Exhibit 10.3
APPLE REIT SEVEN,
INC.
2005 INCENTIVE
PLAN
EFFECTIVE
, 2005
APPLE REIT SEVEN,
INC.
2005 INCENTIVE PLAN EFFECTIVE
2005
1. Purpose.
The purpose of this Apple REIT
Seven, Inc. 2005 Incentive Plan (the “Plan”) is to
further the long term stability and financial success of Apple REIT
Seven, Inc. (the “Company”) by attracting and retaining
key Employees through the use of stock incentives. It is believed
that ownership of Company stock will stimulate the efforts of those
Employees of the Company upon whose judgment and interest the
Company is and will be largely dependent for the successful conduct
of its business. It is also believed that Incentive Awards granted
to such Employees under this Plan will strengthen the desire of the
Employees to remain with the Company and will further the
identification of those Employees’ interests with those of
the Company’s shareholders. The Plan is intended to conform
to the provisions of Securities and Exchange Commission Rule 16b-3
of the Act.
2. Definitions.
As used in the Plan, the following
terms have the meanings indicated:
(a) “Act” means the
Securities Exchange Act of 1934, as amended.
(b) “Applicable Withholding
Taxes” means the aggregate amount of federal, state and local
income and payroll taxes that the Employer is required to withhold
in connection with any exercise of an Option or any lapse of
restrictions on Restricted Stock.
(c) “Board” means the
board of directors of the Company.
(d) “Change of Control”
means:
(i) The acquisition, other than from
the Company, by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Act), of
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beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Act) of 35% or more of
either the then outstanding common shares of the Company or the
combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of
directors, but excluding for this purpose, any such acquisition by
the Company or any of its subsidiaries, or any Employee benefit
plan (or related trust) of the Company or its subsidiaries, or any
corporation with respect to which, following such acquisition, more
than 50% of, respectively, the then outstanding common shares of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by the individuals and entities who were
the beneficial owners, respectively, of the common stock and voting
securities of the Company immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately
prior to such acquisition, of the then outstanding common shares of
the Company or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors, as the case may be; or
(ii) Individuals who, as of the date
hereof, constitute the Board (as of the date hereof the
“Incumbent Board”) cease for any reason to constitute
at least a majority of the Board during any 12-month period,
provided that any individual becoming a director subsequent to the
date hereof whose election or nomination for election by the
Company’s shareholders was approved by a vote of at least a
majority of the directors comprising the Incumbent Board shall be
considered as
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though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection with
an actual or threatened election contest relating to the election
of the Directors of the Company (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Act); or
(iii) Approval by the shareholders
of the Company of a reorganization, merger or consolidation, in
each case, with respect to which the individuals and entities who
were the respective beneficial owners of the common shares and
voting securities of the Company immediately prior to such
reorganization, merger or consolidation do not, following such
reorganization, merger or consolidation, beneficially own, directly
or indirectly, more than 50% of, respectively, the then outstanding
common shares and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from
such reorganization, merger or consolidation, or a complete
liquidation or dissolution of the Company or a sale or other
disposition of all or substantially all of the assets of the
Company.
Anything herein to the contrary
notwithstanding, however, no event shall constitute a “Change
of Control” for purposes of this Plan unless such event
constitutes a change in the ownership or effective control of the
Company for purposes of Code section 409A(a)(2)(v).
(e) “Code” means the
Internal Revenue Code of 1986, as amended.
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(f) “Committee” means
the committee appointed by the Board as described under Section
13.
(g) “Company” means
Apple REIT Seven, Inc., a Virginia corporation.
(h) “Date of Grant”
means the date on which an Incentive Award is granted by the
Committee.
(i) “Disability” or
“Disabled” means that the participant (i) is unable to
engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a
continuous period of not less than 12 months, or (ii) is, by reason
of any medically determinable physical or mental impairment which
can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months, receiving income
replacement benefits for a period of not less than 3 months under
an accident and health plan covering employees of the
Employer.
(j) “Employee” means
employees, officers and directors of the Company who are not
covered under the Company’s 2005 Non-employee Directors Stock
Option Plan.
(k) “Employer” means the
Company.
(l) “Fair Market Value”
means, on any given date, (i) if Units are traded on an exchange,
the closing registered sales prices of the Units on such day on the
exchange on which it generally has the greatest trading volume,
(ii) if the Units are traded on the over-the-counter market, the
average between the closing bid and asked prices on such day as
reported by NASDAQ, or (iii) if the Units are not traded on any
exchange or over-the-counter market, the fair market value shall be
determined by the Board using any reasonable method in good
faith.
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(m) “Incentive Award”
means, collectively, the award of an Option or Restricted Stock
under the Plan.
(n) “Initial Closing”
means the first closing of the Offering that will occur after the
Minimum Offering is achieved.
(o) “Insider” means a
person subject to Section 16(b) of the Act.
(p) “Minimum Offering”
means the sale of 4,761,905 Units of the Company pursuant to the
Offering.
(q) “Nonstatutory Stock
Option” means an Option that does not meet the requirements
of Code section 422, or, even if meeting the requirements of Code
section 422, is not intended to be an incentive stock option and is
so designated.
(r) “Offering” means,
collectively, (1) the sale of up to $1,000,000,000 to the public
and the registration of such units with the Securities and Exchange
Commission, as authorized by resolutions of the Board (the
“Initial Offering”), and (2) the issuance of any
additional Units of the Company as authorized by resolutions of the
Board from time to time, which issuance occurs before the
termination of this Plan (the “Additional
Offerings”).
(s) “Option” means a
right to purchase Units granted under the Plan, at a price
determined in accordance with the Plan.
(t) “Participant” means
any Employee of the Employer who receives an Incentive Award under
the Plan.
(u) “Restricted Stock”
means Units awarded upon the terms and subject to the restriction
set forth in Section 6.
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(v) “Rule 16b-3” means
Rule 16b-3 of the Securities and Exchange Commission promulgated
under the Act. A reference in the Plan to Rule 16b-3 shall include
a reference to any corresponding rule (or number redesignation) of
any amendments to Rule 16b-3 enacted after the effective date of
the Plan’s adoption.
(w) “Unit” means one
common share and one Series A preferred share, no par value, of the
Company. If the par value of the common shares or Series A
preferred shares is changed, or in the event of a change in the
capital structure of the Company (as provided in Section 12), the
Units resulting from such a change shall be deemed to be Units
within the meaning of the Plan.
(x) “Window Period”
means the period beginning on the third business day and ending on
the twelfth business day following the release for publication of
quarterly or annual summary statements of the Company’s sales
and earnings. The release for publication shall be deemed to have
occurred if the specified financial data (i) appears on a wire
service, (ii) appears in a financial news service, (iii) appears in
a newspaper of general circulation, or (iv) is otherwise made
publicly available.
3. General.
The following types of Incentive
Awards may be granted under the Plan: Options and Restricted Stock.
Options granted under the Plan shall be Nonstatutory Stock
Options.
4. Securities.
Subject to Section 12 of the Plan,
there shall be reserved for issuance under the Plan an aggregate of
(1) 35,000 Units plus (2) 4.625% of the number of Units sold in the
Initial Offering in excess of the Minimum Offering plus (3) 5.0% of
the total number of Units sold in the Additional Offerings, which
shall be authorized, but unissued Units. Units allocable to Options
or portions thereof granted under the Plan that expire or otherwise
terminate
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unexercised may again be subjected to an Option
under the Plan. For purposes of determining the number of Units
that are available for Incentive Awards under the Plan, such number
shall, to the extent permissible under Rule 16b-3, include the
number of Units surrendered by an optionee or retained by the
Company in payment of Applicable Withholding Taxes.
5. Eligibility.
(a) All present and future Employees
of the Employer who hold positions with management responsibilities
with the Employer (or any parent or subsidiary of the Company,
whether now existing or hereafter created or acquired) shall be
eligible to receive Incentive Awards under the Plan. The Committee
shall have the power and complete discretion, as provided in
Section 13, to select eligible Employees to receive Incentive
Awards and to determine for each Employee the terms and conditions,
the nature of the award and the number of Units to be allocated to
each Employee as part of each Incentive Award.
(b) The grant of an Incentive Award
shall not obligate the Employer or any parent or subsidiary of the
Company to pay an Employee any particular amount of remuneration,
to continue the employment of the Employee after the grant or to
make further grants to the Employee at any time
thereafter.
6. Restricted Stock
Awards.
(a) Whenever the Committee deems it
appropriate to grant Restricted Stock, notice shall be given to the
Participant stating the number of shares of Restricted Stock
granted and the terms and conditions to which the Restricted Stock
is subject. This notice, when accepted in writing by the
Participant shall become an award agreement between the Company and
the Participant
