APPLE REIT EIGHT, INC.
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”).
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;
(iv) non-cash expenditures, such as depreciation, amortization and bad debt;
(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.
(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;
(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.
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