Exhibit 10.2

DUCKWALL-ALCO STORES, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

 

THIS AGREEMENT, made and entered into this 1st day of July, 2008 (the “Grant
Date”), by and between DUCKWALL-ALCO STORES, INC., a Kansas corporation (the
“Company”), and Lawrence J. Zigerelli (the “Optionee”).

WHEREAS, the Compensation Committee has determined that the Optionee shall be
granted an option to purchase shares of common stock of the Company (the “Common
Stock”) on the terms and conditions herein set forth as a material inducement to
the Optionee to join the Company as its President and Chief Executive Officer.

NOW, THEREFORE, in consideration of mutual promises and covenants contained
herein and other good and valuable consideration paid by the Optionee to the
Company, the parties hereto do hereby agree as follows:

1.          Nature of the Option. This Option is not intended to be an
“Incentive Stock Option” as defined in and subject to the limitations of Section
422A of the Internal Revenue Code of 1986 and it will not be treated as an
Incentive Stock Option, whether or not, by its terms, it meets the requirements
of Section 422A.

2.         Grant of Option. Pursuant to the authorization of the Compensation
Committee, and subject to the terms, conditions and provisions contained in this
Agreement, the Company hereby grants to the Optionee the right and option (the
“Option”) to purchase from the Company, at the times and on the terms and
conditions hereinafter set forth, all or part of an aggregate of 10,000 shares
of Common Stock at the purchase price of $9.05 per share, which is equal to the
closing sale price of the Common Stock on the NASDAQ Global Market on the Grant
Date. Exercises of this Option may be honored by issuing authorized and unissued
shares of Common Stock or, at the election of the Company, by transferring
shares of Common Stock which may at the time be held by the Company as treasury
shares.

3.         Exercise of Option. Optionee may exercise this Option by delivery of
written notice to the Company in the form attached as Exhibit A, stating the
number of shares of Common Stock with respect to which the Option is being
exercised, making such representations, warranties and agreements with respect
to such shares of Common Stock as may be required by the Company, and
accompanied by full payment of the purchase price for the Common Stock so
purchased. Payment may be made in cash, by check, by delivery of shares of
Common Stock or in such other form or combination of forms as will be acceptable
to the Company. No certificate for fractional shares of stock shall be issued by
the Company.

 

4.

Vesting.

4.1          Subject to Section 5 herein, this Option will vest (each date, a
“Vesting Date”) as follows:

(a)          25% of the Option will vest on the first anniversary of the Grant
Date,

(b)          50% of the Option will vest on the second anniversary of the Grant
Date,

(c)         75% of the Option will vest on the third anniversary of the Grant
Date, and

(d)          100% of the Option will vest on the fourth anniversary of the Grant
Date.

4.2          Subject to Section 5 herein, to the extent not earlier vested under
Section 4.1,

(a)          in the event the Company shall not be the surviving corporation in
any merger, consolidation, or reorganization, or in the event of the acquisition
by another corporation of all or substantially all of the assets of the Company
and if such surviving, continuing, successor or purchasing corporation does not
agree to assume or replace the Option granted hereunder in accordance with
paragraph 9 of this Agreement, or in the event of the liquidation or dissolution
of the Company, the Option granted hereunder shall become immediately
exercisable to the extent of all of the aggregate number of shares subject to
this Option for a period commencing 30 days immediately prior to and ending on
the day immediately prior to such merger, consolidation, reorganization or
acquisition of all or substantially all of the assets of the Company, or the
liquidation or dissolution of the Company.

(b)          Notwithstanding the provisions of paragraph 4.1 of this Agreement,
in the event of a Change of Control of the Company, the Option granted hereunder
shall become immediately exercisable to the extent of all of the aggregate
number of shares subject to this Option. In the event of a Change of Control,
the Company shall notify the Optionee as soon as practicable of the Optionee’s
rights hereunder. For purposes of this subparagraph (b), a “Change of Control”
means a change in control of the Company of a nature that would be required to
be reported in response to item 6(e) of Schedule 14A of Regulation 14A (in
effect on the date hereof) promulgated under the Securities Exchange Act of
1934, as in effect on the date hereof (the “Exchange Act”); provided, however,
that, without limitation, such a change in control shall be deemed to have
occurred upon the occurrence of any of the following events:

(i)          any person (as such term is used in Section 13(d) and 14(d) of the
Exchange Act), other than the Company, becomes, after the date hereof, the
beneficial owner, directly or indirectly, of securities of the Company
representing 40 percent or more of the total voting power of the Company’s then
outstanding securities (“Interested Shareholder”);

(ii)          less than a majority of the members of the Board of Directors of
the Company are persons who were either nominated for election or selected by
(A) members of the Board of Directors of the Company who were in office prior to
the time any person became an Interested Shareholder (the “Continuing
Directors”), or (B) any successor to a Continuing Director;

(iii)          the merger or consolidation of the Company with any other entity,
other than a merger or consolidation which would result in the voting securities
(which term means any securities which vote generally in the election of
directors) of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80 percent of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation; or

(iv)          the sale or disposition by the Company of all or substantially all
of the Company’s assets.

(c)          The Option shall be exercisable in the manner set forth above,
during the lifetime of the Optionee only by him and may not be exercisable by
him unless at the time of exercise he is a full-time employee of the Company or
of one of its subsidiary corporations and shall have been continuously so
employed since the Grant Date, or, if the Optionee’s employment with the Company
or any of its subsidiary corporations shall have terminated the Option shall be
exercisable only if exercised prior to the expiration of thirty (30) days after
the date of such termination or prior to five (5) years after the Grant Date,
whichever shall first occur, and (except as otherwise provided by subparagraph
(a) and subparagraph (b) of this paragraph 4.2) only to the extent that the
Optionee was entitled to exercise the Option prior to the date of such
termination.

(d)          The Option shall be exercisable after the death of the Optionee
only if the Optionee shall at the time of his death have been an employee of the
Company and shall have been continuously employed since the Grant Date, and then
(i) only by or on behalf of such person or persons to whom the Optionee’s rights
under the Option shall have been passed by the Optionee’s will or by the laws of
descent and distribution, (ii) (except as otherwise provided by subparagraph (a)
and subparagraph (b) of this paragraph 4.2) only to the extent that the Optionee
was entitled to exercise said Option prior to the date of his death, and
(iii) only if said Option is exercised prior to the expiration of twelve (12)
months after the date of the Optionee’s death or prior to five (5) years after
the Grant Date, whichever shall first occur.

5.          Termination. This Option will expire five years from the Grant Date
above, (the “Expiration Date”) unless earlier terminated in accordance with this
Agreement. To the extent that the Optionee does not purchase part or all of the
shares of Common Stock to which he is entitled prior to the Expiration Date,
this Option shall expire as to such unpurchased shares.

6.          Nonassignability. Except as otherwise herein provided, the Option
herein granted and the rights and privileges conferred hereby shall not be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise) and shall not be subject to execution, attachment, or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of the Option herein granted, or of any right or privilege
conferred hereby, or upon the levy of any attachment or similar process upon the
rights and privileges conferred hereby, contrary to the provisions hereof, this
Option and the rights and privileges conferred hereby shall immediately become
null and void.

7.          Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of Kansas without giving effect to the
principles of conflicts of laws.

8.          Amendment and Administration. The Company has the authority to
adopt, amend, and rescind rules and regulations for the administration of this
Agreement; provided however, that no such actions by the Company may adversely
affect the rights of the Optionee under this Agreement without the consent of
the Optionee. All such actions of the Company will be final and conclusive for
all purposes and will be binding upon Optionee.

9.          Adjustments for Mergers, Reorganizations, etc. Subject to paragraph
4.2(a) of this Agreement, if the Company shall become a party to any corporate
merger, consolidation, major acquisition of property for stock, separation,
reorganization or liquidation, the Company shall have power to make arrangements
which shall be binding upon the Optionee for the substitution of a new Option
for this Option, or for the assumption of this Option, provided that such
arrangements shall meet the requirements of Section 424(a) of the Internal
Revenue Code of 1986, as amended (the “Code”), or such similar provisions of the
Code as may then be in effect.

10.          Withholding of Tax. If the exercise of the Option results in
compensation income to the Optionee for federal or state income tax purposes,
Optionee must deliver to the Company at the time of exercise the amount of money
or shares of Common Stock as the Company may require to meet its obligations
under applicable tax laws or regulation, and, if Optionee fails to do so, the
Company is authorized to withhold from any cash or stock remuneration then or
thereafter payable to Optionee any tax required to be withheld as a result of
such compensation income. The Company is further authorized in its discretion to
satisfy such withholding requirement out of any cash or Common Stock
distributable to Optionee upon such exercise.

11.          No Special Employment Rights. Nothing contained in this Agreement
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any subsidiary) or interfere in any
way with the right of the Company (or any subsidiary), subject to the terms of
any separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the option holder from
the rate in existence at the time of the grant of an option. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute termination of employment shall be determined by the Board of
Directors at the time.

 

12.

Adjustments for Stock Dividends, Splits, etc.

In the event that, prior to the delivery to the Optionee by the Company of all
the shares of the Common Stock in respect of which this Option is hereby
granted, the Company shall have effected any stock dividend, stock split,
recapitalization, combination or reclassification of shares or other similar
transaction, then to the extent necessary to prevent dilution or enlargement of
the Optionee’s rights hereunder:

(a)       in the event that a new increase shall have been effected in the
number of outstanding shares of Common Stock, the number of shares remaining
subject to this Option shall be proportionately increased, and the cash
consideration payable per share shall be proportionately reduced, and

(b)       in the event that a new reduction shall have been effected in the
number of outstanding shares of Common Stock, the number of shares remaining
subject to this Option shall be proportionately reduced, and the cash
consideration payable per share shall be proportionately increased.

13.          Rights of Optionee.    The Optionee shall not be, nor shall he have
any of the rights or privileges of, a stockholder of the Company in respect of
any of the shares issuable upon the exercise of this Option unless and until
certificates representing such shares shall have been issued and delivered;
except that the Company shall supply the Optionee with all financial information
and other reports which the Company furnished its stockholders during the Option
period.

14.          Notice. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of its secretary at its
offices at 401 Cottage Street, Abilene, Kansas 67410-0129, and any notice to be
given to the Optionee shall be addressed to him at the address given beneath his
signature hereto. Either party hereto may from time to time change the address
to which notices are to be sent to such party by giving written notice of such
change to the other party. Any notice hereunder shall be deemed to have been
duly given if and when addressed as aforesaid, registered and deposited, postage
and registry fee prepaid, in a post office regularly maintained by the United
States Government.

15.          Binding Effect. This Agreement shall bind, and, except as
specifically provided herein, shall inure to the benefit of the respective
heirs, legal representatives, successors and assigns of the parties hereto.

16.          Miscellaneous. The Option will inure to the benefit of and be
binding upon each successor of the Company. All obligations imposed upon
Optionee, all rights granted to the Optionee, and all rights reserved by the
Company under this Agreement are binding upon and will inure to the benefit of
Optionee, Optionee’s heirs, personal representatives, and successors.

IN WITNESS WHEREOF, the Company and the Optionee have executed this
Non-Qualified Stock Option Agreement effective on the first date mentioned
above.

 

Duckwall-ALCO Stores, Inc.

 

 

 

 

 

By: /s/ Royce
Winsten                                                                           

 

Name: Royce Winsten

 

Chairman of the Board

 

 

 

 

 

/s/ Lawrence J.
Zigerelli                                                                         

 

Address: Duckwall-Alco Stores, Inc.

 

401 Cottage

 

Abilene, KS 67410

 

 

 

SS NO.:

 

 

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EXHIBIT A

Form of Notice

DUCKWALL ALCO STORES, INC.

NOTIFICATION OF STOCK OPTION EXERCISE

I, Lawrence J. Zigerelli, hereby notify the [officer] of Duckwall ALCO Stores,
Inc. (the “Company”) of my request to exercise                      (quantity)
options granted on July 1, 2008 at the Option price of $9.05 per share under the
terms and conditions of the Nonqualified Stock Option Agreement, dated July 1,
2008, by and between the Company, and Lawrence J. Zigerelli.

A check in the amount of $                              and/or delivery of
_________ shares of Common Stock at $_____ per share, payable to Duckwall ALCO
Stores, Inc., is attached.

Please register these shares as follows and mail the certificate to the address
below:

 

Name:                                                                                         
        

Address:                                                                                    

City/State/Zip:                                                                          

 

I understand that the Company may be entitled to a tax deduction in certain
circumstances if I decide to sell the underlying shares. I agree to provide the
Company with information regarding the sale of these shares, including date of
sale, sales price per share, the number of shares sold and such other
information that they may reasonably require, or do hereby authorize my broker
to provide such information directly to the Company.

 

 

 

                   

 

Lawrence J. Zigerelli

 

 

 

                    

 

Social Security Number

 

 

 

               

 

Date

 

Stock Option exercise request received and accepted on behalf of Duckwall ALCO
Stores, Inc.:

 

                                          
                                               

By:                                          
                                         

Date: