Exhibit 10.1
ADVISORY AGREEMENT
BETWEEN
APPLE REIT EIGHT, INC.
AND
APPLE EIGHT ADVISORS,
INC.
THIS ADVISORY AGREEMENT, dated as of
, 2007, is between APPLE REIT EIGHT, INC., a Virginia corporation
(the “Company”), and APPLE EIGHT ADVISORS, INC., a
Virginia corporation (the “Advisor”).
RECITALS
A. The purpose of the Company is to
invest primarily in hotels, residential apartment communities and
other income-producing real estate in selected metropolitan areas
of the United States. The Company intends to qualify as a real
estate investment trust pursuant to Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended.
B. The Company desires to engage the
Advisor to provide information, advice, assistance and facilities
to the Company and to have the Advisor undertake the duties and
responsibilities hereinafter set forth, all subject to the
supervision of the Company’s Board of Directors, on the terms
and conditions set forth herein. In consideration therefor, the
Company desires to pay the Advisor certain fees as herein set
forth.
NOW, THEREFORE, in consideration of
the foregoing and of the mutual covenants and agreements contained
herein, the parties agree as follows:
1. Definitions . For purposes
of this Agreement, the following terms shall have the meanings set
forth below.
(a) “Affiliate” means
(i) any Person directly or indirectly controlling, controlled
by or under common control with another Person, (ii) any
Person owning or controlling 10% or more of the outstanding voting
securities or beneficial interests of such other Person,
(iii) any officer, director, trustee or general partner of
such Person and (iv) if such other Person is an officer,
director, trustee or partner of another entity, then the entity for
which that Person acts in any such capacity.
“Affiliated” means being an Affiliate of a specified
Person.
(b) “Articles of
Incorporation” means the Company’s Articles of
Incorporation filed with the Virginia State Corporation Commission,
including all amendments, restatements or modifications
thereof.
(c) “Asset Management
Fee” means the fee payable to the Advisor for its services
hereunder. Such fee will be paid pursuant and subject to
Section 11 of this Agreement.
(d) “Average Invested
Assets” for any period means the average of the aggregate
book value of the assets of the Company invested, directly or
indirectly, in equity interests in and loans secured by real
estate, before reserves for depreciation or bad debts or other
similar non-cash reserves, computed by taking the average of such
values at the end of each month during such period.
(e) “Board of Directors”
means the Company’s Board of Directors as of any particular
time.
(f) “Bylaws” means the
Company’s Bylaws, including all amendments, restatements or
modifications thereof.
(g) “Calendar Year”
means the year ended December 31st and any portion thereof
treated by the Internal Revenue Service as a reporting period for
the Company.
(h) “Code” means the
Internal Revenue Code of 1986, as amended from time to time,
including successor statutes thereto.
(i) “Company Net Income”
for any period means the total revenues of the Company for such
period, less expenses applicable to such period other than
additions to reserves for depreciation or bad debts or other
similar non-cash reserves. “Company Net Income,” for
purposes of calculating Operating Expenses in Section 15 of
this Agreement, does not include the gain from the sale of the
Company’s assets.
(j) “Directors” means,
as of any particular time, the directors of the Company holding
office at such time.
(k) “Modified Net
Income” means net income (computed in accordance with
generally accepted accounting principles) excluding gains (or
losses) from debt restructuring and sales of property, plus
depreciation of real property, and after adjustments for
significant non-recurring items and unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect modified net income on
the same basis.
(l) “Offering” means the
public offering of the Company’s Units.
(m) “Operating Expenses”
means all operating, general and administrative expenses of the
Company as determined under generally accepted accounting
principles (including regular compensation payable to the Advisor),
excluding, however, the following:
(i) expenses of raising
capital;
(ii) interest payments;
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(iii) taxes;
(iv) non-cash expenditures, such as
depreciation, amortization and bad debt;
(v) reserves;
(vi) incentive fees paid to the
Advisor, if any; and
(vii) costs related directly to
asset acquisition, operation or disposition.
(n) “Organizational and
Offering Expenses” means all expenses incurred in connection
with the formation and registration of the Company and in
qualifying and marketing the Units under applicable federal and
state law, and any other expenses actually incurred and directly
related to the qualification, registration, offer and sale of the
Units, including such expenses as (i) all marketing expenses
and payments made to broker-dealers as compensation or
reimbursement for all costs of reviewing the Offering, including
due diligence investigations and fees and expenses of their
attorneys, accountants and other experts; (ii) registration
fees, filing fees and taxes; (iii) the costs of printing,
amending, supplementing and distributing the registration statement
and Prospectus; (iv) the costs of obtaining regulatory
clearances of, and printing and distributing, sales materials used
in connection with the offer and sale of the Units; (v) the
costs related to investor and broker-dealer sales meetings
concerning the Offering; and (vi) accounting and legal fees
incurred in connection with any of the foregoing.
(o) “Person” includes an
individual, corporation, partnership, joint venture, association,
company, trust, bank or other entity, or government and any agency
and political subdivision of a government.
(p) “Property” or
“Properties” means partial or entire equity interests,
including equity participation interests such as general
partnership interests and joint venture interests, owned by the
Company in real property as described in the Prospectus.
(q) “Prospectus” has the
meaning given to that term by Section 2(10) of the Securities
Act of 1933, as amended, and as used herein, the term means the
Prospectus of the Company pursuant to which the Units are offered
to the public.
(r) “Return Ratio”
means, for any calendar year, the ratio of Modified Net Income to
Total Contributions.
(s) “Shareholders” means
the holders of record of the Company’s Units.
(t) “Total
Contributions” means the gross offering proceeds which have
been received by the Company from time to time from the sale or
sales of the Units. Total Contributions shall be calculated to
reflect the average of the daily amounts during the period in
question of the gross offering proceeds which have been received by
the Company from time to time from the sales of Units, to extent
such Units are issued and such sales have actually been
closed.
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(u) “Units” means the
Units of the Company. Each Unit consists of one Common Share and
one Series A preferred share of the Company.
2. Duties of the Advisor .
Subject to the terms of the Articles of Incorporation, the Bylaws,
and the supervision of the Board of Directors, the Advisor, at its
own cost and expense, unless otherwise set forth herein, on behalf
of the Company, shall:
(a) serve as the Company’s
investment advisor and consultant in connection with policy and
investment decisions to be made by the Board of Directors, furnish
reports to the Board of Directors, and provide research, economic
and statistical data in connection with the acquisition, financing,
refinancing, holding, leasing and disposition of Properties and
other investments of the Company;
(b) administer the day-to-day
operations of the Company and perform or supervise the various
administrative functions reasonably necessary for the management of
the Company;
(c) investigate, select and, on
behalf of the Company, engage and conduct business with (including,
but not limited to, entering into contracts in the name of the
Advisor or the Company) consultants, accountants, correspondents,
lenders, servicers, technical advisors, attorneys, brokers,
underwriters, corporate fiduciaries, escrow agents, depositaries,
custodians, agents for collection, insurers, insurance agents,
banks, builders, developers, property owners, mortgagors, and other
mortgage and investment participants, any and all agents for any of
the foregoing, including Affiliates of the Advisor, and Persons
acting in any other capacity deemed by the Board of Directors
necessary or desirable for the performance of any of the foregoing
services;
(d) act as attorney-in-fact or agent
in acquiring, financing, refinancing, leasing and disposing of
Properties and other investments, in disbursing and collecting
funds of the Company, in paying the debts and fulfilling the
obligations of the Company and in handling, prosecuting and
settling any claims of the Company, including the foreclosure or
other enforcement of any mortgage or other lien securing Properties
or other investments, and exercise its own discretion in doing so;
provided that any fees and costs payable to independent Persons
incurred by the Advisor in connection with the foregoing shall be
the responsibility of the Company;
(e) negotiate on behalf of the
Company with banks or other lenders for loans to be made to the
Company, and negotiate on behalf of the Company with investment
banking firms and broker-dealers or negotiate private sales of the
securities of the Company or obtain loans for the Company, but in
no event in such a way so that the Advisor shall be acting as
broker-dealer or underwriter; and provided, further, that any fees
and costs payable to third parties incurred by the Advisor in
connection with the foregoing shall be the responsibility of the
Company;
(f) invest or reinvest any money of
the Company, as directed by the Board of Directors or subject to
such discretionary powers as the Board of Directors may from time
to time delegate;
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(g) if requested by the Company,
provide appraisal reports on any real property that is, or is
proposed to be, acquired by the Company for investment;
(h) at any time reasonably requested
by the Board of Directors (but not more than monthly) make reports
of its performance of services to the Company;
(i) communicate on behalf of the
Company with the Shareholders of the Company as required to satisfy
the continuous reporting and other requirements of any governmental
bodies or agencies to the Shareholders and third parties and to
maintain effective relations with the Shareholders;
(j) counsel the Company in
connection with policy decisions to be made by the Board of
Directors;
(k) provide the executive and
administrative personnel and services required in rendering the
foregoing services to the Company; and
(l) perform such other services as
may be required from time to time for management and other
activities relating to the assets of the Company as the Advisor
shall deem appropriate under the particular
circumstances.
3. Commitments . In order to
meet the investment requirements of the Company, but only as
determined by the Board of Directors, or any authorized committee
thereof, from time to time, the Advisor agrees at the direction of
the Board of Directors or any such committee to issue on behalf of
the Company commitments on such terms as are established by the
Board of Directors or any such committee, for the acquiring of
Properties or other assets.
4. Duties of the Board of
Directors . In order for the Advisor to fulfill its duties, the
Board of Directors shall, to the extent it deems proper, provide
the Advisor with full information concerning the Company, its
capitalization and investment policies and the intentions of the
Board of Directors with respect to future investments. The Company
shall furnish the Advisor with a copy of all audited financial
statements, a signed copy of each report prepared by independent
accountants, and such other information with regard to its affairs
as the Advisor may from time to time reasonably request.
5. Advice . In addition to
the services described in Section 2 above, the Advisor shall
consult with the Board of Directors and the officers of the Company
and shall furnish them with advice and recommendations with respect
to the acquiring of Properties or commitments therefor, or other
investments of, or investments considered by, the Company, and
shall furnish advice and recommendations with respect to other
aspects of the business and affairs of the Company. In order to
facilitate the investment of the funds of the Company and enable it
to avail itself of investment opportunities as they arise, the
Advisor may from time to time be granted, but is not hereby
granted, the power and authority to make and dispose of investments
and to make and terminate commitments for investments, on behalf of
and in the name of the Company, without further or express
authority from the Board of Directors; provided, however that the
Board of Directors shall have the power to revoke, suspend, modify
or limit such power and authority at any time or from time to time,
but not retroactively. Unless otherwise notified by the Board of
Directors, a representative of the Advisor shall attend all regular
and special meetings of the Board of Directors, and the Board of
Directors shall notify the Advisor of such meetings.
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6. Bank Accounts . The
Advisor may establish and maintain one or more bank accounts in the
name of the Company and may collect and deposit into any such
account or accounts, and disburse from any such account or
accounts, any money on behalf of the Company, under such terms and
conditions as the Board of Directors may approve, provided that all
such accounts shall be maintained in such fashion as to make clear
that the funds therein are the property of the Company and not of
the Advisor. The Advisor shall from time to time render appropriate
accountings of such collections and payments to the Board of
Directors and to the auditors of the Company.
7. Investment Undertakings .
The Advisor shall use its best efforts to assure that (i) any
mortgage securing a Property of the Company shall be and remain a
valid lien upon the mortgaged property according to its terms;
(ii) the title to any Property is insured by appropriate
policies of title insurance; (iii) any Property is duly
insured against loss or damage by fire, with extended coverage, and
against such other insurable hazards and risks as is customary and
appropriate in the circumstances; and (iv) the policies from
time to time specified by the Board of Directors with regard to the
protection of the Company’s investments are carried out. Any
and all fees and costs incurred by the Advisor in performing such
functions, whether payable to its Affiliates or independent Persons
shall be borne by the Company.
8. Records; Confidentiality .
The Advisor shall maintain appropriate records of all its
activities hereunder and make such records available for inspection
by the Board of Directors and by counsel, auditors and authorized
agents of the Company, at any time or from time to time during
normal business
