EXHIBIT 4.1
LAKES ENTERTAINMENT, INC.
1998 STOCK OPTION AND
COMPENSATION PLAN
(as amended)
1. Purpose. The purpose of this Lakes Entertainment, Inc. (the "Company")
1998 Stock Option and Compensation Plan (the "Plan") is to increase stockholder
value and to advance the interests of the Company by furnishing a variety of
economic incentives ("Incentives") designed to attract, retain and motivate
employees and certain key consultants. Incentive may consist of opportunities to
purchase or receive shares of Common Stock, $.01 par value, of the Company
("Common Stock"), monetary payments, or both, on terms determined under this
Plan.
2. Administration. The Plan shall be administered by the stock option
committee (the"Committee") of the board of directors of the Company (the
"Board"). The Committee shall be composed solely of outside directors within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, The
Board may from time to time appoint members of the Committee in substitution
for, or in addition to, members previously appointed, and may fill vacancies,
however caused, in the Committee. If more than one person is on the Committee,
the following shall apply: (a) the Committee shall select one of its members as
its chairman and shall hold its meetings at such times and places as it shall
deem advisable; (b) a majority of the Committee's members shall constitute a
quorum; (c) all action of the Committee shall be taken by the majority of its
members; and (d) any action may be taken by a written instrument signed by
majority of the members and actions so taken shall be fully effective as if they
had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a secretary, shall keep minutes of its meetings and shall
make such rules and regulations for the conduct of its business as it shall deem
advisable. The Committee shall have complete authority to award Incentives under
the Plan, to interpret the Plan, and to make any other determination which it
believes necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.
3. Eligible Participants. Employees of or consultants to the Company or its
subsidiaries or affiliates (including officers and directors, but excluding
directors who are not also employees of or consultants to the Company or its
subsidiaries or affiliates), shall become eligible to receive Incentives under
the Plan when designated by the Committee. Participants may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate. Participation by officers of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers must be approved by the Committee. Participation by others and any
performance objectives relating to others may be approved by groups or
categories (for example, by pay grade) and authority to designate participants
who are not officers and to set or modify such targets may be delegated.
4. Types of Incentives. Incentives under the Plan may be granted in any one
or a combination of the following forms: (a) incentive stock options and
non-statutory stock options
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(section 6); (b) stock appreciation rights ("SARs") (section 7); (c) stock
awards (section 8); (d) restricted stock (section 8); (e) performance shares
(section 9); and (f) cash awards (section 10).
5. Shares Subject to the Plan.
5.1 Number of Shares. Subject to adjustment as provided in Section 11.6,
the number of shares of Common Stock which may be issued under the Plan shall
not exceed 5,000,000 shares of Common Stock.
5.2 Cancellation. To the extent that cash in lieu of shares of Common
Stock is delivered upon the exercise of a SAR pursuant to Section 7.4, the
Company shall be deemed, for purposes of applying the limitation on the number
of shares, to have issued the greater of the number of shares of Common Stock
which it was entitled to issue upon such exercise or on the exercise of any
related option. In the event that a stock option or SAR granted hereunder
expires or is terminated or canceled unexercised as to any shares of Common
Stock, such shares may again be issued under the Plan either pursuant to stock
options, SARs or otherwise. In the event that shares of Common Stock are issued
as restricted stock or pursuant to a stock award and thereafter are forfeited or
reacquired by the Company pursuant to rights reserved upon issuance thereof,
such forfeited and reacquired shares may again be issued under the Plan, either
as restricted stock, pursuant to stock awards or otherwise. Subject to the
approval of shareholders, the Committee may also determine to cancel, and agree
to the cancellation of, stock options in order to make a participant eligible
for the grant of stock option at a lower price than the option to be canceled.
5.3 Type of Common Stock. Common Stock issued under the Plan in
connection with stock options, SARs, performance shares, restricted stock or
stock awards, may be authorized and unissued shares.
6. Stock Options. A stock option is a right to purchase shares of Common
Stock from the Company. Each stock option is granted by the Committee under this
Plan shall be subject to the following terms and conditions.
6.1 Price. The Option price per share shall be determined by the
Committee, provided that such price shall not be below the Fair Market Value of
the Common Stock subject to the adjustment under Section 11.6.
6.2 Number. The number of shares of Common Stock subject to the option
shall be determined by the Committee, subject to adjustment as provided in
Section 11.6. The number of shares of Common Stock subject to a stock option
shall be reduced in the same proportion that the holder thereof exercises a SAR
if any SAR is granted in conjunction with or related to the stock option. In any
case, the number of shares subject to options granted to any individual in a
single fiscal year may not exceed 500,000 shares.
6.3 Duration and Time for Exercise. Subject to earlier termination as
provided in Section 11.4, the term of each stock option shall be determined by
the Committee but shall not exceed ten years and one day from the date of grant.
Each stock option shall become exercisable at such time or times during its term
as shall be determined by the Committee at the time of
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grant. The Committee may accelerate the exercisability of any stock option.
Subject to the foregoing and with the approval of the Committee, all or any part
of the shares of Common Stock with respect to which the right to purchase has
accrued may be purchased by the Company at the time of such accrual or at any
time or times thereafter during the term of the option.
6.4 Manner of Exercise. A stock option may be exercised, in whole or in
part, by giving written notice to the Company, specifying the number of shares
of Common Stock to be purchased and accompanied b the full purchase price for
such shares. The option price shall be payable in United States dollars upon
exercise of the option and may be paid by cash; uncertified or certified check;
bank draft; by delivery of shares of Common Stock in payment of all or any part
of the option price, which shares shall be valued for this purpose at the Fair
Market Value on the date such option is exercised; by instructing the Company to
withhold from the shares of Common Stock issuable upon exercise of the stock
option shares of Common Stock in payment of all or any part of the option price,
which shares shall be valued for this purpose at the Fair Market Value or in
such other manner as may be authorized from time to time by the Committee. Prior
to the issuance of shares of Common Stock upon the exercise of a stock option, a
participant shall have no rights as a stockholder.
6.5 Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, the following additional provisions shall apply to the grant of stock
options which are intended to qualify as Incentive Stock Options, as such term
is defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"):
a) The aggregate Fair Market Value (determined as of the time the
option is granted) of the shares of Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by
and any participant during any calendar year (under all of the
Company's plans) shall not exceed $100,000.
b) Any Incentive Stock Option certificate authorized under the Plan
shall contain such other provisions as the Committee shall deem
advisable, but shall in all events be consistent with and contain
all provisions required in order to qualify the options as Incentive
Stock Options.
c) All Incentive Stock Options must be granted within ten years from
the earlier of the date on which this Plan was adopted by the Board
or the date this Plan was approved by the stockholders.
d) Unless sooner exercised, all Incentive Stock Options shall expire
no later than 10 years after the date of grant.
e) The option price of Incentive Stock Options shall be not less
than the Fair Market Value of the Common Stock subject to the option
on the date of grant.
f) No Incentive Stock Options shall be granted to any participant
who, at the time such option is granted, would own (within the
meaning of Section 422 of the Code) stock possessing more than ten
percent (10%) of the total combined voting
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power of all classes of stock of the employer corporation or of its
parent of subsidiary corporation.
7. Stock Appreciation Rights. A SAR is a right to receive, without payment to
the Company, a number of shares of Common Stock, cash or any combination
thereof, the amount of which is determined pursuant to the formula set forth in
Section 7.4. A SAR may be granted (a) with respect to any stock option granted
under this Plan, either concurrently with the grant of such stock option or at
such later time as determined by the Committee (as to all or any portion of the
shares of Common Stock subject to the stock option), or (b) alone, without
reference to any related stock option. Each SAR granted by the Committee under
this Plan shall be subject to the following terms and conditions:
7.1 Number. Each SAR is granted to any participant shall relate to such
number of shares of Common Stock as shall be determined by the Committee,
subject to adjustment as provided in Section 11.6. In the case of a SAR granted
with respect to a stock option, the number of shares of Common Stock to which
the SAR pertains shall be reduced in the same proportion that the holder of the
option exercises the related stock option.
7.2 Duration. Subject to earlier termination as provided in Section
11.4, the term of each SAR shall be determined by the Committee but shall not
exceed ten years and one day from the date of grant. Unless otherwise provided
by the Committee, each SAR shall become exercisable at such time or times, to
such extent and upon such conditions as the stock option, if any, to which it
relates is exercisable. The Committee may in its discretion accelerate the
exercisability of any SAR.
7.3 Exercise. A SAR may be exercised, in whole or in part, by giving
written notice to the Company, specifying the number SARs which the holder
wishes to exercise. Upon receipt of such written notice, the Company shall,
within ninety (90) days thereafter, deliver to the exercising holder
certificates for the shares of Common Stock or cash or both, as determined by
the Committee, to which the holder is entitled pursuant to Section 7.4.
7.4 Payment. Subject to the right of the Committee to deliver cash in
lieu of shares of Common Stock (which, as it pertains to officers and directors
of the Company, shall comply with all requirements of the 1934 Act), the number
of shares of Common Stock which shall be issuable upon the exercise of a SAR
shall be determined by dividing:
a) the number of shares of Common Stock as to which the SAR is
exercised multiplied by the amount of the appreciation in such
shares (for this purpose, the "appreciation" shall be the amount by
which the Fair Market Value of the shares of Common Stock subject to
the SAR on the exercise date exceeds (1) in the case of a SAR
related to a stock option, the purchase price of the shares of
Common Stock under the stock option or (2) in the case of a SAR
granted alone, without reference to a related stock option, an
amount which shall be determined by the Committee at the time of
grant, subject to adjustment under Section 11.6); by
b) the Fair Market Value of a share of Common Stock on the exercise
date.
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In lieu of issuing shares of Common Stock upon the exercise of a SAR, the
Committee may elect to pay the holder of the SAR cash equal to the Fair
Market Value on the exercise date of any or all of the shares which would
otherwise be issuable. No fractional shares of Common Stock shall be
issued upon the exercise of a SAR; instead, the holder of the SAR shall be
entitled to receive a cash adjustment equal to the same fraction of the
Fair Market Value of a share of Common Stock on the exercise date or to
purchase the portion necessary to make a whole share at its Fair Market
Value on the date of exercise.
8. Stock Awards and Restricted Stock. A stock award consists of the transfer
by the Company to a participant of shares of Common Stock, without other payment
therefor, as additional compensation for services to the Company. A share of
restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer of
Common Stock pursuant to stock awards and the transfer and sale of restricted
stock shall be subject to the following terms and conditions:
8.1 Number of Shares. The number of shares to be transferred or sold by
the Company to a participant pursuant to a stock award or as restricted stock
shall be determined by the Committee.
8.2 Sale Price. The Committee shall determine the price, if any, at
which shares of restricted stock shall be sold to a participant, which may vary
from time to time and among participants and which may be below the Fair Market
Value of such shares of Common Stock at the date of sale.
8.3 Restrictions. All shares of restricted stock transferred or sold
hereunder shall be subject to such restrictions as the Committee may determine,
including, without limitation any or all of the following:
a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, such prohibition to
lapse at such time or times as the Committee shall determine
(whether in annual or more frequent installments, at the time of the
death, disability or retirement of the holder of such share, or
otherwise);
b) a requirement that the holder of shares of restricted stock
forfeit, or (in the case of shares sold to a participant) resell
back to the Company at his or her cost, all or part of such shares
in the event of termination of his or her employment or consulting
engagement during any period in which such shares are subject to
restrictions;
c) such other conditions or restrictions as the Committee may deem
advisable.
8.4 Escrow. In order to enforce the restrictions imposed by the
Committee pursuant to Section 8.3, the participant receiving restricted stock
shall enter into an agreement with the
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Company setting forth the conditions of the grant. Shares of restricted stock
shall be registered in the name of the participant and deposited, together with
a stock power endorsed in blank, with the Company. Each such certificate shall
bear a legend in substantially the following form:
The transferability of this certificate and the shares of Common Stock
represented by it are subject to the terms and conditions (including
conditions of forfeiture) contained in the 1998 Stock Option and
Compensation Plan of Lakes Entertainment, Inc. (the "Company"), and an
agreement entered into between the registered owner and the Company. A
copy of the Plan and the agreement is on file at the office of the
secretary of the Company.
8.5. End of Restrictions. Subject to Section 11.5, at the end of any time
period during which the shares of restricted stock are subject to forfeiture and
restrictions on transfer, such shares will be delivered free of all restrictions
to the participant or to the participant's legal representative, beneficiary or
heir.
8.6 Stockholder. Subject to the terms and conditions of the Plan, each
participant receiving restricted stock shall have all the rights of a
stockholder with respect to shares of stock during any period in which such
shares are subject to forfeiture and restrictions on transfer, including without
limitation, the right to vote such shares. Dividends paid in cash or property
other than Common Stock with respect to shares of restricted stock shall be paid
to the participant currently.
9. Performance Shares. A performance share consists of an award which shall
be paid in shares of Common Stock, as described below. The grant of performance
share shall be subject to such terms and conditions as the Committee deems
appropriate, including the following:
9.1 Performance Objectives. Each performance share will be subject to
performance objectives for the Company or one of its operating units to be
achieved by the end of a specified period. The number of performance shares
granted shall be determined by the Committee and may be subject to such terms
and conditions, as the Committee shall determine. If the performance objectives
are achieved, each participant will be paid in shares of Common Stock or cash.
If such objectives are not met, each grant of performance shares may provide for
lesser payments in accordance with formulas established in the award.
9.2 Not Stockholder. The grant of performance shares to a participant
shall not create any rights in such participant as a stockholder of the Company,
until the payment of shares of Common Stock with respect to an award.
9.3 No Adjustments. No adjustment shall be made in performance shares
granted on account of cash dividends which may be paid or other rights which may
be issued to the holders of Common Stock prior to the end of any period for
which performance objectives were established.
9.4 Expiration of Performance Share. If any participant's employment or
consulting engagement with the Company is terminated for any reason other than
normal retirement, death or disability prior to the achievement of the
participant's stated performance objectives, all the participant's rights on the
performance shares shall expire and terminate unless otherwise determined by the
Committee. In the event of termination by reason of death, disability, or
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normal retirement, the Committee, in its own discretion may determine what
portions, if any, of the performance shares should be paid to the participant.
10. Cash Awards. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his or her services to
the Company. Payment of a cash award will normally depend on achievement of
performance objectives by the Company or by individuals. The amount of any
monetary payment constituting a cash award shall be determined by the Committee
in its sole discretion. Cash awards may be subject to other terms and
conditions, which may vary from time to time and among participants, as the
Committee determines to be appropriate.
11. General.
11.1 Effective Date. The Plan will become effective upon its adoption by
the Board.
11.2 Duration. The Plan shall remain in effect until all Incentives
granted under the Plan have either been satisfied by the issuance of shares of
Common Stock or the payment of cash or been terminated under the terms of the
Plan and all restrictions imposed on shares of Common Stock in connection with
their issuance under the Plan have lapsed. No Incentives may be granted under
the Plan after the tenth anniversary of the date the Plan is approved by the
stockholders of the Company.
11.3 Non-transferability of Incentives. No stock option, SAR, restricted
stock or performance award may be transferred, pledged or assigned by the holder
thereof except, in the event of the holder's death, by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code of Title I of the Employee Retirement Income Security Act,
or the rules thereunder, and the Company shall not be required to recognize any
attempted assignment of such rights by any participant.
11.4 Effect of Termination or Death. In the event that a participant
ceases to be an employee of or consultant to the Company for any reason,
including death, any Incentives may be exercised or shall expire at such times
as may be determined by the Committee.
11.5 Additional Condition. Notwithstanding anything in this Plan to the
contrary: (a) the Company may, if it shall determine it necessary or desirable
for any reason, at the time of award of any Incentive or the issuance of any
shares of Common Stock pursuant to any Incentive, require the recipient of the
Incentive, as a condition to the receipt thereof or to the receipt of shares of
Common Stock issued pursuant thereto, to deliver to the Company a written
representation of present intention to acquire the Incentive or the shares of
Common Stock issued pursuant thereto for his or her own account for investment
and not for distribution; and (b) if at any time the Company further determines,
in its sole discretion, that the listing, registration or qualification (or any
updating of any such document) of any Incentive or the shares of Common Stock
issuable pursuant thereto is necessary on any securities exchange or under any
federal or state securities or blue sky law, or that the consent or approval of
any governmental regulatory body is necessary of desirable as a condition of, or
in connection with the award of any Incentive, the issuance of shares of Common
Stock pursuant thereto, or the removal of any restrictions imposed on such
shares, such Incentive shall not be awarded or such shares of
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Common Stock shall not be issued or such restrictions shall not be removed, as
the case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company.
11.6 Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations, there
shall be substituted for each of the shares of Common Stock then subject to the
Plan, including shares subject to restrictions, options, or achievement of
performance share objectives, the number and kind of shares of stock or other
securities to which the holders of the shares of Common Stock will be entitled
pursuant to the transaction. In the event of any recapitalization, stock
dividend, stock split, combination of shares or other change in the Common
Stock, the number of shares of Common Stock then subject to the Plan, including
shares subject to restrictions, options or achievements of performance shares,
shall be adjusted in proportion to the change in outstanding shares of Common
Stock. In the event of any such adjustments, the purchase price of any option,
the performance objectives of any Incentive, and the shares of Common Stock
issuable pursuant to any Incentive shall be adjusted as and to the extent
appropriate, in the discretion of the Committee, to provide participants with
the same relative rights before and after such adjustment.
11.7 Incentive Plans and Agreements. Except in the case of stock awards
or cash awards, the terms of each Incentive shall be stated in a plan or
agreement approved by the Committee. The Committee may also determine to enter
into agreements with holders of options to reclassify or convert certain
outstanding options, within the terms of the Plan, as Incentive Stock Options or
as non-statutory stock options and in order to eliminate SARs with respect to
all or part of such options and any other previously issued options.
11.8 Withholding.
a) The Company shall have the right to withhold from any payments
made under the Plan or to collect as a condition of payment, any
taxes required by law to be withheld. At any time when a participant
is required to pay to the Company an amount required to be withheld
under applicable income tax laws in connection with a distribution
of Common Stock or upon exercise of an option or SAR, the
participant may satisfy this obligation in whole or in part by
electing (the "Election") to have the Company withhold from the
distribution shares of Common Stock having a value up to the amount
required to be withheld. The value of the shares to be withheld
shall be based on the Fair Market Value of Common Stock on the date
that the amount of tax to be withheld shall be determined ("Tax
Date").
b) Each Election must be made prior to the Tax Date. The Committee
may disapprove of any Election, may suspend or terminate the right
to make Elections, or may provide with respect to any Incentive that
the right to make Elections shall not apply to such Incentive. An
Election is irrevocable.
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c) If a participant is an officer or director of the Company within
the meaning of Section 16 of the 1934 Act, then an Election must
comply with all of the requirements of the 1934 Act.
11.9 No Continued Employment, Engagement or Right to Corporate Assets. No
participant under the Plan shall have any right, because of his or her
participation, to continue in the employ of, or to continue his or her
consulting engagement for, the Company for any period of time or to any right to
continue his or her present or any other rate of compensation. Nothing contained
in the Plan shall be construed as giving an employee, a consultant, such
persons' beneficiaries, or any other person, any equity or interests of any kind
in the assets of the Company or creating a trust of any kind or a fiduciary
relationship of any kind between the Company and any such person.
11.10 Deferral Permitted. Payment of cash or distribution of any shares of
Common Stock to which a participant is entitled under any Incentive shall be
made as provided in the Incentive. Payment may be deferred at the option of the
participant if provided in the Incentive.
11.11 Amendment of the Plan. The Board may amend or discontinue the Plan
at any time. However, no such amendment or discontinuance shall, subject to
adjustment under Section 11.6, (a) change or impair, without the consent of the
recipient, an Incentive previously granted, (b) materially increase the maximum
number of shares of Common Stock which may be issued to all participants under
the Plan, (c) materially increase the benefits that may be granted under the
Plan, (d) materially modify the requirements as to eligibility for participation
in the Plan, or (e) materially increase the benefits accruing to participants
under the Plan.
11.12 Immediate Acceleration of Incentives. Notwithstanding any provision
in this Plan or in any Incentive to the contrary, (a) the restrictions on all
shares of restricted stock awards shall lapse immediately, (b) all outstanding
options and SARs will become exercisable immediately, and (c) all performance
shares shall be deemed to be met and payment made immediately, if subsequent to
the date that the Plan is approved by the Board of Directors of the Company, any
of the following events occur unless otherwise determined by the Board and a
majority of the Continuing Directors (as defined below).
a) any person or group of persons becomes the beneficial owner of
thirty percent (30%) or more of any equity security of the Company
entitled to vote for the election of directors;
b) a majority of the members of the Board is replaced within the
period of less than two (2) years by directors not nominated and
approved by the Board; or
c) the stockholders of the Company approve an agreement to merge or
consolidate with or into another corporation or an agreement to sell
or otherwise dispose of all or substantially all of the Company's
assets (including a plan of liquidation).
For purposes of this Section 11.12, beneficial ownership by a person or
group of persons shall be determined in accordance with Regulation 13D (or any
similar successor regulation)
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promulgated by the Securities and Exchange Commission pursuant to the 1934 Act.
Beneficial ownership of more than thirty percent (30%) of an equity security may
be established by any reasonable method, but shall be presumed conclusively as
to any person who files a Schedule 13D report with the Securities and Exchange
Commission reporting such ownership. If the restrictions and forfeitability
periods are eliminated by reason of provision (1), the limitations of this Plan
shall not become applicable again should the person cease to own thirty percent
(30%) or more of any equity security of the Company.
For purposes of this Section 11.12, "Continuing Directors" are directors
(a) who were in office prior to the time any of provisions (1), (2) or (3)
occurred or any person publicly announced an intention to acquire twenty percent
(20%) or more of any equity security of the Company, (b) directors in office for
a period of more than two years, and (c) directors nominated and approved by the
Continuing Directors.
11.13 Definition of Fair Market Value. Whenever "Fair Market Value" of
Common Stock shall be determined for purposes of this Plan, it shall be
determined by reference to that last sale price of a share of Common Stock on
the principal United State Securities Exchange registered under the 1934 Act on
which the Common Stock is listed (the "Exchange"), or, on the National
Association of Securities Dealers, Inc. Automatic Quotation System (including
the National Market System) ("NASDAQ") on the applicable date. If the Exchange
or NASDAQ is closed for trading on such date, or if the Common Stock does not
trade on such date, then the last sale price used shall be the one on the date
the Common Stock last traded on the Exchange or NASDAQ. If the Common Stock is
not listed on an Exchange or on NASDAQ, "Fair Market Value" shall be determined
by the Board of Directors of the Company, which such valuation determination
shall be conclusive.
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