Exhibit 10.2
ADVISORY AGREEMENT
among
SANDALWOOD LODGING INVESTMENT CORPORATION
and
SANDALWOOD LODGING , LLC
and
[SLTRS - TAXABLE REIT SUBSIDIARY]
and
SANDALWOOD HOSPITALITY ADVISORS, LLC
____________, 2002
Table of Contents
Article I. Definitions................................................ 1
Article II. Appointment of Advisor..................................... 1
Section 2.1. Appointment.................................. 7
Article III. Duties of Advisor.......................................... 7
Section 3.1. Asset Management Services.................... 7
Article IV. Delegation to Advisor...................................... 7
Section 4.1. Delegation................................... 9
Section 4.2. Approval of Acquisitions..................... 9
Section 4.3. Modification or Revocation of Authority...... 9
Article V. Bank Accounts.............................................. 9
Section 5.1. Establishment of Bank Accounts............... 10
Article VI. Records; Access to Records................................. 10
Section 6.1. Maintenance of records....................... 10
Article VII. Limitations on Activities.................................. 10
Section 7.1. Sandalwood REIT's Status as a REIT........... 10
Article VIII. Relationship with Directors................................ 10
Section 8.1. Service on Board of Directors................ 10
Article IX. Fees....................................................... 10
Section 9.1. Asset Management Fees........................ 11
Section 9.2. Loans from Affiliates........................ 11
Article X. Expenses................................................... 11
Section 10.1. Reimbursement of Expenses.................... 11
Section 10.2. Timing of Reimbursements..................... 11
Section 10.3 Reimbursement of Certain Offering Expenses
in the Form of Shares........................ 12
Article XI. Other Services............................................. 12
Section 11.1. Additional Services.......................... 13
Article XII. Fidelity Bond.............................................. 13
Section 12.1. Bond......................................... 13
Article XIII. Other Activities of Advisor and its Affiliates............. 13
Section 13.1. Other Activities............................. 13
Section 13.2. Investments.................................. 13
Section 13.3. Other Opportunities.......................... 14
Article XIV. Relationshipof Advisor and Companies....................... 14
Section 14.1. Parties not Related.......................... 14
Article XV. Term; Termination of Agreement............................. 14
Section 15.1. Term......................................... 14
Section 15.2. Termination.................................. 14
Section 15.3. Responsibilities upon Termination............ 15
Article XVI. Assignment to an Affiliate................................. 15
Section 16.1. Assignment................................... 15
Article XVII. Indemnification............................................ 15
Section 17.1. Indemnification by the Companies............. 15
Section 17.2. Indemnification by Advisor................... 15
Article XVIII. Appraisal.................................................. 16
Section 18.1. Appraisal Process............................ 16
Article XIX. Notices.................................................... 16
Section 19.1. Notices...................................... 16
Article XX. Modifications to Agreement................................. 16
Section 20.1. Changes to Agreement......................... 17
Article XXI. Miscellaneous.............................................. 17
Section 21.1. Severability................................. 17
Section 21.2. Construction................................. 17
Section 21.3. Entire Agreement............................. 17
Section 21.4. Delay; Not Waivers........................... 17
Section 21.5. Gender....................................... 17
Section 21.6. Titles; Headings............................. 17
Section 21.7. Counterparts................................. 17
Article XXII. Sandalwood Name............................................ 17
Section 22.1. Ownership of "Sandalwood" Name............... 18
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT (the "Agreement"), dated as of _______________,
2002, is between and among SANDALWOOD LODGING INVESTMENT CORPORATION, a Maryland
corporation ("Sandalwood REIT"), SANDALWOOD LODGING, LLC, a Delaware limited
liability company ("Sandalwood LLC"), [SL-TRS], a ____________corporation
("SLTRS") and SANDALWOOD HOSPITALITY ADVISORS, LLC., a Delaware limited
liability company (the "Advisor"). Sandalwood REIT, Sandalwood LLC and SL-TRS
collectively are sometimes referred to as the "Companies" and individually as a
"Company."
W I T N E S S E T H
WHEREAS, Sandalwood REIT has filed with the United States Securities and
Exchange Commission (the "SEC") a Registration Statement (No. 333-89094) on Form
S-11 covering 11,752,688 of its common shares (the "Offering") to be offered to
the public;
WHEREAS, Sandalwood REIT intends to qualify as a REIT (as defined below),
and intends to continue to invest its funds in investments permitted by the
terms of the Registration Statement and Sections 856 through 860 of the Code (as
defined below);
WHEREAS, SL-TRS is a wholly owned subsidiary of Sandalwood LLC;
WHEREAS, the Companies wish to engage the Advisor to provide to the
Companies the Advisor's experience, sources of information, advice, assistance
and certain facilities available to the Advisor and to have the Advisor
undertake the duties and responsibilities hereinafter set forth, on behalf of
the Companies, and subject to the supervision of the Companies, all as provided
herein; and
WHEREAS, the Advisor is willing to undertake to render such services, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms have the definitions
hereinafter indicated:
"Acquisition Expenses" shall mean any and all expenses incurred by the
Companies, the Advisor, or any Affiliate of the Companies or the Advisor in
connection with the selection or acquisition of any Property or Other
Investment, whether or not acquired, including, without
limitation, legal fees and expenses, travel and communications expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, and title insurance.
"Acquisition Fees" shall mean any and all fees and commissions, exclusive
of Acquisition Expenses, paid by any Person to any other Person (including any
fees or commissions paid by or to any Affiliate of the Companies or the Advisor)
in connection with making or investing in the Properties and the Other
Investments, including, without limitation, real estate commissions, acquisition
fees, finder's fees, selection fees, development fees, construction fees,
consulting fees, loan fees, or any other similar fees or commissions.
"Advisor" shall mean Sandalwood Hospitality Advisors, LLC, a Delaware
limited liability company, any successor advisor to the Companies, or any person
or entity to which Sandalwood Hospitality Advisors, LLC, or any successor
advisor subcontracts substantially all of its functions.
"Affiliate or Affiliated" shall mean as to any specified Person, (i) any
Person that directly or indirectly through one or more intermediaries controls,
is controlled by, or is under common control with the specified Person, (ii) any
Person that is an officer or director of, general partner in or trustee of, or
serves in a similar capacity with respect to, the specified Person, or of which
the specified Person is an officer, director, general partner or trustee, or
with respect to which the specified Person serves in a similar capacity, (iii)
any Person for which an officer or director of, general partner in or trustee
of, or individual serving in a similar capacity with respect to, the specified
Person serves in such capacity, (iv) any Person that, directly or indirectly, is
the beneficial owner of ten percent (10%) or more of any class of equity
securities (whether voting or nonvoting) of the specified Person or of which the
specified Person is directly or indirectly the owner of ten percent (10%) or
more of any class of equity securities (whether voting or nonvoting) and (v) any
relative or spouse of the specified Person who makes his or her home with the
specified Person.
"Agreement" shall have the meaning provided therefore in the Preamble.
"Appraisal" shall have the meaning provided therefore in Section 18.1.
"Appraised Value" shall mean the value according to an appraisal made by
an Independent Appraiser.
"Articles of Incorporation" shall mean the Articles of Incorporation of
Sandalwood REIT under Title 2 of the Corporations and Associations Article of
the Annotated Code of Maryland, as amended from time to time.
"Asset Management Fee" and "Asset Management Fees" shall have the meanings
provided therefore in Section 9.1.
"Asset Management Services" shall have the meaning provided therefore in
Section 3.1 of this Agreement.
"Asset Valuation" shall mean the total value of a Company's or the
Companies' assets, as applicable, based upon an independent annual appraisal of
long-term assets and a quarterly GAAP valuation of current assets.
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"Board of Directors" shall mean the persons holding such office, as of any
particular time, under the Articles of Incorporation of Sandalwood REIT, whether
they be the Directors named therein or additional or successor Directors.
"Bylaws" shall mean the bylaws of Sandalwood REIT, as the same are in
effect from time to time.
"Cause" shall mean, with respect to the termination of this Agreement,
fraud, gross negligence, or negligent breach of fiduciary duty by either party,
or breach of this Agreement which remains uncured within 30 days after notice by
the other party.
"Code" shall mean 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.
"Company" and "Companies" shall have the meanings provided therefore in
the Preamble.
"Company Property" shall mean any and all property, real, personal or
otherwise, tangible or intangible, including Properties and Other Investments,
which is transferred or conveyed to a Company (including all rents, income,
profits and gains therefrom), and which is owned or held by, or for the account
of, the Company.
"Deferred Asset Management Fees" shall have the meaning provided therefore
in Section 9.1.
"Director" shall mean a member of the Board of Directors.
"Distributions" shall mean any distributions of money or other property by
Sandalwood REIT to owners of Equity Shares including distributions that may
constitute a return of capital for federal income tax purposes.
"Equity Shares" shall mean transferable shares of beneficial interest of
Sandalwood REIT of any class or series, including common shares or preferred
shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
as enacted and in force on the date hereof.
"Fiscal Year" shall mean the fiscal year of Sandalwood REIT, as such may
be changed from time to time by the Board of Directors. As of the date of this
Agreement, Sandalwood REIT's Fiscal Year shall end December 31 of each year. A
"full Fiscal Year" shall mean 52 consecutive weeks of operations running from
January 1 to December 31 of that year.
"Gross Proceeds" shall mean the aggregate purchase price of all Shares
sold for the account of Sandalwood REIT through the Offering, without deduction
for Selling Commissions, volume discounts, the marketing expense reimbursement
or Offering Expenses.
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"Hotel Chains" shall mean the national and regional full-service hotel
chains, to be selected by the Advisor, and who themselves or their franchisees
will either lease or manage the Properties.
"Independent Appraiser" shall mean a qualified appraiser of real estate as
determined by the Board of Directors. Membership in a nationally recognized
appraisal society such as the American Institute of Real Estate Appraisers
("M.A.I.") or the Society of Real Estate Appraisers ("S.R.E.A.") shall be
conclusive evidence of such qualification.
"Independent Director" shall mean a Director who is not and within the
last two years has not been directly or indirectly associated with the Advisor
by virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, (iii) service as an officer or
director of the Advisor or its Affiliates, (iv) performance of services, other
than as a Director, for a Company, (v) service as a director or trustee of more
than three Persons advised by the Advisor, or (vi) maintenance of a material
business or professional relationship with the Advisor or any of its Affiliates.
A business or professional relationship is considered material if the gross
revenue derived by the Director from the Advisor and Affiliates exceeds 5% of
either the Director's annual gross income during either of the last two years or
the Director's net worth on a fair market value basis. An indirect relationship
shall include circumstances in which a Director's spouse, parents, children,
siblings, mothers- or fathers-in-law, sons- or daughters-in-law, or brothers- or
sisters-in-law is or has been associated with the Advisor, any of its
Affiliates, or the Company.
"Invested Capital" shall mean the Gross Proceeds of the Offering plus the
amount calculated by multiplying the total number of additional Shares purchased
by Stockholders by the purchase price, reduced by the portion of any
Distribution that is attributable to Net Capital Proceeds.
"Listing" shall mean the listing of the Shares of Sandalwood REIT on the
American Stock Exchange or another national or international securities exchange
or national over-the-counter market.
"Lodging Investments" shall mean Properties and Other Investments,
collectively.
"Managing Dealer" shall mean Emerald Bay Capital Management, LLC, an
Affiliate of the Advisor, or such entity selected by the Board of Directors to
act as the managing dealer for the Offering. Emerald Bay Capital Management, LLC
has filed an application for membership in the National Association of
Securities Dealers, Inc.
"Net Capital Proceeds" shall mean Net Refinancing Proceeds, Net Sales
Proceeds, and the Asset Valuation calculated annually after the earlier to occur
of (a) trading volume of company shares of Sandalwood REIT common stock equal to
at least 6% of the average outstanding shares of common stock, at an average
trading price of greater than $20.00 per share, over 90 consecutive calendar
days, or (b) five years following the initial closing of the Offering.
"Net Offering Proceeds" shall mean Gross Proceeds minus Offering Expenses.
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"Net Refinancing Proceeds" shall mean, the net proceeds received by a
Company from any refinancing or borrowing by the Company, the proceeds of which
are ultimately applied to make distributions to the Stockholders, including the
proceeds of a sale and leaseback transaction in which no taxable gain or loss is
recognized for federal income tax purposes after deducting (i) the amount of any
legal and other selling expenses incurred in connection with such transaction,
(ii) amounts applied by the Company toward the payment of any indebtedness,
other obligation, or expense of the Company, and (iii) all amounts then payable
to the Advisor.
"Net Sales Proceeds" shall mean any net proceeds received by a Company and
ultimately distributed to the Stockholders (in excess of the outstanding
indebtedness and other liabilities of the Company) from (i) the exchange,
condemnation, eminent domain, taking, casualty, sale, or other disposition of
all or a portion of the Lodging Investments, or (ii) the liquidation of the
Lodging Investments in connection with a dissolution of the Company, after
deducting (A) any expenses incurred in connection therewith, (B) any amounts
applied by the Board of Directors toward the payment of any indebtedness, other
obligations, or expenses of the Company, or the creation of any reserves deemed
necessary by the Board of Directors, and (C) all amounts then payable therefrom
to the Advisor.
"Offering" shall mean the public offering of 11,752,688 Shares that
commenced upon ____________, 2002.
"Offering Expenses" shall mean any and all costs and expenses, other than
Selling Commissions and the marketing expense reimbursement, incurred by the
Advisor or any Affiliate of either in connection with the qualification and
registration of the Companies and the marketing and distribution of Shares,
including, without limitation, the following: legal, accounting and escrow fees;
printing, amending, supplementing, mailing and distributing costs; filing,
registration and qualification fees and taxes; telegraph and telephone costs;
and all advertising and marketing expenses, including the costs related to
investor and broker-dealer sales meetings.
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"Operating Agreement" shall mean that agreement dated as of , 2002,
between Sandalwood REIT and the Advisor as managing member, providing for the
governance of Sandalwood LLC.
"Operating Expenses" shall mean all costs and expenses incurred by the
Companies, as determined under generally accepted accounting principles, which
in any way are related to the operation of the Companies or to Companies'
businesses, including (a) advisory fees, (b) the Asset Management Fee and (c)
the Subordinated Asset Management Fees, but excluding (i) the expenses of
raising capital such as Offering Expenses, legal, audit, accounting,
underwriting, brokerage, listing, registration, and other fees, printing and
other such expenses and tax incurred in connection with the issuance,
distribution, transfer, registration and Listing of the Shares, (ii) interest
payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization and bad loan reserves, (v) the Advisor's Incentive Profit
Participation (as defined in Sandalwood LLC's Operating Agreement), (vi) any
payment of the Termination Fee and (vii) Acquisition Fees and Acquisition
Expenses, real estate commissions on the sale of property, and other expenses
connected with the acquisition, and ownership of real estate interests, mortgage
loans or other property (such as the costs of foreclosure, insurance premiums,
legal services, maintenance, repair and improvement of property).
"Other Investments" shall mean investments made by a Company other than
investments in Properties, including, but not limited to, (i) stock, debt and
other securities in companies or other entities that own full-service hotels and
(ii) debt secured directly or indirectly by full-service hotels.
"Permanent Financing" shall mean any line of credit or other financing to
acquire Lodging Investments, to pay any Acquisition Fees or Acquisition
Expenses, or to refinance outstanding amounts of any Permanent Financing.
"Person" shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity, or any government or any agency or political subdivision
thereof, and also includes a group as that term is used for purposes of Section
13(d)(3) of the Exchange Act.
"Prime Rate" shall mean the base interest rate as announced from time to
time by the Wall Street Journal, or if such rate is not available, by a
replacement rate mutually agreed upon by the parties.
"Property" or "Properties" shall mean the real properties, including the
buildings located thereon, which are acquired by a Company.
"Prospectus" shall mean the same as that term is defined in Section 2(10)
of the Securities Act of 1933, including a preliminary Prospectus, an offering
circular as described in Rule 256 of the General Rules and Regulations under the
Securities Act of 1933 or, in the case of an intrastate offering, any document
by whatever name known, utilized for the purpose of offering and selling
securities to the public.
"Registration Statement" shall mean the Registration Statement (No.
333-89094) on Form S-11 registering the Shares to be sold in the Offering.
"REIT" shall mean a "real estate investment trust" under Sections 856
through 860 of the Code.
"Sandalwood REIT" shall have the meaning provided therefore in the
Preamble.
"Sandalwood LLC" shall have the meaning provided therefore in the
Preamble.
"Securities" shall mean any Equity Shares, Excess Shares, as such term is
defined in Sandalwood's Articles of Incorporation, any other stock, shares or
other evidences of equity or beneficial or other interests, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.
"Shares" shall mean the common shares of Sandalwood REIT.
6
"SL-TRS" shall have the meaning provided therefore in the Preamble.
"Sponsor" shall mean any Person directly or indirectly instrumental in
organizing, wholly or in part, Sandalwood REIT or any Person who will control,
manage or participate in the management of the Company, and any Affiliate of
such Person. Not included is any Person (i) whose only relationship with a
Company is that of an independent property manager of Company assets, and whose
only compensation is as such, or (ii) independent third parties such as
attorneys, accountants, and underwriters whose only compensation is for
professional services.
"Stockholders" shall mean the registered holders of Sandalwood REIT's
Equity Shares.
"Stockholders' 8% Return" shall mean, as of each date, an aggregate amount
equal to an 8% cumulative, noncompounded, annual return on Invested Capital.
"Subordinated Asset Management Fee" and "Subordinated Asset Management
Fees" shall have the meanings provided therefore in Section 9.1.
"Termination Date" shall mean the date of termination of the Agreement as
provided in Section 15.1.
"Termination Fee" shall have the meaning provided therefore in Section
15.2.
"Total Proceeds" shall mean the Gross Proceeds plus loan proceeds from
Permanent Financing.
ARTICLE II
Appointment of Advisor
Section 2.1. Appointment. The Companies hereby appoint the Advisor to
serve as their advisor on the terms and conditions set forth in this Agreement,
and the Advisor hereby accepts such appointment.
ARTICLE III
Duties of Advisor
Section 3.1. Asset Management Services. The Advisor undertakes to use its
best efforts to present to the Companies potential investment opportunities and
to provide a continuing and suitable investment program consistent with the
investment objectives and policies of the Companies as determined and adopted
from time to time by the Directors. In performance of this undertaking (the
"Asset Management Services"), subject to the supervision of the Directors and
consistent with the provisions of the Registration Statement, Articles of
Incorporation and Bylaws of Sandalwood REIT, the Advisor shall, either directly
or through an Affiliate:
(a) investigate, select, and, on behalf of a Company, engage and conduct
business with such Persons as the Advisor deems necessary to the proper
performance of its obligations hereunder, including but not limited to
consultants, accountants, correspondents, lenders, technical
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advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow
agents, depositaries, custodians, agents for collection, insurers, insurance
agents, banks, builders, developers, property owners, mortgagors, and any and
all agents for any of the foregoing, including Affiliates of the Advisor, and
Persons acting in any other capacity deemed by the Advisor necessary or
desirable for the performance of any of the foregoing services, including but
not limited to entering into contracts in the name of the Company with any of
the foregoing;
(b) provide the daily management of the Sandalwood REIT and SL-TRS and
perform and supervise the various administrative functions reasonably necessary
for the management of the Companies;
(c) serve as the investment and financial advisor for Sandalwood REIT and
SL-TRS;
(d) consult with the officers and Directors of the Companies and assist
the Directors in the formulation and implementation of the Companies' financial
policies, and, as necessary, furnish the Directors with advice and
recommendations with respect to the making of investments consistent with the
investment objectives and policies of the Companies and in connection with any
borrowings proposed to be undertaken by the Companies;
(e) subject to the provisions of Section 3.1(g) and Article IV hereof, (i)
locate, analyze and select potential investments in Lodging Investments, (ii)
structure and negotiate the terms and conditions of transactions pursuant to
which investment in a Lodging Investment will be made by a Company; (iii) make
investments in Lodging Investments on behalf of the Companies in compliance with
the Companies' investment objectives and policies; (iv) arrange for financing
and refinancing and make other changes in the asset or capital structure of, and
dispose of, reinvest the proceeds from the sale of, or otherwise deal with the
investments in, the Lodging Investments; and (v) enter into leases and service
contracts for Properties and, to the extent necessary, perform all other
operational functions for the maintenance and administration of such Properties;
(f) provide the Directors with periodic reports regarding prospective
investments in Lodging Investments;
(g) obtain the prior approval of the Directors for any and all investments
in Lodging Investments;
(h) negotiate on behalf of the Companies with banks or lenders for loans
to be made to the Companies and negotiate on behalf of the Companies with
investment banking firms and broker-dealers or negotiate private sales of Shares
and Securities or obtain loans for the Companies, 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
management of the applicable Company;
(i) obtain reports (which may be prepared by the Advisor or its
Affiliates), where appropriate, concerning the value of investments or
contemplated investments of the Company Lodging Investments;
8
(j) from time to time, or at any time reasonably requested by the
Directors, make reports to the Directors of its performance of services to the
Companies under this Agreement;
(k) provide the Companies with all necessary cash management services;
(l) deliver to or maintain on behalf of the Companies copies of all
appraisals obtained in connection with the investments in the Lodging
Investments; and
(m) notify the Board of Directors of all proposed material transactions
before they are completed.
ARTICLE IV
Delegation to Advisor
Section 4.1. Delegation. Pursuant to the terms of this Agreement
(including the restrictions included in this Article IV and in Article VII), and
subject to the continuing and exclusive authority of the Directors over the
management of Sandalwood REIT, the exclusive authority of Sandalwood LLC's
managing member over the management of Sandalwood LLC, and the exclusive
authority of the SL-TRS's board of directors over the management of SL-TRS, the
Companies hereby delegate to the Advisor the authority to (a) locate, analyze
and select investment opportunities, (b) structure the terms and conditions of
transactions pursuant to which investments will be made or acquired for the
Companies, (c) assist the Companies in acquiring Lodging Investments in
compliance with the investment objectives and investment strategies of the
Companies, (d) arrange for Permanent Financing and financing or refinancing of
Properties, (e) assist the Companies in entering into leases, management
agreements and service contracts for the Company's Properties, and perform other
property management services, (f) oversee non-affiliated property managers and
other non-affiliated Persons who perform services for the Companies; and (g)
undertake accounting and other record-keeping functions at the Property level.
Section 4.2. Approval of Acquisitions. Notwithstanding the foregoing, any
investment in Lodging Investments, including any acquisition of Property by a
Company (as well as any financing acquired by the Company in connection with
such acquisition) will require the prior approval of the Directors. If a
transaction requires approval by the Independent Directors, the Advisor will
deliver to the Independent Directors all documents required by them to properly
evaluate the proposed investment in the Property. The Companies will not
purchase or lease Lodging Investments from, or sell or lease Lodging Investments
to, the Advisor or its Affiliates.
Section 4.3. Modification or Revocation of Authority. The Companies may,
at any time upon the giving of notice to the Advisor, modify or revoke the
authority set forth in this Article IV. If and to the extent the Companies so
modify or revoke the authority contained herein, the Advisor shall henceforth
submit to the Companies for prior approval such proposed transactions involving
investments in Properties as thereafter require prior approval; provided,
however, that such modification or revocation shall be effective upon receipt by
the Advisor and shall not be applicable to investment transactions to which the
Advisor has committed a Company prior to the date of receipt by the Advisor of
such notification.
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ARTICLE V
Bank Accounts
Section 5.1. Establishment of Bank Accounts. The Advisor may establish and
maintain one or more bank accounts in its own name for the account of a Company
or in the name of a 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
a Company, under such terms and conditions as the Directors may approve,
provided that no funds shall be commingled with the funds of the Advisor; and
the Advisor shall from time to time render appropriate accountings of such
collections and payments to the Directors and to the auditors of the Companies.
ARTICLE VI
Records; Access to Records
Section 6.1. Maintenance of Records. The Advisor shall maintain
appropriate records of all its activities hereunder and make such records
available for inspection by the Directors and by counsel, auditors and
authorized agents of a Company, at any time or from time to time during normal
business hours. The Advisor shall at all reasonable times have access to the
books and records of the Companies.
ARTICLE VII
Limitations on Activities
Section 7.1. Sandalwood REIT's Status as a REIT. Anything else in this
Agreement to the contrary notwithstanding, the Advisor shall refrain from taking
any action which, in its sole judgment made in good faith, would (a) adversely
affect the status of Sandalwood REIT as a REIT, (b) subject a Company to
regulation under the Investment Company Act of 1940, or (c) violate any law,
rule, regulation or statement of policy of any governmental body or agency
having jurisdiction over a Company, its Equity Shares or its Securities, or
otherwise not be permitted by organizational documents of the Companies, except
if such action shall be ordered by the Directors, in which case the Advisor
shall notify promptly the Directors of the Advisor's judgment of the potential
impact of such action and shall refrain from taking such action until it
receives further clarification or instructions from the Directors. In such event
the Advisor shall have no liability for acting in accordance with the specific
instructions of the Directors so given. Notwithstanding the foregoing, the
Advisor, its directors, officers, employees and stockholders, and stockholders,
directors and officers of the Advisor's Affiliates shall not be liable to a
Company or to the Directors or Stockholders for any act or omission by the
Advisor, its directors, officers or employees, or stockholders, directors or
officers of the Advisor's Affiliates except as provided in Section 17.2 of this
Agreement.
ARTICLE VIII
Relationship with Directors
Section 8.1. Service on Board of Directors. Directors, officers and
employees of the Advisor or an Affiliate of the Advisor or any corporate parents
of an Affiliate, or directors, officers
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or stockholders of any director, officer or corporate parent of an Affiliate may
serve as Directors and as officers of the Companies, except that no director,
officer or employee of the Advisor or its Affiliates who also is a Director or
officer of Sandalwood REIT shall receive any compensation from Sandalwood REIT
for serving as a Director or officer other than reasonable reimbursement for
travel and related expenses incurred in attending meetings of the Directors and
otherwise in performance of such Director's or officer's duties.
ARTICLE IX
Fees
Section 9.1. Asset Management Fees. Each of the Companies shall pay to the
Advisor as compensation for Asset Management Services a quarterly fee (each, the
"Asset Management Fee" and collectively the "Asset Management Fees"), payable on
the first business day of the quarter, equal to two and a half percent (2.5%) of
the Asset Valuation of that Company's Lodging Investments, excluding any
interests in subsidiaries. Fifty percent (50%) of the Asset Management Fees
shall be subordinated to the Stockholders' 8% Return (the "Subordinated Asset
Management Fee"). Any portion of the Asset Management Fees otherwise due and
payable may or may not be taken, in whole or in part ("Deferred Asset Management
Fees"), in the sole discretion of the Advisor. Any Deferred Asset Management Fee
shall (i) bear interest at the Prime Rate, (ii) be payable out of Sandalwood
REIT's cash available for distribution and Net Capital Proceeds in any quarter
when the Stockholders' 8% Return has been fully paid, and (iii) be prepayable at
any time at the discretion of the Board of Directors.
Section 9.2. Loans from Affiliates. If any loans are made to a Company by
the Advisor or an Affiliate of the Advisor, the maximum amount of interest that
may be charged by such Affiliate shall be equal to the Prime Rate. The terms of
any such loans shall be no less favorable than the terms available between
non-Affiliated Persons for similar commercial loans.
ARTICLE X
Expenses
Section 10.1. Reimbursement of Expenses. In addition to the compensation
paid to the Advisor pursuant to Article IX hereof and in addition to the
marketing expense reimbursement paid to an Affiliate of the Advisor in
connection with the Offering, the Companies shall pay directly or reimburse the
Advisor for all reasonable expenses paid or incurred by the Advisor in
connection with the services it provides to the Companies pursuant to this
Agreement, including, but not limited to:
(a) Sandalwood REIT's Offering Expenses;
(b) Acquisition Expenses incurred in connection with the selection and
acquisition of Lodging Investments provided by the Advisor;
(c) the actual cost of goods and services used by the Companies and
obtained from the Advisor and its Affiliates, including brokerage fees paid in
connection with the purchase and sale of securities, and allocated expenses of
personnel of the advisor and its Affiliates;
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(d) interest and other costs for borrowed money;
(e) costs associated with insurance required in connection with the
business of the Companies or by the Directors, including Directors' and
Officers' insurance;
(f) expenses of managing and operating Properties owned by the Company, if
payable to an Affiliate of the Companies or a non-affiliated Person;
(g) all expenses in connection with payments to the Directors and meetings
of the Directors and Stockholders;
(h) expenses associated with Listing or with the issuance and distribution
of Shares and Securities, such as selling commissions and fees, advertising
expenses, taxes, legal and accounting fees, Listing and registration fees, and
other Offering Expenses;
(i) expenses connected with payments of Distributions in cash or otherwise
made or caused to be made by the Directors to the Stockholders;
(j) expenses of organizing, revising, amending, converting, modifying, or
terminating any of the Companies or their organizational documents;
(k) expenses of maintaining communications with Stockholders, including
the cost of website maintenance and online reporting, investor relations,
preparation, printing, and mailing annual reports and other Stockholder reports,
proxy statements and other reports required by governmental entities;
(l) administrative service expenses (including personnel costs; provided,
however, that no reimbursement shall be made for costs of personnel to the
extent that such personnel perform services in transactions for which the
Advisor receives a separate fee); and
(n) audit, accounting and legal fees; and
(o) any other expenses reasonably incurred for the benefit of the
Companies.
Section 10.2. Timing of Reimbursements. Expenses incurred by the Advisor
on behalf of the Companies and payable pursuant to this Article X shall be
reimbursed no less than monthly to the Advisor. The Advisor shall prepare a
statement documenting the expenses of the Companies during each month, and shall
deliver such statement to the Companies within 45 days after the end of each
month.
Section 10.3 Reimbursement of Certain Offering Expenses in the Form of
Shares. On Sandalwood REIT's behalf, the Advisor and its Affiliates will pay
certain of the Offering Expenses, for which the Advisor will be reimbursed. The
Advisor has agreed to convert up to $1,500,000 of such reimbursable expenses
into Shares at the offering price of $18.60 a share. The Advisor (1) understands
that the Shares have not been, and will not be, registered under the Securities
Act of 1933, or any state securities laws, and are being offered and sold in
reliance upon certain transactional exemptions from the registration provisions
of such laws, (2) represents and warrants that, with respect to the Shares,
neither Advisor nor its Affiliates is an "underwriter" within the
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meaning of the Securities Act of 1933, the Securities Exchange Act or 1934, or
any state securities laws, and (3) represents and warrants that the Shares
acquired pursuant to this Agreement are being acquired solely for its own
account for investment purposes and not with a view to or for sale in connection
with any distribution thereof within the meaning of the Securities Act of 1933
and the rules and regulations promulgated thereunder.
ARTICLE XI
Other Services
Section 11.1. Additional Services. Should the Directors request that the
Advisor or any director, officer or employee thereof render services for a
Company other than set forth in Article III, such services shall be separately
compensated at such rates and in such amounts as are agreed by the Advisor and
the Company and, if such services are to be rendered to Sandalwood REIT, by the
Independent Directors of Sandalwood REIT, subject to the limitations contained
in the Articles of Incorporation, and shall not be deemed to be services
pursuant to the terms of this Agreement.
ARTICLE XII
Fidelity Bond
Section 12.1. Bond. The Advisor shall maintain a fidelity bond for the
benefit of the Companies which bond shall insure the Companies from losses of up
to $10 million per occurrence and shall be of the type customarily purchased by
entities performing services similar to those provided to the Companies by the
Advisor. The cost for such fidelity bond shall be paid for by the Companies
ARTICLE XIII
Other Activities of Advisor and its Affiliates
Section 13.1. Other Activities. Nothing herein contained shall prevent the
Advisor or its Affiliates from engaging in other activities, including, without
limitation, the rendering of advice to other Persons (including other REITs) and
the management of other programs advised, sponsored or organized by the Advisor
or its Affiliates; nor shall this Agreement limit or restrict the right of any
director, officer, employee, or stockholder of the Advisor or its Affiliates to
engage in any other business or to render services of any kind to any other
partnership, corporation, firm, individual, trust or association. The Advisor
may, with respect to any investment in which a Company is a participant, also
render advice and service to each and every other participant therein. The
Advisor shall report to the Directors the existence of any condition or
circumstance, existing or anticipated, of which it has knowledge, which creates
or could create a conflict of interest between the Advisor's obligations to the
Companies and its obligations to or its interest in any other partnership,
corporation, firm, individual, trust or association. The Advisor or its
Affiliates shall promptly disclose to the Directors knowledge of such condition
or circumstance. If the Sponsor, Advisor, Director or Affiliates thereof have
sponsored other investment programs with similar investment objectives which
have investment funds available at the same time as the Company, it shall be the
duty of the Independent Directors to adopt the method set forth in the
Registration Statement or
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another reasonable method by which properties are to be allocated to the
competing investment entities and to apply such method fairly to the Company.
Section 13.2. Investments. The Advisor shall be required to use its best
efforts to present a continuing and suitable investment program to the Companies
which is consistent with the investment policies and objectives of the
Companies, but, other than pursuant to Section 13.3, neither the Advisor nor any
Affiliate of the Advisor shall be obligated generally to present any particular
investment opportunity to a Company even if the opportunity is of character
which, if presented to the Company, could be taken by the Company. The Advisor
or its Affiliates may make such an investment in a property only after (i) such
investment has been offered to the Company and all public partnerships and other
investment entities affiliated with the Company with funds available for such
investment and (ii) such investment is found to be unsuitable for investment by
the Company, such partnerships and investment entities.
Section 13.3. Other Opportunities. In the past, Affiliates of the Advisor
have organized other investments which have invested in whole or in part in
other real estate programs, and in the future may form, offer interests in, and
manage other real estate programs in addition to the Companies; however,
although no Affiliate of the Companies or the Advisor currently owns, operates,
leases or manages lodging investments that would be suitable for the Companies.
Certain of these Affiliated real estate programs may in the future invest in
and/or lease certain types of lodging investments to operators who also lease or
operate certain of the Companies' Lodging Investments. These lodging
investments, if located in the vicinity of, or adjacent to, Lodging Investments
acquired by any of the Companies may affect a Company's Lodging Investments. The
Advisor has agreed that the Advisor and its Affiliates (1) will not purchase
more than a 10% interest in any potential Lodging Investment whenever the
Companies have at least $10 million available for investment in Lodging
Investments; (2) will not raise additional funds for investment in potential
Lodging Investments until the Offering closes; and (3) will not use any existing
funds, other than the Companies, for potential Lodging Investments until at
least 100% of the Net Offering Proceeds are committed for investment in Lodging
Investments.
ARTICLE XIV
Relationship of Advisor and the Companies
Section 14.1. Parties not Related. The Company and the Advisor are not
partners or joint venturers with each other, and nothing in this Agreement shall
be construed to make them such partners or joint venturers or impose any
liability as such on either of them.
ARTICLE XV
Term; Termination of Agreement
Section 15.1. Term. Unless terminated pursuant to Section 16.2, this
Agreement shall continue in force until a date one (1) year after the initial
closing of the Offering (the "Termination Date") subject to an unlimited number
of successive one-year renewals unless 90 days' notice of termination is given
to the Advisor by the Board of Directors. It is the duty of the Independent
Directors to evaluate the performance of the Advisor to determine whether to
renew the Agreement.
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Section 15.2. Termination. This Agreement may be terminated for Cause by
any party. Upon (i) any termination by a Company without Cause, (ii) any
termination by the Advisor for Cause, or (iii) any failure by a Company to renew
this Agreement other than for Cause, the Advisor shall be paid a termination fee
(the "Termination Fee") equal to the greater of (a) five times the last full
fiscal year's Asset Management Fee, or (b) the actual Asset Management Fee over
the ensuing five years, calculated without any subordination to the
Stockholders' 8% Return.
Section 15.3. Responsibilities upon Termination.
(a) After the Termination Date, the Advisor shall not be entitled to
compensation for further services hereunder except it shall be entitled to
receive from the Companies within 30 days after the effective date of such
termination all unpaid reimbursements of expenses and all earned but unpaid fees
payable to the Advisor prior to termination of this Agreement.
(b) The Advisor shall promptly upon termination:
(i) pay over to the Companies all money collected and held for the
account of the Companies pursuant to this Agreement, after deducting any accrued
compensation and reimbursement for its expenses to which it is then entitled;
(ii) deliver to the Directors 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 Directors;
(iii) deliver to the Companies all Lodging Investments and documents
of the Companies then in the custody of the Advisor; and
(iv) cooperate with the Companies to provide an orderly management
transition.
ARTICLE XVI
Assignment to an Affiliate
Section 16.1. Assignment. This Agreement may be assigned by the Advisor to
an Affiliate without the approval of the Companies if the Affiliate is capable
of performing the duties of the Advisor and such assignee shall agree to be
bound hereunder in the same manner as the Advisor. The Advisor may also assign
any rights to receive fees or other payments under this Agreement without
obtaining the approval of the Companies. This Agreement may be assigned by a
Company without the consent of the Advisor if the assignment is to any successor
of all of such Company's assets, rights and obligations, in which case such
successor organization shall be bound hereunder and by the terms of said
assignment in the same manner as the Company is bound by this Agreement.
ARTICLE XVII
Indemnification
Section 17.1. Indemnification by the Companies. Each of the Companies
shall indemnify and hold harmless the Advisor and its Affiliates (including
managers, members, officers, directors,
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employees and agents) from all liability, claims, damages or losses arising in
the performance of their duties hereunder, and related expenses, including
reasonable attorneys' fees, to the extent such liability, claims, damages or
losses and related expenses are not fully reimbursed by insurance, subject to
any limitations imposed by the laws of the State of Maryland or the Articles of
Incorporation of the Company. Notwithstanding the foregoing, the Advisor shall
not be entitled to indemnification or be held harmless pursuant to this Section
17.1 for any activity for which the Advisor shall be required to indemnify or
hold harmless the Company pursuant to Section 17.2. Any indemnification of the
Advisor may be made only out of the net assets of the Company and not from
Stockholders.
Section 17.2. Indemnification by Advisor. The Advisor (including the
Advisor's managers, members, officers, directors, employees and agents) shall
not be liable to the companies or their stockholders or others, except by reason
of acts constituting fraud, willful misconduct, gross negligence, or breach of
fiduciary duty and will not be responsible for any action of the Board of
Directors in following or declining to follow any advice or recommendation given
to it.
ARTICLE XVIII
Appraisal
Section 18.1. Appraisal Process. The Companies' Lodging Investments will
be valued to determine their Appraised Value. The Advisor, on behalf of the
Companies, shall engage an Independent Appraiser to value annually (the
"Appraisal") all long-term assets of the Companies. Current assets will be
valued quarterly based on generally accepted accounting principles.
ARTICLE XIX
Notices
Section 19.1. Notices. Any notice, report or other communication required
or permitted to be given hereunder shall be in writing unless some other method
of giving such notice, report or other communication is required by the Articles
of Incorporation, the Bylaws, or accepted by the party to whom it is given, and
shall be given by being delivered by hand or by overnight mail or other
overnight delivery service to the addresses set forth herein:
To the Companies:
Sandalwood Lodging Investment Corporation
_________________________________________
_________________________________________
To the Advisor:
Sandalwood Hospitality Advisors, LLC
_________________________________________
_________________________________________
Either party may at any time give notice in writing to the other party of a
change in its address for the purposes of this Section 19.1.
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ARTICLE XX
Modifications to Agreement
Section 20.1. Changes to Agreement. This Agreement shall not be changed,
modified, terminated, or discharged, in whole or in part, except by an
instrument in writing signed by both parties hereto, or their respective
successors or assignees.
ARTICLE XXI
Miscellaneous
Section 21.1. Severability. The provisions of this Agreement are
independent of and severable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
Section 21.2. Construction. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Maryland.
Section 21.3. Entire Agreement. This Agreement and the Operating Agreement
contain the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements, understandings, inducements and conditions, express
or implied, oral or written, of any nature whatsoever with respect to the
subject matter hereof. The express terms hereof control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an agreement
in writing.
Section 21.4. Delay, Not Waivers. Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
Section 21.5. Gender. Words used herein regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context requires.
Section 21.6. Titles; Headings. The titles of paragraphs and subparagraphs
contained in this Agreement are for convenience only, and they neither form a
part of this Agreement nor are they to be used in the construction or
interpretation hereof.
Section 21.7. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature
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appears thereon, and all of which shall together constitute one and the same
instrument. This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as the signatories.
ARTICLE XXII
Sandalwood Name
Section 22.1. Ownership of "Sandalwood" Name. The Advisor, Sandalwood
Hospitality Advisors, LLC, has a proprietary interest in the name "Sandalwood"
and has licensed the right to use the "Sandalwood" name to the Companies,
subject to certain conditions. Accordingly, and in recognition of this right, if
at any time the Companies cease to retain Sandalwood Hospitality Advisors, LLC
or an Affiliate thereof to perform the services of Advisor, the Companies will,
promptly after receipt of written request from the Advisor, cease to conduct
business under or use the name "Sandalwood" or any derivation thereof and the
Companies shall use their best efforts to change any names of the Companies
containing the name "Sandalwood" to a name that does not contain the name
"Sandalwood" or any other word or words that might, in the sole discretion of
the Advisor, be susceptible of indication of some form of relationship between
the Companies and the Advisor or any Affiliate thereof. Consistent with the
foregoing, it is specifically recognized that the Advisor or one or more of its
Affiliates has in the past and may in the future organize, sponsor or otherwise
permit to exist other investment vehicles (including vehicles for investment in
real estate) and financial and service organizations having "Sandalwood" as a
part of their name, all without the need for any consent (and without the right
to object thereto) by any of the Companies or Sandalwood REIT's Directors.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
SANDALWOOD REIT:
SANDALWOOD LODGING INVESTMENT CORPORATION
By:
------------------------------
Name:
Its:
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SANDALWOOD LLC:
SANDALWOOD LODGING, LLC
By: Sandalwood Hospitality Advisors, LLC,
Its: Managing Member
By:
------------------------------
Name:
Its:
SL-TRS:
[SLTRS]
By:
------------------------------
Name:
Its:
ADVISOR:
SANDALWOOD HOSPITALITY ADVISORS, LLC
By:
------------------------------
Name:
Its:
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