Document:

exv4w3

 

Exhibit 4.3

TOPIO, INC.

2004 ISRAELI SHARE OPTION PLAN

A. NAME AND PURPOSE

1. Name: This plan, as amended from time to time, shall be known as the “Topio, Inc. 2004 Israeli
Share Option Plan” (the “Plan”).

2. Purpose: The purpose and intent of the Plan is to provide incentives to Israeli employees,
directors, consultants and/or contractors of Topio, Inc., a company organized under the laws of the
State of Delaware, or any subsidiary or affiliate thereof (collectively, the “Company”), by
providing them with opportunities to purchase shares of Common Stock, par value of $0.001 each
(“Shares”) of the Company, pursuant to a plan approved by the Board of Directors of the Company
(the “Board”) which is designed to benefit from, and is made pursuant to, the provisions of either
Section 102 or Section 3(9) of the Israeli Income Tax Ordinance [New Version] 1961 (the
“Ordinance”), as applicable, and the rules and regulations promulgated thereunder.

B. GENERAL TERMS AND CONDITIONS OF THE PLAN

3. Administration:

     3.1 The Plan will be administered by the Board or by a committee appointed by the Board (the
“Committee”), which, if appointed, will consist of such number of directors of the Company as may
be fixed, from time to time, by the Board. If a Committee is not appointed, the term Committee,
whenever used herein, shall mean the Board. The Board shall appoint the members of the Committee,
may from time to time remove members from, or add members to, the Committee and shall fill
vacancies in the Committee however caused.

     3.2 The Committee shall select one of its members as its Chairman and shall hold its meetings
at such times and places, as it shall determine. Actions taken by a majority of the members of the
Committee, at a meeting at which a majority of its members is present, or acts reduced to, or
approved in, writing by all members of the Committee, shall be the valid acts of the Committee. The
Committee may appoint a Secretary, who shall keep records of its meetings and shall make such rules
and regulations for the conduct of its business, as it shall deem advisable.

     3.3 Subject to the general terms and conditions of this Plan and applicable law, the Committee
shall have the full authority in its discretion, from time to time and at any time to determine (i)
the persons (“Grantees”) to whom options to purchase Shares (the “Options”) shall be granted, (ii)
the number of Shares subject to each Option, (iii) the time or times at which the

 

 

same shall be
granted, (iv) the schedule and conditions on which such Options may be exercised and on
which such Shares shall be paid for, and/or (v) any other matter which is necessary or desirable
for, or incidental to, the administration of the Plan.

     3.4 Subject to the general terms and conditions of the Plan and the Ordinance, the Committee
shall have the full authority in its discretion, from time to time and at any time, to determine:

          (a) with respect to the grant of 102 Options (as defined in Section 5.1(a)(i) below) — whether
the Company shall elect the “Ordinary Income Route” under Section 102(b)(1) of the Ordinance (the
“Ordinary Income Route”) or the “Capital Gains Route” under Section 102(b)(2) of the Ordinance (the
“Capital Gains Route”) (each of the Ordinary Income Route or the Capital Gains Route — a “Taxation
Route”) for the grant of 102 Options, and the identity of the trustee who shall be granted such 102
Options in accordance with the provisions of this Plan and the then prevailing Taxation Route.

          In the event the Committee determines that the Company shall elect one of the Taxation Routes
for the grant of 102 Options, the Company shall be entitled to change such election only following
the lapse of one year from the end of the tax year in which 102 Options are first granted under the
then prevailing Taxation Route; and

          (b) with respect to the grant of 3(9) Options (as defined in Section 5.1(a)(ii) below) -
whether or not 3(9) Options shall be granted to a trustee in accordance with the terms and
conditions of this Plan, and the identity of the trustee who shall be granted such 3(9) Options in
accordance with the provisions of this Plan.

     3.5 Notwithstanding the aforesaid, the Committee may, from time to time and at any time, grant
102 Options that will not subject to a Taxation Route, as detailed in Section 102(c) of the
Ordinance (“102(c) Options”).

     3.6 The Committee may, from time to time, adopt such rules and regulations for carrying out
the Plan as it may deem necessary. No member of the Board or of the Committee shall be liable for
any act or determination made in good faith with respect to the Plan or any Option granted
thereunder.

     3.7 The interpretation and construction by the Committee of any provision of the Plan or of
any Option thereunder shall be final and conclusive and binding on all parties who have an interest
in the Plan or any Option or Share issuance thereunder unless otherwise determined by the Board.

 

 

4. Eligible Grantees:

     4.1 The Committee, at its discretion, may grant Options to any Israeli employee, director,
consultant and/or contractor of the Company. Anything in this Plan to the contrary notwithstanding,
all grants of Options shall be authorized and implemented only in accordance with the provisions of
applicable law.

     4.2 The grant of an Option to a Grantee hereunder, shall neither entitle such Grantee to
participate, nor disqualify him from participating, in any other grant of options pursuant to this
Plan or any other incentive plan of the Company.

5. Grant of Options, Issuance of Shares, Dividends and Shareholder Rights:

     5.1 Grant of Options and Issuance of Shares.

          (a) Subject to the provisions of the Ordinance and applicable law,

               (i) all grants of Options to Israeli employees, directors and office holders of the Company,
other than to a Controlling Shareholder of the Company (as such term is defined in the Ordinance),
shall be made only pursuant to the provisions of Section 102 of the Ordinance, the Income Tax Rules
(Tax Relief in Issuance of Shares to Employees), 2003 (“102 Rules”) and any other regulations,
rulings, procedures or clarifications promulgated thereunder (“102 Options”), or any other section
of the Income Tax Ordinance that will be relevant for such issuance in the future; and

               (ii) all grants of Options to consultants, contractors or Controlling Shareholders of the
Company shall be made only pursuant to the provisions of Section 3(9) of the Ordinance and the
rules and regulations promulgated thereunder (“3(9) Options”), or any other section of the
Ordinance that will be relevant for such issuance in the future.

          (b) Subject to Sections 7.1 and 7.2 hereof, the effective date of the grant of an Option (the
“Date of Grant”) shall be the date the Committee resolves to grant such Option, unless specified
otherwise by the Committee in its determination relating to the award of such Option. The
Committee shall promptly give the Grantee written notice (the “Notice of Grant”) of the grant of an
Option.

          (c) Trust. In the event Options are deposited with a trustee designated by the
Committee in accordance with the provisions of Section 3.4 hereof and, with respect to 102 Options,
approved by the Israeli Commissioner of Income Tax (the “Trustee”), the Trustee shall hold each
such Option and the Shares issued upon exercise thereof in trust (the “Trust”) for the benefit of
the Grantee in respect of whom such Option was granted (the “Beneficial Grantee”).

               In accordance with Section 102, the tax benefits afforded to 102 Options (and any Shares
received upon exercise thereof) in accordance with the Ordinary Income Route or Capital Gains
Route, as applicable, shall be contingent upon the Trustee holding such 102

 

 

Options
for the requisite period of time under the applicable Taxation Route of Section 102 or such other
period as shall prescribed by the Ordinance or approved by the Israeli tax authorities
(collectively, the “Trust Period”).

               With respect to 102 Options granted to the Trustee, the following shall apply:

               (i) A Grantee granted 102 Options shall not be entitled to sell the Shares received upon
exercise thereof (the “Exercised Shares”) or to transfer such Exercised Shares (or such 102
Options) from the Trust prior to the lapse of the Trust Period; and

               (ii) Any and all rights issued in respect of the Exercised Shares, including bonus shares but
excluding cash dividends (“Rights"(, shall be issued to the Trustee and held thereby until the
lapse of the Trust Period, and such Rights shall be subject to the Taxation Route which is
applicable to such Exercised Shares.

               Notwithstanding the aforesaid, Exercised Shares or Rights may be sold or transferred, and the
Trustee may release such Exercised Shares (or 102 Options) or Rights from Trust, prior to the lapse
of the Trust Period, provided however, that tax is paid or withheld in accordance with Section
102(b)(4) of the Ordinance and/or Section 7 of the 102 Rules.

               All certificates representing Shares issued to the Trustee under the Plan shall be deposited
with the Trustee, and shall be held by the Trustee until such time that such Shares are released
from the Trust as herein provided.

          (d) Subject to Section 10 hereof and additional requirements of any applicable law, no 102
Options or Shares issued in respect thereof shall be released from the Trust and no Beneficial
Grantee shall be entitled to exercise such 102 Options until seven (7) years from the Date of Grant
(such date being hereinafter referred to as the “Release Date”), provided, however,
that upon the earlier of the closing of (i) an initial underwritten public offering of Shares (an
“IPO”), or (ii) a Corporate Transaction (as defined in Section 11.1 herein), the Release Date shall
be the date of such closing, and provided further that the Options shall have vested pursuant to
Section 7.3 hereof.

          (e) Subject to the terms hereof, at any time after the Release Date, with respect to any 102
Options or Shares the following shall apply:

               (i) Upon the written request of any Beneficial Grantee, the Trustee shall release from the
Trust the Options granted, and/or the Shares issued, on behalf of such Beneficial Grantee, by
executing and delivering to the Company such instrument(s) as the Company may require, giving due
notice of such release to such Beneficial Grantee, provided, however, that the
Trustee shall not so release any such Options and/or Shares to such Beneficial

 

 

Grantee unless
the latter, prior to, or concurrently with, such release, provides the Trustee with evidence,
satisfactory in form and substance to the Trustee, that all taxes, if any, required to be paid upon
such release have, in fact, been paid.

               (ii) Alternatively, provided the Shares are listed on a stock exchange or admitted to trading
on an electronic securities trading system (such as the Nasdaq Stock Market), upon the written
instructions of the Beneficial Grantee to sell any Shares issued upon exercise of Options, the
Trustee shall use its reasonable efforts to effect such sale and shall transfer such Shares to the
purchaser thereof concurrently with the receipt, or after having made suitable arrangements to
secure the payment of the proceeds of the purchase price in such transaction. The Trustee shall
withhold from such proceeds any and all taxes required to be paid in respect of such sale, shall
remit the amount so withheld to the appropriate tax authorities and shall pay the balance thereof
directly to the Beneficial Grantee, reporting to such Beneficial Grantee and to the Company the
amount so withheld and paid to said tax authorities.

     5.2 Guarantee. In the event a 102(c) Option is granted to a Grantee who is an employee
at the time of such grant, if the Grantee’s employment is terminated, for any reason, such Grantee
shall provide the Company with a guarantee or collateral securing the payment of all taxes required
to be paid upon the sale of the Exercised Shares received upon exercise of such 102(c) Option.

     5.3 Dividend. All Shares issued upon the exercise of Options granted under the Plan
shall entitle the Grantee thereof to receive dividends with respect thereto. For so long as Shares
deposited with the Trustee on behalf of a Beneficial Grantee are held in the Trust, the dividends
paid or distributed with respect thereto shall be remitted to the Trustee for the benefit of such
Beneficial Grantee or distributed directly to such Beneficial Grantee, as shall be solely
determined by the Committee.

     5.4 Voting Rights; Shareholder Rights. As a condition precedent to the exercise of
any Options granted and the issuance of any Shares in respect thereof, the Grantee shall execute
and deliver a voting proxy and power of attorney in a form that is appropriate under Delaware (the
“Proxy”) law and that appoints a person or entity designated by the Company. Shares subject to the
Proxy will be voted in the same proportion as the result of the stockholders vote in respect of
which such shares are being cast. Such proxy shall terminate and be of no further force and effect
upon consummation of the IPO.

               Notwithstanding the aforesaid and as long as Shares are held by the Trustee, the voting rights
at the Company’s general meetings (including written resolutions) attached to such Shares will
remain with the Trustee. However, the Trustee shall not exercise such voting rights.

 

 

               The holder of an Option shall have no stockholder rights with respect to the Shares subject to
such Option until such person shall have exercised the Option, paid the exercise price and become
the recordholder of the purchased Shares.

6. Reserved Shares: The total number of Shares that may be subject to Options granted under this
Plan and the Company’s 2001 Share Option Plan (the “Plans”) shall not exceed 5,600,000 in the
aggregate, subject to adjustments as provided in Section 11 hereof and increase as provided in
Section 13 hereof. All Shares under the Plans, in respect of which the right of a Grantee to
purchase the same shall, for any reason, terminate, expire or otherwise cease to exist, shall again
be available for grant through Options under the Plan.

7. Grant of Options:

     7.1 The implementation of the Plan and the granting of any Option under the Plan shall be
subject to the Company’s procurement of all approvals and permits required by applicable law or
regulatory authorities having jurisdiction over the Plan, the Options granted under it and the
Shares issued pursuant to it.

     7.2 The Notice of Grant shall state, inter alia, the number of Shares subject to each Option,
the vesting schedule, the dates when the Options may be exercised, the exercise price, whether the
Options granted thereby are 102 Options or 3(9) Options, and such other terms and conditions as the
Committee at its discretion may prescribe, provided that they are consistent with this Plan. Each
Notice of Grant evidencing a 102 Option shall, in addition, be subject to the provisions of the
provisions of the Ordinance applicable to such options.

     7.3 Vesting. Without derogating from the rights and powers of the Committee under
Section 7.2 hereof, unless otherwise specified by the Committee, the Options shall be for a term of
ten (10) years, and, unless determined otherwise by the Committee, the Vesting Period pursuant to
which such Options shall vest, and the Grantee thereof shall be entitled to pay for and acquire the
Shares, shall be such that all Options shall be fully vested on the first business day following
the passing of four (4) years from the Date of Grant, as follows: 25% of the Options shall vest on
the first anniversary of the Adoption Date (the “Adoption Date” for the purpose of this Plan means
the Date of Grant or any other date determined by the Committee for a given grant of Options), and
2.08333% of such Options shall vest on each of each one-month period thereafter.

          “Vesting Period” of an Option means, for the purpose of the Plan and its related instruments,
the period between the Adoption Date and the date on which the holder of an Option may exercise the
rights awarded pursuant to the terms of the Option. Any term in which the Grantee shall not be
employed by the Company, or in which the Grantee shall have taken an unpaid leave of absence, shall
not be included in the Vesting Period.

 

 

     7.4 Acceleration of Vesting. Anything herein to the contrary in this Plan
notwithstanding, the Committee shall have full authority to determine any provisions regarding the
acceleration of the Vesting Period of any Option or the cancellation of all or any portion of any
outstanding restrictions with respect to any Option or Share upon certain events or occurrences,
and to include such provisions in the Notice of Grant on such terms and conditions as the Committee
shall deem appropriate.

     7.5 Repricing. Subject to applicable law, the Committee shall have full authority to,
at any time and from time to time, (i) grant in its discretion to the holder of an outstanding
Option, in exchange for the surrender and cancellation of such Option, a new Option having
an exercise price lower than provided in the Option so surrendered and
canceled and containing such other terms and conditions as the Committee may prescribe in
accordance with the provisions of the Plan, or ( ii) effectuate a decrease in the Exercise
Price (see Section 8 below) of outstanding Options .

8. Exercise Price: The exercise price per Share subject to each Option shall be determined by
the Committee in its sole and absolute discretion, subject to applicable law and to guidelines
adopted by the Board from time to time.

9. Exercise of Options:

     9.1 Options shall be exercisable pursuant to the terms under which they were awarded and
subject to the terms and conditions of the Plan.

     9.2 The exercise of an Option shall be made by a written notice of exercise (the “Notice of
Exercise”) delivered by the Grantee (or, with respect to Options held in the Trust, by the Trustee
upon receipt of written instructions from the Beneficial Grantee) to the Company at its principal
executive office, specifying the number of Shares to be purchased and accompanied by the payment
therefor, and containing such other terms and conditions as the Committee shall prescribe from time
to time.

     9.3 Anything herein to the contrary notwithstanding, but without derogating from the
provisions of Section 10 hereof, if any Option has not been exercised and the Shares subject
thereto not paid for within ten (10) years after the Date of Grant (or any shorter period set forth
in the Notice of Grant), such Option and the right to acquire such Shares shall terminate, all
interests and rights of the Grantee in and to the same shall ipso facto expire, and, in the event
that in connection therewith any Options are still held in the Trust as aforesaid, the Trust with
respect thereto shall ipso facto expire, and the Shares subject to such Options shall again be
available for grant through Options under the Plan, as provided for in Section 6 herein.

     9.4 Each payment for Shares shall be in respect of a whole number of Shares, and shall be
effected in cash or by a bank’s check payable to the order of the Company, or such other method of
payment acceptable to the Company.

 

 

10. Termination of Employment:

     10.1 Employees. In the event that a Grantee who was an employee of the Company on the
Date of Grant of any Options to him or her ceases, for any reason, to be employed by the Company
(the “Cessation of Employment”), all Options theretofore granted to such Grantee when such Grantee
was an employee of the Company shall terminate as follows:

          (a) The date of the Grantee’s Cessation of Employment shall be the date on which the
employee-employer relationship between the Grantee and the Company ceases to exist (the “Date of
Cessation”).

          (b) All such Options that are not vested at the Date of Cessation shall terminate immediately.

          (c) If the Grantee’s Cessation of Employment is by reason of such Grantee’s death or
“Disability” (as hereinafter defined), such Options (to the extent vested at the Date of Cessation)
shall be exercisable by the Grantee or the Grantee’s guardian, legal representative, estate or
other person to whom the Grantee’s rights are transferred by will or by laws of descent or
distribution, at any time until the lapse of 180 days from the Date of Cessation (but in no event
after the expiration date of such Options), and shall thereafter terminate.

               For purposes hereof, “Disability” shall mean the inability to engage in any substantial
gainful occupation for which the Grantee is suited by education, training or experience, by reason
of any medically determinable physical or mental impairment that is expected to result in such
person’s death or to continue for a period of six (6) consecutive months or more.

          (d) If the Grantee’s Cessation of Employment is due to any reason other than those stated in
Sections 10.1(c), 10.1(e) and 10.1(f) herein, such Options (to the extent vested at the Date of
Cessation) shall be exercisable at any time until the lapse of 90 days from the Date of Cessatio
(but in no event after the expiration date of such Options), and shall thereafter terminate;
provided, however, that if the Grantee dies within such period, such Options (to
the extent vested at the Date of Cessation) shall be exercisable by the Grantee’s legal
representative, estate or other person to whom the Grantee’s rights are transferred by will or by
laws of descent or distribution at any time until the lapse of 180 days from the Date of Cessation
(but in no event after the expiration date of such Options), and shall thereafter terminate.

          (e) Notwithstanding the aforesaid, if the Grantee’s Cessation of Employment is due to (i)
breach of the Grantee’s duty of loyalty towards the Company, or (ii) breach of the Grantee’s duty
of care towards the Company, or (iii) the commission any flagrant criminal offense by the Grantee,
or (iv) the commission of any act of fraud, embezzlement or dishonesty towards the Company by the
Grantee, or (v) any unauthorized use or disclosure by the Grantee of confidential information or
trade secrets of the Company,

 

 

or (vi) any other intentional misconduct by the Grantee (by act or
omission) adversely
affecting the business or affairs of the Company in a material manner, or (vii) any act or omission
by the Grantee which would allow for the termination of the Grantee’s employment without severance
pay, according to the Severance Pay Law, 1963, all the Options whether vested or not shall ipso
facto expire immediately and be of no legal effect.

          (f) If a Grantee retires, he shall, subject to the approval of the Committee, continue to
enjoy such rights, if any, under the Plan and on such terms and conditions, with such limitations
and subject to such requirements as the Committee in its discretion may determine.

          (g) Whether the Cessation of Employment of a particular Grantee is by reason of “Disability”
for the purposes of paragraph 10.1(c) hereof or by virtue of “retirement” for purposes of paragraph
10.1(f) hereof, or is a termination of employment other than by reason of such Disability or
retirement, or is for reasons as set forth in paragraph 10.1(e) hereof, shall be finally and
conclusively determined by the Committee in its absolute discretion.

          (h) Notwithstanding the aforesaid, under no circumstances shall any Option be exercisable
after the specified expiration of the term of such Option.

     10.2 Directors, Consultants and Contractors. In the event that a Grantee, who is a
director, consultant or contractor of the Company, ceases, for any reason, to serve as such, the
provisions of Sections 10.1(b), 10.1(c), 10.1(d), 10.1(e), 10.1(g) and 10.2(h) above shall apply,
mutatis mutandis. For the purposes of this Section 10.2, “Date of Cessation” shall mean:

          (a) with respect to directors — the date on which a director submits notice of resignation
from the Board or the date on which the shareholders of the Company remove such director from the
Board; and

          (b) with respect to consultants and contractors — the date on which the consulting or
contractor agreement between such consultant or contractor, as applicable, and the Company expires
or the date on which either of the parties to such agreement sends the other notice of its
intention to terminate said agreement.

     10.3 Notwithstanding the foregoing provisions of this Section 10, the Committee shall have the
discretion, exercisable either at the time an Option is granted or thereafter, to:

          (a) extend the period of time for which the Option is to remain exercisable following the Date
of Cessation to such greater period of time as the Committee shall deem appropriate, but in no
event beyond the specified expiration of the term of the Option;

 

 

          (b) permit the Option to be exercised, during the applicable exercise period following the
Date of Cessation, not only with respect to the number of Shares for which such Option is
exercisable at the Date of Cessation but also with respect to one or more additional
installments in which the Grantee would have vested under the Option had the Grantee continued in
the employ or service of the Company.

11. Adjustments, Liquidation and Corporate Transaction:

     11.1 Definitions:

          “Corporate Transaction” means the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:

          (i) a sale or other disposition of all or substantially all, as determined by the Board in its
discretion, of the consolidated assets of the Company and its subsidiaries;

          (ii) a sale or other disposition of at least eighty percent (80%) of the outstanding
securities of the Company;

          (iii) a merger, consolidation or similar transaction following which the Company is not the
surviving corporation; or

          (iv) a merger, consolidation or similar transaction following which the Company is the
surviving corporation but the Ordinary Shares of the Company outstanding immediately preceding the
merger, consolidation or similar transaction are converted or exchanged by virtue of the merger,
consolidation or similar transaction into other property, whether in the form of securities, cash
or otherwise.

     11.2 Adjustments. Subject to any required action by the shareholders of the Company,
the number of Shares subject to each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option, as well as the price
per share of Shares subject to each such outstanding Option, shall be proportionately adjusted for
any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Shares or the payment of a stock
dividend (bonus shares) with respect to the Shares or any other increase or decrease in the number
of issued Shares effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not be deemed
to have been “effected without receipt of consideration.” Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of any class, or securities
convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of Shares subject to an Option.

 

 

     11.3 Liquidation. Unless otherwise provided by the Board, in the event of the
proposed dissolution or liquidation of the Company, all outstanding Options will terminate
immediately prior to the consummation of such proposed action. In such case, the Committee may
declare that any Option shall terminate as of a date fixed by the Committee and give each Grantee
the right to exercise his Option, including any Option that would not otherwise be exercisable.

     11.4 Corporate Transaction.

          (a) In the event of a Corporate Transaction, immediately prior to the effective date of such
Corporate Transaction, each Option may, at the sole and absolute discretion of the Committee,
either:

               (i) be substituted for an option to purchase securities of any successor entity (the
“Successor Entity Option”) such that the Grantee may exercise the Successor Entity Option for such
number and class of securities of the successor entity which would have been issuable to the
Grantee in consummation of such Corporate Transaction, had the Option been exercised immediately
prior to the effective date of such Corporate Transaction; or

               (ii) be assumed by any successor entity such that the Grantee may exercise the Option for such
number and class of securities of the successor entity which would have been issuable to the
Grantee in consummation of such Corporate Transaction, had the Option been exercised immediately
prior to the effective date of such Corporate Transaction; or

               In the event of a clause (i) or clause (ii) action, appropriate adjustments shall be made to
the Exercise Price per Share to reflect such action.

               Immediately following the consummation of the Corporate Transaction, all outstanding Options
shall terminate and cease to be outstanding, except to the extent assumed by a successor entity.

          (b) Notwithstanding the foregoing, the Committee shall have full authority and sole discretion
to determine that any of the provisions of Sections 11.4(a)(i) or 11.4(a)(ii) above shall apply in
the event of a Corporate Transaction in which the consideration received by the shareholders of the
Company is not solely comprised of securities of a successor entity, or in which such consideration
is solely cash or assets other than securities of a successor entity.

     11.5 Sale. In the event that all or substantially all of the issued and outstanding
share capital of the Company is to be sold (the “Sale”), each Grantee shall be obligated to
participate in the Sale and sell his or her Shares and/or Options in the Company, provided,
however, that each such Share or Option shall be sold at a price equal to that of any other
Share sold under the Sale (minus the applicable exercise price), while accounting for changes

 

 

in
such price due to the respective terms of any such Option, and subject to the absolute discretion
of the Board.

     11.6 The grant of Options under the Plan shall in no way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

12. Limitations on Transfer:

     12.1 No Option shall be assignable or transferable by the Grantee to whom granted otherwise
than by will or the laws of descent and distribution, and an Option may be exercised during the
lifetime of the Grantee only by such Grantee or by such Grantee’s guardian or legal representative.
The terms of such Option shall be binding upon the beneficiaries, executors, administrators, heirs
and successors of such Grantee. Unless otherwise determined by the Board of Directors, until an
IPO, a Grantee shall not have the right to sell Shares issued upon exercise of an Option within six
(6) months after the date of exercise of such Option or issuance of such Shares. After the six (6)
month period and until the IPO, the transfer of Shares issued upon exercise of Options (and
released by the Trustee) to a third party shall be subject to the Company’s right of first refusal
to purchase such Shares, upon the terms offered by such third party, within thirty (30) days from
receipt by the Company of a written notice from the Grantee specifying the terms of such offer,
and, in the event and to the extent such right is not exercised, the execution by any transferee of
such Shares of a voting proxy that is appropriate under Delaware law and that appoints a person or
entity who is unrelated to the Company and its shareholders and directors.

     12.2 Underwriter’s Lock-up. If requested by any managing underwriter, each Grantee so
requested shall enter into a lock-up agreement pursuant to which they will not, for a period of 180
days following the effective date of a registration statement for any public offering of Shares and
for such reasonable period of time prior to the effective date of such registration statement as
such underwriter may specify, offer, sell or otherwise dispose of any Shares, except any Shares
sold pursuant to such registration statement, without the prior consent of such underwriter.

13. Term and Amendment of the Plan:

     13.1 The Plan shall terminate upon the earliest of (i) the expiration of the ten (10)-year
period measured from the date the Plan was adopted by the Board, or (ii) the termination of all
outstanding Options in connection with a Corporate Transaction. All Options outstanding at the

 

 

time of a clause (i) termination event shall continue to have full force and effect in accordance
with the provisions of the Plan and the documents evidencing such Options.

     13.2 Subject to applicable laws and regulations, the Board in its discretion may, at any
time and from time to time, amend, alter, extend or terminate the Plan. However, no such action
shall adversely affect any rights and obligations with respect to Options at the time outstanding
under the Plan, unless the Grantee consents to such action.

14. Withholding and Tax Consequences: The Company’s obligation to deliver Shares upon the exercise
of any Options granted under the Plan shall be subject to the satisfaction of all applicable income
tax and other compulsory payments withholding requirements. All tax consequences and obligations
regarding any other compulsory payments arising from the grant or exercise of any Option, from the
payment for, or the subsequent disposition of, Shares subject thereto or from any other event or
act (of the Company, of the Trustee or of the Grantee) hereunder, shall be borne solely by the
Grantee, and the Grantee shall indemnify the Company and/or the Trustee, as applicable, and hold
them harmless against and from any and all liability for any such tax or other compulsory payment,
or interest or penalty thereon, including without limitation, liabilities relating to the necessity
to withhold, or to have withheld, any such tax or other compulsory payment from any payment made to
the Grantee.

15. Miscellaneous:

     15.1 Continuance of Employment. Neither the Plan nor the grant of an Option
thereunder shall impose any obligation on the Company to continue the employment or service of any
Grantee. Nothing in the Plan or in any Option granted thereunder shall confer upon any Grantee any
right to continue in the employ or service of the Company for any period of specific duration, or
interfere with or otherwise restrict in any way the right of the Company to terminate such
employment or service at any time, for any reason, with or without cause.

     15.2 Governing Law. The Plan and all instruments issued thereunder or in connection
therewith, shall be governed by, and interpreted in accordance with, the laws of the State of
Israel.

     15.3 Application of Funds. Any proceeds received by the Company from the sale of
Shares pursuant to the exercise of Options granted under the Plan shall be used for general
corporate purposes of the Company.

     15.4 Multiple Agreements. The terms of each Option may differ from other Options
granted under the Plan at the same time, or at any other time. The Committee may also grant more
than one Option to a given Grantee during the term of the Plan, either in addition to, or in
substitution for, one or more Options previously granted to that Grantee. The grant of multiple
Options may be evidenced by a single Notice of Grant or multiple Notices of Grant, as determined by
the Committee.

 

 

     15.5 Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be
construed as amending, modifying or rescinding any previously approved incentive arrangement or as
creating any limitations on the power of the Board to adopt such other incentive arrangements as
it may deem desirable, including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only in specific cases.

*****exv10w14

 

Exhibit 10.14

 

			
	Loan No.: 50-2859027
	 	Hidden Lakes Apartments

ENVIRONMENTAL INDEMNITY AGREEMENT

     THIS ENVIRONMENTAL INDEMNITY AGREEMENT (as the same may from time to time be amended,
consolidated, renewed or replaced, this “Agreement”), made as of December 28, 2006, by NNN
APARTMENT REIT, INC., a Maryland corporation (“Indemnitor”) whose address is 1551 North Tustin
Avenue, Suite 300, Santa Ana, California 92705, in favor of WACHOVIA BANK, NATIONAL ASSOCIATION, a
national banking association (together with its successors and assigns, “Lender”), whose address is
Commercial Real Estate Services, 8739 Research Drive URP — 4, NC 1075, Charlotte, North Carolina
28262.

W I T N E S S E T H :

     WHEREAS, Apartment REIT Hidden Lakes, LP, a Texas limited partnership (“Borrower”), has
obtained a loan (the “Loan”) in the principal amount of Nineteen Million Two Hundred Eighteen
Thousand and No/100 Dollars ($19,218,000.00) from Lender; and

     WHEREAS, the Loan is evidenced by a Promissory Note (as the same may from time to time be
amended, consolidated, renewed or replaced, the “Note”) dated of even date herewith, executed by
Borrower and payable to the order of Lender, in the stated principal amount of Nineteen Million Two
Hundred Eighteen Thousand and No/100 Dollars ($19,218,000.00), and is secured by a Deed of Trust,
Security Agreement and Fixture Filing (as the same may from time to time be amended, consolidated,
renewed or replaced, the “Security Instrument”) dated of even date herewith, from Borrower for the
benefit of Lender, encumbering that certain real property situated in the County of Bexar, State of
Texas, as is more particularly described on Exhibit “A” attached hereto and incorporated
herein by this reference, together with the buildings, structures and other improvements now or
hereafter located thereon (said real property, buildings, structures and other improvements being
hereinafter collectively referred to as the “Property”), and by other documents and instruments
(the Note, the Security Instrument and such other documents and instruments, as the same may from
time to time be amended, consolidated, renewed or replaced, being collectively referred to herein
as the “Loan Documents”); and

     WHEREAS, as a condition to making the Loan, Lender has required that Indemnitor indemnify
Lender with respect to any past, present or future environmental conditions or liabilities on, in,
under, affecting or in any way associated with the Property as herein set forth; and

     WHEREAS, the extension of the Loan to Borrower is of substantial benefit to Indemnitor and,
therefore, Indemnitor desires to indemnify Lender with respect to any past, present or future
environmental conditions or liabilities on, in, under, affecting or in any way associated with the
Property as herein set forth.

     NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in consideration of the
foregoing premises and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Indemnitor hereby covenants and agrees for the benefit of Lender, as
follows:

     1. Indemnity. Indemnitor hereby assumes liability for, and hereby agrees to
pay, protect, defend (at trial and appellate levels and with attorneys, consultants and experts
acceptable to Lender), and save Lender harmless from and against, and hereby indemnify Lender from
and against any and all liens, damages (including, without limitation, punitive or exemplary
damages), losses, liabilities (including,

 

 

without limitation, strict liability), obligations, settlement payments, penalties, fines,
assessments, citations, directives, claims, litigation, demands, defenses, judgments, suits,
proceedings, costs, disbursements and expenses of any kind or of any nature whatsoever (including,
without limitation, reasonable attorneys’, consultants’ and experts’ fees and disbursements
actually incurred in investigating, defending, settling or prosecuting any claim, litigation or
proceeding) (collectively “Costs”) which may at any time be imposed upon, incurred by or asserted
or awarded against Lender, Borrower, Indemnitor or the Property, and arising directly or indirectly
from or out of, whether now, hereafter or heretofore occurring: (i) any violation or alleged
violation of, or liability or alleged liability under, any local, state or federal law, rule or
regulation or common law duty pertaining to human health, natural resources or the environment,
including, without limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 (42 U.S.C. §9601 et seq.) (“CERCLA”), the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. §6901 et seq.), the Federal Water Pollution Control
Act (33 U.S.C. §1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et
seq.), the Emergency Planning and Community-Right-to-Know Act (42 U.S.C. § 11001 et
seq.), the Endangered Species Act (16 U.S.C. § 1531 et seq.), the Toxic
Substances Control Act (15 U.S.C. § 2601 et seq.), the Occupational Safety and
Health Act (29 U.S.C. § 651 et seq.) and the Hazardous Materials Transportation Act
(49 U.S.C. §1801 et seq.), the Texas Solid Waste Disposals Act (V.T.C.A. Health and
Safety Code §361 et seq.) and the Texas Water Code/Water Quality Control (V.T.C.A. Water Code
§26.001 et seq.), and those relating to Lead Based Paint (as hereinafter defined), and those
relating to Lead Based Paint (as hereinafter defined) and the regulations promulgated pursuant to
said laws, all as amended from time to time, (collectively, “Environmental Laws”), relating to or
affecting the Property, whether or not caused by or within the control of Borrower or Indemnitor;
(ii) the presence, release or threat of release of or exposure to any hazardous, toxic or harmful
substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos
or asbestos-containing materials, polychlorinated biphenyls, petroleum or petroleum products or
byproducts, flammable explosives, radioactive materials, paint containing more than .05% lead by
dry weight (“Lead Based Paint”), Toxic Mold (as hereinafter defined), infectious substances or raw
materials which include hazardous constituents) or any other substances or materials which are
included under or regulated by Environmental Laws (collectively, “Hazardous Substances”) or radon,
on, in, under or affecting all or any portion of the Property or any surrounding areas, regardless
of whether or not caused by or within the control of Borrower or Indemnitor; (iii) any transport,
treatment, recycling, storage, disposal or arrangement therefor of Hazardous Substances whether on
the Property, originating from the Property, or otherwise associated with the Borrower or
Indemnitor or any operations conducted on the Property at any time; (iv) the failure by Borrower or
Indemnitor to comply fully with the terms and conditions of this Agreement; (v) the breach of any
representation or warranty contained in this Agreement; (vi) the enforcement of this Agreement, or
(vii) any environmental investigation, assessment, audit or review conducted in connection with the
Property or the operations conducted at any time thereon, including, without limitation, the cost
of assessment, investigation, containment, removal and/or remediation of any and all Hazardous
Substances from all or any portion of the Property or any surrounding areas, the cost of any
actions taken in response to the presence, release or threat of release of any Hazardous Substances
on, in, under or affecting any portion of the Property or any surrounding areas to prevent or
minimize such release or threat of release so that it does not migrate or otherwise cause or
threaten danger to present or future public health, safety, welfare or the environment, and costs
incurred to comply with Environmental Laws in connection with all or any portion of the Property or
any surrounding areas. “Costs” as used in this Agreement shall also include, but not be limited
to, any diminution in the value of the security afforded by the Property or any future reduction of
the sales price of the Property by reason of any matter set forth in this Section 1. The
foregoing indemnity shall specifically not include any such costs relating to Hazardous Substances
which are initially placed on, in or under the Property after foreclosure or other taking of title
to the Property by Lender or its successor or assigns. For the purposes hereof, “Toxic Mold” shall
mean any mold or fungus at the Property which is of a type (i) that might pose a significant risk
to human health or the environment or (ii) that would negatively impact the value of the Property.

2

 

     2. Representations and Warranties. Indemnitor hereby agrees that the
representations, warranties and covenants contained in Section 2.27 of the Security
Instrument are hereby made a part of this Agreement to the same extent and with the same force as
if fully set forth herein and the Indemnitor hereby represents, warrants and covenants to said
provisions as if specifically set forth herein.

     3. Indemnification Procedures.

          (a) If any action shall be brought against Lender based upon any of the matters for which
Lender is indemnified hereunder, Lender shall notify Indemnitor in writing thereof and Indemnitor
shall promptly assume the defense thereof, including, without limitation, the employment of counsel
acceptable to Lender and the negotiation of any settlement; provided, however, that
any failure of Lender to notify Indemnitor of such matter shall not impair or reduce the
obligations of Indemnitor hereunder. Lender shall have the right, at the expense of Indemnitor
(which expense shall be included in Costs), to employ separate counsel in any such action and to
participate in the defense thereof. In the event Indemnitor shall fail to discharge or undertake
to defend Lender against any claim, loss or liability for which Lender is indemnified hereunder,
Lender may, at its sole option and election, defend or settle such claim, loss or liability. The
liability of Indemnitor to Lender hereunder shall be conclusively established by such settlement,
provided such settlement is made in good faith, the amount of such liability to include both the
settlement consideration and the costs and expenses, including, without limitation reasonable
attorney’s fees and disbursements, incurred by Lender in effecting such settlement. In such event,
such settlement consideration, costs and expenses shall be included in Costs and Indemnitor shall
pay the same as hereinafter provided. Lender’s good faith in any such settlement shall be
conclusively established if the settlement is made on the advice of independent legal counsel for
Lender.

          (b) Indemnitor shall not, without the prior written consent of Lender: (i) settle or
compromise any action, suit, proceeding or claim or consent to the entry of any judgment that does
not include as an unconditional term thereof the delivery by the claimant or plaintiff to Lender of
a full and complete written release of Lender (in form, scope and substance satisfactory to Lender
in its sole discretion) from all liability in respect of such action, suit, proceeding or claim and
a dismissal with prejudice of such action, suit, proceeding or claim; or (ii) settle or compromise
any action, suit, proceeding or claim in any manner that may adversely affect Lender or obligate
Lender to pay any sum or perform any obligation as determined by Lender in its sole discretion.

          (c) All Costs shall be immediately reimbursable to Lender when and as incurred and, in the
event of any litigation, claim or other proceeding, without any requirement of waiting for the
ultimate outcome of such litigation, claim or other proceeding, and Indemnitor shall pay to Lender
any and all Costs within ten (10) days after written notice from Lender itemizing the amounts
thereof incurred to the date of such notice. In addition to any other remedy available for the
failure of Indemnitor to periodically pay such Costs, such Costs, if not paid within said ten-day
period, shall bear interest at the Default Interest Rate (as defined in the Note) and such costs
and interest shall be additional indebtedness of Borrower secured by the Security Instrument and by
the other Loan Documents securing all or part of the Loan.

     4. Reinstatement of Obligations. If at any time all or any part of any
payment made by Indemnitor or received by Lender from Indemnitor under or with respect to this
Agreement is or must be rescinded or returned for any reason whatsoever (including, but not limited
to, the insolvency, bankruptcy or reorganization of Indemnitor), then the obligations of Indemnitor
hereunder shall, to the extent of the payment rescinded or returned, be deemed to have continued in
existence, notwithstanding such previous payment made by Indemnitor, or receipt of payment by
Lender, and the obligations of Indemnitor hereunder shall continue to be effective or be
reinstated, as the case may be, as to such payment, all as though such previous payment by
Indemnitor had never been made.

3

 

     5. Waivers by Indemnitor. To the fullest extent permitted by law,
Indemnitor hereby waives and agrees not to assert or take advantage of:

          (a) Any right to require Lender to proceed against any other person or to proceed against or
exhaust any security held by Lender at any time or to pursue any other remedy in Lender’s power or
under any other agreement before proceeding against Indemnitor hereunder;

          (b) Any defense that may arise by reason of the incapacity, lack of authority, death or
disability of any other person or persons or the failure of Lender to file or enforce a claim
against the estate (in administration, bankruptcy or any other proceeding) of any other person or
persons;

          (c) Demand, presentment for payment, notice of nonpayment, protest, notice of protest and all
other notices of any kind, or the lack of any thereof, including, without limiting the generality
of the foregoing, notice of the existence, creation or incurring of any new or additional
indebtedness or obligation or of any action or non-action on the part of Lender, any endorser or
creditor of either Indemnitor or any other person whomsoever under this or any other instrument in
connection with any obligation or evidence of indebtedness held by Lender;

          (d) Any defense based upon an election of remedies by Lender;

          (e) Any right or claim of right to cause a marshaling of the assets of either Indemnitor;

          (f) Any principle or provision of law, statutory or otherwise, which is or might be in
conflict with the terms and provisions of this Agreement;

          (g) Any duty on the part of Lender to disclose to Indemnitor any facts Lender may now or
hereafter know about the Property, regardless of whether Lender has reason to believe that any such
facts materially increase the risk beyond that which Indemnitor intend to assume or has reason to
believe that such facts are unknown to Indemnitor or has a reasonable opportunity to communicate
such facts to Indemnitor, it being understood and agreed that Indemnitor are fully responsible for
being and keeping informed of the condition of the Property and of any and all circumstances
bearing on the risk that liability may be incurred by Indemnitor hereunder;

          (h) Any lack of notice of disposition or of manner of disposition of any collateral for the
Loan;

          (i) Any invalidity, irregularity or unenforceability, in whole or in part, of any one or more
of the Loan Documents;

          (j) Any deficiencies in the collateral for the Loan or any deficiency in the ability of Lender
to collect or to obtain performance from any persons or entities now or hereafter liable for the
payment and performance of any obligation hereby guaranteed;

          (k) An assertion or claim that the automatic stay provided by 11 U.S.C. §362 (arising upon the
voluntary or involuntary bankruptcy proceeding of Borrower) or any other stay provided under any
other debtor relief law (whether statutory, common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable, shall operate or be
interpreted to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any
of its rights, whether now or hereafter acquired, which Lender may have against Indemnitor or the
collateral for the Loan;

4

 

          (l) Any modifications of the Loan Documents or any obligation of Borrower relating to the Loan
by operation of law or by action of any court, whether pursuant to the Bankruptcy Reform Act of
1978, as amended, or any other debtor relief law (whether statutory, common law, case law or
otherwise) of any jurisdiction whatsoever, now or hereafter in effect, or otherwise; and

          (m) Any action, occurrence, event or matter consented to by Indemnitor under Section
6(i) hereof, under any other provision hereof, or otherwise. Without limiting the generality
of the foregoing, Indemnitor expressly waives any and all rights to which Indemnitor may otherwise
have been entitled under any suretyship laws in effect from time to time, including (without
limitation) any rights pursuant to Rule 31 of the Texas Rules of Civil Procedure, Section 17.001 of
the Texas Civil Practice and Remedies Code, and Chapter 34 of the Texas Business and Commerce Code.

     6. General Provisions.

          (a) Fully Recourse. All of the terms and provisions of this Agreement are recourse
obligations of Indemnitor and not restricted by any limitation on personal liability.

          (b) Right to Indemnification Not Affected by Knowledge. Lender’s right to defense,
indemnification, payment of costs or other remedy based on this Agreement shall not be diminished
or affected in any way by any investigation conducted by Lender or other knowledge acquired (or
capable of being acquired) in any way by Lender at any time.

          (c) Unsecured Obligations. Indemnitor hereby acknowledges that Lender’s appraisal of
the Property is such that Lender is not willing to accept the consequences of the inclusion of
Indemnitor’s indemnity set forth herein among the obligations secured by the Security Instrument
and the other Loan Documents and that Lender would not make the Loan but for the unsecured personal
liability undertaken by Indemnitor herein. Indemnitor further hereby acknowledges that even though
the representations, warranties, covenants or agreements of Indemnitor contained herein may be
identical or substantially similar to representations, warranties, covenants or agreements of
Borrower set forth in the Security Instrument and secured thereby, the obligations of Indemnitor
under this Agreement are not secured by the lien of the Security Instrument or the security
interests or other collateral described in the Security Instrument or the other Loan Documents, it
being the intent of Lender to create separate obligations of Indemnitor hereunder which can be
enforced against Indemnitor without regard to the existence of the Security Instrument or other
Loan Documents or the liens or security interests created therein.

          (d) Survival. This Agreement shall be deemed to be continuing in nature and shall
remain in full force and effect and shall survive the payment of the indebtedness evidenced and
secured by the Loan Documents and the exercise of any remedy by Lender under the Security
Instrument or any of the other Loan Documents, including, without limitation, any foreclosure or
deed in lieu thereof, even if, as a part of such remedy, the Loan is paid or satisfied in full.

          (e) No Subrogation; No Recourse Against Lender. Notwithstanding the satisfaction by
Indemnitor of any liability hereunder, Indemnitor shall not have any right of subrogation,
contribution, reimbursement or indemnity whatsoever or any right of recourse to or with respect to
the assets or property of Borrower or to any collateral for the Loan. In connection with the
foregoing, Indemnitor expressly waives any and all rights of subrogation to Lender against
Borrower, and Indemnitor hereby waives any rights to enforce any remedy which Lender may have
against Borrower and any right to participate in any collateral for the Loan. In addition to and
without in any way limiting the foregoing, Indemnitor hereby subordinates any and all indebtedness
of Borrower now or hereafter owed to Indemnitor to all indebtedness of Borrower to Lender, and
agrees with Lender that Indemnitor shall not

5

 

demand or accept any payment of principal or interest from Borrower, shall not claim any
offset or other reduction of Indemnitor’s obligations hereunder because of any such indebtedness
and shall not take any action to obtain any of the collateral from the Loan. Further, Indemnitor
shall not have any right of recourse against Lender by reason of any action Lender may take or omit
to take under the provisions of this Agreement or under the provisions of any of the Loan
Documents.

          (f) Reservation of Rights. Nothing contained in this Agreement shall prevent or in
any way diminish or interfere with any rights or remedies, including, without limitation, the right
to contribution or cost recovery, which Lender may have against either Indemnitor or any other
party under CERCLA, as it may be amended from time to time, or any other applicable federal, state
or local laws, all such rights being hereby expressly reserved.

          (g) Financial Statements. Indemnitor hereby agrees, as a material inducement to
Lender to make the Loan to Borrower, to furnish to Lender promptly upon demand by Lender current
and dated financial statements, certified by or on behalf of each Indemnitor, detailing the assets
and liabilities of said Indemnitor, in form and substance acceptable to Lender. Indemnitor hereby
warrants and represents unto Lender that any and all balance sheets, net worth statements and other
financial data which have heretofore been given or may hereafter be given to Lender with respect to
said Indemnitor did or will at the time of such delivery fairly and accurately present the
financial condition of said Indemnitor.

          (h) Rights Cumulative; Payments. Lender’s rights under this Agreement shall be in
addition to all rights of Lender under the Note, the Security Instrument and the other Loan
Documents. FURTHER, PAYMENTS MADE BY INDEMNITOR UNDER THIS AGREEMENT SHALL NOT REDUCE IN ANY
RESPECT BORROWER’S OBLIGATIONS AND LIABILITIES UNDER THE NOTE, THE SECURITY INSTRUMENT AND THE
OTHER LOAN DOCUMENTS EXCEPT WITH RESPECT TO, AND TO THE EXTENT OF, BORROWER’S OBLIGATION AND
LIABILITY FOR THE PAYMENT MADE BY INDEMNITOR.

          (i) No Limitation on Liability. Indemnitor hereby consents and agrees that Lender may
at any time and from time to time without further consent from Indemnitor do any of the following
events, and the liability of Indemnitor under this Agreement shall be unconditional and absolute
and shall in no way be impaired or limited by any of the following events, whether occurring with
or without notice to Indemnitor or with or without consideration: (i) any extensions of time for
performance required by any of the Loan Documents or extension or renewal of the Note; (ii) any
sale, assignment or foreclosure of the Note, the Security Instrument or any of the other Loan
Documents or any sale or transfer of the Property; (iii) any change in the composition of Borrower,
including, without limitation, the withdrawal or removal of Indemnitor from any current or future
position of ownership, management or control of Borrower; (iv) the accuracy or inaccuracy of the
representations and warranties made by Indemnitor herein or by Borrower in any of the Loan
Documents; (v) the release of Borrower or of any other person or entity from performance or
observance of any of the agreements, covenants, terms or conditions contained in any of the Loan
Documents by operation of law, Lender’s voluntary act or otherwise; (vi) the release or
substitution in whole or in part of any security for the Loan; (vii) Lender’s failure to record the
Security Instrument or to file any financing statement (or Lender’s improper recording or filing
thereof) or to otherwise perfect, protect, secure or insure any lien or security interest given as
security for the Loan; (viii) the modification of the terms of any one or more of the Loan
Documents; or (ix) the taking or failure to take any action of any type whatsoever. No such action
which Lender shall take or fail to take in connection with the Loan Documents or any collateral for
the Loan, nor any course of dealing with Borrower or any other person, shall limit, impair or
release Indemnitor’s obligations hereunder, affect this Agreement in any way or afford Indemnitor
any recourse against Lender. Nothing contained in this Section shall be construed to require
Lender to take or refrain from taking any action referred to herein.

6

 

          (j) Intentionally Reserved.

          (k) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, EXCEPT TO THE EXTENT THAT THE
APPLICABILITY OF ANY OF SUCH LAWS MAY NOW OR HEREAFTER BE PREEMPTED BY FEDERAL LAW, IN WHICH CASE
SUCH FEDERAL LAW SHALL SO GOVERN AND BE CONTROLLING.

          (l) Binding Effect; Waiver of Acceptance. This Agreement shall bind each Indemnitor
and the heirs, personal representatives, successors and assigns of each Indemnitor and shall inure
to the benefit of Lender and the officers, directors, shareholders, agents and employees of Lender
and their respective heirs, personal representatives, successors and assigns. Notwithstanding the
foregoing, Indemnitor shall not assign any of its respective rights or obligations under this
Agreement without the prior written consent of Lender, which consent may be withheld by Lender in
its sole discretion. Indemnitor hereby waives any acceptance of this Agreement by Lender, and this
Agreement shall immediately be binding upon Indemnitor.

          (m) Notice. All notices, demands, requests or other communications to be sent by one
party to the other hereunder or required by law shall be in writing and shall be deemed to have
been validly given or served by delivery of the same in person to the intended addressee, or by
depositing the same with Federal Express or another reputable private courier service for next
business day delivery to the intended addressee at its address set forth on the first page of this
Agreement or at such other address as may be designated by such party as herein provided, or by
depositing the same in the United States mail, postage prepaid, registered or certified mail,
return receipt requested, addressed to the intended addressee at its address set forth on the first
page of this Agreement or at such other address as may be designated by such party as herein
provided. All notices, demands and requests shall be effective upon such personal delivery, or one
(1) business day after being deposited with the private courier service, or two (2) business days
after being deposited in the United States mail as required above. Rejection or other refusal to
accept or the inability to deliver because of changed address of which no notice was given as
herein required shall be deemed to be receipt of the notice, demand or request sent. By giving to
the other party hereto at least fifteen (15) days’ prior written notice thereof in accordance with
the provisions hereof, the parties hereto shall have the right from time to time to change their
respective addresses and each shall have the right to specify as its address any other address
within the United States of America.

          (n) No Waiver; Time of Essence; Business Days. The failure of any party hereto to
enforce any right or remedy hereunder, or to promptly enforce any such right or remedy, shall not
constitute a waiver thereof nor give rise to any estoppel against such party nor excuse any of the
parties hereto from their respective obligations hereunder. Any waiver of such right or remedy
must be in writing and signed by the party to be bound. This Agreement is subject to enforcement
at law or in equity, including actions for damages or specific performance. Time is of the essence
hereof. The term “business day” as used herein shall mean a weekday, Monday through Friday, except
a legal holiday or a day on which banking institutions in New York, New York are authorized by law
to be closed.

          (o) Captions for Convenience. The captions and headings of the sections and
paragraphs of this Agreement are for convenience of reference only and shall not be construed in
interpreting the provisions hereof.

          (p) Reasonable Attorney’s Fees. In the event it is necessary for Lender to retain the
services of an attorney or any other consultants in order to enforce this Agreement, or any portion
thereof, Indemnitor agrees to pay to Lender any and all costs and expenses, including, without
limitation,

7

 

reasonable attorney’s fees, incurred by Lender as a result thereof and such costs, fees and
expenses shall be included in Costs.

          (q) Successive Actions. A separate right of action hereunder shall arise each time
Lender acquires knowledge of any matter indemnified by Indemnitor under this Agreement. Separate
and successive actions may be brought hereunder to enforce any of the provisions hereof at any time
and from time to time. No action hereunder shall preclude any subsequent action, and Indemnitor
hereby waives and covenants not to assert any defense in the nature of splitting of causes of
action or merger of judgments.

          (r) Joint and Several Liability. Notwithstanding anything to the contrary contained
herein, the representations, warranties, covenants and agreements made by Indemnitor herein, and
the liability of Indemnitor hereunder, is joint and several if Indemnitor is comprised of more than
one person or entity.

          (s) Reliance. Lender would not make the Loan to Borrower without this Agreement.
Accordingly, Indemnitor intentionally and unconditionally enters into the covenants and agreements
as set forth above and understand that, in reliance upon and in consideration of such covenants and
agreements, the Loan shall be made and, as part and parcel thereof, specific monetary and other
obligations have been, are being and shall be entered into which would not be made or entered into
but for such reliance.

          (t) Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be effective only upon delivery and thereafter shall be deemed an original, and all
of which shall be taken to be one and the same instrument, for the same effect as if all parties
hereto had signed the same signature page. Any signature page of this Agreement may be detached
from any counterpart of this Agreement without impairing the legal effect of any signatures thereon
and may be attached to another counterpart of this Agreement identical in form hereto but having
attached to it one or more additional signature pages.

          (u) SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.

	 	(1)	 	INDEMNITOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT
COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN WHICH THE
PROPERTY IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON ARISING
FROM OR RELATING TO THIS AGREEMENT, (B) AGREES THAT ANY SUCH ACTION, SUIT OR
PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION SITTING IN THE COUNTY AND STATE, IN WHICH THE PROPERTY IS LOCATED,
(C) SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND (D) TO THE FULLEST EXTENT
PERMITTED BY LAW, AGREES THAT NEITHER OF THEM WILL BRING ANY ACTION, SUIT OR
PROCEEDING IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF
LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM).
	 
	 	(2)	 	INDEMNITOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT
COUNSEL, WAIVES,

8

 

	 	 	 	RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS
AGREEMENT OR ANY CONDUCT, ACT OR OMISSION OF LENDER OR INDEMNITOR, OR ANY OF
THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR
ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR INDEMNITOR, IN
EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.

          (v) Waiver by Indemnitor. Indemnitor covenants and agrees that upon the commencement
of a voluntary or involuntary bankruptcy proceeding by or against Borrower, Indemnitor shall not
seek a supplemental stay or otherwise seek, pursuant to 11 U.S.C. §105 or any other provision of
the Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law (whether statutory,
common law, case law, or otherwise) of any jurisdiction whatsoever, now or hereafter in effect,
which may be or become applicable, to stay, interdict, condition, reduce or inhibit the ability of
Lender to enforce any rights of Lender against Indemnitor by virtue of this Agreement or otherwise.

          (w) SPECIFIC NOTICE. IT IS EXPRESSLY AGREED AND UNDERSTOOD THAT THIS AGREEMENT
INCLUDES INDEMNIFICATION PROVISIONS WHICH, IN CERTAIN CIRCUMSTANCES, COULD INCLUDE AN
INDEMNIFICATION BY INDEMNITOR OF LENDER FROM CLAIMS OR LOSSES ARISING AS A RESULT OF LENDER’S OWN
NEGLIGENCE.

          (x) Decisions. Wherever pursuant to this Agreement (i) Lender exercises any right
given to it to approve or disapprove, (ii) any arrangement or term is to be satisfactory or
acceptable to Lender, or (iii) any other decision or determination is to be made by Lender, the
decision of Lender to approve or disapprove or to accept or not accept, all decisions that
arrangements or terms are satisfactory or not satisfactory and all other decisions and
determinations made by Lender, shall be in the sole and absolute discretion of Lender and shall be
final and conclusive, except as may be otherwise expressly and specifically provided herein.

          (y) Costs. Wherever pursuant to this Agreement it is provided that Indemnitor shall
pay any costs and expenses, such costs and expenses shall include, but not be limited to,
reasonable legal fees and disbursements of Lender.

[The Remainder of the Page is Intentionally Blank]

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          (z) Entire Agreement; Amendment; Severability. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS EMBODY THE FINAL ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE
OF PRIOR CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO.
THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. This Agreement contains the entire
agreement between the parties respecting the matters herein set forth and supersedes all prior
agreements, whether written or oral, between the parties respecting such matters. Any amendments
or modifications hereto, in order to be effective, shall be in writing and executed by the parties
hereto. A determination that any provision of this Agreement is unenforceable or invalid shall not
affect the enforceability or validity of any other provision, and any determination that the
application of any provision of this Agreement to any person or circumstance is illegal or
unenforceable shall not affect the enforceability or validity of such provision as it may apply to
any other persons or circumstances.

     IN WITNESS WHEREOF, Indemnitor has executed this Agreement as of the day and year first
written above.

	 	 	 	 	 
	 	INDEMNITOR 
 	 
	NOTICE OF INDEMNIFICATION:

INDEMNITOR HEREBY ACKNOWLEDGES AND AGREES

THAT THIS INDEMNITY AGREEMENT CONTAINS

CERTAIN INDEMNIFICATION PROVISIONS

PURSUANT TO SECTION 1 HEREOF
	NNN APARTMENT REIT, INC.,
a Maryland corporation 	 
	 	 
	By:  	/s/ Andrea R. Biller 	 
	 	Name:  	Andrea R. Biller 	 
	 	Title:  	Secretary 	 

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