EXHIBIT 10.3

APPLE REIT TEN, INC.

2010 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

EFFECTIVE JANUARY 21, 2011

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APPLE REIT TEN, INC.

2010 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN

EFFECTIVE JANUARY 21, 2011

          1. Purpose. The purpose of this Apple REIT Ten, Inc. 2010 Non-Employee
Directors Stock Option Plan (the “Plan”) is to encourage ownership in Apple REIT
Ten, 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 Ten, 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) “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 the reasonable
application of a reasonable valuation method consistent with the requirements of
Treasury Regulations section 1.409A-1(b)(5)(iv)(B).

 

 

 

          (i) “Initial Closing” means the first closing of the Offering that
will occur after the Minimum Offering is achieved.

 

 

 

          (j) “Insider” means a person subject to Section 16(b) of the Act.

 

 

 

          (k) “Minimum Offering” means the sale of 9,523,810 Units pursuant to
the Offering.

 

 

 

          (l) “Offering” means, collectively, (1) the sale of up to
$2,000,000,000 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 August 11, 2010 (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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          (m) “Option” means a right to acquire Units granted under the Plan, at
a price determined in accordance with the Plan.

 

 

 

          (n) “Treasury Regulations” mean the final, temporary or proposed
regulations issued by the Treasury Department and/or Internal Revenue Service as
codified in Title 26 of the United States Code of Federal Regulations

 

 

 

          (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 Company or any subsidiary of the Company and was
not an employee of the Company or subsidiary for a period of at least one year
before the Date of Grant shall be eligible to participate in the Plan.

          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, are forfeited
or otherwise terminate unexercised may again be subjected to an Option under the
Plan. The cash proceeds from Option exercises shall not be used to repurchase
common shares and Series A preferred share of the Company on the open market or
otherwise for reuse 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) Automatic Award of Option.

 

 

 

 

 

          (i) As of the Initial Closing, each Eligible Director shall
automatically receive an Option to purchase 5,500 Units plus 0.0125% of the
number of Units in excess of the Minimum Offering sold by the Initial Closing.

 

 

 

 

 

          (ii) As of each June 1 during the years 2011 and ending upon the
termination of the Plan, each Eligible Director shall automatically receive an
Option to purchase 0.02% of the total number of Units issued and outstanding on
that date.

 

 

 

 

 

          (iii) As of the election as a director of any new person who qualifies
as an Eligible Director,

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such Eligible Director shall automatically receive an Option to purchase 5,500
Units.

 

 

 

 

 

          (iv) If at any time under the Plan there are not sufficient Units
available to fully permit the automatic Option grants described in this
paragraph, the Option grants shall be reduced pro rata (to zero if necessary) so
as not to exceed the number of Units available.

 

 

 

 

          (b) Option Exercise Price. Subject to Section 12 below, the Option
exercise price shall never become less than 100% of the Fair Market Value of the
Units subject to the Option on the Date of Grant.

 

 

 

 

          (c) Options Not Transferable. An Option shall not be transferable by
the optionee otherwise than by will, or by the laws of descent and distribution,
and shall be exercised during the lifetime of the optionee only by him. An
Option transferred by will or by the laws of descent and distribution may be
exercised by the optionee’s personal representative within one year of the date
of the optionee’s death to the extent the optionee could have exercised the
Option on the date of his death. No Option or interest therein may be
transferred, assigned, pledged or hypothecated by the optionee during his
lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.

 

 

 

 

          (d) Exercise of Options. In no event shall an Option be exercisable
earlier than six months from the later of the Date of Grant or the date of
approval of the Plan by shareholders of the Company. Furthermore, no Option may
be exercised:

 

 

 

 

 

          (i) Before any amendment or restatement that requires shareholder
approval pursuant to Section 13 of the Plan, is approved by shareholders of the
Company;

 

 

 

 

 

          (ii) Unless at such time the optionee is a director of the Company,
except that he may exercise the Option within three years of the date he ceases
to be a director of the Company if he ceased to be a director more than six
months after the Date of Grant of the Option;

 

 

 

 

 

          (iii) After the expiration of ten years from the Date of Grant; and

 

 

 

 

 

          (iv) Except by written notice to the Company at its principal office,
stating the number of Units the optionee has elected to purchase, accompanied by
payment in cash and/or by delivery to the Company of the Units (valued at Fair
Market Value on the date of exercise) in the amount of the full Option exercise
price for the shares of Units being acquired thereunder.

          8. Modification and Extension of Options Prohibited.

 

 

 

          (a) Notwithstanding any provision of this Plan or any Option agreement
to the contrary, (i) no Modification shall be made in respect to any Option if
such Modification would result in the Option constituting a deferral of
compensation, and (ii) no Extension shall be made in respect to any Option, if
such Extension would result in the Option having an additional deferral feature
from the Date of Grant, in each case within the meaning of applicable Treasury
Regulations under Code section 409A.

 

 

 

          (b) Subject to subsection (d) below, a “Modification” for purposes of
subsection (a) means any change in the terms of the Option (or change in the
terms of the Plan or applicable Option agreement) that may provide the holder of
the Option with a direct or indirect reduction in the exercise price of the
Option, regardless of whether the holder in fact benefits from the change in
terms.

 

 

 

          (c) Subject to subsection (d) below, an “Extension” for purposes of
subsection (a) means either (i) the provision to the holder of an additional
period of time within which to exercise the Option beyond the time originally
prescribed, or (ii) the conversion or exchange of the Option for a legally
binding right to compensation in a future taxable year, or (iii) the addition of
any feature for the deferral of compensation to the terms of the Option, or (iv)
any renewal of the Option that has the effect of (i) through (iii) above.

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          (d) Notwithstanding subsections (b) and (c) above, it shall not be a
Modification or an Extension, respectively, to change the terms of an Option in
accordance with Section 13 of the Plan, or in any of the other ways or for any
of the other purposes provided in applicable Treasury Regulations or other
guidance under Code section 409A as not resulting in a Modification or Extension
for purposes of that section. In particular, it shall not be an Extension to
extend the exercise period of an Option to a date no later than the earlier of
(i) the latest date upon which the Option could have expired by its original
terms under any circumstances or (ii) the 10th anniversary of the original Date
of Grant.

          9. Effective Date of the Plan. This Plan was originally effective on
January 21, 2011 having been approved by the shareholders of the Company on such
date. Until the requirements of any applicable state or federal securities laws
have been met, no Option shall be exercisable that is not contingent on the
satisfaction of these requirements. If at any time subsequent to the initial
satisfaction of these requirements, the requirements of any applicable federal
or state securities laws fail to be met, no Option granted shall be exercisable
until the Board has determined that these requirements have again been met.

          10. Termination. The Plan shall terminate upon the earlier of:

 

 

 

          (a) The adoption of a resolution of the Board terminating the Plan; or

 

 

 

          (b) The date on which the Company’s existence terminates (provided,
however, that if the existence of the Company is reinstated as permitted by law,
the Plan shall continue during the effective period of any reinstatement,
subject to earlier termination pursuant to Section 10(a) above).

No termination of the Plan shall without his consent materially and adversely
affect any of the rights or obligations of any person under any Option
previously granted under the Plan.

          11. Limitation of Rights.

 

 

 

          (a) No Right to Continue as a Director. Neither the Plan nor any
action taken pursuant to the Plan shall constitute or be evidence of any
agreement or understanding, express or implied, that the Company will retain any
person as a director for any period of time.

 

 

 

          (b) No Shareholders Rights Under Options. An optionee shall have no
rights as a shareholder with respect to Units covered by his Option until the
date of exercise of the Option, and, except as provided in Section 12, no
adjustment will be made for dividends or other rights for which the record date
is prior to the date of such exercise.

          12. Changes in Capital Structure.

 

 

 

          (a) In the event of a stock dividend, stock split or combination of
stock, recapitalization or merger in which the Company is the surviving
corporation or other change in the Company’s capital stock (including, but not
limited to, the creation or issuance to shareholders generally of rights,
options or warrants for the purchase of common shares or preferred shares of the
Company), the number and kind of units or other securities to be subject to the
Plan and to Options then outstanding or to be granted thereunder, the maximum
number of units or securities which may be delivered under the Plan, the
exercise price and other relevant provisions shall be proportionately adjusted
by the Board, whose determination shall be binding on all persons. If the
adjustment would produce fractional Units or other securities with respect to
any unexercised Option, the Board shall round down the number of Units or other
securities covered by the Option to the nearest whole Unit and round up the
exercise price of the Option to the nearest cent so as to eliminate the
fractional Unit and/or fractional cents.

 

 

 

          (b) If the Company is a party to a consolidation or a merger in which
the Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company’s outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company’s
assets, the Board may take such actions with respect to outstanding Options as
the Board deems

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appropriate, consistent with applicable provisions of the Code and any
applicable federal or state securities laws.

 

 

 

          (c) Notwithstanding anything in the Plan to the contrary, the Board
may take the foregoing actions without the consent of any optionee and the
Board’s determination shall be conclusive and binding on all persons for all
purposes.

          13. Continuing Securities Law Compliance. If at any time on or after
the effective date of the Plan as described above, the requirements of any
applicable federal or state securities laws should fail to be met, no Options
shall be exercisable until the Board has determined that these requirements have
again been met. The Board may suspend the right to exercise an Option at any
time when it determines that allowing the exercise and issuance of Units would
violate any federal or state securities or other laws, and may provide that any
time periods to exercise the Option are extended during a period of suspension.

          14. Amendment of the Plan. The Board may terminate the Plan at any
time and may amend the Plan at any time in any respect as it shall deem
advisable; provided that no change shall be made that increases the total number
of Units reserved for issuance under the Plan (except pursuant to Section 12),
materially modifies the requirements as to eligibility for participation in the
Plan, unless the change is authorized by the shareholders of the Company owning
a majority of the outstanding Units of the Company. Notwithstanding the
foregoing, the Board may unilaterally amend the Plan and outstanding Options
with respect to participants as it deems appropriate to ensure compliance with
Rule 16b-3 and other applicable federal or state securities laws and to meet the
requirements of the Code and applicable regulations or other generally
applicable guidance thereunder. Except as provided in the preceding sentence, a
termination or amendment of the Plan shall not, without the consent of the
Participant, adversely affect a participant’s rights under an Award previously
granted to him or her.

          15. Notice. All notices and other communications required or permitted
to be given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid, as
follows: (a) if the Company – at its principal business address to the attention
of the President; (b) if to any participant – at the last address of the
participant know to the sender at the time the notice or other communication is
sent.

          16. Governing Law. The terms of this Plan are subject to all present
and future regulations and rulings of the Secretary of the Treasury of the
United States or his or her delegate. If any provision of the Plan conflicts
with any such regulation or ruling, then that provision of the Plan shall be
void and of no effect. Options granted under the Plan are not intended to
provide for any deferral of compensation that would be subject to Code section
409A. The terms of the Plan shall be governed by the laws of the Commonwealth of
Virginia without regard to conflicts of law.

          IN WITNESS WHEREOF, the Company has caused this Plan to be executed
this 21st day of January, 2011.

 

 

 

 

APPLE REIT TEN, INC.

 

 

 

 

By:

/s/ Glade M. Knight

 

 

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Glade M. Knight,

 

 

Chairman of the Board

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