Exhibit 10.4
APPLE REIT SEVEN,
INC.
2005 NON-EMPLOYEE DIRECTORS STOCK
OPTION PLAN
EFFECTIVE MARCH 2,
2006
APPLE REIT SEVEN,
INC.
2005 NON-EMPLOYEE DIRECTORS STOCK
OPTION PLAN
EFFECTIVE MARCH 2,
2006
1. Purpose.
The purpose of this Apple REIT
Seven, Inc. 2005 Non-Employee Directors Stock Option Plan (the
“Plan”) is to encourage ownership in Apple REIT Seven,
Inc. (the “Company) by non-employee members of the Board, in
order to promote long-term stockholder value and to provide
non-employee members of the Board with an incentive to continue as
directors of the Company.
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) “Board” means the
board of directors of the Company.
(c) “Code” means the
Internal Revenue Code of 1986, as amended.
(d) “Company” means
Apple REIT Seven, Inc., a Virginia corporation.
(e) “Date of Grant”
means the date as of which an Eligible Director is automatically
awarded an Option pursuant to Section 7.
(f) “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.
(g) “Eligible Director”
means a director described in Section 4.
(h) “Employer” means the
Company.
(i) “Fair Market Value”
means, on any given date, (i) if the Units are traded on an
exchange, the closing registered sales prices of the Company Stock
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.
(j) “Initial Closing”
means the first closing of the Offering that will occur after the
Minimum Offering is achieved.
(k) “Insider” means a
person subject to Section 16(b) of the Act.
(l) “Minimum Offering”
means the sale of 4,761,905 Units pursuant to the
Offering.
(m) “Offering” means,
collectively, (1) the sale of up to $1,000,000,000 in Units to
the public and the registration of such shares with the Securities
and Exchange Commission, as authorized by resolutions of the Board
dated May 20, 2005 (the “Initial Offering”), and
(2) the issuance of any additional Units as authorized by
resolutions of the Board from time to time, which issuance occurs
before the termination of this Plan (the “Additional
Offerings”).
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(n) “Option” means a
right to acquire Units granted under the Plan, at a price
determined in accordance with the Plan.
(o) “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.
3. Administration.
The Plan shall be administered by
the Board. Options shall be granted as described in Section 7.
However, the Board shall have all powers vested in it by the terms
of the Plan, including, without limitation, the authority (within
the limitations described herein) to prescribe the form of the
agreement embodying the grant of Options, to construe the Plan, to
determine all questions arising under the Plan, and to adopt and
amend rules and regulations for the administration of the Plan as
it may deem desirable. Any decision of the Board in the
administration of the Plan, as described herein, shall be final and
conclusive. The Board may act only by a majority of its members in
office, except that members thereof may authorize any one or more
of their number or any officer of the Company to execute and
deliver documents on behalf of the Board. No member of the Board
shall be liable for anything done or omitted to be done by him or
any other member of the Board in connection with the Plan, except
for his own willful misconduct or as expressly provided by
statue.
4. Participation in the
Plan. Each director of
the Company who is not otherwise an employee of the Employer or any
subsidiary of the Company and was not an employee of the Employer
or subsidiary for a period of at least one year before the Date of
Grant shall be eligible to participate in the Plan.
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5. Securities Subject to the
Plan. Subject to
Section 12 of the Plan, there shall be reserved for issuance
under the Plan an aggregate of 45,000 Units plus 1.8% of the total
number of Units issued in the Offering in excess of the Minimum
Offering, which shall be authorized, but unissued Units. Units
allocable to Options or portions thereof granted under the Plan
that expire or otherwise terminate unexercised may again be
subjected to an Option under the Plan.
6. Non-Statutory Stock
Options. All options
granted under the Plan shall be non-statutory in nature and shall
not be entitled to special tax treatment under Code section
422.
7. Award, Terms, Conditions and
Form of Options. Each
Option shall be evidenced by a written agreement in such form as
the Board shall from time to time approve, which agreement shall
comply with and be subject to the following terms and
conditions:
(a) Aut
