therefor under this Section 9.

  

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(d)           The provisions of this Section 9 shall survive the expiration or earlier termination of this Agreement.

 

	 	
Section 10.

	
No Joint Venture.

 

The parties to this Agreement are not partners or joint venturers with each other and nothing herein shall be construed to make them partners or joint venturers or impose any liability as such on either of them.

 

	 	
Section 11.

	
Term; Renewal; Termination Without Cause.

 

(a)           This Agreement shall become effective on the Closing Date and shall continue in operation, unless terminated in accordance with the terms hereof, until the fifth anniversary of the Closing Date (the “Initial Term”).  After the Initial Term, this Agreement shall be deemed renewed automatically each year for an additional one-year period (an “Automatic Renewal Term”), unless the Company or the Manager elects not to renew this Agreement in accordance with Section 11(b) or 
Section 11(d), respectively.

 

(b)           Notwithstanding any other provision of this Agreement to the contrary, upon written notice provided to the Manager no later than 180 days prior to the expiration of the Initial Term or any Automatic Renewal Term (the “Termination Notice”), the Company may, without cause, in connection with the expiration of the Initial Term or the then current Automatic Renewal Term, decline to renew this Agreement (any such nonrenewal, a “Termination Without Cause”) upon the affirmative vote of at least 75% of the Independent Directors that includes a finding by such 75% majority either that (i) there has been
unsatisfactory performance by the Manager that is materially detrimental to the Company Entities, taken as a whole, or (ii) the fees payable to the Manager under Section 7 are not, taken as a whole, in accordance with then-current market rates charged by asset management companies rendering services similar to those rendered by the Manager (“Above-Market Rates”), subject to Section 11(c), and only after reasonable investigation by the Independent Directors as to the market rates charged by similarly situated managers.  In the event of a Termination Without Cause, the Company shall pay the Manager the Fees Accrued Upon Termination before or on the last day of the Initial Term or such Automatic Renewal Term, as the case may be (the “Effective Termination Date”).  The Company may terminate this Agreement for cause pursuant to Section 13 even after a Termination Notice and, in such case, no Fees Accrued Upon Termination shall be payable.

  

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(c)           Notwithstanding the provisions of Section 11(b), if the reason for nonrenewal specified in the Company’s Termination Notice is that 75% of the Independent Directors have determined that the fees payable to the Manager under Section 7 are, taken as a whole, at Above-Market Rates, then the Company shall not have the foregoing nonrenewal right if the Manager agrees that it will continue to perform its duties hereunder during the Automatic Renewal Term that would commence upon the expiration of the Initial Term or then current Automatic Renewal Term at rates that at least 75% of the Independent
Directors determine to be at or below market rates, taken as a whole; provided, however, that if the Independent Directors have made such a determination, the Manager shall have the right to renegotiate the rate of fees payable to the Manager under Section 7 as so determined by the Independent Directors, by delivering to the Company, not less than 120 days prior to the pending Effective Termination Date, written notice (a “Notice of Proposal to Negotiate”) of its intention to renegotiate the fees payable to the Manager under Section 7.  Thereupon, the Company and the Manager shall endeavor to negotiate the fees payable to the Manager under Section 7 in good faith.  Provided that the Company and the Manager agree to a revised fee structure under Section 7 within 60 days following the Company’s receipt of the Notice of Proposal to Negotiate, the Termination Notice from the Company shall be deemed of no force and effect, and this Agreement shall continue in full force and effect on the terms stated herein, except that the compensation structure shall be the revised compensation structure as then agreed upon by the Company and the Manager.  The Company and the Manager agree to execute and deliver an amendment of this Agreement setting forth such revised fee structure promptly upon reaching an agreement regarding same.  If the Company and the Manager are unable to agree to a revised compensation structure during such 60-day period, this Agreement shall terminate on the
Effective Termination Date and the Company shall be obligated to pay the Manager the Fees Accrued Upon Termination upon the Effective Termination Date.

 

(d)           No later than 180 days prior to the expiration of the Initial Term or the then current Automatic Renewal Term, the Manager may deliver written notice to the Company informing the Company of the Manager’s intention to discontinue performance of services pursuant to this Agreement as of the upcoming expiration date, whereupon this Agreement shall not be renewed and extended and this Agreement shall terminate effective on the anniversary date of this Agreement next following the delivery of such notice.  The Company shall not be required to pay to the Manager the Fees Accrued Upon Termination if the Manager terminates this Agreement pursuant to this Section 11(d).

 

(e)           Except as set forth in this Section 11, a non-renewal of this Agreement pursuant to this Section 11 shall be without any further liability or obligation of any party to the others, except as provided in Sections 6, 8, 9 and 15.

 

(f)           The Manager shall cooperate with the Company in executing an orderly transition of the management of PAC’s consolidated assets to a new manager.

 

	 	
Section 12.

	
Assignments.

 

(a)           Assignments by the Manager.  This Agreement shall terminate automatically without payment of the Fees Accrued Upon Termination in the event of its assignment, in whole or in part, by the Manager, unless such assignment has been consented to in writing by (i) the Company with the consent of a majority of the Independent Directors, and (ii) the Operating Partnership.  Any such permitted assignment shall bind the assignee under this Agreement in the same manner as the Manager is bound, and the Manager shall be liable to the Company for all acts or omissions of the assignee under any such assignment to the same extent had such delegation not occurred.  In addition, the assignee
shall execute and deliver to the Company a counterpart of this Agreement naming such assignee as the Manager.  Notwithstanding the foregoing, the Manager may, without the approval of the Company’s Independent Directors, (A) assign this Agreement to an Affiliate of the Manager, and (B) delegate to one or more of its Affiliates the performance of any of its responsibilities hereunder so long as it remains liable for any such Affiliate’s performance to the same extent had such delegation not occurred, in each case so long as assignment or delegation does not require the Company’s approval under the Investment Company Act (but if such approval is required, the Company shall not unreasonably withhold, condition or delay its consent).  Nothing contained in this Agreement shall preclude any pledge, hypothecation, assignment or other transfer of any amounts payable to the Manager under this Agreement.

  

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(b)           Assignments by the Company.  This Agreement shall not be assigned by the Company without the prior written consent of the Manager, except in the case of assignment by the Company to another REIT or other organization which is a successor (by merger, consolidation, purchase of assets, or other transaction) to the Company, in which case such successor organization shall be bound under this Agreement and by the terms of such assignment in the same manner as the Company is bound under this Agreement.

 

	 	
Section 13.

	
Termination for Cause.

 

(a)           The Company may terminate this Agreement for cause effective upon 30 days’ prior written notice of termination from the Company to the Manager (a “Cause Termination Notice”), without payment of any Fees Accrued Upon Termination, upon the occurrence of:

 

(i)  a breach by the Manager, its agents or its assignees of any material provision of this Agreement and such breach shall continue for a period of 60 days after written notice thereof specifying such breach and requesting that the same be remedied in such 60-day period (or 90 days after written notice of such breach if the Manager takes steps to cure such breach within 60 days of the written notice);

 

(ii)  a Bankruptcy Event with respect to the Manager,

 

(iii)  a Manager Change of Control which a majority of the Independent Directors has determined to be materially detrimental to the Company Entities, taken as a whole;

 

(iv)  the dissolution of the Manager; or

 

(v)  (A) a final determination by a court that the Manager has committed fraud against the Company, the Manager has embezzled funds of the Company or the Manager has otherwise acted, or failed to act, in a manner constituting bad faith, willful misconduct, gross negligence or reckless disregard in the performance of its duties under this Agreement, (B) which act of fraud, embezzlement or other act or failure to act described in clause (v)(A) above has had a material adverse effect on the consolidated business, operations and financial condition of the Company, and (C) where a majority of the Independent Directors of PAC has voted affirmatively to terminate this Agreement for cause as a result of such fraud, embezzlement or other act or
failure to act, which vote shall have occurred within 30 days following the final determination referred to in clause (v)(A) above; provided, however, if such fraud, embezzlement or other act or failure to act was committed by a person other than an executive officer of the Manager, then the Manager can cure the same by terminating the employment of such person on or prior to the 30th day following such final determination, in which event the Company shall cease to have the right to terminate this Agreement for cause pursuant to this Section 13(a) and any Cause Termination Notice previously given in reliance on this clause (v) automatically shall be deemed to have been rescinded and nugatory.

  

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(b)           The Manager may terminate this Agreement effective upon 60 days’ prior written notice of termination to the Company if the Company shall default in the performance or observance of any material term, condition or covenant contained in this Agreement and such default shall continue for a period of 60 days after written notice thereof specifying such default and requesting that the same be remedied in such 60-day period.  The Company shall be required to pay to the Manager the Fees Accrued Upon Termination if the termination of this Agreement is made pursuant to this Section 13(b).

 

(c)           The Manager may terminate this Agreement if the Company becomes required to register as an investment company under the Investment Company Act, with such termination deemed to occur immediately before such event, in which case the Manager shall not be entitled to payment of the Fees Accrued Upon Termination.

 

	 	
Section 14.

	
Action Upon Termination.

 

From and after the effective date of termination of this Agreement pursuant to Section 11, 12 or 13, the Manager shall not be entitled to compensation for further services hereunder.  If the Manager is terminated pursuant to Sections 11(b) or 13(b), it shall be paid all Fees Accrued Upon Termination.  Upon any such termination, the Manager shall forthwith:

 

(a)           after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled, pay over to each Company Entity all money collected and held for the account of such Company Entity pursuant to this Agreement;

 

(b)           deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board with respect to the Company Entities;

 

(c)           deliver to the Board all property and documents of the Company Entities then in the custody of the Manager; and

 

(d)           cooperate with the Company Entities to provide an orderly management transition.

	 	
Section 15.

	
Release of Money or Other Property Upon Written Request.

 

The Manager agrees that any money or other property of the Company (which, for the purposes of this Section 15, shall be deemed to include any and all of their respective subsidiaries, if any) held by the Manager shall be held by the Manager as custodian for the Company, and the Manager’s records shall be appropriately and clearly marked to reflect the ownership of such money or other property by the Company.  Upon the receipt by the Manager of a written request signed by a duly authorized officer of the Company requesting the Manager to release to the Company any money or other property then held by the Manager for the account of the Company under this Agreement, the Manager shall release such money or other property to the Company or
within a reasonable period of time, but in no event later than 60 days following such request.  Upon delivery of such money or other property to the Company, the Manager shall not be liable to the Company, the Board, PAC’s stockholders, the Operating Partnership’s partners or any of the directors or equity holders of any subsidiary of the Company for any acts or omissions by the Company in connection with the money or other property released to the Company in accordance with this Section 15.  The Company shall indemnify the Manager Indemnified Parties against any and all Losses which arise in connection with the Manager’s proper release of such money or other property to the Company in accordance with the terms of this Section 15.  Indemnification pursuant to this provision shall be in addition to any right of the
Manager Indemnified Parties to indemnification under Section 9.

 

  

24

  

 

	 	
Section 16.

	
Miscellaneous.

 

(a)           Notices.  All notices, requests, communications and demands (each a “Notice”) to, with or upon any of the respective parties shall be in writing and sent by (i) personal delivery, (ii) reputable overnight courier, (iii) facsimile transmission with telephonic confirmation (provided that such Notice also is sent contemporaneously by another method provided for in this Section 16(a)), or (iv) registered or certified mail, postage prepaid, return receipt requested, addressed as set forth below (or to such other address as may be hereafter notified
by the respective parties hereto in accordance with this Section 16(a)):

 

	
PAC:

	
Preferred Apartment Communities, Inc.

3625 Cumberland Boulevard, Suite 400

Atlanta, Georgia 30339

Attention:  Leonard A. Silverstein, Esq.

Attention:  Jeffrey R. Sprain, Esq.

Fax:  (770) 818-4105

	  	  
	
with a copy to:

	
Proskauer Rose LLP

Eleven Times Square

New York, New York 10036

Attention:  Peter M. Fass, Esq.

Attention:  James P. Gerkis, Esq.

Fax:  (212) 969-2900

	  	  
	
The Operating Partnership:

	
Preferred Apartment Communities, Inc.

3625 Cumberland Boulevard, Suite 400

Atlanta, Georgia 30339

Attention:  Leonard A. Silverstein, Esq.

Attention:  Jeffrey R. Sprain, Esq.

Fax:  (770) 818-4105

	  	  
	
with a copy to:

	
Proskauer Rose LLP

Eleven Times Square

New York, New York 10036

Attention:  Peter M. Fass, Esq.

Attention:  James P. Gerkis, Esq.

Fax:  (212) 969-2900

  

25

  

	
The Manager:

	
Preferred Apartment Advisors, LLC

3625 Cumberland Boulevard, Suite 400

Atlanta, Georgia 30339

Attention:  Leonard A. Silverstein, Esq.

Attention:  Jeffrey R. Sprain, Esq.

Fax:  (770) 818-4105

	  	  
	
with a copy to:

	
Bass, Berry & Sims PLC

100 Peabody Place, Suite 900

Memphis, Tennessee 38103

Attention:  John A. Good, Esq.

Fax:  (901) 543-5901

 

Any Notice sent as aforesaid shall be deemed given and effective upon actual receipt (or refusal of receipt).

 

(b)           Binding Nature of Agreement; Successors and Assigns; No Third Party Beneficiaries.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.  Except as provided in this Agreement with respect to indemnification of Indemnified Parties hereunder, nothing in this Agreement shall confer any rights upon any Person other than the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.

 

(c)           Integration.  This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior 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 or usage of the trade inconsistent with any of the terms hereof.

 

(d)           Amendments.  This Agreement, nor any terms hereof, may not be amended or supplemented except in an instrument in writing executed by the parties hereto.

 

(e)           GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.  EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND THE UNITED STATES DISTRICT COURT FOR ANY DISTRICT WITHIN SUCH STATE FOR THE PURPOSE OF ANY ACTION OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND TO THE LAYING OF VENUE IN SUCH COURT.

  

26

  

(f)           WAIVER OF JURY TRIAL.  EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

(g)           No Waiver; Cumulative Remedies.  No failure to exercise and no delay in exercising, on the part of a party hereto, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

 

(h)           Costs and Expenses.  Each party hereto shall bear its own costs and expenses (including the fees and disbursements of counsel and accountants) incurred in connection with the negotiations and preparation of this Agreement, and all matters incident thereto.  If any party hereto initiates any legal action arising out of or in connection with this Agreement, the prevailing party shall be entitled to recover from the other party all reasonable attorneys’ fees, expert witness fees and expenses incurred by the prevailing party in connection therewith.

 

(i)           Section Headings.  The section and subsection headings in this Agreement are for convenience in reference only and shall not be deemed to alter or affect the interpretation of any provisions hereof.

 

(j)           Counterparts.  This Agreement may be executed (including by facsimile transmission) with counterpart signature pages or in any number of separate counterparts, and all of which taken together shall be deemed to constitute one and the same instrument.

 

(k)           Severability.  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

  

27

  

IN WITNESS WHEREOF, each of the parties hereto has executed this Second Amended and Restated Management Agreement as of the date first written above.

 

	
PREFERRED APARTMENT COMMUNITIES, INC.

	  	  	  
	
By:

	
/s/ John A. Williams

	  	
Name:

	 John A. Williams
	  	
Title:

	 President and Chief Executive Officer
	  	  	  
	
PREFERRED APARTMENT COMMUNITIES

OPERATING PARTNERSHIP, L.P.

	  	  	  
	
By:

	
Preferred Apartment Communities, Inc.

	  	
its General Partner

	  	  	  
	  	
By:

	
/s/ John A. Williams

	  	  	
Name: John A. Williams

	  	  	
Title: President and Chief Executive Officer

	  	  	  
	
PREFERRED APARTMENT ADVISORS, LLC

	  	  	  
	
By:

	
NELL Partners, Inc.

	  	
its Managing Member

	  	  	  
	  	
By:

	
/s/ John A. Williams

	  	  	
Name: John A. Williams

	  	  	
Title: President and Chief Executive Officer

  

 

  

Exhibit A

 

Investment Guidelines

 

	
1.

	
No Investment shall be made by the Manager that would cause PAC to fail to qualify as a REIT under the Code.

 

	
2.

	
No Investment shall be made by the Manager that would cause either PAC or the Operating Partnership to be regulated as an investment company under the Investment Company Act.

 

	
3.

	
Until appropriate investments in Investments are identified, the Manager may invest the proceeds of the Initial Public Offering and any future offerings of PAC’s or the Operating Partnership’s securities for cash in interest-bearing, short-term, investment-grade investments, subject to the requirements for PAC’s qualification as a REIT under the Code.

 

	
4.

	
Investment Deployment Quantitative Limits:

 

	
  

	
(a)

	
No more than 15% of the Company’s total assets may be invested by the Manager in any one single asset or transaction.

 

	
  

	
(b)

	
No more than 25% of the Company’s total assets may be invested by the Manager in any metropolitan statistical area (“MSA”).

 

	
  

	
(c)

	
The Company’s aggregate borrowings (secured and unsecured) will not exceed 75% of the cost of its tangible assets at the time of any new borrowing.

 

	
5.

	
Investment Deployment Qualitative Guidelines:

 

	
  

	
(a)

	
Multifamily related assets where the associated real property asset is located in an MSA with an aggregate population in excess of approximately 1,000,000.

 

	
  

	
(b)

	
Multifamily related assets where the associated real property asset has at least 100 units.

 

	
  

	
(c)

	
Multifamily related assets where the associated real property was built or substantially renovated after January 1, 1990 and, to the knowledge of the Manager, does not possess any design flaws and is not functionally obsolete.Unassociated Document

 

 

PREFERRED APARTMENT COMMUNITIES, INC.

 

2011 STOCK INCENTIVE PLAN

 

(effective as of February 25, 2011)

 

ARTICLE I

 

PURPOSE

 

The purpose of this 2011 Stock Incentive Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling the Company to offer Participants stock-based incentives in the Company to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company’s stockholders.

 

ARTICLE II

 

DEFINITIONS

 

For purposes of the Plan, the following terms shall have the following meanings:

 

2.1           “Acquisition Event” means a merger or consolidation in which the Company is not the surviving entity, any transaction that results in the acquisition of all or substantially all of the Company’s outstanding Common Stock by a single person or entity or by a group of persons and/or entities acting in concert, or the sale or transfer of all or substantially all of the Company’s assets.  The occurrence of an Acquisition Event shall be determined by the Committee in
its sole discretion.

 

2.2           “Affiliate” means each of the following:  (a) Preferred Apartment Advisors, LLC or any of its subsidiaries; (b) any Subsidiary; (c) any Parent; (d) any corporation, trade or business (including, without limitation, a partnership or limited liability company) that is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company; (e) any corporation, trade or
business (including, without limitation, a partnership or limited liability company) that directly or indirectly controls 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) of the Company; and (f) any other entity in which the Company or any of its Affiliates has a material equity interest and that is designated as an “Affiliate” by resolution of the Committee; provided, however, that the Common Stock subject to any Award constitutes “service recipient stock” for purposes of Section 409A of the Code or otherwise does not subject the Award to Section 409A of the Code.

 

2.3           “Award” means any award under the Plan of any Stock Option, Stock Appreciation Right, Restricted Stock, Performance Share or Other Stock-Based Award.  All Awards shall be granted by, confirmed by, and subject to the terms of, a written or electronic agreement executed by the Company and the Participant.  Any reference herein to an agreement in writing shall be deemed to include an electronic writing to the extent permitted by applicable law.

 

 

 

 

 

2.4           “Board” means the Board of Directors of the Company.

 

2.5           “Cause” means with respect to a Participant’s Termination of Employment or Termination of Consultancy, the following: (a) in the case where there is no employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an Affiliate and the Participant at the time of the grant of the Award (or where there is such an agreement but it does not define “cause” (or words of like import)), termination due to: (i) a
Participant’s conviction of, or plea of guilty or nolo contendere to, a felony; (ii) perpetration by a Participant of an illegal act, dishonesty or fraud that could cause significant economic injury to the Company; (iii) a Participant’s insubordination, refusal to perform his or her duties or responsibilities for any reason other than illness or incapacity or materially unsatisfactory performance of his or her duties for the Company; (iv) continuing willful and deliberate failure by the Participant to perform the Participant’s duties in any material respect, provided that the Participant is given notice and an opportunity to effectuate a cure as determined by the Committee; or (v) a Participant’s willful misconduct with regard to the Company that could have a material adverse effect on the Company; or (b) in the case where there is an employment agreement, consulting agreement, change in control agreement or similar agreement in effect between the Company or an
Affiliate and the Participant at the time of the grant of the Award that defines “cause” (or words of like import), “cause” as defined under such agreement; provided, however, that with regard to any agreement under which the definition of “cause” only applies on occurrence of a change in control, such definition of “cause” shall not apply until a change in control actually takes place and then only with regard to a termination thereafter.  With respect to a Participant’s Termination of Directorship, “cause” means an act or failure to act that constitutes cause for removal of a director under applicable Maryland law.

 

2.6           “Change in Control” has the meaning set forth in Section 12.2.

 

2.7           “Change in Control Price” has the meaning set forth in Section 12.1.

 

2.8           “Code” means the Internal Revenue Code of 1986, as amended.  Any reference to any section of the Code also shall be a reference to any successor provision and any Treasury Regulation promulgated thereunder.

 

2.9           “Committee” means:  (a) prior to the first anniversary of the Registration Date, the Board, or (b) following the first anniversary of the Registration Date, a committee or subcommittee of the Board appointed from time to time by the Board, which committee or subcommittee shall consist of two or more non-employee directors, each of whom is intended to be (i) to the extent required by Rule 16b-3 promulgated under Section 16(b) of the Exchange Act, a “non-employee director” as defined in Rule 16b-3, (ii) to the extent
required Section 162(m) of the Code, an “outside director” as defined in Section 162(m) of the Code, and (iii) to the extent required by Sections 803(A)(2) and 805 of the Company Guide of the NYSE Amex.  To the extent that no Committee exists that has the authority to administer this Plan, the functions of the Committee shall be exercised by the Board.  If for any reason the appointed Committee does not meet the requirements of Rule 16b-3 or Section 162(m) of the Code, such noncompliance shall not affect the validity of Awards, grants, interpretations or other actions of the Committee.

 

 

2

 

 

2.10           “Common Stock” means the common stock, $0.01 par value per share, of the Company.

 

2.11           “Company” means Preferred Apartment Communities, Inc. a Maryland corporation, and its successors by operation of law.

 

2.12           “Consultant” means any natural person who provides bona fide consulting or advisory services to the Company or its Affiliates pursuant to a written agreement, which are not in connection with the offer and sale of securities in a capital-raising transaction, and do not, directly or indirectly, promote or maintain a market for the Company’s or its Affiliates’ securities.

 

2.13           “Detrimental Activity” means:

 

	
  

	
(a)

	
disclosing, divulging, furnishing or making available to anyone at any time, except as necessary in the furtherance of Participant’s responsibilities to the Company or any of its Affiliates, either during or subsequent to Participant’s service relationship with the Company or any of its Affiliates, any knowledge or information with respect to confidential or proprietary information, methods, processes, plans or materials of the Company or any of its Affiliates, or with respect to any other confidential or proprietary aspects of the business of the Company or any of its Affiliate, acquired by the Participant at any time prior to the Participant’s Termination;

 

	
  

	
(b)

	
any activity while employed or performing services that results, or if known could reasonably be expected to result, in the Participant’s Termination that is classified by the Company as a termination for Cause;

 

	
  

	
(c)

	
((i) directly or indirectly soliciting, enticing or inducing any employee of the Company or of any of its Affiliates to be employed by a person or entity that is, directly or indirectly, in competition with the business or activities of the Company or any of its Affiliates; (ii) directly or indirectly approaching any such employee for these purposes; (iii) authorizing or knowingly approving the taking of any such action by a third party on behalf of any such person or entity, or assisting any such person or entity in taking such action; or (iv) directly or indirectly soliciting, raiding, enticing or inducing any person or entity (other than the U.S. Government or its agencies) that is, or at any time from and after the date of grant of the Award was, a customer of the Company or any of its Affiliates to become a customer of the Participant or a third party for the same or similar products
or services that it purchased from the Company or any of its Affiliates, or approaching any customer of the Company or any of its Affiliates for such purpose, or authorizing or knowingly approving the taking of any action by a third party for such purpose;

 

 

3

 

 

	
  

	
(d)

	
the Participant’s Disparagement, or inducement of others to do so, of the Company or any of its Affiliates or their past and present officers, directors, employees or products;

 

	
  

	
(e)

	
the Participant’s owning, managing, controlling, participating in, consulting with, rendering services for, or in any manner engaging in, any business that, directly or indirectly, is competitive with the business conducted by the Company or any of its Affiliates within any metropolitan area in which the Company or any of its Affiliates engages or has definitive plans to engage in such business, or the rendering of services to such business if such business is otherwise prejudicial to or in conflict with the interests of the Company or any of its Affiliates; or

 

	
  

	
(f)

	
a material breach of any agreement between the Participant and the Company or any of its Affiliates (including, without limitation, any employment agreement or noncompetition or nonsolicitation or confidentiality agreement).

 

Unless otherwise determined by the Committee at grant, Detrimental Activity shall not be deemed to occur after the end of the one-year period following the Participant's Termination.

 

For purposes of clauses (a), (c), (e) and (f) above, the Chief Executive Officer of the Company has the authority to provide the Participant with written authorization to engage in the activities contemplated thereby and no other person shall have authority to provide the Participant with such authorization.  If it is determined by a court of competent jurisdiction that any provision in the Plan in respect of Detrimental Activities is excessive in duration or scope or otherwise is unenforceable, then such provision may be modified or supplemented by the court to render it enforceable to the maximum extent permitted by law.

 

2.14           “Disability” means with respect to a Participant’s Termination, a permanent and total disability as defined in Section 22(e)(3) of the Code.  A Disability shall only be deemed to occur at the time of the determination by the Committee of the Disability.  Notwithstanding the foregoing, for Awards that are subject to Section 409A of the Code, Disability shall mean that a Participant is disabled under Section 409A(a)(2)(C)(i) or (ii) of the Code.

 

2.15           “Disparagement” means making comments or statements to the press, the Company’s or its Affiliates’ employees, consultants or any individual or entity with whom the Company or its Affiliates has a business relationship that could reasonably be expected to adversely affect in any manner: (a) the conduct of the business of the Company or its Affiliates (including, without limitation, any products or business plans or prospects); or (b) the business reputation of the Company
or its Affiliates, or any of their products, or their past or present officers, directors or employees.

 

 

4

 

 

2.16           “Effective Date” means the effective date of the Plan as defined in Article XVI.

 

2.17           “Eligible Employee” means an employee of the Company or an Affiliate.

 

2.18           “Exchange Act” means the Securities Exchange Act of 1934, as amended, and all rules and regulations promulgated thereunder.  Any references to any section of the Exchange Act shall also be a reference to any successor provision.

 

2.19           “Exercisable Awards” has the meaning set forth in Section 4.2(d).

 

2.20           “Fair Market Value” means, unless otherwise required by any applicable provision of the Code or any regulations issued thereunder, as of any date and except as provided below, the last sales price reported for the Common Stock on the applicable date: (a) as reported on the principal national securities exchange in the United States on which it is then traded or the NYSE Amex; or (b) if not traded on any such national securities
exchange or the NYSE Amex, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, Inc. or if the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted.  For purposes of the grant of any Award, the applicable date shall be the trading day on which the Award is granted, or if such grant date is not a trading day, the trading day immediately prior to the date on which the Award is granted.  For purposes of the exercise of any Award, the applicable date shall be the date a notice of exercise is received by the Company or, if not a day on which the applicable market is open, the next day that it is open.

 

2.21           “Family Member” means “family member” as defined in Rule 701 under the Securities Act or, following the filing of a Form S-8 pursuant to the Securities Act with respect to the Plan, as defined in Section A.1.(5) of the general instructions of Form S-8, as may be amended from time to time.

 

2.22           “Incentive Stock Option” means any Stock Option awarded to an Eligible Employee of the Company, its Subsidiaries and its Parent (if any) under the Plan intended to be and designated as an “Incentive Stock Option” within the meaning of Section 422 of the Code.

 

2.23           “include”, “includes” and “including”shall be
construed as if followed by the phrase “without limitation”.

 

2.24           “Limited Stock Appreciation Right” has the meaning set forth in Section 7.5.

 

2.25           “Non-Employee Director” means a non-employee director of the Company as defined in Rule 16b-3.

 

2.26           “Non-Qualified Stock Option” means any Stock Option awarded under the Plan that is not an Incentive Stock Option.

 

2.27           “Other Stock-Based Award” means an Award under Article X of the Plan that is valued in whole or in part by reference to, or is payable in or otherwise based on, Common Stock, including, without limitation, a restricted stock unit or an Award valued by reference to an Affiliate.

 

2.28           “Parent” means any parent corporation of the Company within the meaning of Section 424(e) of the Code.

 

 

5

 

 

2.29           “Participant” means an Eligible Employee, Non-Employee Director or Consultant to whom an Award has been granted pursuant to the Plan.

 

2.30           “Performance Goals” has the meaning set forth on Exhibit A.

 

2.31           “Performance Period” means the duration of the period during which receipt of an Award is subject to the satisfaction of performance criteria, such period as determined by the Committee in its sole discretion.

 

2.32           “Performance Share” means an Award made pursuant to Article IX of the Plan of the right to receive Common Stock or cash of an equivalent value at the end of a specified Performance Period.

 

2.33           “Person” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, incorporated organization, governmental or regulatory or other entity.

 

2.34           “Plan” means this Preferred Apartment Communities, Inc. 2011 Stock Incentive Plan, as amended from time to time.

 

2.35           “Other Extraordinary Event” has the meaning set forth in Section 4.2(b).

 

2.36           “Reference Stock Option” has the meaning set forth in Section 7.1.

 

2.37           “Registration Date” means the first date after the Effective Date on which (a) the Company sells its Common Stock in a bona fide underwriting pursuant to a registration statement under the Securities Act or (b) any class of common equity securities of the Company is required to be registered under Section 12 of the Exchange Act.

 

2.38           “Restricted Stock” means a share of Common Stock issued under the Plan that is subject to restrictions under Article VIII.

 

2.39           “Restriction Period” has the meaning set forth in Section 8.3(a).

 

2.40           “Retirement” means a voluntary Termination of Employment or Termination of Consultancy at or after age 65 or such earlier date after age 55 as may be approved by the Committee, in its sole discretion, with respect to such Participant at the time of grant, or thereafter provided that the exercise of such discretion does not make the applicable Award subject to Section 409A of the Code, except that Retirement shall not include any involuntary Termination of Employment or Termination of
Consultancy by the Company or an Affiliate for any reason with or without Cause.  With respect to a Participant’s Termination of Directorship, Retirement means the failure to stand for reelection or the failure to be reelected on or after the date that a Participant has attained age 65 or, with the consent of the Board, provided that the exercise of such discretion does not make the applicable Award subject to Section 409A of the Code, before age 65 but after age 55.

 

2.41           “Rule 16b-3” means Rule 16b-3 under Section 16(b) of the Exchange Act as then in effect or any successor provision.

 

 

6

 

 

2.42           “Section 162(m) of the Code” means the exception for performance-based compensation under Section 162(m) of the Code and any applicable Treasury regulations thereunder.

 

2.43           “Section 4.2 Event” has the meaning set forth in Section 4.2(b).

 

2.44           “Securities Act” means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder.  Any reference to any section of the Securities Act shall also be a reference to any successor provision.

 

2.45           “Special Unvested Options or Rights” has the meaning set forth in Section 11.1(a)(v).

 

2.46           “Stock Appreciation Right” means the right pursuant to an Award granted under Article VII.  A Tandem Stock Appreciation Right shall mean the right to surrender to the Company all (or a portion) of a Stock Option in exchange for a number of shares of Common Stock and/or cash, as determined by the Committee, equal to the difference between (a) the Fair Market Value on the date such Stock Option (or such
portion thereof) is surrendered, of the Common Stock covered by such Stock Option (or such portion thereof), and (b) the aggregate exercise price of such Stock Option (or such portion thereof).  A Non-Tandem Stock Appreciation Right shall mean the right to receive a number of shares of Common Stock and/or cash, as determined by the Committee, equal to the difference between (i) the Fair Market Value of a share of Common Stock on the date such right is exercised, and (ii) the aggregate exercise price of such right, otherwise than on surrender of a Stock Option.

 

2.47           “Stock Option” or “Option” means any option to purchase shares of Common Stock granted to Eligible Employees, Non-Employee Directors or Consultants pursuant to Article VI.

 

2.48           “Subsidiary” means any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code.

 

2.49           “Tandem Stock Appreciation Right” has the meaning set forth in Section 7.1.

 

2.50           “Ten Percent Stockholder” means a person owning stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, its Subsidiaries or its Parent.

 

2.51           “Termination” means a Termination of Consultancy, Termination of Directorship or Termination of Employment, as applicable.

 

2.52           “Termination of Consultancy” means: (a) that the Consultant is no longer acting as a consultant to the Company or an Affiliate; or (b) when an entity that is retaining a Participant as a Consultant ceases to be an Affiliate unless the Participant otherwise is, or thereupon becomes, a Consultant to the Company or another Affiliate at the time the entity ceases to be an Affiliate.  In the event that a Consultant becomes an Eligible Employee or a Non-Employee Director upon the
termination of his or her consultancy, unless otherwise determined by the Committee, in its sole discretion, no Termination of Consultancy shall be deemed to occur until such time as such Consultant is no longer a Consultant, an Eligible Employee or a Non-Employee Director.  Notwithstanding the foregoing, the Committee may, in its sole discretion, otherwise define Termination of Consultancy in the Award agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Consultancy thereafter.

 

 

7

 

 

2.53           “Termination of Directorship” means that the Non-Employee Director has ceased to be a director of the Company; except that if a Non-Employee Director becomes an Eligible Employee or a Consultant upon the termination of his or her directorship, his or her ceasing to be a director of the Company shall not be treated as a Termination of Directorship unless and until the Participant has a Termination of Employment or Termination of Consultancy, as the case may be.

 

2.54           “Termination of Employment” means: (a) a termination of employment (for reasons other than a military or personal leave of absence granted by the Company) of a Participant from the Company and its Affiliates; or (b) when an entity that is employing a Participant ceases to be an Affiliate, unless the Participant otherwise is, or thereupon becomes, employed by the Company or another Affiliate at the time the entity ceases to be an Affiliate.  In the event that
an Eligible Employee becomes a Consultant or a Non-Employee Director upon the termination of his or her employment, unless otherwise determined by the Committee, in its sole discretion, no Termination of Employment shall be deemed to occur until such time as such Eligible Employee is no longer an Eligible Employee, a Consultant or a Non-Employee Director.  Notwithstanding the foregoing, the Committee may, in its sole discretion, otherwise define Termination of Employment in the Award agreement or, if no rights of a Participant are reduced, may otherwise define Termination of Employment thereafter.

 

2.55           “Transfer” means: (a) when used as a noun, any direct or indirect transfer, sale, assignment, pledge, hypothecation, encumbrance or other disposition (including the issuance of equity in a Person), whether for value or no value and whether voluntary or involuntary (including by operation of law), and (b) when used as a verb, to directly or indirectly transfer, sell, assign, pledge, encumber, charge, hypothecate or otherwise dispose of (including the issuance of equity in a Person)
whether for value or for no value and whether voluntarily or involuntarily (including by operation of law).  “Transferred” and “Transferrable” shall have a correlative meaning.

 

2.56           “Transition Period” means the “reliance period” under Treasury Regulation Section 1.162-27(f)(2), which ends on the earliest to occur of the following:  (a) the date of the first annual meeting of stockholders of the Company at which directors are to be elected that occurs after December 31, 2011; (b) the date the Plan is materially amended for purposes of Treasury Regulation Section 1.162-27(h)(1)(iii); or (c) the date all shares of Common Stock available for
issuance under the Plan have been allocated.

 

ARTICLE III

 

ADMINISTRATION

 

3.1           The Committee.  The Plan shall be administered and interpreted by the Committee.

 

 

8

 

 

3.2           Grants of Awards.  The Committee shall have full authority to grant, pursuant to the terms of the Plan, to Eligible Employees, Consultants and Non-Employee Directors:  (1) Stock Options; (2) Stock Appreciation Rights; (3) Restricted Stock; (4) Performance Shares; and (5) Other Stock-Based Awards.  In particular, the Committee shall have the authority:

 

	
  

	
(a)

	
to select the Eligible Employees, Consultants and Non-Employee Directors to whom Awards may from time to time be granted hereunder;

 

	
  

	
(b)

	
to determine whether and to what extent Awards are to be granted hereunder to one or more Eligible Employees, Consultants or Non-Employee Directors;

 

	
  

	
(c)

	
to determine, in accordance with the terms of the Plan, the number of shares of Common Stock to be covered by each Award granted hereunder;

 

	
  

	
(d)

	
to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder (including, but not limited to, the exercise or purchase price (if any), any restriction or limitation, any vesting schedule or acceleration thereof, or any forfeiture restrictions or waiver thereof, regarding any Award and the shares of Common Stock relating thereto, based on such factors, if any, as the Committee shall determine, in its sole discretion);

 

	
  

	
(e)

	
to determine whether, to what extent and under what circumstances grants of Options and other Awards under the Plan are to operate on a tandem basis and/or in conjunction with or apart from other awards made by the Company outside of the Plan;

 

	
  

	
(f)

	
to determine whether and under what circumstances a Stock Option may be settled in cash, Common Stock and/or Restricted Stock under Section 6.3(d);

 

	
  

	
(g)

	
to determine whether, to what extent and under what circumstances Common Stock and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the Participant in any case, in a manner intended to comply with Section 409A of the Code;

 

	
  

	
(h)

	
to determine whether a Stock Option is an Incentive Stock Option or Non-Qualified Stock Option;

 

	
  

	
(i)

	
to determine whether to require a Participant, as a condition of the granting of any Award, to not sell or otherwise dispose of shares acquired pursuant to an Award for a period of time as determined by the Committee, in its sole discretion, following the date of such Award; and

 

 

9

 

 

	
  

	
(j)

	
generally, to exercise such powers and to perform such acts as the Committee deems necessary or expedient to promote the best interests of the Company that are not in conflict with the provisions of the Plan.

 

3.3           Guidelines.  Subject to Article XIII, the Committee shall, in its sole discretion, have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan and perform all acts, including the delegation of its responsibilities (to the extent permitted by applicable law and applicable stock exchange rules), as it shall, from time to time, deem advisable; to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.  The Committee may, in its sole discretion, correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to effectuate the purpose and intent of the Plan.  The Committee may, in its sole discretion, adopt special guidelines and provisions for persons who are residing in or employed in, or subject to, the taxes of, any domestic or foreign jurisdictions to comply with applicable tax and securities laws of such domestic or foreign jurisdictions.  To the extent applicable, the Plan is intended to comply with the applicable requirements of Rule 16b-3 and with respect to Awards intended to be “performance-based,” the applicable provisions of Section 162(m) of the Code, and the Plan shall be limited, construed and interpreted in a manner so as to comply therewith.

 

3.4           Decisions Final.  Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board or the Committee (or any of its members) arising out of or in connection with the Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective heirs, executors, administrators, successors and assigns.

 

3.5           Procedures.  If the Committee is appointed, the Board shall designate one of the members of the Committee as chairman and the Committee shall hold meetings, subject to the By-Laws of the Company, at such times and places as it shall deem advisable, including, without limitation, by telephone conference or by written consent to the extent permitted by applicable law.  A majority of the Committee members shall constitute a quorum.  All determinations of the Committee shall be made by a majority of its members.  Any decision or determination reduced to writing and signed
by all the Committee members in accordance with the By-Laws of the Company shall be as fully effective as if it had been made by a vote at a meeting duly called and held.  The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it shall deem advisable.

 

3.6           Designation of Consultants/Liability.

 

	
  

	
(a)

	
The Committee may, in its sole discretion, designate employees of the Company and professional advisors to assist the Committee in the administration of the Plan and (to the extent permitted by applicable law and applicable exchange rules) may grant authority to officers to grant Awards and/or execute agreements or other documents on behalf of the Committee.

 

 

10

 

 

	
  

	
(b)

	
The Committee may, in its sole discretion, employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent.  Expenses incurred by the Committee or the Board in the engagement of any such counsel, consultant or agent shall be paid by the Company.  The Committee, its members and any person designated pursuant to Section 3.6(a) above shall not be liable for any action or determination made in good faith with respect to the Plan.  To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Committee or of the Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Award granted under it.

 

3.7           Indemnification.  To the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of the Company and to the extent not covered by insurance directly insuring such person, each officer or employee of the Company or any Affiliate and member or former member of the Committee or the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Committee) or liability (including any sum paid in settlement of a claim with the approval of the Committee), and advanced amounts
necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the administration of the Plan, except to the extent arising out of such officer’s, employee’s, member’s or former member’s fraud or bad faith.  Such indemnification shall be in addition to any rights of indemnification the officers, employees, directors or members or former officers, directors or members may have under applicable law or under the Certificate of Incorporation or By-Laws of the Company or any Affiliate.  Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to Awards granted to him or her under the Plan.

 

 

ARTICLE IV

 

SHARE LIMITATION

 

 

11

 

 

4.1           Shares.

 

	
  

	
(a)

	
General Limitations.  The aggregate number of shares of Common Stock that may be issued or used for reference purposes or with respect to which Awards may be granted under the Plan shall not exceed 567,500 shares of Common Stock (subject to any increase or decrease pursuant to Section 4.2), which may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company or both.  If any Option, Stock Appreciation Right or Other Stock-Based Award granted under the Plan expires, terminates or is canceled for any reason without having been exercised in full, the number of shares of Common Stock underlying any unexercised Award shall again be available for the purpose of Awards under the
Plan.  If any shares of Restricted Stock, Performance Shares or Other Stock-Based Awards, denominated in shares of Common Stock, granted under the Plan are forfeited for any reason, the number of forfeited shares of Restricted Stock, Performance Shares or such Other Stock-Based Awards shall again be available for the purposes of Awards under the Plan, as provided in this Section 4.1(a).  If a Tandem Stock Appreciation Right or a Limited Stock Appreciation Right is granted in tandem with an Option, such grant shall only apply once against the maximum number of shares of Common Stock that may be issued under the Plan.  Notwithstanding anything herein to the contrary, any share of Common Stock that again becomes available for grant pursuant to this Section 4.1(a) shall be added back as one share of Common Stock to the maximum
aggregate limit.

 

	
  

	
(b)

	
Individual Participant Limitations.

 

(i)           The maximum number of shares of Common Stock subject to any Award of Stock Options, Stock Appreciation Rights or shares of Restricted Stock for which the grant of such Award or the lapse of the relevant Restriction Period is subject to the attainment of Performance Goals in accordance with Section 8.3(a)(ii), which may be granted under the Plan during any fiscal year of the Company to each Eligible Employee or Consultant shall be 100,000 shares per type of Award (which shall be subject to any further increase or decrease pursuant to Section 4.2), provided that the maximum number of shares of Common Stock for all
types of Awards does not exceed 250,000 (which shall be subject to any further increase or decrease pursuant to Section 4.2) during any fiscal year of the Company.  If a Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation Right is granted in tandem with a Stock Option, it shall apply against the Eligible Employee's or Consultant's individual share limitations for both Stock Appreciation Rights and Stock Options.

 

(ii)           The maximum number of shares of Common Stock subject to any Award of Stock Options (other than Incentive Stock Options), Stock Appreciation Rights or Other Stock-Based Awards that may be granted under the Plan during any fiscal year of the Company to each Non-Employee Director shall be 75,000 shares per type of Award (which shall be subject to any further increase or decrease pursuant to Section 4.2), provided that the maximum number of shares of Common Stock for all types of Awards does not exceed 75,000 (which shall be subject to any further increase or decrease pursuant to Section 4.2) during any fiscal year of
the Company.  If a Tandem Stock Appreciation Right is granted or a Limited Stock Appreciation Right is granted in tandem with a Stock Option, it shall apply against the Non-Employee Director's individual share limitations for both Stock Appreciation Rights and Stock Options.

 

 

12

 

 

(iii)           There are no annual individual Eligible Employee or Consultant share limitations on Restricted Stock for which the grant of such Award or the lapse of the relevant Restriction Period is not subject to attainment of Performance Goals in accordance with Section 8.3(a)(ii).

 

(iv)           The maximum value at grant of Performance Shares that may be granted under the Plan with respect to any fiscal year of the Company to each Eligible Employee or Consultant shall be $500,000.  Each Performance Share shall be referenced to one share of Common Stock and shall be charged against the available shares under the Plan at the time the unit value measurement is converted to a referenced number of shares of Common Stock in accordance with Section 9.1.

 

(v)           The individual Participant limitations set forth in this Section 4.1(b) shall be cumulative; that is, to the extent that shares of Common Stock for which Awards are permitted to be granted to an Eligible Employee, Consultant or Non-Employee Director during a fiscal year are not covered by an Award to such Eligible Employee, Consultant or Non-Employee Director, in a fiscal year, the number of shares of Common Stock available for Awards to such Eligible Employee, Consultant or Non-Employee Director, shall automatically increase in the subsequent fiscal years during the term of the Plan until used.

 

(vi)           The individual Participant limitations set forth in this Section 4.1(b) shall not apply prior to the Registration Date and, following the Registration Date, this Section 4.1(b) shall not apply until the expiration of the Transition Period.

 

 

4.2           Changes.

 

	
  

	
(a)

	
The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize (i) any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, (ii) any merger or consolidation of the Company or any Affiliate, (iii) any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock, (iv) the dissolution or liquidation of the Company or any Affiliate, (v) any sale or transfer of all or part of the assets or business of the Company or any Affiliate, (vi) any Section 4.2 Event, or (vii) any other corporate act or proceeding.

 

 

13

 

 

	
  

	
(b)

	
Subject to the provisions of Section 4.2(d), if there shall occur any such change in the capital structure of the Company by reason of any stock split, reverse stock split, stock dividend, subdivision, combination or reclassification of shares that may be issued under the Plan, any recapitalization, any merger, any consolidation, any spin off, any reorganization or any partial or complete liquidation, or any other corporate transaction or event having an effect similar to any of the foregoing (a “Section 4.2 Event”), then (i) the aggregate number and/or kind of shares that thereafter may be issued under the Plan, (ii) the number and/or kind of shares or other property (including cash) to be issued upon exercise of an outstanding Award or under other Awards granted
under the Plan, (iii) the purchase price thereof, and/or (iv) the individual Participant limitations set forth in Section 4.1(b) (other than those based on cash limitations) shall be appropriately adjusted.  In addition, subject to Section 4.2(d), if there shall occur any change in the capital structure or the business of the Company that is not a Section 4.2 Event (an “Other Extraordinary Event”), including by reason of any extraordinary dividend (whether cash or stock), any conversion, any adjustment, any issuance of any class of securities convertible or exercisable into, or exercisable for, any class of stock, or any sale or transfer of all or substantially all the Company’s assets or business, then the Committee, in its sole discretion, may adjust any Award and make such other adjustments to the
Plan.  Any adjustment pursuant to this Section 4.2 shall be consistent with the applicable Section 4.2 Event or the applicable Other Extraordinary Event, as the case may be, and in such manner as the Committee may, in its sole discretion, deem appropriate and equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under the Plan.  Any such adjustment determined by the Committee shall be final, binding and conclusive on the Company and all Participants and their respective heirs, executors, administrators, successors and permitted assigns.  Except as expressly provided in this Section 4.2 or in the applicable Award agreement, a Participant shall have no rights by reason of any Section 4.2 Event or any Other Extraordinary Event.

 

	
  

	
(c)

	
Fractional shares of Common Stock resulting from any adjustment in Awards pursuant to Section 4.2(a) or Section 4.2(b) shall be aggregated until, and eliminated at, the time of exercise by rounding-down for fractions less than one-half and rounding-up for fractions equal to or greater than one-half.  No cash settlements shall be made with respect to fractional shares eliminated by rounding.  Notice of any adjustment shall be given by the Committee to each Participant whose Award has been adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan.

 

 

14

 

 

	
  

	
(d)

	
In the event of an Acquisition Event, the Committee may, in its sole discretion, terminate all outstanding and unexercised Stock Options or Stock Appreciation Rights or any Other Stock Based Award that provides for a Participant elected exercise (“Exercisable Awards”) effective as of the date of the Acquisition Event, by delivering notice of termination to each Participant at least 20 days prior to the date of consummation of the Acquisition Event, in which case during the period from the date on which such notice of termination is delivered to the consummation of the Acquisition Event, each such Participant shall have the right to exercise his or her Exercisable Awards that are then outstanding to the extent vested as of the date on which such notice of termination is delivered (or, at the discretion of the
Committee, without regard to any limitations on exercisability otherwise contained in the Award agreements), but any such exercise shall be contingent on the occurrence of the Acquisition Event, and, provided that, if the Acquisition Event does not take place within a specified period after giving such notice for any reason whatsoever, the notice and exercise pursuant thereto shall be null and void.  For the avoidance of doubt, in the event of an Acquisition Event, the Committee may, in its sole discretion, terminate any Exercisable Award for which the exercise price is equal to or exceeds the Fair Market Value without payment of consideration therefor.

 

If an Acquisition Event occurs but the Committee does not terminate the outstanding Awards pursuant to this Section 4.2(d), then the applicable provisions of Section 4.2(b) and Article XII shall apply.

 

4.3           Minimum Purchase Price.  Notwithstanding any provision of the Plan to the contrary, if authorized but previously unissued shares of Common Stock are issued under the Plan, such shares shall not be issued for a consideration that is less than as permitted under applicable law.

 

ARTICLE V

 

ELIGIBILITY AND GENERAL REQUIREMENTS FOR AWARDS

 

5.1           General Eligibility.  All Eligible Employees, Consultants, Non-Employee Directors and prospective employees and consultants are eligible to be granted Awards, subject to the terms and conditions of the Plan.  Eligibility for the grant of Awards and actual participation in the Plan shall be determined by the Committee in its sole discretion.

 

5.2           Incentive Stock Options.  Notwithstanding anything herein to the contrary, only Eligible Employees of the Company, its Subsidiaries and its Parent (if any) are eligible to be granted Incentive Stock Options under the Plan.  Eligibility for the grant of an Incentive Stock Option and actual participation in the Plan shall be determined by the Committee in its sole discretion.

 

5.3           General Requirement.  The vesting and exercise of Awards granted to a prospective employee or consultant are conditioned upon such individual actually becoming an Eligible Employee or Consultant.

 

 

15

 

 

ARTICLE VI

 

STOCK OPTIONS

 

6.1           Options.  Each Stock Option granted under the Plan shall be one of two types: (a) an Incentive Stock Option; or (b) a Non-Qualified Stock Option.

 

6.2           Grants.  The Committee shall, in its sole discretion, have the authority to grant to any Eligible Employee (subject to Section 5.2) Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock Options.  The Committee shall, in its sole discretion, have the authority to grant any Consultant or Non-Employee Director Non-Qualified Stock Options.  To the extent that any Stock Option does not qualify as an Incentive Stock Option (whether because of its provisions or the time or manner of its exercise or
otherwise), such Stock Option or the portion thereof that does not qualify shall constitute a separate Non-Qualified Stock Option.

 

6.3           Terms of Options.  Options granted under the Plan shall be subject to the following terms and conditions and shall be in such form and contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee, in its sole discretion, shall deem desirable:

 

	
  

	
(a)

	
Exercise Price.  The exercise price per share of Common Stock subject to a Stock Option shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Stock Option shall not be less than 100% (or, in the case of an Incentive Stock Option granted to a Ten Percent Stockholder, 110%) of the Fair Market Value of the Common Stock at the time of grant.

 

	
  

	
(b)

	
Stock Option Term.  The term of each Stock Option shall be fixed by the Committee, provided that no Stock Option shall be exercisable more than 10 years after the date the Option is granted; and provided further that the term of an Incentive Stock Option granted to a Ten Percent Stockholder shall not exceed five years.

 

 

16

 

 

	
  

	
(c)

	
Exercisability.  Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant.  If the Committee provides, in its discretion, that any Stock Option is exercisable subject to certain limitations (including, without limitation, that such Stock Option is exercisable only in installments or within certain time periods or upon attainment of certain financial results), the Committee may waive such limitations on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such Stock Option may be exercised), based on such factors, if any, as the Committee shall determine, in its sole
discretion.  Unless otherwise determined by the Committee at grant, the Option agreement shall provide that (i) if the Participant engages in Detrimental Activity prior to any exercise of the Stock Option, all Stock Options held by the Participant shall thereupon terminate and expire, (ii) as a condition of the exercise of a Stock Option, the Participant shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Participant is in compliance with the terms and conditions of the Plan and that the Participant has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) if the Participant engages in Detrimental Activity during the one-year period commencing on the later of the date the Stock Option is exercised or the date of the Participant’s Termination, the Company shall be entitled to recover from the Participant at any time within one year after such
date, and the Participant shall pay over to the Company, an amount equal to any gain realized as a result of the exercise (whether at the time of exercise or thereafter).

 

	
  

	
(d)

	
Method of Exercise.  Subject to whatever installment exercise and waiting period provisions apply under Section 6.3(c) above, to the extent vested, Stock Options may be exercised in whole or in part at any time during the Option term, by giving written notice of exercise to the Company specifying the number of shares of Common Stock to be purchased.  Such notice shall be accompanied by payment in full of the purchase price as follows: (i) in cash or by check, bank draft or money order payable to the order of the Company; (ii) solely to the extent permitted by applicable law, if the Common Stock is traded on a national securities exchange, the NYSE Amex or quoted on a national quotation system sponsored by the National Association of Securities Dealers, and
the Committee authorizes, through a procedure whereby the Participant delivers irrevocable instructions to a broker reasonably acceptable to the Committee to deliver promptly to the Company an amount equal to the purchase price; or (iii) on such other terms and conditions as may be acceptable to the Committee (including, without limitation, the relinquishment of Stock Options or by payment in full or in part in the form of Common Stock owned by the Participant based on the Fair Market Value of the Common Stock on the payment date as determined by the Committee, in its sole discretion).  No shares of Common Stock shall be issued until payment therefor, as provided herein, has been made or provided for.

 

 

17

 

 

	
  

	
(e)

	
Non-Transferability of Options.  No Stock Option shall be Transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all Stock Options shall be exercisable, during the Participant’s lifetime, only by the Participant.  Notwithstanding the foregoing, the Committee may determine, in its sole discretion, at the time of grant or thereafter that a Non-Qualified Stock Option that is otherwise not Transferable pursuant to this Section is Transferable to a Family Member in whole or in part and in such circumstances, and under such conditions, as determined by the Committee, in its sole discretion.  A Non-Qualified Stock Option that is Transferred to a Family Member pursuant to the preceding sentence (i) may not be subsequently Transferred otherwise than by
will or by the laws of descent and distribution and (ii) remains subject to the terms of the Plan and the applicable Award agreement.  Any shares of Common Stock acquired upon the exercise of a Non-Qualified Stock Option by a permissible transferee of a Non-Qualified Stock Option or a permissible transferee pursuant to a Transfer after the exercise of the Non-Qualified Stock Option shall be subject to the terms of the Plan and the applicable Award agreement.

 

	
  

	
(f)

	
Incentive Stock Option Limitations.  To the extent that the aggregate Fair Market Value (determined as of the time of grant) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an Eligible Employee during any calendar year under the Plan and/or any other stock option plan of the Company, any Subsidiary or any Parent exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options.  Should any provision of the Plan not be necessary in order for the Stock Options to qualify as Incentive Stock Options, or should any additional provisions be required, the Committee may, in its sole discretion, amend the Plan accordingly, without the necessity of obtaining the approval of the stockholders of the Company.

 

	
  

	
(g)

	
Form, Modification, Extension and Renewal of Stock Options.  Subject to the terms and conditions and within the limitations of the Plan, Stock Options shall be evidenced by such form of agreement or grant as is approved by the Committee, and the Committee may, in its sole discretion (i) modify, extend or renew outstanding Stock Options granted under the Plan (provided that the rights of a Participant are not reduced without his or her consent and provided further that such action does not subject the Stock Options to Section 409A of the Code), and (ii) accept the surrender of outstanding Stock Options (up to the extent not theretofore exercised) and authorize the granting of new Stock Options in substitution therefor (to the extent not theretofore exercised).  Notwithstanding the foregoing, an outstanding
Option may not be modified to reduce the exercise price thereof nor may a new Option at a lower price be substituted for a surrendered Option (other than adjustments or substitutions in accordance with Section 4.2), unless such action is approved by the stockholders of the Company.

 

	
  

	
(h)

	
Early Exercise.  The Committee may provide that a Stock Option include a provision whereby the Participant may elect at any time before the Participant’s Termination to exercise the Stock Option as to any part or all of the shares of Common Stock subject to the Stock Option prior to the full vesting of the Stock Option and such shares shall be subject to the provisions of Article VI and treated as Restricted Stock.  Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Committee determines to be appropriate.

 

 

18

 

 

	
  

	
(i)

	
Other Terms and Conditions.  Stock Options may contain such other provisions, which shall not be inconsistent with any of the terms of the Plan, as the Committee shall, in its sole discretion, deem appropriate.

 

ARTICLE VII

 

STOCK APPRECIATION RIGHTS

 

7.1           Tandem Stock Appreciation Rights.  Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option (a “Reference Stock Option”) granted under the Plan (“Tandem Stock Appreciation Rights”).  In the case of a Non-Qualified Stock Option, such rights may be granted either at or after the time of the grant of such Reference Stock Option.  In the case of an Incentive Stock Option, such rights may be granted only at the time of the grant of such Reference Stock Option.

 

7.2           Terms and Conditions of Tandem Stock Appreciation Rights.  Tandem Stock Appreciation Rights granted hereunder shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee in its sole discretion, and the following:

 

	
  

	
(a)

	
Exercise Price.  The exercise price per share of Common Stock subject to a Tandem Stock Appreciation Right shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the Common Stock at the time of grant.

 

	
  

	
(b)

	
Term.  A Tandem Stock Appreciation Right or applicable portion thereof granted with respect to a Reference Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the Reference Stock Option, except that, unless otherwise determined by the Committee, in its sole discretion, at the time of grant, a Tandem Stock Appreciation Right granted with respect to less than the full number of shares covered by the Reference Stock Option shall not be reduced until and then only to the extent the exercise or termination of the Reference Stock Option causes the number of shares covered by the Tandem Stock Appreciation Right to exceed the number of shares remaining available and unexercised under the Reference Stock Option.

 

	
  

	
(c)

	
Exercisability.  Tandem Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Reference Stock Options to which they relate shall be exercisable in accordance with the provisions of Article VI, and shall be subject to the provisions of Section 6.3(c).

 

 

19

 

 

	
  

	
(d)

	
Method of Exercise.  A Tandem Stock Appreciation Right may be exercised by the Participant by surrendering the applicable portion of the Reference Stock Option.  Upon such exercise and surrender, the Participant shall be entitled to receive the payment determined in the manner prescribed in this Section 7.2.  Stock Options that have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the related Tandem Stock Appreciation Rights have been exercised.

 

	
  

	
(e)

	
Payment.  Upon the exercise of a Tandem Stock Appreciation Right, a Participant shall be entitled to receive up to, but no more than, an amount in cash and/or shares of Common Stock (as chosen by the Committee in its sole discretion at grant, or thereafter if no rights of a Participant are reduced) equal in value to the excess of the Fair Market Value of one share of Common Stock over the Option exercise price per share specified in the Reference Stock Option agreement, multiplied by the number of shares in respect of which the Tandem Stock Appreciation Right shall have been exercised.

 

	
  

	
(f)

	
Deemed Exercise of Reference Stock Option.  Upon the exercise of a Tandem Stock Appreciation Right, the Reference Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Article IV of the Plan on the number of shares of Common Stock to be issued under the Plan.

 

	
  

	
(g)

	
Non-Transferability.  Tandem Stock Appreciation Rights shall be Transferable only when and to the extent that the underlying Stock Option would be Transferable under Section 6.3(e) of the Plan.

 

7.3           Non-Tandem Stock Appreciation Rights.  Non-Tandem Stock Appreciation Rights may also be granted without reference to any Stock Options granted under the Plan.

 

7.4           Terms and Conditions of Non-Tandem Stock Appreciation Rights.  Non-Tandem Stock Appreciation Rights granted hereunder shall be subject to such terms and conditions, not inconsistent with the provisions of the Plan, as shall be determined from time to time by the Committee in its sole discretion, and the following:

 

	
  

	
(a)

	
Exercise Price.  The exercise price per share of Common Stock subject to a Non-Tandem Stock Appreciation Right shall be determined by the Committee at the time of grant, provided that the per share exercise price of a Non-Tandem Stock Appreciation Right shall not be less than 100% of the Fair Market Value of the Common Stock at the time of grant.

 

	
  

	
(b)

	
Term.  The term of each Non-Tandem Stock Appreciation Right shall be fixed by the Committee, but shall not be greater than 10 years after the date the right is granted.

 

 

20

 

 

	
  

	
(c)

	
Exercisability.  Non-Tandem Stock Appreciation Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at grant.  If the Committee provides, in its discretion, that any such right is exercisable subject to certain limitations (including, without limitation, that it is exercisable only in installments or within certain time periods), the Committee may waive such limitations on the exercisability at any time at or after grant in whole or in part (including, without limitation, waiver of the installment exercise provisions or acceleration of the time at which such right may be exercised), based on such factors, if any, as the Committee shall determine, in its sole discretion. 
 Unless otherwise determined by the Committee at grant, the Award agreement shall provide that (i) in the event the Participant engages in Detrimental Activity prior to any exercise of the Non-Tandem Stock Appreciation Right, all Non-Tandem Stock Appreciation Rights held by the Participant shall thereupon terminate and expire, (ii) as a condition of the exercise of a Non-Tandem Stock Appreciation Right, the Participant shall be required to certify (or shall be deemed to have certified) at the time of exercise in a manner acceptable to the Company that the Participant is in compliance with the terms and conditions of the Plan and that the Participant has not engaged in, and does not intend to engage in, any Detrimental Activity, and (iii) in the event the Participant engages in Detrimental Activity during the one-year period commencing on the later of the date the Non-Tandem Stock Appreciation Right is exercised or the date of the Participant’s Termination, the Company
shall be entitled to recover from the Participant at any time within one year after such date, and the Participant shall pay over to the Company, an amount equal to any gain realized as a result of the exercise (whether at the time of exercise or thereafter).

 

	
  

	
(d)

	
Method of Exercise.  Subject to whatever installment exercise and waiting period provisions apply under Section 7.4(c) above, Non-Tandem Stock Appreciation Rights may be exercised in whole or in part at any time in accordance with the applicable Award agreement, by giving written notice of exercise to the Company specifying the number of Non-Tandem Stock Appreciation Rights to be exercised.

 

	
  

	
(e)

	
Payment.  Upon the exercise of a Non-Tandem Stock Appreciation Right a Participant shall be entitled to receive, for each right exercised, up to, but no more than, an amount in cash and/or shares of Common Stock (as chosen by the Committee in its sole discretion at grant, or thereafter if no rights of a Participant are reduced) equal in value to the excess of the Fair Market Value of one share of Common Stock on the date the right is exercised over the Fair Market Value of one share of Common Stock on the date the right was awarded to the Participant.

 

	
  

	
(f)

	
Non-Transferability.  No Non-Tandem Stock Appreciation Rights shall be Transferable by the Participant otherwise than by will or by the laws of descent and distribution, and all such rights shall be exercisable, during the Participant’s lifetime, only by the Participant.

 

 

21

 

 

7.5           Limited Stock Appreciation Rights.  The Committee may, in its sole discretion, grant Tandem and Non-Tandem Stock Appreciation Rights either as a general Stock Appreciation Right or as a limited stock appreciation right (a “Limited Stock Appreciation Right”).  Limited Stock Appreciation Rights may be exercised only upon the occurrence of a Change in Control or such other event as
the Committee may, in its sole discretion, designate at the time of grant or thereafter.  Upon the exercise of Limited Stock Appreciation Rights, except as otherwise provided in an Award agreement, the Participant shall receive in cash or Common Stock, as determined by the Committee, an amount equal to the amount (a) set forth in Section 7.2(e) with respect to Tandem Stock Appreciation Rights, or (b) set forth in Section 7.4(e) with respect to Non-Tandem Stock Appreciation Rights, as applicable.

 

ARTICLE VIII

 

RESTRICTED STOCK

 

8.1           Awards of Restricted Stock.  Shares of Restricted Stock may be issued either alone or in addition to other Awards granted under the Plan.  The Committee shall, in its sole discretion, determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and the time or times at which, grants of Restricted Stock shall be made, the number of shares to be awarded, the price (if any) to be paid by the Participant (subject to Section 8.2), the time or times within which such Awards may be subject to forfeiture, the
vesting schedule and rights to acceleration thereof, and all other terms and conditions of the Awards.  The Committee may condition the grant or vesting of Restricted Stock upon the attainment of specified performance targets (including, the Performance Goals specified in Exhibit A attached hereto) or such other factors as the Committee may determine, in its sole discretion, including to comply with the requirements of Section 162(m) of the Code.

 

Unless otherwise determined by the Committee at grant, each Award of Restricted Stock shall provide that in the event the Participant engages in Detrimental Activity prior to, or during the one-year period after, any vesting of Restricted Stock, the Committee may direct that all unvested Restricted Stock shall be immediately forfeited to the Company and that the Participant shall pay over to the Company an amount equal to the Fair Market Value at the time of vesting of any Restricted Stock that had vested in the period referred to above.

 

8.2           Awards and Certificates.  Eligible Employees, Consultants and Non-Employee Directors selected to receive Restricted Stock shall not have any rights with respect to such Award, unless and until such Participant has delivered a fully executed copy of the agreement evidencing the Award to the Company and has otherwise complied with the applicable terms and conditions of such Award.  Further, such Award shall be subject to the following conditions:

 

	
  

	
(a)

	
Purchase Price.  The purchase price of Restricted Stock shall be fixed by the Committee.  Subject to Section 4.3, the purchase price for shares of Restricted Stock may be zero to the extent permitted by applicable law, and, to the extent not so permitted, such purchase price may not be less than par value.

 

 

22

 

 

	
  

	
(b)

	
Acceptance.  Awards of Restricted Stock must be accepted within a period of 60 days (or such other period as the Committee may specify) after the grant date, by executing a Restricted Stock agreement and by paying whatever price (if any) the Committee has designated thereunder.

 

	
  

	
(c)

	
Legend.  Each Participant receiving Restricted Stock shall be issued a stock certificate in respect of such shares of Restricted Stock, unless the Committee elects to use another system, such as book entries by the transfer agent, as evidencing ownership of shares of Restricted Stock.  Such certificate shall be registered in the name of such Participant, and shall, in addition to such legends required by applicable securities laws, bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form:

 

“The anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or charge of the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the Preferred Apartment Communities, Inc. (the “Company”) 2011 Stock Incentive Plan (as the same may be amended or amended and restated from time to time, the “Plan”) and an agreement entered into between the registered owner and the Company dated __________.  Copies of such Plan and agreement are on file at the principal office of the Company.”

 

	
  

	
(d)

	
Custody.  If stock certificates are issued in respect of shares of Restricted Stock, the Committee may require that any stock certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any grant of Restricted Stock, the Participant shall have delivered a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such Award.

 

8.3           Restrictions and Conditions.  The shares of Restricted Stock awarded pursuant to the Plan shall be subject to the following restrictions and conditions:

 

	
  

	
(a)

	
(i)  Restriction Period.  The Participant shall not be permitted to Transfer shares of Restricted Stock awarded under the Plan during the period or periods set by the Committee (the “Restriction Period”) commencing on the date of such Award, as set forth in the Restricted Stock Award agreement and such agreement shall set forth a vesting schedule and any events that would accelerate vesting of the shares of Restricted Stock.  Within these limits, based on service, attainment of performance goals pursuant to Section 8.3(a)(ii) and/or such other factors or criteria as the Committee may determine in its sole discretion, the Committee may condition the grant or provide
for the lapse of such restrictions in installments in whole or in part, or may accelerate the vesting of all or any part of any Restricted Stock Award and/or waive the deferral limitations for all or any part of any Restricted Stock Award.

 

 

23

 

 

(ii)           Objective Performance Goals, Formulae or Standards.  If the grant of shares of Restricted Stock or the lapse of restrictions is based on the attainment of Performance Goals, the Committee shall establish the Performance Goals and the applicable vesting percentage of the Restricted Stock Award applicable to each Participant or class of Participants in writing prior to the beginning of the applicable fiscal year or at such later date as otherwise determined by the Committee and while the outcome of the Performance Goals are substantially uncertain.  Such Performance Goals may incorporate provisions for disregarding (or adjusting for) changes in accounting methods,
corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances.  With regard to a Restricted Stock Award that is intended to comply with Section 162(m) of the Code, to the extent any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect.  The applicable Performance Goals shall be based on one or more of the performance criteria set forth in Exhibit A hereto.

 

	
  

	
(b)

	
Rights as a Stockholder.  Except as provided in this Section 8.3(b) and Section 8.3(a) above and as otherwise determined by the Committee, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a holder of shares of Common Stock of the Company including, without limitation, the right to receive any dividends, the right to vote such shares and, subject to and conditioned upon the full vesting of shares of Restricted Stock, the right to tender such shares.  The Committee may, in its sole discretion, determine at the time of grant that the payment of dividends shall be deferred until, and conditioned upon, the expiration of the applicable Restriction Period.

 

	
  

	
(c)

	
Lapse of Restrictions.  If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock, the certificates for such shares shall be delivered to the Participant.  All legends shall be removed from said certificates at the time of delivery to the Participant, except as otherwise required by applicable law or other limitations imposed by the Committee.

 

ARTICLE IX

 

PERFORMANCE SHARES

 

 

24

 

 

9.1           Award of Performance Shares.  Performance Shares may be awarded either alone or in addition to other Awards granted under the Plan.  The Committee shall, in its sole discretion, determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and the time or times at which, Performance Shares shall be awarded, the number of Performance Shares to be awarded to any person, the Performance Period during which, and the conditions under which, receipt of the Shares will be deferred, and the other terms and conditions of the Award in addition to those set forth in Section 9.2.

 

Unless otherwise determined by the Committee at grant, each Award of Performance Shares shall provide that in the event the Participant engages in Detrimental Activity prior to, or during the one-year period after the later of the date of any vesting of Performance Shares or the date of the Participant’s Termination, the Committee may direct (at any time within one year thereafter) that all unvested Performance Shares shall be immediately forfeited to the Company and that the Participant shall pay over to the Company an amount equal to any gain the Participant realized from any Performance Shares that had vested in the period referred to above.

 

Except as otherwise provided herein, the Committee shall condition the right to payment of any Performance Share upon the attainment of objective performance goals established pursuant to Section 9.2(c).

 

9.2           Terms and Conditions.  Performance Shares awarded pursuant to this Article IX shall be subject to the following terms and conditions:

 

	
  

	
(a)

	
Earning of Performance Share Award.  At the expiration of the applicable Performance Period, the Committee shall determine the extent to which the performance goals established pursuant to Section 9.2(c) are achieved and the percentage of each Performance Share Award that has been earned.

 

	
  

	
(b)

	
Non-Transferability.  Subject to the applicable provisions of the Award agreement and the Plan, Performance Shares may not be Transferred during the Performance Period.

 

	
  

	
(c)

	
Objective Performance Goals, Formulae or Standards.  The Committee shall establish the objective Performance Goals for the earning of Performance Shares based on a Performance Period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable Performance Period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially uncertain.  Such Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisitions) and other similar type events or circumstances.  To the extent any such
provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect.  The applicable Performance Goals shall be based on one or more of the performance criteria set forth in Exhibit A hereto.

 

 

25

 

 

	
  

	
(d)

	
Dividends.  Unless otherwise determined by the Committee at the time of grant, amounts equal to any dividends declared during the Performance Period with respect to the number of shares of Common Stock covered by a Performance Share will not be paid to the Participant.

 

	
  

	
(e)

	
Payment.  Following the Committee’s determination in accordance with Section 9.5(a), shares of Common Stock or, as determined by the Committee in its sole discretion, the cash equivalent of such shares shall be delivered to the Eligible Employee, Consultant or Non-Employee Director, or his legal representative, in an amount equal to such individual’s earned Performance Share.  Notwithstanding the foregoing, the Committee may, in its sole discretion, award an amount less than the earned Performance Share and/or subject the payment of all or part of any Performance Share to additional vesting, forfeiture and deferral conditions as it deems appropriate.

 

	
  

	
(f)

	
Accelerated Vesting.  Based on service, performance and/or such other factors or criteria, if any, as the Committee may determine, the Committee may, in its sole discretion, at or after grant, accelerate the vesting of all or any part of any Performance Share Award and/or waive the deferral limitations for all or any part of such Award.

 

ARTICLE X

 

OTHER STOCK-BASED AWARDS

 

10.1           Other Awards.  The Committee, in its sole discretion, is authorized to grant to Eligible Employees, Consultants and Non-Employee Directors Other Stock-Based Awards that are payable in, valued in whole or in part by reference to, or otherwise based on or related to shares of Common Stock, including, but not limited to, shares of Common Stock awarded purely as a bonus and not subject to any restrictions or conditions, shares of Common Stock in payment of the amounts due under an incentive or performance plan sponsored or maintained by the Company or an Affiliate, performance units, dividend
equivalent units, stock equivalent units, restricted stock units and deferred stock units.  To the extent permitted by law, the Committee may, in its sole discretion, permit Eligible Employees and/or Non-Employee Directors to defer all or a portion of their cash compensation in the form of Other Stock-Based Awards granted under the Plan, subject to the terms and conditions of any deferred compensation arrangement established by the Company, which shall be intended to comply with Section 409A of the Code.  Other Stock-Based Awards may be granted either alone or in addition to or in tandem with other Awards granted under the Plan.

 

Unless otherwise determined by the Committee at grant, each Other Stock-based Award shall provide that in the event the Participant engages in Detrimental Activity prior to, or during the one-year period after the later of the date of any vesting of Performance Shares or the date of the Participant’s Termination, the Committee may direct (at any time within one year thereafter) that any unvested portion of such Award shall be immediately forfeited to the Company and that the Participant shall pay over to the Company an amount equal to any gain the Participant realized from any such Award that had vested in the period referred to above.

 

 

26

 

 

Subject to the provisions of the Plan, the Committee shall, in its sole discretion, have authority to determine the Eligible Employees, Consultants and Non-Employee Directors, to whom, and the time or times at which, such Awards shall be made, the number of shares of Common Stock to be awarded pursuant to such Awards, and all other conditions of the Awards.  The Committee may also provide for the grant of Common Stock under such Awards upon the completion of a specified performance period.

 

The Committee may condition the grant or vesting of Other Stock-Based Awards upon the attainment of specified Performance Goals set forth on Exhibit A as the Committee may determine, in its sole discretion; provided that to the extent that such Other Stock-Based Awards are intended to comply with Section 162(m) of the Code, the Committee shall establish the objective Performance Goals for the vesting of such Other Stock-Based Awards based on a performance period applicable to each Participant or class of Participants in writing prior to the beginning of the applicable performance period or at such later date as permitted under Section 162(m) of the Code and while the outcome of the Performance Goals are substantially uncertain.  Such
Performance Goals may incorporate, if and only to the extent permitted under Section 162(m) of the Code, provisions for disregarding (or adjusting for) changes in accounting methods, corporate transactions (including, without limitation, dispositions and acquisition) and other similar type events or circumstances.  To the extent any such provision would create impermissible discretion under Section 162(m) of the Code or otherwise violate Section 162(m) of the Code, such provision shall be of no force or effect.  The applicable Performance Goals shall be based on one or more of the performance criteria set forth in Exhibit A hereto.

 

10.2           Terms and Conditions.  Other Stock-Based Awards made pursuant to this Article X shall be subject to the following terms and conditions:

 

	
  

	
(a)

	
Non-Transferability.  Subject to the applicable provisions of the Award agreement and the Plan, shares of Common Stock subject to Awards made under this Article X may not be Transferred prior to the date on which the shares are issued, or, if later, the date on which any applicable restriction, performance or deferral period lapses.

 

	
  

	
(b)

	
Dividends.  Unless otherwise determined by the Committee at the time of Award, subject to the provisions of the Award agreement and the Plan, the recipient of an Award under this Article X shall not be entitled to receive, currently or on a deferred basis, dividends or dividend equivalents with respect to the number of shares of Common Stock covered by the Award.

 

	
  

	
(c)

	
Vesting.  Any Award under this Article X and any Common Stock covered by any such Award shall vest or be forfeited to the extent so provided in the Award agreement, as determined by the Committee, in its sole discretion.

 

 

27

 

 

	
  

	
(d)

	
Price.  Common Stock issued on a bonus basis under this Article X may be issued for no cash consideration; Common Stock purchased pursuant to a purchase right awarded under this Article X shall be priced, as determined by the Committee in its sole discretion.

 

	
  

	
(e)

	
Payment.  Form of payment for the Other Stock-Based Award shall be specified in the Award agreement.

 

ARTICLE XI

 

TERMINATION

 

11.1           Termination.  The following rules apply with regard to the Termination of a Participant.

 

	
  

	
(a)

	
Rules Applicable to Stock Option and Stock Appreciation Rights.  Unless otherwise determined by the Committee at grant (or, if no rights of the Participant are reduced, thereafter):

 

(i)           Termination by Reason of Death, Disability or Retirement.  If a Participant’s Termination is by reason of death, Disability or the Participant’s Retirement, all Stock Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant (or, in the case of death, by the legal representative of the Participant’s estate) at any time within a one-year period from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options or Stock Appreciation Rights; provided, however, if the Participant dies within such exercise period, all unexercised Stock Options or Stock Appreciation Rights held by such Participant shall thereafter be exercisable, to the extent to which they were exercisable at the time of death, for a period of one year from the date of such death, but in no event beyond the expiration of the stated term of such Stock Options or Stock Appreciation Rights.

 

(ii)           Involuntary Termination Without Cause.  If a Participant’s Termination is by involuntary termination without Cause, all Stock Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant at any time within a period of 90 days from the date of such Termination, but in no event beyond the expiration of the stated term of such Stock Options or Stock Appreciation Rights.

 

 

28

 

 

(iii)           Voluntary Termination.  If a Participant’s Termination is voluntary (other than a voluntary termination described in Section 11.2(a)(iv)(2), or a Retirement), all Stock Options or Stock Appreciation Rights that are held by such Participant that are vested and exercisable at the time of the Participant’s Termination may be exercised by the Participant at any time within a period of 30 days from the date of such Termination, but in no event beyond the expiration of the stated terms of such Stock Options or Stock Appreciation Rights.

 

(iv)           Termination for Cause.  If a Participant’s Termination: (A) is for Cause, or (B) is a voluntary Termination (as provided in Section 11.1(a)(iii)) or a Retirement after the occurrence of an event that would be grounds for a Termination for Cause, all Stock Options or Stock Appreciation Rights, whether vested or not vested, that are held by such Participant shall thereupon terminate and expire as of the date of such Termination.

 

(v)           Unvested Stock Options and Stock Appreciation Rights.  Stock Options or Stock Appreciation Rights that are not vested as of the date of a Participant’s Termination for any reason shall terminate and expire as of the date of such Termination.  Notwithstanding the foregoing, if a Participant is deemed to have experienced a Termination of Employment in accordance with the last sentence of Section 2.54 of the Plan, then (A) any Stock Options and any Stock Appreciation Rights that are not vested as of the date of such Participant’s Termination of Employment in accordance with the last sentence of
Section 2.54 of the Plan (“Special Unvested Options or Rights”) shall not terminate or expire as of the date of such Termination of Employment and shall remain outstanding until a Participant experiences a Termination of Employment (other than on account of the last sentence of Section 2.54 of the Plan), but in no event beyond the expiration of the stated term of any such Special Unvested Options or Rights, and (B) no Special Unvested Options or Rights will thereafter vest except as set forth in the next succeeding sentence.  If, after a Termination of Employment in accordance with the last sentence of Section 2.54 of the Plan, (1) a Participant remains continuously employed by the Company or any of its
Affiliates, and (2) subsequent thereto, such Participant becomes regularly scheduled to work more than 24 hours per week, then any Special Unvested Options or Rights shall immediately vest as to any shares of Common Stock that did not vest under the terms of such Special Unvested Options or Rights between the date of such Participant’s Termination of Employment in accordance with the last sentence of Section 2.54 of the Plan and the date such Participant became regularly scheduled to work more than 24 hours per week solely as a result of the application of the immediately preceding sentence.

 

	
  

	
(b)

	
Rules Applicable to Restricted Stock, Performance Shares and Other Stock-Based Awards.  Unless otherwise determined by the Committee at grant or thereafter, upon a Participant’s Termination for any reason:  (i) during the relevant Restriction Period, all Restricted Stock still subject to restriction shall be forfeited; and (ii) any unvested Performance Shares or Other Stock-Based Awards shall be forfeited.

 

 

29

 

 

ARTICLE XII

 

CHANGE IN CONTROL PROVISIONS

 

12.1           Benefits.  In the event of a Change in Control of the Company, and except as otherwise provided by the Committee in an Award agreement or in a written employment agreement between the Company and a Participant, a Participant’s unvested Award shall vest in full and a Participant’s Award shall be treated in accordance with one of the following methods as determined by the Committee in its sole discretion:

 

	
  

	
(a)

	
Awards, whether or not vested by their terms or pursuant to the preceding sentence, shall be continued, assumed, have new rights substituted therefor or be treated in accordance with Section 4.2(d), as determined by the Committee in its sole discretion, and restrictions to which any shares of Restricted Stock or any other Award granted prior to the Change in Control are subject shall not lapse upon a Change in Control (other than with respect to vesting pursuant to the foregoing provisions of this Section 12.1) and the Restricted Stock or other Award shall, where appropriate in the sole discretion of the Committee, receive the same or other appropriate distribution as other Common Stock on such terms as determined by the Committee in its sole discretion;
provided, however, that, the Committee may, in its sole discretion, decide to award additional Restricted Stock or other Award in lieu of any cash distribution.  Notwithstanding anything to the contrary herein, for purposes of Incentive Stock Options, any assumed or substituted Stock Option shall comply with the requirements of Treasury Regulation §  1.424-1 (and any amendments thereto).

 

	
  

	
(b)

	
The Committee, in its sole discretion, may provide for the purchase of any Awards by the Company or an Affiliate (or the cancellation and extinguishment thereof pursuant to the terms of a merger agreement entered into by the Company) for an amount of cash equal to the excess of the Change in Control Price (as defined below) of the shares of Common Stock covered by such Awards, over the aggregate exercise price of such Awards.  For purposes of this Section 12.1, “Change in Control Price” shall mean the highest price per share of Common Stock paid in any transaction related to a Change in Control of the Company.

 

	
  

	
(c)

	
The Committee may, in its sole discretion, provide for the cancellation of any particular Award or Awards without payment, if the Change in Control Price is less than the Fair Market Value of such Award(s) on the date of grant.

 

 

30

 

 

	
  

	
(d)

	
Notwithstanding anything else herein, the Committee may, in its sole discretion, provide for accelerated vesting or lapse of restrictions, of an Award at the time of grant or at any time thereafter.

 

12.2           Change in Control.  Unless otherwise determined by the Committee in the applicable Award agreement or other written agreement approved by the Committee, a “Change in Control” shall be deemed to occur following any transaction if:  (a) any “person” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of Common Stock of the Company), becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 40% or more of the combined voting power of the then outstanding securities of the Company (or its successor corporation); or (b) the stockholders of the Company approve a plan of complete liquidation of the Company or the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets other than (i) the sale or disposition of all or substantially all of the assets of the Company to a person or persons who beneficially own, directly or indirectly, at least 50% or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale, or (ii) pursuant to a spin-off type transaction, directly or indirectly, of such assets to the stockholders of the Company.

 

ARTICLE XIII

 

TERMINATION OR AMENDMENT OF PLAN

 

13.1           Termination or Amendment.  Notwithstanding any other provision of the Plan, the Board or the Committee may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement referred to in Article XV), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Participant with respect to Awards granted prior to such amendment, suspension or termination, may not be impaired without the consent of such Participant and, provided further, without the approval of the stockholders of the Company in accordance with the laws of the State of Maryland, to the extent required by the applicable provisions of Rule 16b-3 or Section 162(m) of the Code, pursuant to the requirements of any applicable stock exchange rule, or, to the extent applicable to Incentive Stock Options, Section 422 of the Code, no amendment may be made that would:

 

	
  

	
(a)

	
increase the aggregate number of shares of Common Stock that may be issued under the Plan pursuant to Section 4.1 (except by operation of Section 4.2);

 

	
  

	
(b)

	
increase the maximum individual Participant limitations for a fiscal year under Section 4.1(b) (except by operation of Section 4.2);

 

	
  

	
(c)

	
change the classification of Eligible Employees or Consultants eligible to receive Awards under the Plan;

 

 

31

 

 

	
  

	
(d)

	
decrease the minimum option price of any Stock Option or Stock Appreciation Right;

 

	
  

	
(e)

	
extend the maximum option period under Section 6.3;

 

	
  

	
(f)

	
alter the Performance Goals for the Award of Restricted Stock, Performance Shares or Other Stock-Based Awards subject to satisfaction of Performance Goals as set forth in Exhibit A;

 

	
  

	
(g)

	
award any Stock Option or Stock Appreciation Right in replacement of a canceled Stock Option or Stock Appreciation Right with a higher exercise price, except in accordance with Section 6.3(g); or

 

	
  

	
(h)

	
require stockholder approval in order for the Plan to continue to comply with the applicable provisions of Section 162(m) of the Code or, to the extent applicable to Incentive Stock Options, Section 422 of the Code.  In no event may the Plan be amended without the approval of the stockholders of the Company in accordance with the applicable laws of the State of Maryland to increase the aggregate number of shares of Common Stock that may be issued under the Plan, decrease the minimum exercise price of any Stock Option or Stock Appreciation Right, or to make any other amendment that would require stockholder approval under NYSE Amex rules, or the rules of any other exchange or system on which the Company's securities are listed or traded at the request of the Company.

 

The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Article IV or as otherwise specifically provided herein, no such amendment or other action by the Committee shall adversely impair the rights of any holder without the holder’s consent.  Notwithstanding anything herein to the contrary, the Board or the Committee may amend the Plan or any Award granted hereunder at any time without a Participant’s consent to comply with Code Section 409A or any other applicable law.

 

 

ARTICLE XIV

 

UNFUNDED PLAN

 

14.1           Unfunded Status of Plan.  The Plan is an “unfunded” plan for incentive and deferred compensation.  With respect to any payments as to which a Participant has a fixed and vested interest but that are not yet made to a Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general unsecured creditor of the Company.

 

 

32

 

 

ARTICLE XV

 

GENERAL PROVISIONS

 

15.1           Legend.  The Committee may require each person receiving shares of Common Stock pursuant to an Award granted under the Plan to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof and such other securities law-related representations as the Committee shall request.  In addition to any legend required by the Plan, the certificates and/or book entry accounts for such shares may include any legend that the Committee, in its sole discretion, deems appropriate to reflect any restrictions on Transfer.

 

All certificates and/or book entry accounts for shares of Common Stock delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may, in its sole discretion, deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, the NYSE Amex stock market or any national securities exchange system upon whose system the Common Stock is then quoted, any applicable Federal or state securities law, and any applicable corporate law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

 

15.2           Other Plans.  Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases.

 

15.3           No Right to Employment/Directorship/Consultancy.  Neither the Plan nor the grant of any Option or other Award hereunder shall give any Participant or other employee, Consultant or Non-Employee Director any right with respect to continuance of employment, consultancy or directorship by the Company or any Affiliate, nor shall they be a limitation in any way on the right of the Company or any Affiliate by which an employee is employed or a Consultant or Non-Employee Director is retained to terminate his or her employment, consultancy or directorship at any time.

 

15.4           Withholding of Taxes.  The Company shall have the right to deduct from any payment to be made pursuant to the Plan, or to otherwise require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash hereunder, payment by the Participant of, any Federal, state or local taxes required by law to be withheld.  Upon the vesting of Restricted Stock (or other Award that is taxable upon vesting), or upon making an election under Section 83(b) of the Code, a Participant shall pay all required withholding to the Company.  Any statutorily required
withholding obligation with regard to any Participant may be satisfied, subject to the advance consent of the Committee, by reducing the number of shares of Common Stock otherwise deliverable or by delivering shares of Common Stock already owned.  Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Participant.

 

 

33

 

 

15.5           No Assignment of Benefits.  No Award or other benefit payable under the Plan shall, except as otherwise specifically provided by law or permitted by the Committee, be Transferable in any manner, and any attempt to Transfer any such benefit shall be void, and any such benefit shall not in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person who shall be entitled to such benefit, nor shall it be subject to attachment or legal process for or against such person.

 

15.6           Listing and Other Conditions.

 

	
  

	
(a)

	
Unless otherwise determined by the Committee, as long as the Common Stock is listed on a national securities exchange or system sponsored by a national securities association, the issue of any shares of Common Stock pursuant to an Award shall be conditioned upon such shares being listed on such exchange or system.  The Company shall have no obligation to issue such shares unless and until such shares are so listed, and the right to exercise any Option or other Award with respect to such shares shall be suspended until such listing has been effected.

 

	
  

	
(b)

	
If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an Option or other Award is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act or otherwise, with respect to shares of Common Stock or Awards, and the right to exercise any Option or other Award shall be suspended until, in the opinion of said counsel, such sale or delivery shall be lawful or will not result in the imposition of excise taxes on the Company.

 

	
  

	
(c)

	
Upon termination of any period of suspension under this Section 15.6, any Award affected by such suspension that shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares that would otherwise have become available during the period of such suspension, but no such suspension shall extend the term of any Award.

 

	
  

	
(d)

	
A Participant shall be required to supply the Company with any certificates, representations and information that the Company requests and otherwise cooperate with the Company in obtaining any listing, registration, qualification, exemption, consent or approval the Company deems necessary or appropriate.

 

15.7           Governing Law.  The Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Maryland (regardless of the law that might otherwise govern under applicable Maryland principles of conflict of laws).

 

15.8           Construction.  Wherever any words are used in the Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.

 

 

34

 

 

15.9           Other Benefits.  No Award granted or paid out under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its Affiliates nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.

 

15.10           Costs.  The Company shall bear all expenses associated with administering the Plan, including expenses of issuing Common Stock pursuant to any Awards hereunder.

 

15.11           No Right to Same Benefits.  The provisions of Awards need not be the same with respect to each Participant, and such Awards to individual Participants need not be the same in subsequent years.

 

15.12           Death/Disability.  The Committee may in its sole discretion require the transferee of a Participant to supply it with written notice of the Participant’s death or Disability and to supply it with a copy of the will (in the case of the Participant’s death) or such other evidence as the Committee deems necessary to establish the validity of the transfer of an Award.  The Committee may, in its discretion, also require the agreement of the transferee to be bound by all of the terms and conditions of the Plan.

 

15.13           Section 16(b) of the Exchange Act.  On and after the Registration Date, all elections and transactions under the Plan by persons subject to Section 16 of the Exchange Act involving shares of Common Stock are intended to comply with any applicable exemptive condition under Rule 16b-3.  The Committee may, in its sole discretion, establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business
thereunder.

 

15.14           Section 409A of the Code.  Although the Company does not guarantee the particular tax treatment of an Award granted under the Plan, Awards made under the Plan are intended to comply with, or be exempt from, the applicable requirements of Section 409A of the Code and the Plan and any Award agreement hereunder shall be limited, construed and interpreted in accordance with such intent.  Notwithstanding anything herein to the contrary, any provision in the Plan that is inconsistent with Section 409A of the Code shall be deemed to be amended to comply with Section 409A of the Code and to
the extent such provision cannot be amended to comply therewith, such provision shall be null and void.

 

15.15           Successor and Assigns.  The Plan shall be binding on all successors and permitted assigns of a Participant, including, without limitation, the estate of such Participant and the executor, administrator or trustee of such estate.

 

15.16           Severability of Provisions.  If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included.

 

 

35

 

 

15.17           Payments to Minors, Etc.  Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipt thereof shall be deemed paid when paid to such person’s guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Committee, the Board, the Company, its Affiliates and their employees, agents and representatives with respect thereto.

 

15.18           Headings and Captions.  The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

 

15.19           Transition Period.  The Plan has been adopted by the Board and approved by its stockholders, both of which occurred prior to the occurrence of a Registration Date.  The Plan is intended to constitute a plan described in Treasury Regulation Section 1.162-27(f)(1), pursuant to which the deduction limits under Section 162(m) of the Code do not apply during the applicable reliance period.  The reliance period shall end on the earliest date identified in the definition of “Transition Period” contained in Section 2.56 of the Plan.

 

ARTICLE XVI

 

EFFECTIVE DATE OF PLAN

 

The Plan shall become effective upon adoption by the Board or such later date as provided in the adopting resolution, subject to the approval of the Plan by the stockholders of the Company within 12 months before or after adoption of the Plan by the Board in accordance with the laws of the State of Maryland.

 

ARTICLE XVII

 

TERM OF PLAN

 

The Plan was adopted by the Board on February 25, 2011, and was approved by the Company’s stockholders on February 25, 2011.  No Award shall be granted pursuant to the Plan on or after December 31, 2013, but Awards granted prior to such date may, and the Committee’s authority to administer the terms of such Awards, extend beyond that date; provided, however, that no Award (other than a Stock Option or Stock Appreciation Right) that is intended to be “performance-based” under Section 162(m) of the Code shall be granted on or after the fifth anniversary of the stockholder approval of the Plan unless the Performance Goals set forth on Exhibit A are reapproved (or other designated performance goals are approved) by the stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which stockholders approve the Performance Goals set forth on Exhibit A.

 

ARTICLE XVIII

 

NAME OF PLAN

 

The Plan shall be known as the “Preferred Apartment Communities, Inc. 2011 Stock Incentive Plan.”

 

 

36

 

EXHIBIT A

 

PERFORMANCE GOALS

 

To the extent permitted under Section 162(m) of the Code, performance goals established for purposes of the grant or vesting of Awards of Restricted Stock, Other Stock-Based Awards and/or Performance Shares, each intended to be “performance-based” under Section 162(m) of the Code, shall be based on the attainment of certain target levels of, or a specified increase or decrease (as applicable) in one or more of the following performance goals (“Performance Goals”):

 

	
  

	
(a)

	
earnings per share;

 

	
  

	
(b)

	
operating income;

 

	
  

	
(c)

	
net income;

 

	
  

	
(d)

	
cash flow;

 

	
  

	
(e)

	
gross profit;

 

	
  

	
(f)

	
gross profit return on investment;

 

	
  

	
(g)

	
gross margin return on investment;

 

	
  

	
(h)

	
gross margin;

 

	
  

	
(i)

	
working capital;

 

	
  

	
(j)

	
earnings before interest and taxes;

 

	
  

	
(k)

	
earnings before interest, tax, depreciation and amortization;

 

	
  

	
(l)

	
return on equity;

 

	
  

	
(m)

	
return on assets;

 

	
  

	
(n)

	
return on capital;

 

	
  

	
(o)

	
return on invested capital;

 

	
  

	
(p)

	
net revenues;

 

	
  

	
(q)

	
gross revenues;

 

	
  

	
(r)

	
revenue growth;

 

	
  

	
(s)

	
total shareholder return;

 

 

i

 

 

	
  

	
(t)

	
economic value added;

 

	
  

	
(u)

	
specified objectives with regard to limiting the level of increase in all or a portion of the Company’s bank debt or other long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Committee in its sole discretion;

 

	
  

	
(v)

	
the fair market value of the shares of the Company’s Common Stock;

 

	
  

	
(w)

	
the growth in the value of an investment in the Company’s Common Stock assuming the reinvestment of dividends; or

 

	
  

	
(x)

	
reduction in expenses.

 

To the extent permitted under Section 162(m) of the Code, the Committee may, in its sole discretion, also exclude, or adjust to reflect, the impact of an event or occurrence that the Committee determines should be appropriately excluded or adjusted, including:

 

(i)           restructurings, discontinued operations, extraordinary items or events, and other unusual or non-recurring charges as described in Accounting Principles Board Opinion No. 30 and/or management’s discussion and analysis of financial condition and results of operations appearing or incorporated by reference in the Company’s Form 10-K for the applicable year;

 

(ii)           an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management; or

 

(iii)           a change in tax law or accounting standards required by generally accepted accounting principles.

 

Performance goals may also be based upon individual Participant performance goals, as determined by the Committee, in its sole discretion.

 

In addition, such Performance Goals may be based upon the attainment of specified levels of Company (or subsidiary, division, other operational unit or administrative department of the Company) performance under one or more of the measures described above relative to the performance of other corporations.  To the extent permitted under Section 162(m) of the Code, but only to the extent permitted under Section 162(m) of the Code (including, without limitation, compliance with any requirements for stockholder approval), the Committee may also:

 

(a)           designate additional business criteria on which the performance goals may be based; or

 

(b)           adjust, modify or amend the aforementioned business criteria.

 

 

ii

 

TABLE OF CONTENTS

 

 

	ARTICLE I PURPOSE	1
	 	 
	ARTICLE II DEFINITIONS	1
	 	 
	ARTICLE III ADMINISTRATION	8
	 	 
	ARTICLE IV SHARE LIMITATION	11
	 	 
	ARTICLE V ELIGIBILITY AND GENERAL REQUIREMENTS FOR AWARDS	15
	 	 
	ARTICLE VI STOCK OPTIONS	16
	 	 
	ARTICLE VII STOCK APPRECIATION RIGHTS	19
	 	 
	ARTICLE VIII RESTRICTED STOCK	22
	 	 
	ARTICLE IX PERFORMANCE SHARES	24
	 	 
	ARTICLE X OTHER STOCK-BASED AWARDS	26
	 	 
	ARTICLE XI TERMINATION	28
	 	 
	ARTICLE XII CHANGE IN CONTROL PROVISIONS	30
	 	 
	ARTICLE XIII TERMINATION OR AMENDMENT OF PLAN	31
	 	 
	ARTICLE XIV UNFUNDED PLAN	32
	 	 
	ARTICLE XV GENERAL PROVISIONS	33
	 	 
	ARTICLE XVI EFFECTIVE DATE OF PLAN	36
	 	 
	ARTICLE XVII TERM OF PLAN	36
	 	 
	ARTICLE XVIII NAME OF PLAN	36
	 	 
	EXHIBIT A  PERFORMANCE GOALS	i
	 	 

 

 

 

 

 

 

PREFERRED APARTMENT COMMUNITIES, INC.

 

2011 STOCK INCENTIVE PLAN

 

(effective as of February 25, 2011)

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