EXHIBIT 10.1

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HANOVER FOODS CORPORATION

2003 STOCK OPTION PLAN

1.  Purpose of Plan

The purpose of this 2003 Stock Option Plan (the "Plan") is to provide additional
incentive to Eligible Employees (as hereafter defined) of Hanover Foods
Corporation, a Pennsylvania corporation (the "Company"), by encouraging them to
invest in shares of the Company's Class B common stock, par value $25.00 per
share ("Common Stock"), and thereby acquire a proprietary interest in the
Company and an increased personal interest in the Company's continued success
and progress.

2. Aggregate Number of Shares

200,000 shares of the Company's Common Stock shall be the aggregate number of
shares which may be issued under this Plan. Notwith­standing the foregoing, in
the event of any change in the outstanding shares of the Common Stock of the
Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee (defined in Section 4(a)), deems in its sole
discretion to be similar circumstances, the aggregate number and kind of shares
which may be issued under this Plan shall be appropriately adjusted in a manner
determined in the sole discretion of the Committee. Reacquired shares of the
Company's Common Stock, as well as unissued shares, may be used for the purpose
of this Plan. Common Stock of the Company subject to options which have
terminated unexercised, either in whole or in part, shall be available for
future options granted under this Plan.

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3. Class of Persons Eligible to Receive Options

All Eligible Employees (as hereafter defined) are eligible to receive an option
or options under this Plan. The term “Eligible Employees” refers to all
full-time employees of the Company and of any present or future Company parent
or sub­sidiary corporation who have been employed for at least one year,
excluding John A. Warehime and excluding any employee who is represented by a
collective bargaining agent. The individuals who shall, in fact, receive an
option or options shall be selected by the Committee (as defined in Section 4(a)
hereof), in its sole discretion, except that no option may be issued to John A.
Warehime. No individual may receive options under this Plan for more than 5% of
the total number of shares of the Company's Common Stock authorized for issuance
under this Plan.

4.  Administration of Plan

(a)     This Plan shall be administered by the Company's Board of Directors or
by an Option Committee ("Committee") appointed by the Company's Board of
Directors. The Committee shall consist of a minimum of two and a maximum of five
members of the Board of Directors, each of whom shall be a "Non-Employee
Director" within the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934, as amended, or any future corresponding rule, except that the
failure of the Committee for any reason to be composed solely of Non-Employee
Directors shall not prevent an option from being considered granted under this
Plan. The Committee shall, in addition to its other authority and subject to the
provisions of this Plan, determine which individuals shall in fact be granted an
option or options, whether the option shall be an Incentive Stock Option or a
Non-Qualified Stock Option (as such terms are defined in Section 5(a)), the
number of shares to be subject to each of the options, the time or times at
which the options shall be granted, the rate of option exercisability, and,
subject to Section 5 hereof, the price at which each of the options is
exercisable and the duration of the option. The term "Committee", as used in
this Plan and the options granted hereunder, refers to either the Board of
Directors or to the Committee, whichever is then administering this Plan.

(b)      The Committee shall adopt such rules for the conduct of its business
and administration of this Plan as it considers desirable. A majority of the
members of the Committee shall constitute a quorum for all purposes. The vote or
written consent of a majority of the members of the Committee on a particular
matter shall constitute the act of the Committee on such matter. The Committee
shall have the right to construe the Plan and the options issued pursuant to it,
to correct defects and omissions and to reconcile inconsistencies to the extent
necessary to effectuate the Plan and the options issued pursuant to it, and such
action shall be final, binding and conclusive upon all parties concerned. No
member of the Committee or the Board of Directors shall be liable for any act or
omission (whether or not negligent) taken or omitted in good faith, or for the
exercise of an authority or discretion granted in connection with the Plan to a
Committee or the Board of Directors, or for the acts or omissions of any other
members of a Committee or the Board of Directors. Subject to the numerical
limitations on Committee membership set forth in Section 4(a) hereof, the Board
of Directors may at any time appoint additional members of the Committee and may
at any time remove any member of the Committee with or without cause. Vacancies
in the Committee, however caused, may be filled by the Board of Directors, if it
so desires.

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5. Incentive Stock Options and Non-Qualified Stock Options

(a)      Options issued pursuant to this Plan may be either Incentive Stock
Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock Options
granted pursuant to Section 5(c) hereof, as determined by the Committee. An
"Incentive Stock Option" is an option which satisfies all of the requirements of
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder, and a "Non-Qualified Stock Option" is an option
which either does not satisfy all of those requirements or the terms of the
option provide that it will not be treated as an Incentive Stock Option. The
Committee may grant both an Incentive Stock Option and a Non-Qualified Stock
Option to the same person, or more than one of each type of option to the same
person. The option price for options issued under this Plan shall be equal at
least to the fair market value (as defined below) of the Company's Common Stock
on the date of the grant of the option. The fair market value of the Company's
Common Stock on any particular date shall mean a price determined in good faith
by the Committee to equal the fair market value per share of the Common Stock,
and for the purpose, the Committee may conclusively rely upon appraisals of the
Company’s Common Stock performed by independent appraisers.

(b)      Subject to the authority of the Committee set forth in Section 4(a)
here of Incentive Stock Options issued to an Eligible Employee pursuant to this
Plan shall be issued substantially in the form set forth in Appendix I hereof,
which form is hereby incorporated by reference and made a part hereof, and shall
contain substan­tially the terms and conditions set forth therein. Incentive
Stock Options shall not be exercisable after the expiration of ten years from
the date such options are granted, unless terminated earlier under the terms of
the option, except that options granted to individuals described in Section
422(b)(6) of the Code shall conform to the provisions of Section 422(c)(5) of
the Code. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422(b) of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422(b) of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment. If
Incentive Stock Options are granted under this Plan, such options shall
automatically be deemed converted into Non-Qualified Stock Options if
shareholder approval as required by the Code is not obtained within one year
after the date of adoption of this Plan by the Board of Directors.

 

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(c)      Subject to the authority of the Committee set forth in Section 4(a)
hereof, Non-Qualified Stock Options issued to an Eligible Employee pursuant to
this Plan shall be issued substantially in the form set forth in Appendix II
hereof, which form is hereby incorporated by reference and made a part hereof,
and shall contain substantially the terms and conditions set forth therein.
Non-Qualified Stock Options shall expire ten years after the date they are
granted, unless terminated earlier under the option terms. At the time of
granting a Non-Qualified Stock Option hereunder, the Committee may, in its
discretion, amend or supplement any of the option terms contained in Appendix II
for any particular optionee.

(d)      Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event (i) an option granted pursuant to Section 5(b) hereof does
not qualify as an "Incentive Stock Option" as that term is used in
Section 422(b) of the Code and the regulations thereunder; (ii) any optionee
does not obtain the tax treatment pertaining to an Incentive Stock Option; or
(iii) any option granted pursuant to Section 5(c) hereof is an "Incentive Stock
Option."

6. Amendment, Supplement, Suspension and Termination

Options shall not be granted pursuant to this Plan after the expiration of ten
years from the date the Plan is adopted by the Board of Directors of the
Company. The Board of Directors reserves the right at any time, and from time to
time, to amend or supplement this Plan in any way, or to suspend or terminate
it, effective as of such date, which date may be either before or after the
taking of such action, as may be specified by the Board of Directors; provided,
however, that such action shall not, without the consent of the optionee, affect
options granted under the Plan prior to the actual date on which such action
occurred. If the Board of Directors voluntarily submits a proposed amendment,
supplement, suspension or termination for shareholder approval, such submission
shall not require any future amendments, supplements, suspensions or
terminations (whether or not relating to the same provision or subject matter)
to be similarly submitted for shareholder approval.

7. Effectiveness of Plan

This Plan shall become effective on the date of its adoption by the Company's
Board of Directors.

8. General Conditions

(a)      Nothing contained in this Plan or any option granted pursuant to this
Plan shall confer upon any employee the right to continue in the employ of the
Company or any affiliated or subsidiary corporation or interfere in any way with
the rights of the Company or any affiliated or subsidiary corpora­tion to
terminate his employment in any way.

(b)      Corporate action constituting an offer of stock for sale to any person
under the terms of the options to be granted hereunder shall be deemed complete
as of the date when the Committee authorizes the grant of the option to the such
person, regardless of when the option is actually delivered to such person or
acknowledged or agreed to by him.

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(c)      The terms "parent corporation" and "subsidiary corporation" as used
throughout this Plan, and the options granted pursuant to this Plan, shall
(except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.

(d)      References in this Plan to the Code shall be deemed to also refer to
the corresponding provisions of any future United States revenue law.

(e)      The use of the masculine pronoun shall include the feminine gender
whenever appropriate.

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APPENDIX I

INCENTIVE STOCK OPTION

To:

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       Name            

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      Address          

 

 

 

Date of Grant:

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You are hereby granted an option, effective as of the date hereof, to purchase
__________ shares of Class B common stock, par value $25.00 per share ("Common
Stock"), of Hanover Foods Corporation, a Pennsylvania corporation (the
"Company"), at a price of $________ per share pursuant to the Company's 2003
Stock Option Plan (the "Plan").

This option shall terminate and is not exercisable after ten years from the date
of its grant (the "Scheduled Termination Date"), except if terminated earlier as
hereafter provided.

Your option may first be exercised on and after two years from the date of
grant, but not before that time. On and after two year and prior to three years
from the date of grant, your option may be exercised for up to 12.5% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter your option may be exercised for up to an additional
12.5% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after nine years after the date of grant,
except if terminated earlier as provided herein.

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You may exercise your option by giving written notice to the Secretary of the
Company on forms supplied by the Company at its then principal executive office,
accompanied by payment of the option price for the total number of shares you
specify that you wish to purchase. The payment may be in any of the following
forms: (a) cash, which may be evidenced by a check and includes cash received
from a stock brokerage firm in a so-called "cashless exercise"; (b) (unless
prohibited by the Committee) certificates representing shares of Common Stock of
the Company, which will be valued by the Secretary of the Company at the fair
market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; (c) (unless
prohibited by the Committee) any combination of cash and Common Stock of the
Company valued as provided in clause (b) or (d) if permitted by the Committee, a
promissory note containing such terms and conditions and collateral (if any) as
the Committee shall determine in its sole discretion. The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.

Your option will, to the extent not previously exercised by you, terminate three
months after the date on which your employment by the Company or a Company
subsidiary corporation is terminated (whether such termination be voluntary or
involuntary) other than by reason of disability as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder, or death, in which case your option will terminate one
year from the date of termination of employment due to disability or death (but
in no event later than the Scheduled Termination Date). After the date your
employment is terminated, as aforesaid, you may exercise this option only for
the number of shares which you had a right to purchase and did not purchase on
the date your employment terminated. If you are employed by a Company subsidiary
corporation, your employment shall be deemed to have terminated on the date your
employer ceases to be a Company subsidiary corporation, unless you are on that
date transferred to the Company or another Company subsidiary corporation. Your
employment shall not be deemed to have terminated if you are transferred from
the Company to a Company subsidiary corpora­tion, or vice versa, or from one
Company subsidiary corporation to another Company subsidiary corporation.

If you die while employed by the Company or a Company subsidiary corporation,
your executor or administrator, as the case may be, may, at any time within one
year after the date of your death (but in no event later than the Scheduled
Termination Date), exercise the option as to any shares which you had a right to
purchase and did not purchase during your lifetime. If your employment with the
Company or a Company parent or subsidiary corporation is terminated by reason of
your becoming disabled (within the meaning of Section 22(e)(3) of the Code and
the regulations thereunder), you or your legal guardian or custodian may at any
time within one year after the date of such termination (but in no event later
than the Scheduled Termination Date), exercise the option as to any shares which
you had a right to purchase and did not purchase prior to such termination. Your
executor, administrator, guardian or custodian must present proof of his
authority satisfactory to the Company prior to being allowed to exercise this
option.

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In the event of any change in the outstanding shares of the Common Stock of the
Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee deems in its sole discretion to be similar
circumstances, the number and kind of shares subject to this option and the
option price of such shares shall be appropriately adjusted in a manner to be
determined in the sole discretion of the Committee.

In the event of a liquidation or proposed liquidation of the Company, including
(but not limited to) a transfer of assets followed by a liquidation of the
Company, the Committee shall have the right to require you to exercise this
option upon thirty (30) days prior written notice to you. If at the time such
written notice is given this option is not otherwise exercisable, the written
notice will set forth your right to exercise this option even though it is not
otherwise exercisable. In the event this option is not exercised by you within
the thirty (30) day period set forth in such written notice, this option shall
terminate on the last day of such thirty (30) day period, notwithstanding
anything to the contrary contained in this option.

This option is not transferable otherwise than by will or the laws of descent
and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company, except for voting right to
the extent provided in the Company’s Employee Stock Trust. The Company reserves
the right not to deliver to you the shares purchased by virtue of the exercise
of this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.

Notwithstanding anything to the contrary contained herein, this option is not
exercisable until all the following events occur and during any of the following
periods of time:

(a)      Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable.

(b)      During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.

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(c)      Until you have paid or made suitable arrangements to pay (which may
include payment through the surrender of Common Stock, unless prohibited by the
Committee) (i) all federal, state and local income tax withholding required to
be withheld by the Company in connection with the option exercise and (ii) the
employee's portion of other federal, state and local payroll and other taxes due
in connection with the option exercise.

(d)      Until you have executed such shareholder agreements as shall be
required by the Company. Such shareholder agreements may, at the Company’s
option, include (among other provisions) provisions requiring you to (i) enter
into any “lock-up” agreements required by underwriters, (ii) enter into voting
trust agreements, (iii) grant to the Company or its nominees an option to
repurchase the stock, (iv) not sell, pledge or otherwise dispose of the stock
without the consent of the Company, (v) maintain any Subchapter S elections made
by the Company, (vi) grant rights of first refusal to the Company or its
nominees with respect to the stock, and (vii) join in any sale of a majority or
all of the outstanding stock of the Company.

The following two paragraphs shall be applicable if, on the date of exercise of
this option, the Common Stock to be purchased pursuant to such exercise has not
been registered under the Securities Act of 1933, as amended, and under
applicable state securities laws, and shall continue to be applicable for so
long as such registration has not occurred:

(a)      The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.

(b)      The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:

"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended, or under applicable state securities laws.
The shares have been acquired for investment and may not be offered, sold,
transferred, pledged or otherwise disposed of without an effective registration
statement under the Securities Act of 1933, as amended, and under any applicable
state securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."

The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.

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The sole purpose of the agreements, warranties, representations and legend set
forth in the two immediately preceding paragraphs is to prevent violations of
the Securities Act of 1933, as amended, and any applicable state securities
laws.

It is the intention of the Company and you that this option shall, if possible,
be an "Incentive Stock Option" as that term is used in Section 422(b) of the
Code and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment. To the extent
that the number of shares subject to this option which are exercisable for the
first time exceed the $100,000 limitation contained in Section 422(d) of the
Code, this option will not be considered an Incentive Stock Option. In the event
that approval of the Plan by the shareholders of the Company is not obtained
within twelve months after the adoption of the Plan by the Company’s Board of
Directors, this option shall automatically be deemed converted into an option
which is not an Incentive Stock Option as that term is used in Section 422(b) of
the Code and the regulations thereunder. Nothing contained herein shall require
the Company to submit the Plan for such shareholder approval.

Nothing herein shall modify your status as an at-will employee of the Company.
Further, nothing herein guarantees you employment for any specified period of
time. This means that either you or the Company may terminate your employment at
any time for any reason, with or without cause, or for no reason. You recognize
that, for instance, you may terminate your employment or the Company may
terminate your employment prior to the date on which your option becomes vested
or exercisable.

The Company has no obligation to repurchase any stock which you may acquire upon
exercise of this option. To the extent necessary to satisfy the Company’s legal
reporting obligations, the optionee shall advise the Company of any disposition
of the stock acquired upon exercise of this option.

Any dispute or disagreement between you and the Company with respect to any
portion of this option (excluding Attachment A hereto) or its validity,
construction, meaning, performance or your rights hereunder shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association or its successor, as amended from time to time. However,
prior to submission to arbitration you will attempt to resolve any disputes or
disagreements with the Company over this option amicably and informally, in good
faith, for a period not to exceed two weeks. Thereafter, the dispute or
disagreement will be submitted to arbitration. At any time prior to a decision
from the arbitrator(s) being rendered, you and the Company may resolve the
dispute by settlement. You and the Company shall equally share the costs charged
by the American Arbitration Association or its successor, but you and the
Company shall otherwise be solely responsible for your own respective counsel
fees and expenses. The decision of the arbitrator(s) shall be made in writing,
setting forth the award, the reasons for the decision and award and shall be
binding and conclusive on you and the Company. Further, neither you nor the
Company shall appeal any such award. Judgment of a court of competent
jurisdiction may be entered upon the award and may be enforced as such in
accordance with the provisions of the award.

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This option shall be subject to the terms of the Plan in effect on the date this
option is granted, which terms are hereby incorporated herein by reference and
made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the State of
Pennsylvania.

In consideration of the grant to you of this option, you hereby agree to the
confidentiality and non-interference provisions set forth in Attachment A
hereto.

Please sign the copy of this option and return it to the Company's Secretary,
thereby indicating your understanding of and agreement with its terms and
conditions, including Attachment A hereto.

  Hanover Foods Corporation           By: ______________________________________

I hereby acknowledge receipt of a copy of the foregoing stock option and the
Plan, and having read them hereby signify my understanding of, and my agreement
with, their terms and conditions, including Attachment A hereto. I accept this
option in full satisfaction of any previous written or verbal promises made to
me by the Company with respect to option grants.

________________________________   ________________________________ (Signature)
  (Date)

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Attachment A to Stock Option

Confidentiality and Non-Interference.

(a)     You covenant and agree that, in consideration of the grant to you of
this stock option, you will not, during your employment with the Company or at
any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.

(b)      You covenant and agree that, in consideration of the grant to you of
this stock option, you will not, during your employment with the Company and for
a period of two years thereafter, except with the express prior written consent
of the Company, directly or indirectly, whether as employee, owner, partner,
member, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.

(c)      You covenant and agree that, in consideration of the grant to you of
this stock option, you will not, for a period of two years after your employment
with the Company ceases for any reason whatsoever (whether voluntary or not),
except with the express prior written consent of the Company, directly or
indirectly, whether as employee, owner, partner, member, consultant, agent,
director, officer, shareholder or in any other capacity, for your own account or
for the benefit of any individual or entity, (i) solicit any customer of the
Company for business which would result in such customer terminating their
relationship with the Company; or (ii) solicit or induce any individual or
entity which is an employee of the Company to leave the Company or to otherwise
terminate their relationship with the Company.

(d)      The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.

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(e)      If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.

(f)      For purposes of this Attachment A, the term "the Company" shall include
the Company, any successor to the Company and all present and future direct and
indirect subsidiaries and affiliates of the Company.

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APPENDIX II

NON-QUALIFIED STOCK OPTION FOR OFFICERS AND OTHER

KEY EMPLOYEES

To:

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      Name            

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      Address           Date of Grant:

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You are hereby granted an option, effective as of the date hereof, to purchase
__________ shares of Class B common stock, par value $25.00 per share ("Common
Stock"), of Hanover Foods Corporation, a Pennsylvania corporation (the
"Company"), at a price of $ _____ per share pursuant to the Company's 2003 Stock
Option Plan (the "Plan").

This option shall terminate and is not exercisable after ten years from the date
of its grant (the "Scheduled Termination Date"), except if terminated earlier as
hereafter provided.

Your option may first be exercised on and after two years from the date of
grant, but not before that time. On and after two year and prior to three years
from the date of grant, your option may be exercised for up to 12.5% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter your option may be exercised for up to an additional
12.5% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after nine years after the date of grant,
except if terminated earlier as provided herein.

 

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You may exercise your option by giving written notice to the Secretary of the
Company on forms supplied by the Company at its then principal executive office,
accompanied by payment of the option price for the total number of shares you
specify that you wish to purchase. The payment may be in any of the following
forms: (a) cash, which may be evidenced by a check and includes cash received
from a stock brokerage firm in a so-called "cashless exercise"; (b) (unless
prohibited by the Committee) certificates representing shares of Common Stock of
the Company, which will be valued by the Secretary of the Company at the fair
market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; (c) (unless
prohibited by the Committee) any combination of cash and Common Stock of the
Company valued as provided in clause (b) or (d) if permitted by the Committee, a
promissory note containing such terms and conditions and collateral (if any) as
the Committee shall determine in its sole discretion. The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.

Your option will, to the extent not previously exercised by you, terminate three
months after the date on which your employment by the Company or a Company
subsidiary corporation is terminated (whether such termination be voluntary or
involuntary) other than by reason of disability as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder, or death, in which case your option will terminate one
year from the date of termination of employment due to disability or death (but
in no event later than the Scheduled Termination Date). After the date your
employment is terminated, as aforesaid, you may exercise this option only for
the number of shares which you had a right to purchase and did not purchase on
the date your employment terminated. If you are employed by a Company subsidiary
corporation, your employment shall be deemed to have terminated on the date your
employer ceases to be a Company subsidiary corporation, unless you are on that
date transferred to the Company or another Company subsidiary corporation. Your
employment shall not be deemed to have terminated if you are transferred from
the Company to a Company subsidiary corpora­tion, or vice versa, or from one
Company subsidiary corporation to another Company subsidiary corporation.

If you die while employed by the Company or a Company subsidiary corporation,
your executor or administrator, as the case may be, may, at any time within one
year after the date of your death (but in no event later than the Scheduled
Termination Date), exercise the option as to any shares which you had a right to
purchase and did not purchase during your lifetime. If your employment with the
Company or a Company parent or subsidiary corporation is terminated by reason of
your becoming disabled (within the meaning of Section 22(e)(3) of the Code and
the regulations thereunder), you or your legal guardian or custodian may at any
time within one year after the date of such termination (but in no event later
than the Scheduled Termination Date), exercise the option as to any shares which
you had a right to purchase and did not purchase prior to such termination. Your
executor, administrator, guardian or custodian must present proof of his
authority satisfactory to the Company prior to being allowed to exercise this
option.

In the event of any change in the outstanding shares of the Common Stock of the
Company by reason of a stock dividend, stock split, combination of shares,
recapitalization, merger, consolidation, transfer of assets, reorganization,
conversion or what the Committee deems in its sole discretion to be similar
circumstances, the number and kind of shares subject to this option and the
option price of such shares shall be appropriately adjusted in a manner to be
determined in the sole discretion of the Committee.

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In the event of a liquidation or proposed liquidation of the Company, including
(but not limited to) a transfer of assets followed by a liquidation of the
Company, the Committee shall have the right to require you to exercise this
option upon thirty (30) days prior written notice to you. If at the time such
written notice is given this option is not otherwise exercisable, the written
notice will set forth your right to exercise this option even though it is not
otherwise exercisable. In the event this option is not exercised by you within
the thirty (30) day period set forth in such written notice, this option shall
terminate on the last day of such thirty (30) day period, notwithstanding
anything to the contrary contained in this option.

This option is not transferable otherwise than by will or the laws of descent
and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company, except for voting right to
the extent provided in the Company’s Employee Stock Trust. The Company reserves
the right not to deliver to you the shares purchased by virtue of the exercise
of this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.

Notwithstanding anything to the contrary contained herein, this option is not
exercisable until all the following events occur and during any of the following
periods of time:

(a)      Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable.

(b)      During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.

(c)      Until you have paid or made suitable arrangements to pay (which may
include payment through the surrender of Common Stock, unless prohibited by the
Committee) (i) all federal, state and local income tax withholding required to
be withheld by the Company in connection with the option exercise and (ii) the
employee's portion of other federal, state and local payroll and other taxes due
in connection with the option exercise.

(d)      Until you have executed such shareholder agreements as shall be
required by the Company. Such shareholder agreements may, at the Company’s
option, include (among other provisions) provisions requiring you to (i) enter
into any “lock-up” agreements required by underwriters, (ii) enter into voting
trust agreements, (iii) grant to the Company or its nominees an option to
repurchase the stock, (iv) not sell, pledge or otherwise dispose of the stock
without the consent of the Company, (v) maintain any Subchapter S elections made
by the Company, (vi) grant rights of first refusal to the Company or its
nominees with respect to the stock, and (vii) join in any sale of a majority or
all of the outstanding stock of the Company.

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The following two paragraphs shall be applicable if, on the date of exercise of
this option, the Common Stock to be purchased pursuant to such exercise has not
been registered under the Securities Act of 1933, as amended, and under
applicable state securities laws, and shall continue to be applicable for so
long as such registration has not occurred:

(a)      The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.

(b)      The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:

"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended, or under applicable state securities laws.
The shares have been acquired for investment and may not be offered, sold,
transferred, pledged or otherwise disposed of without an effective registration
statement under the Securities Act of 1933, as amended, and under any applicable
state securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."

The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.

The sole purpose of the agreements, warranties, representations and legend set
forth in the two immediately preceding paragraphs is to prevent violations of
the Securities Act of 1933, as amended, and any applicable state securities
laws.

 It is the intention of the Company and you that this option shall not be an
"Incentive Stock Option" as that term is used in Section 422(b) of the Code and
the regulations there­under.

Nothing herein shall modify your status as an at-will employee of the Company.
Further, nothing herein guarantees you employment for any specified period of
time. This means that either you or the Company may terminate your employment at
any time for any reason, with or without cause, or for no reason. You recognize
that, for instance, you may terminate your employment or the Company may
terminate your employment prior to the date on which your option becomes vested
or exercisable.

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The Company has no obligation to repurchase any stock which you may acquire upon
exercise of this option. To the extent necessary to satisfy the Company’s legal
reporting obligations, the optionee shall advise the Company of any disposition
of the stock acquired upon exercise of this option.

Any dispute or disagreement between you and the Company with respect to any
portion of this option (excluding Attachment A hereto) or its validity,
construction, meaning, performance or your rights hereunder shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association or its successor, as amended from time to time. However,
prior to submission to arbitration you will attempt to resolve any disputes or
disagreements with the Company over this option amicably and informally, in good
faith, for a period not to exceed two weeks. Thereafter, the dispute or
disagreement will be submitted to arbitration. At any time prior to a decision
from the arbitrator(s) being rendered, you and the Company may resolve the
dispute by settlement. You and the Company shall equally share the costs charged
by the American Arbitration Association or its successor, but you and the
Company shall otherwise be solely responsible for your own respective counsel
fees and expenses. The decision of the arbitrator(s) shall be made in writing,
setting forth the award, the reasons for the decision and award and shall be
binding and conclusive on you and the Company. Further, neither you nor the
Company shall appeal any such award. Judgment of a court of competent
jurisdiction may be entered upon the award and may be enforced as such in
accordance with the provisions of the award.

This option shall be subject to the terms of the Plan in effect on the date this
option is granted, which terms are hereby incorporated herein by reference and
made a part hereof. In the event of any conflict between the terms of this
option and the terms of the Plan in effect on the date of this option, the terms
of the Plan shall govern. This option constitutes the entire understanding
between the Company and you with respect to the subject matter hereof and no
amendment, supplement or waiver of this option, in whole or in part, shall be
binding upon the Company unless in writing and signed by the President of the
Company. This option and the performances of the parties hereunder shall be
construed in accordance with and governed by the laws of the State of
Pennsylvania.

In consideration of the grant to you of this option, you hereby agree to the
confidentiality and non-interference provisions set forth in Attachment A
hereto.

Please sign the copy of this option and return it to the Company's Secretary,
thereby indicating your understanding of and agreement with its terms and
conditions, including Attachment A hereto.

  Hanover Foods Corporation             By:

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I hereby acknowledge receipt of a copy of the foregoing stock option and the
Plan, and having read them hereby signify my understanding of, and my agreement
with, their terms and conditions, including Attachment A hereto. I accept this
option in full satisfaction of any previous written or verbal promises made to
me by the Company with respect to option grants.

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  (Signature)   (Date)  

 

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Attachment A to Stock Option

Confidentiality and Non-Interference.

(a)      You covenant and agree that, in consideration of the grant to you of
this stock option, you will not, during your employment with the Company or at
any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.

(b)      You covenant and agree that, in consideration of the grant to you of
this stock option, you will not, during your employment with the Company and for
a period of two years thereafter, except with the express prior written consent
of the Company, directly or indirectly, whether as employee, owner, partner,
member, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.

(c)      You covenant and agree that, in consideration of the grant to you of
this stock option, you will not, for a period of two years after your employment
with the Company ceases for any reason whatsoever (whether voluntary or not),
except with the express prior written consent of the Company, directly or
indirectly, whether as employee, owner, partner, member, consultant, agent,
director, officer, shareholder or in any other capacity, for your own account or
for the benefit of any individual or entity, (i) solicit any customer of the
Company for business which would result in such customer terminating their
relationship with the Company; or (ii) solicit or induce any individual or
entity which is an employee of the Company to leave the Company or to otherwise
terminate their relationship with the Company.

(d)      The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.

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(e)      If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.

(f)      For purposes of this Attachment A, the term "the Company" shall include
the Company, any successor to the Company and all present and future direct and
indirect subsidiaries and affiliates of the Company.

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