CHURCHILL DOWNS INCORPORATED STOCK OPTION AGREEMENT 130,000 OPTIONS
Return to
10-Q
XXXXXXXXX
XXXXX INCORPORATED
130,000
OPTIONS
THIS
STOCK OPTION AGREEMENT (“Agreement”) is made as of the 18th day of July, 2006,
between Xxxxxxxxx Downs Incorporated, a Kentucky corporation, with its principal
place of business at 000 Xxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx 00000 (“Company”),
and Xxxxxx X. Xxxxx (“Executive”).
WHEREAS,
Company has identified Executive as the successor to the current President
and
Chief Executive Officer who will be stepping down from such office effective
August 14, 2006;
WHEREAS,
Company has entered into an employment agreement between the Company and
Executive pursuant to which Executive will become the President and Chief
Executive Officer of Company effective August 14, 2006 (the “Employment
Agreement”);
WHEREAS,
under the terms of the Employment Agreement, and as a material inducement to
enter into the Employment Agreement, Executive is to receive certain grants
of
equity compensation as a consequence of his employment by Company;
WHEREAS,
the Compensation Committee (the “Committee”) of the Board of Directors of the
Company at its meeting on July 12, 2006 authorized and directed Company to
make
an award of options to Executive under the terms and conditions set forth in
this Agreement; and
WHEREAS,
the parties desire to enter into this Agreement to set forth the terms and
conditions of such award.
| 1. |
DEFINITIONS.
|
| a. |
“Board”
means Company’s Board of Directors.
|
| b. |
“Change
in Control”
shall have the meaning ascribed to such term in the Employment
Agreement.
|
| c. |
“Code”
means the Internal Revenue Code of 1986, as
amended.
|
| d. |
“Common
Stock”
means Company’s common stock, no par value, or the common stock or
securities of a Successor that have been substituted therefore pursuant
to
Section 10.
|
| e. |
“Company”
means Xxxxxxxxx Downs Incorporated, a Kentucky corporation, with
its
principal place of business at 000 Xxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxx
00000.
|
| f. |
“Disability”
has the meaning ascribed to such term in the Employment
Agreement.
|
| g. |
“Employment
Agreement”
has the meaning set forth in the recitals
above.
|
| h. |
“Fair
Market Value”
has the meaning given such term in the Employment
Agreement.
|
| i. |
“Option
Price”
means the price to be paid for Common Stock upon the exercise of
an
option, in accordance with Section
3.
|
| j. |
“Executive’s
Representative”
means the personal representative of Executive’s estate, and after final
settlement of Executive’s estate, the successor or successors entitled
thereto by law.
|
| k. |
“Subsidiary”
means any corporation or other entity that at the time an option
is
granted under the Plan qualifies as a subsidiary of Company as defined
by
Code Section 424(f).
|
| l. |
“Successor”
means the entity surviving a merger or consolidation with Company,
or the
entity that acquires all or a substantial portion of Company’s assets or
outstanding capital stock (whether by merger, purchase or
otherwise).
|
| 2. |
GRANT
OF NON-QUALIFIED STOCK OPTION.
Company hereby grants to the Executive the right and option to purchase
from Company an aggregate of 130,000 shares of Common Stock (the
“Options”), which Options are not intended to constitute an incentive
stock option under Code §422.
|
| 3. |
OPTION
PRICE.
The price to be paid for the Common Stock upon exercise of the Options
is
the Fair Market Value of Company’s Common Stock as of July 18,
2006.
|
| 4. |
OPTION
EXPIRATION.
The Options shall expire, and cease to be exercisable, at the earliest
of
the following times:
|
| a. |
August
14, 2012;
|
| b. |
the
date of Executive’s Termination of Employment for Cause (as defined in the
Employment Agreement);
|
| c. |
the
date of the Executive’s voluntary Termination of Employment without Good
Reason (as defined in the Employment
Agreement);
|
| d. |
one
(1) year after the Executive’s Termination of Employment as a result of
death or Disability (as defined in the Employment Agreement);
or
|
| e. |
if
the Executive’s employment terminates other than a termination under (b),
(c) or (d) of this Section 4, the later of: (i) the last day of the
calendar quarter in which the Executive’s Termination of Employment occurs
or (ii) the day thirty (30) days after such Termination of Employment.
|
| 5. |
VESTING
OF OPTIONS.
|
| a. |
Vesting
Period.
No part of the Options may be exercised unless and until such Options
or
part thereof shall have become vested based upon the continuous employment
of Executive after August 14, 2006. The Options shall vest and become
exercisable as follows:
|
|
Vesting
Date
|
Number
of Options to Vest
|
|
September
30, 2006
|
5,417
|
|
December
31, 2006
|
10,833
|
|
March
31, 2007
|
10,833
|
|
June
30, 2007
|
10,833
|
|
September
30, 2007
|
10,833
|
|
December
31, 2007
|
10,833
|
|
March
31, 2008
|
10,833
|
|
June
30, 2008
|
10,833
|
|
September
30, 2008
|
10,833
|
|
December
31, 2008
|
10,834
|
|
March
31, 2009
|
10,834
|
|
June
30, 2009
|
10,834
|
|
August
14, 2009
|
5,417
|
|
In
the event: (i) the Executive’s employment is terminated by the Company
other than for Cause, death or Disability or (ii) the Executive resigns
for Good Reason, for purposes of determining the vesting of Options
under
this Section 5, the Executive’s employment shall be considered to have
continued through the last day of the calendar quarter in which his
Termination of Employment occurs.
|
| b. |
Partial
Accelerated Vesting upon Change in Control.
In the event of a Change in Control during the Employment Term (as
defined
in the Employment Agreement), Executive shall receive accelerated
vesting
of fifty percent (50%) of the then-unvested Options. The Options
that are
subject to accelerated vesting pursuant to this Section 5.b. shall
be
taken pro-rata from each then-unvested tranche of the Option award,
and
the remaining portion of each tranche shall vest according to Section
5.a.
above, subject to potential accelerated vesting pursuant to Section
5.c.
below.
|
| c. |
Accelerated
Vesting upon Termination after Change in Control.
If, during the 2-year period following a Change in Control during
the
Employment Term: (i) Executive is terminated by the Company other
than for Cause (as defined in the Employment Agreement), death or
Disability, or (ii) Executive voluntarily resigns for Good Reason
(as
defined in the Employment Agreement), all Options shall become fully
vested as of the date of such
termination.
|
| 6. |
EXERCISE
OF OPTIONS.
To exercise an Option, Executive or Executive’s Representative shall
deliver to Company, or to a broker-dealer in the Common Stock with
the
original copy to Company, the following: [i] seven (7) day prior
written
notice (which notice may be sent prior to the vesting date of the
options
to be exercised with exercise contingent on such vesting) specifying
the
number of shares as to which the Option is being exercised and, if
determined by counsel for Company to be necessary, representing that
such
shares are being acquired for investment purposes only and not for
purpose
of resale or distribution; and [ii] payment by Executive or Executive’s
Representative, or the broker-dealer, of the Option Price for such
shares
in cash, or if the Committee in its discretion agrees to so accept,
by
delivery to Company of other Common Stock owned by Executive, or
in some
combination of cash and Common Stock acceptable to the Committee.
At the
expiration of the seven (7) day notice period, and provided that
all
conditions precedent contained in this Agreement are satisfied, Company
shall, without transfer or issuance tax or other incidental expenses
to
Executive, deliver to Executive, at the offices of Company, a certificate
or certificates for the Common Stock. If Executive fails to accept
delivery of the Common Stock, Executive’s right to exercise the applicable
portion of the Options shall terminate. The Options may be exercised
in
whole or in part at any time before their expiration. If payment
of the
Option Price is made in Common Stock, the value of the Common Stock
used
for payment of the Option Price shall be the Fair Market Value of
the
Common Stock on the business day preceding the day written notice
of
exercise is delivered to Company. The Option Price shall be subject
to
adjustments in accordance with the provisions of Section
10.
|
| 7. |
NONTRANSFERABILITY.
The Options are not transferable other than by will or by the laws
of
descent and distribution. During Executive’s lifetime, the Options are
exercisable only by Executive, and after Executive’s death, to the extent
exercisable by Executive on the date of Executive’s death, by Executive’s
Representative at any time before expiration of said Options. Any
attempted assignment, transfer, pledge, hypothecation or other disposition
of an Option or levy or attachment or similar process not specifically
permitted herein, shall be null and void and without
effect.
|
| 8. |
INVESTMENT
REPRESENTATION.
Upon reasonable demand by the Committee for such a representation,
Executive or Executive’s Representative shall deliver to the Committee at
the time of exercise a written representation that the shares to
be
acquired upon exercise of the Options are to be acquired for investment
and not for resale or distribution. Upon such demand, delivery of
such
representation before delivery of Common Stock shall be a condition
precedent to the right of Executive or Executive’s Representative to
purchase Common Stock.
|
| 9. |
COMPLIANCE
WITH OTHER LAWS AND REGULATIONS.
The grant and exercise of Options and the obligation of Company to
sell
and deliver shares under the Options shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals
by any
government or regulatory agency as may be required. Company shall
not be
required to issue or deliver certificates for shares of Common Stock
before [i] the listing of such shares on any stock exchange or
over-the-counter market, such as NASDAQ, on which the Common Stock
may
then be listed or traded, and [ii] the completion of any registration
or
qualification of any governmental body which Company shall, in it
sole
discretion, determine to be necessary or advisable. The Company agrees
to
use its best efforts to procure any such listing, registration or
qualification.
|
| 10. |
CAPITAL
ADJUSTMENTS AND MERGERS AND CONSOLIDATIONS.
|
| a. |
Capital
Adjustments.
In the event of a Company stock dividend or distribution (or distribution
on Common Stock of any security convertible into securities of the
Company), stock split, reorganization, merger, consolidation, subdivision,
reclassification, combination or exchange of shares or the like,
the
number of shares of Common Stock subject to the Options shall be
automatically adjusted to take into account such capital adjustment.
The
price of any share under the Options shall be adjusted so that there
will
be no change in the aggregate purchase price payable upon exercise
of the
Options.
|
| b. |
Mergers
and Consolidations.
In the event Company merges, consolidates or effects a share exchange
with
another entity, or all or a substantial portion of Company’s assets or
outstanding capital stock are acquired (whether by merger, purchase
or
otherwise) by a Successor, the kind of shares of Common Stock that
shall
be subject to the Options shall automatically be converted into and
replaced by shares of common stock, or such other class of securities
having rights and preferences no less favorable than Company’s Common
Stock, of the Successor, and the number of shares subject to the
Options
and the purchase price per share upon exercise of the Options shall
be
correspondingly adjusted, so that Executive shall have the right
to
purchase [a] that number of shares of common stock of the Successor
that
have a value equal, as of the date of the merger, conversion or
acquisition, to the value, as of the date of the merger, conversion
or
acquisition, of the shares of Common Stock of Company theretofore
subject
to Executive’s Options, [b] for a purchase price per share that, when
multiplied by the number of shares of common stock of the Successor
subject to the Options, shall equal the aggregate exercise price
at which
Executive could have acquired all of the shares of Common Stock of
Company
theretofore optioned by Executive.
|
| c. |
No
Effect on Company’s Rights.
The granting of the Options shall not affect in any way the right
and
power of Company to make adjustments, reorganizations, reclassifications,
or changes of its capital or business structure or to merge, consolidate,
dissolve, liquidate, sell or transfer all or any part of its business
or
assets.
|
| 11. |
TAX
WITHHOLDING.
Company shall have the right to: [i] withhold from any payment due
to
Executive or Executive’s Representative; or [ii] require Executive or the
Executive’s Representative to remit to Company; or [iii] retain cash or
Common Stock otherwise deliverable to Executive or Executive’s
Representative, in an amount sufficient to satisfy applicable tax
withholding requirements resulting from the grant or exercise of
the
Options pursuant to this Agreement.
|
| 12. |
NO
RIGHTS AS SHAREHOLDER.
Executive or Executive’s Representative shall have no rights as a
shareholder with respect to Common Stock subject to the Options before
the
date of transfer to Executive of a certificate for such shares.
|
| 13. |
NO
RIGHTS TO CONTINUED EMPLOYMENT.
Nothing contained in this Agreement nor any award herewith shall
confer
upon Executive any right with respect to continuance of employment
by
Company or Subsidiary nor interfere with the right of Company or
Subsidiary to terminate Executive’s
employment.
|
| 14. |
EFFECTIVE
DATE AND APPROVAL.
It is the intent of the parties that the compensation payable to
the
Executive with respect to the Options constitute qualified performance
based compensation under Internal Revenue Code §162(m) and regulations
issued thereunder. The effective date of the Options is July 18,
2006,
subject to approval by stockholders of the Company holding not less
than a
majority of the shares present and voting at Company’s 2007 Annual
Meeting. In the event the grant of the Options is not approved by
stockholders of the Company, this Option Agreement shall be of no
effect
and the Options shall be null and void. The Company agrees to use
its
reasonable best efforts to procure shareholder approval of the award
of
the Options, including, without limitation, placing such matter on
the
agenda for the Company’s 2007 annual meeting, including appropriate
disclosures in the proxy statement for such meeting, recommending
to
Company shareholders the approval of such Options and soliciting
proxies
for the approval of such Options.
|
| 15. |
NOTICES.
Notices shall be deemed delivered if delivered personally or if sent
by
registered or certified mail to the Company at its principal place
of
business, as set forth above, and to Executive at the address as
shall
most currently appear on the records of the Company, or at such other
address as either party may hereafter designate in writing to the
other.
|
| 16. |
REGISTRATION
OF SHARES SUBJECT TO OPTIONS.
The Company shall use its reasonable best efforts to file, within
90 days
following the execution of this Agreement, a registration statement
with
the Securities and Exchange Commission (the "Commission") pursuant
to the
Securities Act of 1933, as amended (the "Act"), covering the shares
subject to the Options, and thereafter to cause such registration
statement to become effective in accordance with the Act and the
rules and
regulations adopted by the Commission
thereunder.
|
| 17. |
CODE
SECTION 409A.
It is intended that any amounts payable under this Agreement and
the
Company’s and Executive’s exercise of authority or discretion hereunder
shall comply with Code Section 409A (including the Treasury regulations
and other published guidance relating thereto) so as not to subject
Executive to the payment of any interest or additional tax imposed
under
Code Section 409A. To the extent any amount payable under this Agreement
would trigger the additional tax imposed by Code Section 409A, the
Agreement shall be modified to avoid such additional
tax.
|
| 18. |
SEVERABILITY.
The invalidity or unenforceability of any provision of the Agreement
shall
not affect the validity and enforceability of the remaining provisions
of
the Agreement, and such invalid or unenforceable provision shall
be
stricken to the extent necessary to preserve the validity and
enforceability of the Agreement, with the parties agreeing in such
event
to make all reasonable efforts to replace such invalid or unenforceable
provision with a valid provision that will place the parties in
approximately the same economic position as contemplated
hereunder.
|
| 19. |
BINDING
EFFECT.
This Agreement shall be binding upon and inure to the benefit of
the
parties and their respective legal representatives, successors and
assigns. Executive hereby agrees to accept as binding, conclusive
and
final all reasonable decisions and interpretations of the Committee
upon
any questions arising under this Agreement, including without limitation,
the interpretation of the terms, conditions and restrictions applicable
to
the Options granted hereunder and the terms and conditions of this
Agreement.
|
| 20. |
GOVERNING
LAW; JURISDICTION: SERVICE OF PROCESS.
This Agreement shall be governed by the laws of the Commonwealth
of
Kentucky. Executive consents to the exclusive jurisdiction of the
courts
of the Commonwealth of Kentucky and of any federal court located
in
Jefferson County, Kentucky in connection with any action or proceeding
arising out of or relating to this Agreement, any document or instrument
delivered pursuant to or in connection with this Agreement, or any
breach
of this Agreement or any such document or
instrument.
|
| 21. |
ENTIRE
AGREEMENT.
This Agreement contains the entire agreement between the parties
hereto
with respect to the subject matter hereof and may not be amended,
modified
or supplemented except in a writing signed by Company and
Executive.
|
| 22. |
CAPITALIZED
TERMS.
Capitalized terms not otherwise defined in this Agreement shall have
the
meaning given them in the Employment
Agreement.
|
| 23. |
COUNTERPARTS
AND SIGNATURES.
This Agreement may be signed in counterparts, each of which shall
be an
original, with the effect as if the signatures thereto and hereto
were
upon the same instrument. Signatures conveyed by facsimile or PDF
file
shall constitute original
signatures.
|
(Signature
Page follows.)
7
IN
WITNESS WHEREOF, the Company and the Executive have executed and delivered
this
Agreement as of the date first above written.
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XXXXXX
X. XXXXX
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|
/s/
Xxxxxx X. Xxxxx
|
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XXXXXXXXX
XXXXX INCORPORATED
By:
/s/ Xxxxxx X. Xxxxx
Xxxxxx
X. Xxxxx,
Authorized
Representative
of
the Board of Directors
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8
