**Exhibit 10.2**

 

**MESABAHOLDINGS, INC.**

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**1996DIRECTOR STOCK OPTION PLAN**

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**(AsAmended by Action of the Board of Directors on August 20, 1997.)**

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1.                                       Purposeof the Plan.  The purpose of this1996 Director Stock Option Plan, adopted by the Board on May 22, 1996, subjectto the approval of the Company’s shareholders at the next annual meeting, is toattract the best available individuals to serve as Outside Directors of theCompany and to encourage their continued service on the Board.

 

TheCompany intends that the options granted hereunder shall not constituteincentive stock options within the meaning of Section 422 of the InternalRevenue Code of 1986.  The Plan isintended to comply with the requirements of Rule 16b-3 under the Exchange Act.

 

2.                                       Definitions.  As used herein, the following definitionsshall apply:

 

(a)                                  “Board” shallmean the Board of Directors of the Company.

 

(b)                                 “Common Stock”shall mean the Common Stock, $.01 par value per share, of the Company.

 

(c)                                  “Company”shall mean Mesaba Holdings, Inc., a Minnesota corporation.

 

(d)                                 “Committee”shall mean a committee of the Board appointed by the Board to administer thePlan.

 

(e)                                  “Director”shall mean a member of the Board.

 

(f)                                    “Employee”shall mean any person, including officers and Directors, employed by theCompany or any Parent or Subsidiary of the Company.  The payment of fees to a Director shall notbe sufficient in and of itself to constitute “employment” by the Company.

 

(g)                                 “Exchange Act”shall mean the Securities Exchange Act of 1934, as amended.

 

(h)                                 “Option” shallmean a stock option granted pursuant to the Plan.

 

(i)                                     “Optioned Stock”shall mean the Common Stock subject to an Option.

 

(j)                                     “Optionee”shall mean an Outside Director who receives an option.

 

(k)                                  “Outside Director”shall mean a Director who is not an Employee.

 

(l)                                     “Parent”shall mean a “parent corporation,” whether now or hereafter existing, asdefined in Section 424(e) of the Internal Revenue Code of 1986, asamended.

 

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(m)                               “Plan” shall meanthis 1996 Director Stock Option Plan.

 

(n)                                 “Share” shallmean a share of Common Stock, as adjusted in accordance with Section 12 ofthe Plan.

 

(o)                                 “Subsidiary”shall mean a “subsidiary corporation,” whether now or hereafter existing, asdefined in Section 424(f) of the Internal Revenue Code of 1986, asamended.

 

(p)                                 “Total Disability”shall mean the permanent inability of a person, as a result of accident orsickness, to perform his or her duties as a Director.

 

3.                                       StockSubject to the Plan.  Subject to theprovisions of Section 12 of the Plan, the maximum aggregate number ofshares which may be optioned and sold under the Plan is 200,000 shares ofCommon Stock.  The shares may beauthorized, but unissued, or reacquired Common Stock.

 

If anOption expires or becomes unexercisable for any reason without having beenexercised in full, the unexercised Shares which were subject thereto shall,unless the Plan has been terminated, become available for future grant underthe Plan. If Shares which were acquired upon exercise of an Option aresubsequently repurchased by the Company, such Shares shall not become availablefor future grant under the Plan.

 

4.                                       AutomaticGrant of Options.  All grants ofOptions hereunder shall be automatic and non-discretionary and shall be madestrictly in accordance with the following provisions:

 

(a)                                  No person shall haveany discretion to select which Outside Directors shall be granted Options or todetermine the number of Shares to be covered by Options granted to OutsideDirectors.

 

(b)                                 Each Outside Director,including persons who are Outside Directors on the date of adoption of thePlan, shall be automatically granted an option to purchase 6,000 Shares (the “FirstOption”) upon the later of (i) November 6, 1996 or (ii) the date on whichsuch person first becomes an Outside Director, whether through election by theshareholders of the Company or appointment by the Board to fill a vacancy.

 

(c)                                  After the FirstOption has been granted to an Outside Director, such Outside Director shallthereafter be automatically granted an Option to purchase 6,000 shares on November 6of the calendar year after the year in which the First Option was granted andon each successive November 6 thereafter to and including November 6,2001 or until the earlier termination of the Plan.  If November 6 falls on a weekend orholiday, the grant date shall be the next business day.

 

(d)                                 The Chairman of theBoard, if such person is an Outside Director, shall be automatically granted anoption to purchase 6,000 Shares (the “Chairman’s First Option”) upon the laterof (i) November 6, 1997 or (ii) the date on which such person firstbecomes Chairman of the Board.  SuchOption is in addition to the Options granted to the Chairman of the Board as anOutside Director under Sections 4(b) and (c).

 

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(e)                                  After the Chairman’sFirst Option has been granted to the Chairman of the Board, the Chairman of theBoard shall thereafter be automatically granted an Option to purchase 6,000shares on November 6 of the calendar year after the year in which theChairman’s First Option was granted and on each successive November 6thereafter to and including November 6, 2001 or until the earliertermination of the Plan.  If November 6falls on a weekend or holiday, the grant date shall be the next businessday.  Such Options are in addition to theOptions granted to the Chairman of the Board as an Outside Director underSections 4(b) and (c).

 

(f)                                    Notwithstanding theprovisions of Sections 4(b), (c), (d) and (e) hereof, in the event that a grantwould cause the number of Shares subject to outstanding Options under the Planplus Shares previously purchased upon exercise of Options issued under the Planto exceed 200,000 Shares, then each such automatic grant shall be for thatnumber of Shares equal to the product of (i) 6,000 and (ii) the total number ofShares remaining available for grant divided by the total number of Shareswhich were to be subject to Options granted on the automatic grant date.  Any further grants shall then be deferred untilsuch time, if any, as additional Shares become available for grant under thePlan through action of the shareholders to increase the number of Shares whichmay be issued under the Plan or through cancellation or expiration of Optionspreviously granted hereunder.

 

5.                                       OptionTerms and Conditions.  The terms andconditions of an Option granted hereunder shall be as follows:

 

(a)                                  the term of eachOption shall be six (6) years, subject to Sections 12 and 13 hereof.

 

(b)                                 the Option shallbecome exercisable in full beginning on the first anniversary of the grant ofthe Option.

 

(c)                                  the Option shall beexercisable only while the Outside Director serves as a Director of the Companyor, in the event of death or Total Disability, pursuant to Section 10(c)hereof.

 

(d)                                 the exercise price perShare shall be 100% of the fair market value per Share on the date of grant ofthe Option, as determined in accordance with Section 9(a) hereof.

 

(e)                                  the effectiveness ofany options granted hereunder is conditioned upon shareholder approval of thePlan in accordance with Rule 16b-3 under the Exchange Act.

 

6.                                       Administrationof and Grants of Options under the Plan.

 

(a)                                  Administration.  Except as otherwise required herein, the Planshall be administered by the Board or a Committee.

 

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(b)                                 Powers of the Boardor Committee.  Subject to theprovisions and restrictions of the Plan, the Board or Committee shall have theauthority, in its discretion: (i) to determine, upon review of relevantinformation and in accordance with Section 9(a) hereof, the fair marketvalue of the Common Stock; (ii) to interpret the Plan; (iii) to prescribe,amend and rescind rules and regulations relating to the Plan; (iv) to authorizeany person to execute on behalf of the Company any instrument required toeffectuate the grant of an Option hereunder; and (v) to make all otherdeterminations deemed necessary or advisable for the administration of thePlan.

 

(c)                                  Effect of Board’sDecision.  All decisions,determinations and interpretations of the Board or Committee shall be final andbinding on all Optionees and any other holders of any Options granted under thePlan.

 

(d)                                 Suspension orTermination of Option.  If the Boardor Committee reasonably believes that an Optionee has committed an act ofmisconduct, it may suspend the Optionee’s right to exercise any Option pendinga determination by the Board or Committee (excluding the Outside Directoraccused of such misconduct).  If theBoard or Committee (excluding the Outside Director accused of such misconduct)determines that an Optionee has committed an act of embezzlement, fraud,dishonesty, nonpayment of an obligation owed to the Company, breach offiduciary duty or deliberate disregard of the Company’s rules resulting inloss, damage or injury to the Company, or if an Optionee makes an unauthorized disclosureof any Company trade secret or confidential information, engages in any conductconstituting unfair competition with respect to the Company, or induces anyparty to breach a contract with the Company, neither the Optionee nor theOptionee’s estate shall be entitled to exercise any Option whatsoever.  In making such determination, the Board orCommittee (excluding the Outside Director accused of such misconduct) shall actfairly and shall give the Optionee an opportunity to appear and present evidenceon the Optionee’s behalf at a hearing before the Board or Committee.

 

(e)                                  Date of Grant ofOptions.  The date of grant of anOption shall, for all purposes, be the date determined in accordance with Section 4hereof, notwithstanding the fact that an Optionee may not have entered into anoption agreement with the Company on such date. Notice of the grant of an Option shall be given to the Optionee within areasonable time after the date of such grant.

 

7.                                       Eligibility.  Options may be granted only to OutsideDirectors.  All options shall beautomatically granted in accordance with the terms set forth in Section 4hereof.  The Plan shall not confer uponany Optionee any right with respect to continuation of service as a Director ornomination to serve as a Director, nor shall it interfere in any way with anyrights which a Director or the Company may have to terminate such Director’sdirectorship at any time.

 

8.                                       Termof Plan.  The effective date of thisPlan is May 22, 1996, the date upon which it was adopted by theBoard.  The Plan shall continue in effectto and including November 6, 2001 unless terminated sooner under Section 13hereof.

 

9.                                       FairMarket Value and Form of Consideration.

 

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(a)                                  Fair Market Value.  The fair market value per share shall be determinedas follows:

 

(i)  if the Common Stock is listed on a nationalsecurities exchange or admitted to unlisted trading privileges on suchexchange, the fair market value on any given day shall be the closing saleprice for the Common Stock on such day, as reported in the Wall Street Journalor other newspaper of general circulation;

 

(ii)  if the Common Stock is not listed on anational securities exchange, the fair market value on any given day shall bethe closing sale price for the Common Stock on the Nasdaq National Market onsuch day, as reported in the Wall Street Journal or other newspaper of generalcirculation;

 

(iii)  if the Common Stock is not listed on anational securities exchange, is not admitted to unlisted trading privileges onany  such exchange, and is not includedin the Nasdaq National Market, the fair market value on any given day shall bethe average of the closing representative bid and asked prices on such day, asreported on the Nasdaq System, and if not reported on such system, then asreported by the National Quotation Bureau, Inc. or such other publiclyavailable compilation of the bid and asked prices of the Common Stock in anyover-the-counter market on which the Common Stock is traded; or

 

(iv)  if there exists no public trading market forthe Common Stock, the fair market value on any given day shall be an amountdetermined by the Board or Committee in such manner as it may reasonablydetermine in its discretion, provided that such amount shall not be less thanthe book value per share as reasonably determined by the Board or Committee asof the date of determination nor less than the par value of the Stock.

 

(b)                                 Form ofConsideration.  The consideration tobe paid for the Shares to be issued upon exercise of an Option shall consistentirely of cash or such other form of consideration as the Board or Committeemay determine, in its sole discretion, to be appropriate for payment, includingbut not limited to other shares of Common Stock having a fair market value onthe date of surrender equal to the aggregate exercise price of the Shares as towhich the Option is exercised, or any combination of such methods of payment.

 

10.                                 Exercise of Option.

 

(a)                                  Procedure forExercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable at such times as areset forth in Section 5 hereof.  AnOption may not be exercised for a fraction of a Share.

 

An Option shall be deemed to be exercised when writtennotice of such exercise has been given to the Company in accordance with theterms of the Option by the person entitled to exercise the Option and fullpayment for the Shares with respect to which the Option is exercised has beenreceived by the Company.  Full paymentmay consist of any consideration and method of payment allowable under Section 9(b)hereof.  Until the

 

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issuance(as evidenced by the appropriate entry on the books of the Company or of a dulyauthorized transfer agent of the Company) of the stock certificate evidencingsuch Shares, no right to vote or receive dividends or any other rights as ashareholder shall exist with respect to the Optioned Stock, notwithstanding theexercise of the Option.  A sharecertificate for the number of Shares so acquired shall be issued to theOptionee as soon as practicable after exercise of the Option. No adjustmentwill be made for a dividend or other right for which the record date is priorto the date the stock certificate is issued, except as provided in Section 12hereof.

 

Exercise of an Option in any manner shall result in adecrease in the number of Shares which thereafter may be available, both forpurposes of the Plan and for sale under the Option, by the number of Shares asto which the Option was exercised.

 

(b)                                 Termination ofStatus as a Director.  If an Optioneeceases to serve as a Director for any reason other than death or TotalDisability, all rights to exercise his or her Option shall terminate at thedate of such termination of service as a Director, unless such termination iswaived by the Board or Committee in its sole discretion.

 

(c)                                  Death or TotalDisability of Optionee.

 

(i)                                     If an Optioneedies while serving as a Director or within three months after termination ofhis or her service as a Director because of his or her Total Disability, his orher Option may be exercised, to the extent that the Optionee shall have beenentitled to do so on the date of his or her death or such termination, by theperson or persons to whom the Optionee’s right under the Option pass by will orapplicable law, or if no such person has such right, by his or her executors oradministrators, at any time or from time to time, but not later than theexpiration of the Option or two years after the Optionee’s death, whicheverdate is earlier.

 

(ii)                                  If an Optionee’sservice as a Director terminates because of his or her Total Disability and theOptionee has not died within three months following the date of suchtermination, the Optionee may exercise his or her Option to the extent that heor she shall have been entitled to do so at the date of such termination, atany time or from time to time, but not later than the expiration of the Optionor one year after termination of service as a Director whichever date isearlier.

 

11.                                 Non-Transferabilityof Options.  The Option may not be sold,pledged, assigned, hypothecated, transferred, or disposed of in any mannerother than by will or by the laws of descent or distribution and may beexercised, during the lifetime of the Optionee, only by the Optionee.

 

12.                                 AdjustmentsUpon Changes in Capitalization or Merger. The number of shares of Common Stock covered by each outstanding Option,the number of shares to be granted pursuant to automatic grants, and the numberof shares of Common Stock which have been authorized for issuance under the Planbut as to which Options have not yet been granted or which have been

 

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returned to thePlan upon cancellation or expiration of an Option, as well as the price pershare of Common Stock covered by each such outstanding Option, shall beproportionately adjusted for any increase or decrease in the number of issuedand outstanding shares of Common Stock resulting from a stock split, reversestock split, stock dividend, combination or reclassification of the CommonStock, or any other increase or decrease in the number of issued shares ofCommon Stock effected without receipt of consideration by the Company;provided, however, that conversion of any convertible securities of the Companyshall not be deemed to have been “effected without receipt of consideration.”Such adjustment shall be made by the Board, whose determination in that respectshall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company ofshares of stock of any class, or securities convertible into shares of stock ofany class, or options or rights to purchase shares of stock of any class shallaffect, and no adjustment by reason thereof shall be made with respect to, thenumber or price of shares of Common Stock subject to an Option.

 

In theevent of the proposed dissolution or liquidation of the Company, each Optionwill terminate immediately prior to the consummation of such proposed action,unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances,declare that any Option shall terminate as of a date fixed by the Board andgive each Optionee the right to exercise his or her Option as to all or anypart of the Optioned Stock, including Shares as to which the Option would nototherwise be exercisable.  In the eventof a proposed sale of all or substantially all of the assets of the Company, orthe merger of the Company with or into another corporation, the Option shall beassumed or an equivalent option shall be substituted by such successor corporationor a parent or subsidiary of such successor corporation, unless the Boarddetermines, in the exercise of its sole discretion and in lieu of suchassumption or substitution, that the Optionee shall have the right to exercisethe Option as to all of the Optioned Stock, including Shares as to which theOption would not otherwise be exercisable. If the Board makes an Option fullyexercisable in lieu of assumption or substitution in the event of a merger orsale of assets, the Board shall notify the Optionee that the Option shall befully exercisable for a period of ten (10) days from the date of such notice,and the Option will terminate upon the expiration of such period.

 

13.                                 Amendment,Termination and Approval of the Plan. The Board may at any time amend or terminate the Plan, except that theBoard shall not amend the Plan more than once every six (6) months with respectto the provisions of the Plan relating to the amount, price, and timing ofOption grants, other than to comply with changes in the Internal Revenue Codeof 1986, the Employee Retirement Income Security Act of 1974, as amended, orthe regulations thereunder.  No Optionmay be granted after the Plan is terminated. The foregoing provisions of this Section notwithstanding, noamendment or termination shall, without the consent of the holder of an Option,alter or impair any rights or obligations under any Option theretofore grantedunder the Plan except as is permitted pursuant to Section 12 of the Plan.

 

If anyamendment to the Plan requires approval by the shareholders of the Company forcontinued applicability of Rule 16b-3 under the Exchange Act, or for initial orcontinued listing of the Common Stock or other securities of the Company uponNasdaq or any stock exchange, then such amendment shall be approved by theholders of a majority of the Company’s outstanding capital stock entitled tovote.

 

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14.                                 ConditionsUpon Issuance of Shares.  Sharesshall not be issued pursuant to the exercise of an Option unless the exerciseof such Option and the issuance and delivery of such Shares pursuant theretoshall comply with all relevant provisions of law, including, withoutlimitation, the Securities Act of 1933, as amended, the Exchange Act, the rulesand regulations promulgated thereunder, state securities laws, and therequirements of the NASD or any stock exchange upon which the Shares may thenbe listed, and shall be further subject to the approval of counsel for theCompany with respect to such compliance.

 

As acondition to the exercise of an Option, the Company may require the personexercising such Option to represent and warrant at the time of any suchexercise that the Shares are being purchased only for investment and withoutany present intention to sell or distribute such Shares, if, in the opinion ofcounsel for the Company, such a representation is required by any relevantprovisions of law.  Such Shares may alsobe issued with appropriate legends on stock certificates representing suchShares, and the Company may place stop transfer orders with respect to suchShares.

 

Inabilityof the Company to obtain authority from any regulatory body havingjurisdiction, which authority is deemed by the Company’s counsel to benecessary to the lawful issuance and sale of any Shares hereunder, shallrelieve the Company of any liability in respect of the failure to issue or sellsuch Shares as to which such requisite authority shall not have been obtained.

 

15.                                 Reservationof Shares.  The Company, during theterm of this Plan, will at all times reserve and keep available such number ofShares as shall be sufficient to satisfy the requirements of the Plan.

 

16.                                 OptionAgreement.  Options shall beevidenced by written option agreements in substantially the form attachedhereto or in such other form as the Board or Committee shall approve.

 

17.                                 Informationto Optionees.  The Company shallprovide to each Optionee, during the period for which such Optionee has one ormore Options outstanding, copies of all annual reports and other informationwhich are provided to all shareholders of the Company.

 

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