Exhibit 10.5
KIMBALL HILL HOMES
FORM OF STOCK OPTION
AGREEMENT
This Kimball Hill Homes Stock Option
Agreement (‘Agreement”) dated effective as of December
31, 2001 by and between Kimball Hill, Inc., an Illinois corporation
(“Company”) and
(“Optionee”).
R E C I T A L S
A.
The Company originally adopted, effective as of October 31, 1995,
the Kimball Hill Homes Incentive Stock Option Plan for the purpose
of giving the Company the opportunity to designate certain key
employees of the Company or of any subsidiary of the Company to
have the opportunity to acquire common stock of the Company through
incentive stock options (“Options”) which are intended
to qualify under Section 422 of the Internal Revenue Code, as
amended (“Code”).
B.
The Company modified the Kimball Hill Homes Incentive Stock Option
Plan by a First Amendment effective as of October 31, 1996, a
Second Amendment effective as of December 31, 1997, a Third
Amendment effective as of December 31, 1998, a Fourth Amendment
effective as of December 31, 1999, a Fifth Amendment effective as
of December 31, 2000 and a Sixth Amendment effective as of December
31, 2001 (the Kimball Hill Homes Incentive Stock Option Plan and
all such amendments collectively referred to as the
“Plan”), which among other things makes additional
Options available to certain key employees.
C.
The Company has pursuant to the intent and provisions of the Plan
designated the Optionee as such a key employee to be eligible for
such Option rights.
D.
The Company and the Optionee entered into previous Kimball Hill
Homes Stock Option Agreements under which Options were granted to
the Optionee.
E.
The Company desires to make available to the Optionee additional
Options for a specified number of shares of stock of the Company in
addition to those already offered to the Optionee in previous Stock
Option Agreements.
F.
Optionee does not own ten percent (10%) or more of the voting stock
of the Company at the effective date of this Agreement.
G.
The Company and the Optionee desire to provide in this Agreement,
which includes the Plan, for all of the terms and conditions of the
additional Options granted to the Optionee.
NOW, THEREFORE, in consideration of
the mutual promises contained in this Agreement, the parties agree
as follows:
1.
Grant of Option
.
(a)
The Optionee is granted by the Company an Option to acquire stock
of the Company, commencing as of the effective date of this
Agreement, as follows:
(i)
Number of shares subject to Option:
(ii)
Option exercise price per share:
$17.00
(iii)
Expiration of Option: December 31,
2005
(b)
This Option is intended to be treated as an incentive stock option
under Section 422 of the Code.
2.
Date When Option Is
Exercisable .
This Option may be exercised in the
manner provided in this Agreement at any time from the date of this
Agreement but not after the expiration date indicated in paragraph
1 above.
3.
Exercise of Option in
Installments .
This Option may be exercised in
installments but in not less than 1,000 share increments.
Accordingly, the Optionee may at any time exercise the Option for
less than all of the Option shares as long as no single exercise is
for less than 1,000 shares or for any amounts other than in 1,000
share increments. In any event the total shares acquired by
exercise of the Option cannot exceed the amount indicated in
paragraph 1 above.
4.
Termination of Option
Rights .
The right to exercise this Option is
subject to additional restrictions, limitations and clarifications
as follows:
(a)
If the Optionee’s employment by the Company or any of its
subsidiaries is terminated for cause or by reason of
Optionee’s resignation, then all Option rights granted under
this Agreement shall immediately terminate. Termination of
employment for cause as used in this Agreement shall be determined
in the sole
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discretion of the Company. Without
limiting acts or omissions which can or may constitute cause,
termination for cause includes (i) the commission of a criminal or
other act that causes or probably will cause substantial economic
damage to the Company or a subsidiary or affiliated company or
substantial injury to the business reputation of the Company or a
subsidiary or affiliated company; (ii) the commission by the
Optionee of an act of fraud in the performance of such
Optionee’s duties or a breach of any fiduciary duties of the
Optionee to the Company; (iii) the continuing failure of Optionee
to perform the duties of the Optionee that are assigned to him;
(iv) a material violation of Company personnel manuals or similar
or other directives or a continuing pattern of violations after
warnings or requests to cease and desist from such violations; (v)
a material breach by Optionee of any obligation of him under any
contract with or other commitment to the Company or any of its
subsidiaries or affiliates; (vi) any act or failure to act of or by
the Optionee which is or could be materially injurious to or not in
the best interests of the Company or a subsidiary or affiliated
company; or (vii) failure to meet goals and targets established by
the Company for the Optionee which causes material loss to the
Company or which otherwise materially and adversely affects the
Company.
(b)
If the Optionee’s employment by the Company or any of its
subsidiaries terminates for any reason other than for cause or by
reason of Optionee’s resignation, then the Optionee’s
Option rights under this Agreement shall continue but shall
terminate on the earlier of (i) three (3) months after the
Optionee’s termination of employment or (ii) the expiration
date indicated in paragraph 1 above.
(c)
All Option rights of the Optionee under this Agreement shall
immediately terminate if the Optionee attempts to or does transfer
any Option rights granted in violation of the Plan or if the
Optionee is otherwise in breach of any of the terms and conditions
of the Plan including this Agreement or if the Optionee has for any
reason sold stock of the Company previously acquired pursuant to
the Plan in violation of applicable securities laws or this
Agreement.
(d)
Optionee’s right to exercise the Option rights shall not be
terminated solely because the Company has made a public offering of
any of its voting stock subject, however, in all cases to all
restrictions and limitations which may be applicable to the public
offering and to the Option rights granted under this Agreement by
all applicable securities laws.
5.
Exercise of Option .
This Option shall be exercised by
the Optionee by giving written notice of exercise to the Company.
Such notice shall be directed to the Chairman of the Company with a
copy to the Chief Financial Officer of the Company and shall
specify the number of shares to be purchased. Such notice shall
either include Optionee’s check payable to the Company
representing payment in full for all of the shares being acquired
pursuant to the exercise of such Option or, if Optionee is still
employed by the Company, with a check payable to the Company for
fifty percent (50%) of the total cost
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of the number of shares so being
acquired by such exercise with an acknowledgment that Optionee
shall pay the balance pursuant to the terms of the following
paragraph 6. All notices of exercise of Options must be given by
the expiration date provided for in paragraph 1 above.
6.
Installment Payments .
(a)
If in Optionee’s notice of exercise of Optionee’s right
to acquire stock of the Company the Optionee requests installment
payment privileges for such stock, and if Optionee is still
employed by the Company, then the Optionee shall pay for all such
stock subject to such exercise as follows:
(i)
50% of the total cost of such stock
to be paid by check of the Optionee payable to the Company and
which shall be sent with Optionee’s notice of exercise of
such Option shares.
(ii)
25% of the total cost of such shares
shall be payable not later than six (6) months from the date of
exercise of such Option.
(iii)
The remaining balance of 25% shall
be payable not later than twelve (12) months from such date of
exercise of such Option.
(b)
There shall be simple interest on the unpaid balance of the cost of
such stock payable by the Optionee for such extended payment terms.
Interest shall be at the prime rate from time-to-time as published
by The Wall Street Journal and shall be payable when
installments of the purchase price are payable as provided for in
subparagraph (a) above.
(c)
If the Optionee fails to timely pay to the Company all of the
installments, including interest, due under the installment payment
privileges outlined above, then upon written demand of the Company
the Optionee shall promptly retransfer all stock acquired as a
result of such Option exercise to the Company. Upon receipt of such
stock, the Company shall, to the extent Optionee has already paid
for such stock, compensate the Optionee for such stock at a price
equal to the lesser of (i) the per share price paid by the Optionee
as provided for in paragraph 1 above or (ii) the then Fair Market
Value of the stock of the Company as determined and provided for
most recently in the Plan.
(d)
The Optionee may not sell or offer to sell any stock of the Company
while Optionee has any outstanding debt to the Company for the
purchase of stock as permitted under subparagraph (a)
above.
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(e)
The Optionee may not request or pay for any of such stock on the
installment basis if Optionee is not still employed by the Company.
If the Optionee’s employment with the Company terminates
after Optionee has requested installment payment and while any such
installment payments are still due to the Company, all such
installment obligations and accrued and unpaid interest shall
immediately upon written demand of the Company be due and payable
in full.
7.
Restrictions and Other
Provisions Regarding Transfer of Stock
.
Upon receipt of the stock from the
Company after exercise by Optionee of the Option, such stock shall
be subject to limitations on transfer and related provisions as
follows:
(a)
Under no circumstances, notwithstanding anything in this Agreement
to the contrary, may an Optionee transfer any stock, even if such
transfer is otherwise permitted under this Agreement, if in the
opinion of the Company such transfer would be in violation of or
cause the Company to incur any liability under any federal, state
or other securities law, or any other requirement of law or of any
regulatory body within jurisdiction over the Company, or if doing
same would constitute a breach by the Company of any loan agreement
or similar contract or commitment of the Company.
(b)
No sale, transfer, pledge, gift, assignment, encumbrance,
disposition or other such acts, either voluntary or involuntary, by
express action or operation of law or otherwise, of any stock may
be made by any Optionee at any time unless expressly permitted
under the terms of this Agreement or consented to in writing by the
Company.
(c)
No transfer which is otherwise expressly permitted under the terms
of this Agreement may nevertheless be made if (i) such transfer is
a sham or device to evade the provisions and intent of this
Agreement or if (ii) the Company reasonably determines that such
transfer is to a transferee who is a convicted felon or of poor
financial or moral character or reputation or is a competitor,
directly or indirectly, of the Company or any of its subsidiaries,
or if such transfer or transferee reasonably could otherwise
materially jeopardize the business or operations of the Company or
if (iii) Optionee’s employment with the Company has
terminated and the Company is required to or has the right to
purchase the Optionee’s stock under any of the circumstances
required or permitted in any of the following provisions of this
paragraph 7.
(d)
Any stock otherwise transferable pursuant to the express provisions
of this Agreement shall, notwithstanding anything in this Agreement
to the contrary, nevertheless be subject to the Company’s
right of first refusal. If the Optionee has obtained an offer to
purchase his stock of the Company, the Optionee shall notify the
Company of such offer with a copy of such offer including the
price, terms and
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conditions of the offer. The
Optionee shall also submit to the Company reasonable information
regarding the prospective purchaser. The Company may, but is not
required to, accept such offer of sale. The Company shall, within
thirty (30) days after receipt of such written offer and all other
required information, notify the Optionee as to whether or not it
shall exercise its right of first refusal by accepting such offer.
If the offer is accepted by the Company, then the Company and the
Optionee shall close the sale of such stock in accordance with the
terms and conditions of such offer from such third party. If such
offer is not accepted by the Company, then the Optionee may sell
such stock to the bona fide purchaser but strictly and only in
accordance with the offer that was made to the Company except that,
notwithstanding anything in such offer to the contrary, the closing
of the transfer of title to the stock and payment in full by such
bona fide purchaser must be completed within 45 days of the
original receipt by the Company of such offer from the Optionee
even if such offer provides for a longer time for such closing and
payment. No such transfer may be made unless the Optionee has first
paid all advances, debt and other obligations to the Company
whether due then or at a later date. In that event, subject to the
other terms of this Agreement, such purchaser shall be a
stockholder of the Company subject to all of the terms and
conditions of this Agreement. However, if the Optionee and such
bona fide purchaser make any material modification to the terms of
that original offer, then the Optionee must p
