Exhibit 10.6
KIMBALL HILL HOMES
FORM OF NONSTATUTORY STOCK
OPTION AGREEMENT
This Kimball Hill Homes Nonstatutory
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 has adopted, effective
as of December 31, 1997, the Kimball Hill Homes Nonstatutory Stock
Option Plan (as amended, the “Plan”) for the purpose of
giving the Company the opportunity to designate certain nonemployee
members of the Board of Directors and certain employees of the
Company or of any subsidiary of the Company to have the opportunity
to acquire common stock of the Company through nonstatutory stock
options (“Options”).
B.
The Company modified the Plan
effective as of December 31, 1998, October 31, 1999, December 31,
2000 and December 31, 2001 for the purpose of, among other things,
making additional Options available to eligible participants
including the Optionee.
C.
The Company has pursuant to the
intent and provisions of the Plan designated the Optionee again as
an eligible and appropriate member of the Board of Directors to be
eligible for such Option rights.
D.
The Company and the Optionee entered
into previous Nonstatutory Stock Option Agreements under which
various Options were granted to the Optionee.
E.
The Company desires to make
available to the Optionee additional Options pursuant to the
Plan.
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 a nonstatutory, nonqualified stock option.
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 and limitations as
follows:
(a)
If the Optionee’s membership
on the Board of Directors or employment by the Company or any of
its subsidiaries is terminated for cause or by reason of
resignation by the Optionee, then all Option rights granted under
this Agreement shall immediately terminate. Termination for
cause as used in this Agreement shall be determined in the sole
discretion of the Company and shall be liberally construed.
Without limiting acts or omissions which can or may
constitute
2
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; (iii) the
continuing failure of Optionee to perform the duties of the
Optionee that are assigned to him; (iv) a violation of Company
personnel manuals or similar or other directives; (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 an Optionee’s membership on
the Board of Directors or employment by the Company or any of its
subsidiaries terminates by reason of death, permanent retirement,
or permanent, total disability, then the Optionee’s Option
rights under this Agreement shall continue but shall terminate on
the earlier of (i) three months after such termination of
membership on the Board of Directors or 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 or any other contract between the Company
and the Optionee.
(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 President and
the Chief Executive Officer 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 with a check payable to the Company for
fifty percent (50%) of the total cost of the number of
shares
3
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, 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.
(e)
The Optionee may not request or pay
for any of such stock on the installment basis if Optionee is not
still either a member of the Board of Directors of or
4
employed by the Company. If
the Optionee’s membership on the Board of Directors or
employment, as applicable, with the Company terminates after the
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 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 of if (iii) Optionee’s
membership on the Board of Directors of or 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
5
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 forty-five (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 any 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 proceed again
with offering the revised terms and conditions for the stock to the
Company in the same manner as provided above. The Optionee
may only offer to sell and so sell all of the Optionee’s
stock of the Company; no sale by the Optionee may be made at any
time without the written consent of the Company which c
