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EXHIBIT 10.41
HORSESHOE GAMING, L.L.C.
UNIT OPTION AGREEMENT
THIS UNIT OPTION AGREEMENT (this "Agreement") is entered into as of
February 1, 1997 by and between Horseshoe Gaming, L.L.C. (the "Company") and
Xxxxx Xxxxxxxx ("Optionee") pursuant to the Company's 1997 Unit Option Plan (the
"Plan"). All capitalized terms not otherwise defined herein shall have the
meaning set forth in the Plan.
RECITALS
A. The Company considers it desirable to give Optionee an incentive to
advance the Company's interest through the opportunity to acquire an equity
interest and thus participate in the Company's growth, development and financial
success.
B. The Company has determined to grant Optionee the right to
purchase Units pursuant to the terms and conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants hereinafter set forth,
the parties agree as follows:
1. Option; Number of Units. The Company hereby grants to Optionee the
right (the "Option") to purchase up to 252,490 Units (the "Units") at a price of
$3.47 per Unit (the "Purchase Price"). The Option and the right to purchase all
or any portion of the Units are subject to the terms and conditions stated in
this Agreement and in the Plan, including, without limitation, the provisions of
Sections 4, 10, 13 (b), and 14 of the Plan and Sections 3 and 4 hereof. Upon
exercise of the Option, Optionee shall become a member of the Company, with the
rights and benefits, and subject to the terms and conditions, set forth in the
Company's Limited Liability Company Agreement and the Company's Limited
Liability Company Agreement shall (if necessary) be amended to so provide. The
Optionee agrees to comply with, and be subject to, the provisions of the
Company's Limited Liability Company Agreement and to do all acts required
thereunder.
2. Vesting. The Option shall vest in three (3) equal annual installments
of 33 1/3% of the Units covered by the Option on each of the first through third
anniversaries of the date of Optionee's employment with the Company pursuant to
the Employment Agreement between the Company and Optionee dated October 1, 1995,
as amended by that certain First Amendment to Employment Agreement dated July 1,
1996. Notwithstanding the foregoing, in the event Xxxx X. Xxxxxx (including any
entities through which Xxxx X. Xxxxxx holds his ownership interest in the
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Company), family members of Xxxx X. Xxxxxx and/or trusts established for the
benefit of his heirs transfer controlling interest in the Company to a third
party in a transaction other than a public offering, the Option shall
immediately become fully vested.
3. Term of Option. Except for the rights conferred upon the Company
pursuant to Section 7 below, the Option, and Optionee's right to exercise the
Option, shall terminate when the first of the following occurs:
(a) termination pursuant to Section 13 (b) or Section 14 of the
Plan;
(b) the expiration of ten (10) years from the date hereof; or
(c) ninety (90) days after the date of termination of Optionee's (i)
employment or (ii) consulting relationship, as applicable, with the
Company and all of the Subsidiaries and Related Entities, unless
such termination results from Optionee's death or disability (within
the meaning of Section 105 (d) (4) of the Internal Revenue Code of
1986, as amended) or Optionee dies within ninety (90) days after the
date of termination of Optionee's employment or consulting
relationship with the Company and all of the Subsidiaries and
Related Entities, in which case this Agreement and the Option shall
terminate 180 days after the date of termination of Optionee's
employment or consulting relationship with the Company and all of
the Subsidiaries and Related Entities.
4. Termination of Employment. The termination for any reason of
Optionee's employment or consulting relationship with the Company and all of the
Subsidiaries and Related Entities shall not accelerate the vesting of the Option
or affect the number of Units with respect to which the Option may be exercised;
provided, however, that the Option may only be exercised with respect to that
number of Units which could have been purchased under the Option had the Option
been exercised by Optionee on the date of such termination and shall in all
events be subject to Section 3 hereof.
5. Death of Optionee; No Assignment. The rights of Optionee under this
Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution or inter vivos to a trust for the benefit of Optionee or
Optionee and Optionee's spouse and may be exercised during the lifetime of
Optionee only by such Optionee; provided, however, that in the event of
disability (within the meaning of Section 105 (d) (4) of the Internal Revenue
Code of 1986, as amended) of Optionee, a designee of Optionee (or the Optionee's
legal representative if Optionee has not designated anyone) may exercise the
Option on behalf of Optionee (provided the Option would have been exercisable by
Optionee) until the right to exercise the Option expires pursuant to Section 3
hereof. Any attempt to sell, pledge, assign, hypothecate, transfer or otherwise
dispose of the Option in contravention of this Agreement or the Plan shall be
void and shall have no effect. If Optionee should die while Optionee is engaged
in an employment or consulting relationship with the Company and/or any
Subsidiary or Related Entity, and provided Optionee's rights hereunder shall
have vested, in whole or in part, pursuant to Section 2 hereof, Optionee's,
designee, legal representative, or legatee, the successor trustee of Optionee's
inter
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vivos trust or the person who acquired the right to exercise the Option by
reason of the death of Optionee (individually, a "Successor") shall succeed to
Optionee's rights under this Agreement. After the death of Optionee, only a
Successor may exercise the Option.
6. Exercise of Option. On or after the vesting of all or any portion of
the Option in accordance with Section 2 hereof and until termination of the
Option in accordance with Section3 hereof, the Option may be exercised by
Optionee (or such other person specified in Section 5 hereof) to the extend
exercisable as determined under Section 2 hereof, upon delivery of the following
to the Company at its principal executive offices:
(a) a written notice of exercise which identifies this
Agreement and states the number of Units to be purchased;
(b) a check, cash or an combination thereof in the amount of the
aggregate Purchase Price (or payment of the aggregate Purchase Price
in such other form of lawful consideration as the Committee may
approve from time to time under the provisions of Section 7 of the
Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under
federal, state or other applicable tax laws with respect to the
taxable income, if any, recognized by Optionee in connection with
the exercise, in whole or in part, of the Option (unless the Company
and Optionee shall have made other arrangements for deductions or
withholding from Optionee's wages, bonus or other income paid to
Optionee by the Company or any Subsidiary or Related Entity,
provided such arrangements satisfy the requirements of applicable
tax laws);
(d) a written representation and undertaking, if requested by the
Company pursuant to Section 8 (b) hereof, in such form and substance
as the Company may require, setting forth the investment intent of
Optionee, or a Successor, as the case may be, and such other
agreements, representations and undertakings as described in the
Plan; and
(e) such further acts as may be necessary to admit Optionee as a
member of the Company, including becoming a party to the Company's
Limited Liability Company Agreement, as then in effect.
7. Representations and Warranties of Optionee.
(a) Optionee represents and warrants that the Option is being
acquired by Optionee for Optionee's personal account, for investment
purposes only, and not with a view to the distribution, resale or
other disposition thereof.
(b) Optionee acknowledges that the Company may issue Units upon the
exercise of the Option without registering or qualifying such
securities under
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federal or state securities laws on the basis of certain exemptions
from such registration or qualification requirements. Accordingly,
Optionee agrees that Optionee's exercise of the Option may be
expressly conditioned upon Optionee's delivery to the Company of
such representations and undertakings as the Company may reasonable
require in order to secure the availability of such exemptions,
including a representation that Optionee is acquiring the Units for
investment and not with a present intention of selling or otherwise
disposing of such Units. Optionee acknowledges that, because Units
received upon exercise of an Option may be unregistered, Optionee
may be required to hold the Units indefinitely unless they are
subsequently registered for resale under the Act or an exemption
from such registration is available.
(c) Optionee acknowledges that the Company's obligation to issue the
Units upon exercise of the Option is expressly conditioned upon the
compliance by the Company with any registration or other
qualification obligations with respect to such Units under any state
and/or federal law or rulings and regulations of any government
regulatory body, including without limitation, any and all
applicable gaming regulatory authorities of the states in which the
Company's Subsidiaries operate or intend to operate, and/or the
filing by Optionee of any background applications required by such
gaming authorities.
(d) Optionee acknowledges receipt of this Agreement granting the
Option, and the Plan, and understands that all rights and
liabilities connected with the Option are set forth herein and in
the Plan, including without limitation, the Company's right to
repurchase from Optionee all Units acquired upon exercise of the
Option as provided in Section 13 hereof and in Section 20 of the
Plan.
(e) Optionee acknowledges receipt of a copy of the Company's Limited
Liability Company Agreement, as in effect on the dates hereof and
understands that any Unit acquired by exercise of the Option will be
subject to the provisions of the Company's Limited Liability Company
Agreement applicable to all of the Company's members, as in effect
from time to time.
8. No Rights As a Member. Optionee shall have no rights as a member in
connection with the Units covered by the Option until the date (the "Exercise
Date") an entry evidencing such ownership is made in the appropriate records of
the Company. Except as may be provided under Section 10 of the Plan, the Company
will make no adjustment for dividends (ordinary or extraordinary, whether in
cash, securities, or other property) or distributions or other rights for which
the record date is prior to the Exercise Date.
9. This Agreement Subject to Plan. This Agreement is made under the
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. A copy of the Plan is available
to Optionee at the Company's principal executive offices upon request and
without charge. The good faith interpretation of the Committee of any provision
of the Plan, the
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Option or this Agreement, and any determination with respect thereto or hereto
by the Committee, shall be final, conclusive and binding on all parties.
10. Restrictive Legends. Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Units issued
upon exercise of the Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Units as the Company, or its
counsel, may reasonably deem necessary; provided, however, that any such legend
or legends shall be removed when no longer applicable.
11. Notices. All notices, requests and other communications hereunder
shall be in writing and, if given by telegram, telecopy or telex, shall be
deemed to have been validly served, given or delivered when sent, if given by
personal delivery, shall be deemed to have been validly served, given or
delivered upon actual delivery and, if mailed, shall be deemed to have been
validly served, given or delivered three business days after deposit in the
United States mails, as registered or certified mail, with proper postage
prepaid and addressed to the party or parties to be notified, at the following
addresses (or such other address(es) as a party may designate for itself by like
notice):
If to the Company:
Horseshoe Gaming, L.L.C.
000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxx, XX 00000
If to Optionee:
Xxxxxx Xxxxxxxx Xxxxxxxx
000 Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000
12. Not an Employment Agreement. Nothing contained in this Agreement
shall confer, intend to confer or imply any rights to an employment relationship
or rights to a continued employment relationship with the Company and/or any
Subsidiary or Related Entity in favor of Optionee or limit the ability of the
Company and/or any Subsidiary or Related Entity to terminate, with or without
cause, in its sole and absolute discretion, its employment relationship with
Optionee, subject to the terms of any written employment agreement to which
Optionee is a party.
13. Right of Repurchase.
(a) Any Units which may be purchased pursuant to the exercise of
Options under this Agreement shall be subject to a right of
repurchase in favor or the Company and its assigns from the date of
purchase until such time as there is a Public Offering. "Public
Offering" shall mean an underwritten public offering of
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the voting securities of the Company or any of its Subsidiaries or
Related Entities under the Securities Act of 1933, as amended, which
results in gross proceeds to the Company or its Subsidiary or
Related Entity, as the case may be, in excess of $25,000,000. In the
event that the Company or its assigns wishes to exercise the right
of repurchase, the Company or its assigns shall pay to Optionee in
cash the then Fair Market Value of each Unit times the number of
Units to be repurchased (the "Repurchase Price").
(b) "Fair Market Value" shall mean the enterprise value of the
Company, plus all consideration payable upon exercise of all
outstanding options and warrants whose exercise would not be
dilutive), less all debt of the Company (including, without
limitation, capital lease obligations), each as determined in good
faith by the Committee, divided by the number of Units outstanding
plus the number of Units with respect to which options and warrants
have been granted by the Company (other than options and warrants
whose exercise would not be dilutive).
(c) In the event that the Participant does not agree with the
Company's determination of Fair Market Value, then the Company and
the Participant will submit such matter to an independent appraisal
to be conducted in Las Vegas, Nevada in accordance with the terms
set forth below. Participant shall, within ten (10) days of
Participant's receipt of written notice of the Company's
determination of Fair Market Value, initiate such appraisal process
by delivering written notice to the Company to such effect,
designating the name of an appraiser that is to represent
Participant in such appraisal process. Thereafter, within ten (10)
days of receipt of such notice, the Company shall designate an
appraiser to represent it in such process. Within ten (10) days
after designation of the second appraiser, the two appraisers shall
convene and agree upon a third appraiser. In the event that said two
appraisers are unable to agree upon a third appraiser, then the
third appraiser shall be selected by lottery, with each appraiser to
submit the name of another reputable appraiser, and with the
appraiser whose name is drawn in such lottery being designated for
all purposes as the third appraiser.
Within ten (10) days after selection of the third appraiser,
the three appraisers shall convene and attempt to agree upon the
Fair Market Value. If unable to agree, then each appraiser shall
within thirty (30) days thereafter prepare his own independent
appraisal report and such reports shall be submitted to the Company
and the Participant. Provided that the middle appraisal is within
ten percent (10%) of either the high or low appraisal, then the
middle appraisal (the highest and lowest appraisals being
disregarded) shall be deemed to be the Fair Market Value and thus
the valuation to be used for purposes of the L.L.C.'s acquisition of
Employee's Ownership Interest. In the event that the middle
appraisal is not within ten percent (10%) of either the high or low
appraisal, then the determination of the Fair Market Value shall be
submitted to binding arbitration, to be conducted in Las Vegas,
Nevada pursuant to the then prevailing rules and regulations of the
American Arbitration Association. In such arbitration,
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each of the appraisers shall be entitled to submit their appraisal
report and testify on behalf of the Company or the Participant. The
arbitration panel, after hearing all evidence desired to be
submitted by the Company and the Participant, shall determine said
fair market value, and such decision by said arbitration panel shall
be binding upon the Company and the Participant. The cost of the
arbitration shall be borne equally by the Company and the
Participant.
(d) The Repurchase Price to be paid by the Company as determined by
agreement or appraisal as described herein shall be paid in three
(3) equal principal installments, with the first payment being due
within ten (10) days after determination of or agreement as to Fair
Market Value, the second payment shall be due and payable one (1)
year thereafter and the last payment shall be due and payable two
(2) years thereafter; provided, however, that if the value is less
than $750,000 then the entire Purchase Price shall be paid to the
Participant in one lump sum within ten (10) days after determination
of agreement as to Fair Market Value. Notwithstanding the foregoing,
in the event any of the Company's loan agreements prohibit payment
of the Repurchase Price to be made over the period set forth above,
then the Participant agrees that the Repurchase Price shall be paid
in equal principal installments over the time period permitted by
such loan agreements but in no event over a period in excess of five
(5) years. Such obligation shall bear interest at the prime rate of
interest, as quoted from time to time by the largest commercial bank
(in terms of assets) in the State of Nevada, and accrued but unpaid
interest shall be due and payable together with each annual
principal installment.
The Company and Participant agree that any persons chosen to
represent them as appraisers shall be qualified and competent MAI
appraisers of a certified public accountant with one of the "Big
Six" accounting firms, experienced in valuing closely held
partnerships or corporations.
The Company shall bear the cost of its appraiser, the Participant
shall bear the cost of its appraiser and the Company and the
Participant shall each bear one-half (1/2) of the cost of the third
appraiser.
14. Governing Law. This Agreement shall be construed under and
governed by the laws of the State of Delaware without regard to the conflict
of law provisions thereof.
15. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
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IN WITNESS WHEREOF, the Company and Optionee have executed this Agreement
as of the date first above written.
HORSESHOE GAMING, L.L.C.
By:
/s/ Xxxx X. Xxxxxx
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OPTIONEE
/s/ Xxxxx Xxxxxxxx
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XXXXX XXXXXXXX
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